Republic Act No.

7353
Sunday, June 06, 2010
12:13 AM

Republic Act No. 7353

AN ACT PROVIDING FOR THE CREATION, ORGANIZATION AND OPERATION OF RURAL BANKS, AND FOR
OTHER PURPOSES.
Section 1. This Act shall be known and cited as the “Rural Banks Act of 1992.”
Section 2. The State hereby recognizes the need to promote comprehensive rural development with the
end in view of attaining a more equitable distribution of opportunities, income and wealth, a sustained
increase in the amount of goods and services produced by the nation for the benefit of the people; and in
expanding productivity as a key to raising the quality of life for all, especially the underprivileged.
Towards these ends, the State hereby encourages and assists in the establishment of a rural banking
system designed to make needed credit available and readily accessible in the rural areas on reasonable
terms.
Section 3. In furtherance of this policy, the Monetary Board of the Central Bank of the Philippines shall
formulate the necessary rules and regulations governing the establishment and operation of farmers and
merchants, or to cooperatives of such farmers and merchants and, in general, to the people of the rural
communities, and to supervise the operation of such banks.
Section 4. No rural bank shall be operated without a Certificate of Authority from the Monetary Board of
the Central Bank. Rural banks shall be organized in the form of stock corporations. Upon consultation with
the rural banks in the area, duly established cooperatives and corporations primarily organized to hold
equities in rural banks may organize a rural bank and/or subscribe to the shares of stock of any rural bank:
Provided, That a cooperative or corporation owning or controlling the whole or majority of the voting stock
of the rural bank shall be subject to special examination and to such rules and regulations as the Monetary
Board may prescribe. With the exception of shareholdings of corporations organized primarily to hold
equities in rural banks as provided for under Section 12-C of Republic Act No. 337, as amended, and of
Filipino-controlled domestic banks, the capital stock of any rural bank shall be fully owned and held directly
or indirectly by citizens of the Philippines or corporations, associations or cooperatives qualified under
Philippine laws to own and hold such capital stock: Provided, That any provisions of existing laws to the
contrary notwithstanding, stockholdings in a rural bank shall be exempt from any ownership ceiling for a
period of ten (10) years from the approval of this Act: Provided, further, That any such exemption shall
require the approval of the Monetary Board. If subscription of private shareholders to the capital stock of a
rural bank cannot be secured or is not available, or insufficient to meet the normal credit needs of the
locality, the Land Bank of the Philippines, the Development Bank of the Philippines, or any government-
owned or controlled bank or financial institution, on representation of the said private shareholders but
subject to the investment guidelines, policies and procedures of the bank of financial institution and upon
approval of the Monetary Board of the Central Bank, shall subscribe to the capital stock of such rural bank,
which shall be paid in full at the time of subscription, in an amount equal to the fully paid subscribed and
unimpaired, capital of the private stockholders or such amount as the Monetary Board may prescribe as
may be necessary to promote and expand rural economic development: Provided, however, That such
shares of stock subscribed by the Land Bank of the Philippines, the Development Bank of the Philippines or
any government-owned or controlled bank or financial institution may be sold at any time at market value
to private individuals who are citizens of the Philippines: Provided, finally, that in the sale of shares of stock
subscribed by the Land Bank of the Philippines, the Development Bank of the Philippines or any
government-owned or controlled bank or financial institution, the registered stockholders shall have the
right of preemption within one (1) year from the date of offer in proportion to their respective holdings, but
in the absence of such buyer, preference, however, shall be given to residents of the locality or province
where the rural bank is located.
Section 5. All members of the Board of Directors of the rural bank shall be citizens of the Philippines at
the time of their assumption to office: Provided, however, That nothing in this Act shall be construed as
prohibiting any appointive or in any capacity in the bank.
No director or officer of any rural bank shall, either directly or indirectly, for himself or as the
representative or agent of another, borrow any of the deposits or funds of such banks, nor shall he become
a guarantor, indorser, or surety for loans from such bank to others, or in any manner be an obligor for
money borrowed from the bank or loaned by it except with the written approval of the majority of the
directors of the bank, excluding the director concerned. Any such approval shall be entered upon the
records of the corporation and a copy of such entry shall be transmitted forthwith to the appropriate
supervising department. The director/officer of the bank who violates the provisions of this section shall be
immediately dismissed from his office and shall be penalized in accordance with Section 26 of this Act.
The Monetary Board may regulate the amount of credit accommodations that may be extended directly to
the directors, officers or stockholders of rural banks of banking institutions. However, the outstanding
credit accommodations which a rural bank may extend to each of its stockholders owning two percent
(2%) or more of the subscribed capital stock, its directors, or officers shall be limited to an amount
equivalent to the respective outstanding deposits and book value of the paid-in capital contributions in the
bank.
Section 6. Loans or advances extended by rural banks organized and operated under this Act shall be
primarily for the purpose of meeting the normal credit needs of farmers, fishermen or farm families owning
or cultivating land dedicated to agricultural production as well as the normal credit needs of cooperatives
and merchants. In the granting of loans, the rural bank shall give preference to the application of farmers
and merchants whose cash requirements are small.
Loans may be granted by rural banks on the security of lands without Torrens Title where the owner of
private property can show five (5) years or more of peaceful, continuous and uninterrupted possession in
concept of owner; or of portions of friar land estates or other lands administered by the Bureau of Lands
that are covered by sales contracts and the purchasers have paid at least five (5) years installment
thereon, without the necessity of prior approval and consent by the Director of Lands, or of portions of
other estates under the administration of the Department of Agrarian Reform or other governmental
agency which are likewise covered by sales contracts and the purchasers have paid at least five (5) years
installment thereon, without the necessity of prior approval and consent of the Department of Agrarian
Reform or corresponding governmental agency; or of homesteads or free patent lands pending the
issuance of titles but already approved, the provisions of any law or regulations to the contrary
notwithstanding: Provided, That when the corresponding titles are issued, the same shall be delivered to
the Register of Deeds of the province where such lands are situated for the annotation of the
encumbrance: Provided, further, That in the case of lands pending homestead or free patent titles, copies
of the notices for the presentation of the final proof shall also be furnished the creditor rural bank and, if
the borrower applicants fail to present the final proof within thirty (30) days from date of notice, the
creditor rural bank may do so for then at their expense: Provided, furthermore, That the applicant for
homestead or free patent has already made improvements on the land and the loan applied for is to be
used for further development of the same or for other productive economic activities: Provided, finally,
That the appraisal and verification of the status of a land is a full responsibility of the rural bank and any
loan granted on any land which shall be found later to be within the forest zone shall be for the sole
account of the rural bank.
The foreclosure of mortgages covering loans granted by rural banks and executions of judgment thereon
involving real properties levied upon by sheriff shall be exempt from the publications in newspapers now
required by law where the total amount of loan, excluding interests due and unpaid, does not exceed One
Hundred thousand Pesos (P100,000) or such amount as the Monetary Board may prescribe as may be
warranted by prevailing economic conditions. It shall be sufficient publication in such cases if the notices
of foreclosure and execution of judgment are posted in the most conspicuous area of the municipal
building, the municipal public market, the rural bank, the barangay hall, and the barangay public market, if
any, where the land mortgaged is situated during the period of sixty (60) days immediately preceding the
public auction or execution of judgment. Proof of publication as required herein shall be accomplished by
an affidavit of the sheriff or officer conducting the foreclosure sale or execution of judgment and shall be
attached with the records of the case: Provided, That when a homestead or free patent is foreclosed, the
homesteader or free patent holder, as well as his heirs shall have the right to redeem the same within one
(1) year from the date of foreclosure in the case of land not covered by a Torrens Title or one (1) year from
the date of the registration of the foreclosure in the case of land covered by a Torrens Title: Provided,
finally, That in any case, borrowers, especially those who are mere tenants, need only to secure their loans
with the procedure corresponding to their share.
A rural bank shall be allowed to foreclosure lands mortgaged to it; Provided, That said lands shall be
covered under Republic Act No. 6657.
Section 7. With the view to ensuring the balanced rural economic growth and expansion, rural banks
may, within limits and conditions fixed by the Monetary Board, devote a portion of their loanable funds to
meeting the normal credit needs of small business enterprises; Provided, That loans shall not exceed
fifteen percent (15%) of the net worth of a rural bank or such amount as the Monetary Board may
prescribe as may be warranted by prevailing economic conditions, and of essential enterprises or
industries, other than those which are strictly agricultural in nature.
Section 8. To provide supplemental capital to any rural bank until it has accumulated enough capital of its
own or stimulate private investments in rural banks, the Land Bank of the Philippines, the Development
Bank of the Philippines or any government-owned or controlled bank or financial institution shall subscribe
within thirty (30) days to the capital stock of any rural bank from time to time in an amount equal to the
total equity investment of the private shareholders which shall be paid in full at the time of the
subscription or such amount as may be necessary to promote and expand rural economic development:
Provided, however, That shares of stock issued to the Land Bank of the Philippines, the Development Bank
of the Philippines or any government-owned or controlled bank or financial institution, may, pursuant to
this section, at any time, be paid off at par and retired in whole or in part if the rural bank has accumulated
enough capital strength to permit retirement of such shares, or if an offer is received form private sources
to replace the equity investment of the Land Bank of the Philippines, the Development Bank of the
Philippines or any government owned or controlled bank or financial institution with an equivalent
investment or more in the equity of such bank. In case of retirement of stock or replacement of equity
investments of the Land Bank of the Philippines, the Development Bank of the Philippines or of any
government-owned or controlled bank or financial institution, the registered private shareholders of the
rural bank shall have the right of preemption within one (1) year from the date of offer in proportion to
their respective holdings.
Stocks held by the Land Bank of the Philippines, the Development Bank of the Philippines or by any
government-owned or controlled bank or financial institution, under the terms of this section, shall be
made preferred only as to assets upon liquidation and without the power to vote and shall share in
dividend distributions from the date of issuance in the amount of four percent (4%) on the first and second
years, six percent (6%) on the third and fourth years, eight percent (8%) on the fifth and sixth years, ten
percent (10%) on the seventh and eighth years and twelve percent (12%) on the ninth to the fifteenth
years without preference; Provided, however, That if such stock of the Land Bank of the Philippines, the
Development Bank of the Philippines or any government owned or controlled bank or financial institution is
sold to private shareholders, the same may be converted into common stock of the class provided for in
Section 10 hereof: Provided, further, That pending the amendment of the Articles of Incorporation of the
rural bank, if necessary, for the purpose of reflecting the conversion into common stock of preferred stock
sold to private stockholders, the transfer shall be recorded by the rural bank in the stock and transfer book
and such shareholders shall thereafter enjoy all the rights and privileges of common stockholders. The
preferred stocks so transferred shall be surrendered and cancelled and the corresponding common stocks
shall be issued.
The corporate secretary of the rural bank shall submit to the Central Bank and the Securities and
Exchange Commission a report on every transfer of preferred stock to private shareholders, and such
report received by the Securities and Exchange Commission shall form part of the corporate records of the
rural bank. When all the preferred shares of stock of rural bank have been sold to private shareholders, the
Articles of Incorporation of the rural bank shall be amended to reflect the conversion of the preferred
shares of stock into common stock. For this purpose, the President, the corporate secretary, and a majority
of the Board of Directors shall issue a certificate that all preferred shares have been sold to private
shareholders which, together with a copy of the Articles of Incorporations, as amended, and a majority of
the Board of Directors, shall be filed with the Securities and Exchange Commission, which shall attach the
same to the original Articles of Incorporation on file with said office.
The Securities and Exchange Commission shall not register the amended Articles of Incorporation unless
accompanied by the Certificate of Authority required under Section 9 of Republic Act No. 337, as amended.
All supervised past due and restructured past due loans, including those covered under existing
rehabilitation programs of the Central Bank, and fifty percent (50%) of non-supervised past due and
restructured past due loans including accrued interest thereon of rural banks organized under Republic Act
No. 720, as amended, as of December 31, 1986, shall be converted into preferred stocks of the rural bank
and issued in favor of the Land Bank of the Philippines, the Development Bank of the Philippines or any
government-owned or controlled bank or financial institution: Provided, That penalties thereon are hereby
waived except accrued interest on arrearages: Provided, further, That the equivalent penalties due from
corresponding farmers are likewise waived: Provided, further, That rural banks that prefer to settle their
arrearages under a plan of payment or a combination of both plan of payment and conversion may do so
in accordance with existing regulations and provisions of this Act: Provided, furthermore, That rural banks
shall match these preferred stocks with private equity in equal annual installments over a period of fifteen
(15) years to begin three (3) years after conversion; Provided, finally, that the Central Bank, the Land Bank
of the Philippines, the Development Bank of the Philippines and any government-owned or controlled bank
or financial institution shall continue to rediscount subject to their respective programs, policies and
guidelines against papers evidencing a loan granted by a rural bank in order to achieve the declared policy
and promote the objectives of this Act.
Section 9. The Land Bank of the Philippines, the Development Bank of the Philippines or any government-
owned or controlled bank or financial institution may obtain from any source as may be authorized under
existing laws and regulations such amounts as it may require for the purpose of subscribing to the shares
of stock of rural banks, and of granting loans to such banks as provided in Section 13 of this Act.
Section 10. Stock certificates shall be issued to represent the contributions to capital stock of the rural
bank by the Government through the Land Bank of the Philippines, the Development Bank of the
Philippines or any government-owned or controlled bank or financial institution, and by qualified persons
under such terms and conditions as the Monetary Board may prescribe. The powers of the Monetary Board
over rural banks shall extend to prescribing the amount, value and class of stock issued by any rural bank,
organizing under this Act.
Section 11. The power to supervise the operation of any rural bank by the Monetary Board as herein
indicated shall consist in placing limits to the maximum credit allowed to any individual borrower; in
prescribing the interest rate, in determining the loan period and loan procedures, in indicating the manner
in which technical assistance shall be extended to rural banks, in imposing a uniform accounting system
and manner keeping the accounts and records of rural banks; in instituting periodic surveys of loan and
lending procedures, audits, test-check of cash and other transactions of the rural banks; in conducting
training courses for personnel of rural banks; and, in general, in supervising the business operations of the
rural banks.
The Central Bank shall have the power to enforce the laws, orders, instructions, rules and regulations
promulgated by the Monetary Board, applicable to rural banks; to require rural banks, their directors,
officers and agents to conduct and manage the affairs of the rural banks in a lawful and orderly manner;
and, upon proof that the rural bank or its Board of Directors, or officers are conducting and managing the
affairs of the bank in a manner contrary to laws, orders, instructions, rules and regulations promulgated by
the Monetary Board or in a manner substantially prejudicial to the interest of the Government, depositors
or creditors, to take over the management of such bank when specifically authorized to do so by the
Monetary Board after due hearing process until a new board of directors and officers are elected and
qualified without prejudice to the prosecution of the persons responsible for such violations under the
provisions of Sections 32, 33 and 34 of Republic Act No. 265, as amended.
The management of the rural bank by the Central Bank shall be without expense to the rural bank, except
such as is actually necessary for its operation, pending the election and disqualification of a new board of
directors and officers to take place of those responsible for the violations or acts contrary to the interest of
the Government, depositors or creditors.
The director and the examiners of the department of the Central Bank charged with the supervision of
rural banks are hereby authorized to administer oaths to any director, officer or employee of any rural
bank or to any voluntary witness and to compel the presentation of all books, documents, papers or
records necessary in his or their judgment to ascertain the facts relative to the true condition of any rural
bank or to any loan.
Section 12. In addition to the operations specifically authorized in this Act, any rural bank may;
(a) Accept savings and time deposits;
(b) Open current or checking accounts, provided the rural bank has net assets of at least Five Million pesos
(P5,000,000) subject to such guidelines as may be established by the Monetary Board;
(c) Act as correspondent for other financial institutions;
(d) Act as a collection agent;
(e) Act as official depository of municipal, city or provincial funds in the municipality, city or province
where it is located, subject to such guidelines as may be established by the Monetary Board.
(f) Rediscount paper with the Philippine National Bank, the Land Bank of the Philippines, the Development
Bank of the Philippines or any banking institution, including its branches and agencies. Said institution
shall specify the nature of paper deemed acceptable for rediscount, as well as the rediscount rate to be
charged by any of these institutions;
(g) Offer other banking services as provided in Section 72 of Republic Act No. 337, as amended; and
(h) Extend financial assistance to private and public employees in accordance with the provisions of
Sections 5 or Republic Act No. 3779, as amended.
With written permission of the Monetary Board of the Central Bank, any rural bank may act as trustee over
estates or properties of farmers and merchants;
Nothing in this section shall be construed as precluding a rural bank from performing, with prior approval
of the Monetary Board, all the services authorized for savings and mortgage banks, or for commercial
banks, under Republic Act No. 337, as amended, or from operating under an expanded authority as
provided in Section 21-B of the same Act.
Section 13.Subject to such guidelines as may be established by the Monetary Board, rural banks may
invest in equities of allied undertakings as hereinafter enumerated: Provided, That: (a) the total
investment to equities shall not exceed twenty-five percent (25%) of the net worth of the rural bank; (b)
the equity investment in any single enterprise shall be limited to fifteen percent (15%) of the net worth of
the rural bank; and (c) the equity investment of the rural bank in any single enterprise shall remain a
minority holding in that enterprise: Provided, further, That equity investment shall not be permitted in non-
related activities;
Allied undertakings shall include;
(a) Banks, financial institutions and non-bank financial intermediaries;
(b) Warehousing and other post-harvest facilities;
(c) Fertilizer and agricultural chemical and pesticides distribution;
(d) Farm equipment distribution;
(e) Trucking and transportation of agricultural products;
(f) Marketing of agricultural products;
(g) Leasing; and
(h) Other undertakings as may be determined by the Monetary Board.
Section 14. The Land Bank of the Philippines, the Development Bank of the Philippines or any
government-owned or controlled bank or financial institution shall within sixty (6) days of certification of
the Monetary Board, which shall be final, extend to a rural bank a loan or loans from time to time
repayable in ten (10) years, with concessional rates of interest, against security which may be offered by
any stockholder or stockholders of the rural bank: Provided:
(a) That the Monetary Board is convinced that the resources of the rural bank are inadequate to meet the
legitimate credit requirements of the locality wherein the rural bank is established;
(b) That there is a dearth of private capital in the said locality; and
(c) That it is not possible for the stockholders of the rural bank to increase the paid-up capital thereof.
Section 15. All rural banks created and organized under the provisions of this Act shall be exempt from
the payment of all taxes, fees and charges of whatever nature and description, except the
corporate income tax and local taxes, fees and charges, for a period of five (5) years from the date of
commencement of operations.
All rural banks in operation as of the date of approval of this Act shall be exempt from the payment of all
taxes, fees and charges of whatever nature and description, except the corporate income tax and local
taxes, fees and charges, for a period of five (5) years from the approval of this Act.
Section 16. In an emergency or when a financial crisis is imminent, the Central Bank may give a loan to
any rural bank against assets of the rural bank which may be considered acceptable by a concurrent vote
of a least four (4) members of the Monetary Board.
In normal times, the Central Bank may rediscount against paper evidencing a loan granted by a rural bank
to any of its customers which can be liquefied within a period of three hundred sixty (360) days; Provided,
however, That for the purpose of implementing a nationwide program of agricultural and industrial
development, rural banks are hereby authorized, under such terms and conditions as the Central Bank
shall prescribe, to borrow, on a medium or long-term basis, funds that the Central Banks or any other
government financing institution shall borrow from the Development Bank of the Philippines or other
international or foreign-lending institutions for the specific purpose of financing the abovestated
agricultural and industrial program. Repayment of loans obtained by the Central Bank of the Philippines or
any other government-financing institution form said foreign lending institutions under this section shall be
guaranteed by the Republic of the Philippines.
Section 17. Deposits of rural banks with government-owned or controlled financial institutions like the
Land Bank of the Philippines, the Development Bank of the Philippines, and the Philippine National Bank
are exempted from the Single Borrower’s Limit imposed by the General Banking Act.
In areas where there are no government banks, rural banks may deposit in private banks more than the
amount prescribed by the Single Borrower’s Limit, subject to Monetary Board regulations.
Section 18. To encourage consolidation and mergers of rural banks, there are five (5) or more rural banks
within the region that merge and consolidate within three (3) years from the enactment of this Act, the
merged or consolidated entity will be given the following incentives for a period of seven (7) years.
(a) Its deposit liabilities shall be subjected to only one third (1/3) of reserves normally required for rural
banks.
(b) Its reserve requirement can all be maintained under interest-bearing government securities but kept
unencumbered with government financial institutions or the Central Bank; and
(c) It shall have unrestricted branching right within the region, free from any assessment or surcharges
required in setting up a branch but under coordination with the Central Bank which will have to assess that
there are qualified personnel, control and procedures to operate the branch.
Section 19. The Central Bank of the Philippines shall extend technical assistance to any rural bank in the
process of organization or during the course of operations whenever it is requested to do so or whenever
the Monetary Board deems it necessary to preserve, protect and promote the objectives of this Act;
Provided, however, That said assistance shall be without cost or obligation on the part of the rural bank.
Section 20. Any city of municipal trial court judge in his capacity as notary public ex officio shall
administer the oath or acknowledge the instruments of any rural bank and its borrowers or mortgagors,
free from all charges, fees and documentary stamp tax, collectible under existing laws, relative to any loan
or transaction not exceeding Fifty thousand pesos (P50,000) or such amount as the Secretary of Finance,
upon recommendation of the Monetary Board may prescribe as may be necessary to promote and expand
the rural economy.
Section 21. Any register of Deeds shall accept from any rural bank and its borrowers and mortgagors for
registration, free from all charges, fees and documentary stamp tax, collectible under existing laws, any
instrument, whether voluntary or involuntary, relating to loans or transaction extended by a rural bank in
an amount not exceeding Fifty thousand pesos (P50,000); Provided, however, That charges, if any, shall be
collectible on the amount in excess of Fifty thousand pesos (P50,000); and that in instruments related to
assignments of several mortgages consolidated in a single deed, if any, shall be levied only on the amount
in excess of Fifty thousand pesos (P50,000) of the consideration in the assignment of each mortgage, or
such amount as the Secretary of Finance, upon recommendation of the Monetary Board, may prescribe as
may be necessary to promote and expand the rural economy.
Section 22. Any rural bank organized under this Act may, pursuant to regulations promulgated for the
purpose by the Monetary Board, be required to contribute to the Central Bank an annual fee to help defray
the cost of maintaining the appropriate supervising department within the Central Bank in an amount to be
determined by the Monetary Board but in no case to exceed one fortieth of one percent (1/40 of 1%) of its
average total assets during the preceding years, as shown on its end-of-month balance sheets, after
deducting its cash on hand and amounts due from banks, including the Central Bank.
Section 23. Every individual acting as officer or employee of a rural bank and handling funds or securities
amounting to Five thousand pesos (P5,000) or more, in any one (1) year, shall be covered by an adequate
bond as determined by the Monetary Board; and the bylaws of the rural bank may also provide for the
bonding of other employees or officers of rural banks.
Section 24. For the purpose of carrying out the objectives of this Act, the Central Bank is authorized to
require the services and facilities of any department or instrumentality of the Government or any officer or
employee of any such departments or government instrumentality.
Section 25. Rural banks organized and operated under the provisions of this Act shall act as agents of the
Philippine National Bank, The Land Bank of the Philippines, the Development Bank of the Philippines in
places where these have no offices, subject to accreditation guidelines.
Section 26. Without prejudice to any prosecution under any law which may have been violated, a fine of
not more than Ten thousand pesos (P10,000), or imprisonment for not less than six (6) months but more
than ten (10) years, or both, at the discretion of the court, shall be imposed upon.
(a) Any officer, employee, or agent of a rural bank who shall:
(1) Make false entries in any bank report or statement thereby affecting the financial interest of, or causing
damage to, the bank or any person; or
(2) Without order of a court of competent jurisdiction, disclose any information relative to the funds or
properties in the custody of the bank belonging to private individuals, corporations, or any other entity; or
(3) Accept gifts, fees or commission or any other form of remuneration in connection with the approval of a
loan from said bank; or
(4) Otherwise or aid in overvaluing any security for the purpose of influencing in any way of the action of
the bank on any loan; or
(5) Appear and sign as guarantor, indorser, or surety for loans granted; or
(6) Violate any of the provisions of this Act.
(b) Any applicant for a loan from, or borrower of a rural bank who shall:
(1) Misuse, misapply, or divert the proceeds of the loan obtained by him from its declared purpose; or
(2) Fraudulently overvalue property offered as security for a loan from said bank; or
(3) Give out or furnish false or willful misrepresentation of material facts for the purpose of obtaining,
renewing, or increasing a loan or extending the period thereof; or
(4) Attempt to defraud the said bank in the event of court action to recover a loan; or
(5) Offer any officer, employee or agent of a rural bank as a gift, fee, commission or other form of
compensation in order to influence such bank personnel into approving a loan application; or
(6) Dispose or encumber the property or the crops offered as security for the loan.
(c) Any examiner, or officer or employee of the Central Bank of the Philippines or of any department,
bureau, office, branch or agency of the Government who is assigned to examine, supervise, assist or
render technical service to rural banks and who shall connive or aid in the commission of the same.
Section 27. Any municipal trial court judge or register of deeds who shall demand or accept, directly or
indirectly, any gift, fee, commission or other form of compensation in connection with the service, or shall
arbitrarily or without reasonable cause delay the acknowledgment or administration of oath or the
registration of documents required to be performed by said judge as provided in Section 20 and by said
register of deeds as provided in Section 21 of this Act, shall be punished by a fine of not more than One
thousand pesos (P1,000) or by imprisonment for not more than one (1) year, or both, at the discretion of
the court.
Section 28. Any bank not organized under this Act and any person, association, or corporation doing the
business of banking, not authorized under this Act which shall use the words “Rural Bank” as part of the
name or title of such bank or of such person, association, or corporation, shall be punished by a fine of not
less than Fifty pesos (P50) for each day during which said words are so used.
Section 29. The Monetary Board of the Central Bank shall submit a report to the Congress of the
Philippines as of the end of each calendar year of all the rules and regulations promulgated by it in
accordance with the provisions of this Act, as well as its other actuations in connection with rural banks,
together with an explanation of its reasons therefor.
Section 30. If any provision or section of this Act or the application thereof to any person or
circumstances is held invalid, the other provisions of sections of this Act, and the application of such
provision or section to other persons or circumstances, shall not be affected thereby.
Section 31. Republic Act No. 720, as amended, is hereby repealed. The provisions of Republic Act No.
265, as amended, and Republic Act No. 337, as amended, insofar as they are applicable and not in conflict
with any provision of this Act, are hereby made a part of this Act.
Section 32. This act shall take effect upon its approval.
Approved: April 2, 1992
Approved,
NEPTALI GONZALES RAMON V. MITRA
President of Senate Speaker of the House of Representatives
This Act which is a consolidation of House Bill No. 28736 and Senate Bill No. 1554 was finally passed by the
House of Representatives and the Senate on January 22, 1992.
CAMILO L. SABIO
Secretary of the Senate Secretary General
House of Representatives
Approved : April 02, 1992
CORAZON C. AQUINO
President of the Philippines

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REPUBLIC ACT NO. 7906

Sunday, June 06, 2010
12:13 AM

REPUBLIC ACT NO. 7906

.
.
AN ACT PROVIDING FOR THE REGULATION OF THE ORGANIZATION AND
OPERATIONS OF THRIFT BANKS, AND FOR OTHER PURPOSES.
CHAPTER I
DECLARATION OF POLICY AND DEFINITIONS
Section 1. Title. — This Act shall be known and cited as the "Thrift Banks Act of 1995."
Sec. 2. Declaration of Policy. — It is hereby declared the policy of the State to:
(a) Recognize the indispensable role of the private sector, to encourage private
enterprise, and to provide incentives to needed investments;
(b) Promote economic development pursuant to the socioeconomic program of the
government, to expand industrial and agricultural growth, to encourage the
establishment of more private thrift banks in order to meet the needs for capital, personal
and investment credit or medium- and long-term loans for Filipino entrepreneurs;
(c) Encourage and assist the establishment of thrift bank system which will promote
agriculture and industry and at the same time place within easy reach of the people the
medium-and long-term credit facilities at reasonable cost;
(d) Encourage industry, frugality and the accumulation of savings among the public, and
the members and stockholders of thrift banks; and
(e) Regulate and supervise the activities of thrift banks in order to place their operations
on a sound, stable and efficient basis and to curtail or prevent acts or practices which
are prejudicial to the public interest.
Sec. 3. Definition of Terms. — For purposes of implementing this Act, the following
definitions shall apply:
(a) "Thrift banks" shall include savings and mortgage banks, private development banks,
and stock savings and loans associations organized under existing laws, and any
banking corporation that may be organized for the following purposes:
(1) Accumulating the savings of depositors and investing them, together with capital
loans secured by bonds, mortgages in real estate and insured improvements thereon,
chattel mortgage, bonds and other forms of security or in loans for personal or
household finance, whether secured or unsecured, or in financing for homebuilding and
home development; in readily marketable and debt securities; in commercial papers and
accounts receivables, drafts, bills of exchange, acceptances or notes arising out of
commercial transactions; and in such other investments and loans which the Monetary
Board may determine as necessary in the furtherance of national economic objectives;
(2) Providing short-term working capital, medium- and long-term financing, to businesses
engaged in agriculture, services, industry and housing; and
(3) Providing diversified financial and allied services for its chosen market and
constituencies specially for small and medium enterprises and individuals.
(b) "Monetary Board" shall mean the Monetary Board of the Bangko Sentral ng Pilipinas.
(c) "Bangko Sentral" shall refer to the Bangko Sentral ng Pilipinas created under
Republic Act No. 7653.
CHAPTER II
ORGANIZATION
Sec. 4. Organization. — A thrift bank shall be organized in the form of stock
corporation. The Monetary Board shall fix the minimum paid-up capital of thrift banks in
such amount as the Board may consider necessary for the safe and sound operation of
thrift banks taking into account the development thrusts of this Act and due protection of
the general public. No thrift bank shall be organized without a certificate of authority from
the Monetary Board.
Sec. 5. Establishment of Thrift Banks. — The articles of incorporation of any bank, or
any amendment thereto, shall not be registered by the Securities and Exchange
Commission unless accompanied by a certificate of authority issued by the Monetary
Board under its official seal .Such certificate shall not be issued unless the Monetary
Board is satisfied from the evidence submitted to it: (a) that all the requirements of the
existing laws and regulations to engage in business for which the applicant is proposed
to be incorporated have been complied with; (b) that public interest and the economic
conditions, both general and local, justify the authorization; and (c) that the amount of
capital, the financing organization, direction and administration, as well as the integrity
and the responsibility of the organizers and administrators reasonably assure the safety
of the interest which the public may entrust to them.
The by-laws of any thrift bank, or any amendment thereto, shall not be registered by the
Securities and Exchange Commission unless accompanied by a certificate of the
Monetary Board to the effect that such by-laws or amendments thereto are in
accordance with law.
Sec. 6. Bank Management. — In order to maintain the quality of bank management and
afford better protection to depositors and the public in general, the Monetary Board may
pass upon and review the qualifications of persons who are elected or appointed bank
directors and officers and disqualify those unfit. The Monetary Board shall prescribe the
qualifications of bank directors and officers for purposes of this Section.
Sec. 7. Directors and Officers. — At least a majority of the members of the board of
directors of any thrift bank which may be established after the effectivity of this Act shall
be citizens of the Philippines: Provided, however, That no appointive or elective official,
whether full-time or part-time, shall at the same time serve as officer of any thrift bank,
except in cases where such service is incident to financial assistance provided by the
government or a government-owned or -controlled corporation to the bank: Provided,
further, That in the case of merger or consolidation duly approved by the Monetary
Board, the limitation on the number of directors in a corporation, as provided in Section
14 of the Corporation Code of the Philippines, shall not be applied so that membership in
the new board may include up to the total number of directors provided for in the
respective articles of incorporation of the merging or consolidating banks.
CHAPTER III
OWNERSHIP AND CAPITAL REQUIREMENTS
Sec. 8. Ownership. — At least forty percent (40%) of the voting stock of a thrift bank
which may be established after the approval of this Act shall be owned by citizens of the
Philippines, except where a new bank may be established as a result of a merger or
consolidation of existing thrift banks with foreign holdings in which case, the resulting
foreign holdings shall not be increased but may be reduced and, once reduced, shall not
be increased thereafter beyond sixty percent (60%) of the voting stock of thrift
banks. The percentage of the foreign-owned voting stocks shall be determined by the
citizenship of individual stockholders and in case of corporations owning shares, by the
citizenship of each stockholder in the said corporations.
Any provision of existing laws to the contrary notwithstanding, stockholdings in a thrift
bank shall be exempt from any ownership ceiling for a period of ten (10) years from the
effectivity of this Act.
Sec. 9. Combined Capital Accounts of Thrift Banks. — The combined capital accounts of
each thrift bank shall not be less than an amount equal to ten percent (10%) of its risk
assets which is defined as its total assets minus the following assets:
(a) Cash on hand;
(b) Amounts from the Bangko Sentral;
(c) Evidences of indebtedness of the Republic of the Philippines and of the Bangko
Sentral, and any other evidences of indebtedness or obligations the servicing and
repayment of which are fully guaranteed by the Republic of the Philippines;
(d) Loans to the extent covered by hold-out on, or assignment of deposits maintained in
the lending bank and held in the Philippines; and
(e) Other non-risk items as the Monetary Board may, from time to time, authorize to be
deducted from total assets.
The Monetary Board shall prescribe the manner of determining the total assets of
banking institutions for purposes of this Section.
Whenever the capital accounts of a bank are deficient with respect to the requirements
of the preceding paragraph, the Monetary Board, after considering the report of the
appropriate supervising department on the state of solvency of the institution, shall limit
or prohibit the distribution of net profits and shall require that part or all of net profits be
used to increase the capital accounts of the institution until the minimum requirement
has been met.The Monetary Board may, after considering the aforesaid report of the
appropriate supervising department and if the amount of the deficiency justifies it, restrict
or prohibit the making of new investments of any sort by the bank, with the exception of
purchases of evidences of indebtedness included under subsection (c) of this Section,
until the minimum required capital ratio has been restored.
Where in the process of a bank merger or consolidation, the merged or constituent bank
may not be able to comply fully with the net worth to risk asset ratio herein prescribed,
the Monetary Board may, at its discretion, temporarily relieve the bank from full
compliance with this requirement under such conditions it may prescribe.
CHAPTER IV
POWERS
Sec. 10. Powers of Thrift Banks. — In addition to powers granted it by this Act and
existing laws, any thrift bank may:
(a) Accept savings and time deposits;
(b) Open current or checking accounts: Provided, That the thrift bank has net assets of
at least Twenty million pesos (P20,000,000) subject to such guidelines as may be
established by the Monetary Board; and shall be allowed to directly clear its demand
deposit operations with the Bangko Sentral and the Philippine Clearing House
Corporation;
(c) Act as correspondent for other financial institutions;
(d) Act as collection agent for government entities, including but not limited to, the
Bureau of Internal Revenue, Social Security System, and the Bureau of Customs;
(e) Act as official depository of national agencies and of municipal, city or provincial
funds in the municipality, city or province where the thrift bank is located, subject to such
guidelines as may be established by the Monetary Board;
(f) Rediscount paper with the Philippine National Bank, the Land Bank of the Philippines,
the Development Bank of the Philippines, and other government-owned or -controlled
corporations. Said institutions shall specify the nature of paper deemed acceptable for
rediscount, as well as rediscounting rate to be charged by any of these institutions; and
(g) Issue mortgage and chattel mortgage certificates, buy and sell them for its own
account or for the account of others, or accept and receive them in payment or as
amortization of its loan.
Such mortgage and chattel mortgage certificates shall be issued exclusively in national
currency and exclusively for the financing of equipment loans, mortgage loans for the
acquisition of machinery and other fixed installations, conservation, enlargement or
improvement of productive properties and real estate mortgage loans for: (1) the
construction, acquisition, expansion or improvement of rural and urban properties; (2)
the refinancing of similar loans and mortgages; and (3) such other purposes as may be
authorized by the Monetary Board.
A thrift bank shall coordinate the amounts and maturities of its certificates with those of
its loans, so as to ensure adequate cash receipts for the payment of principal and
interest at the time they become due. The bank shall accept its own certificates at least
at the actual price of issue, in any prepayment of loans which mortgage or chattel
mortgage debtors may wish to make: Provided, That the date of maturity of the
certificates is not later than the date on which the payment would otherwise become
due, in the absence of the aforesaid prepayment;
(h) Purchase, hold and convey real estate under the same conditions as those governing
commercial banks as specified under Section 25 of Republic Act No. 337;
(i) Engage in quasi-banking and money market operations;
(j) Open domestic letters of credit;
(k) Extend credit facilities to private and government employees: Provided, That in the
case of a borrower who is a permanent employee or wage earner, the treasurer, cashier
or paymaster of the office employing him is authorized, notwithstanding the provisions of
any existing law, rules and regulations to the contrary, to make deductions from his
salary, wage or income pursuant to the terms of his loan, to remit deductions to the thrift
bank concerned, and collect such reasonable fee for his services;
(l) Extend credit against the security of jewelry, precious stones and articles of similar
nature, subject to such rules and regulations as the Monetary Board may prescribe; and
(m) Offer other banking services as provided in Section 72 of Republic Act No. 337 and
Republic Act No. 6426, as amended.
Thrift banks may perform the services under subsections (b), (d), (e), (g) and (i) only
upon prior approval of the Monetary Board.
Nothing in this Section shall be construed as precluding a thrift bank from performing,
with prior approval of the Monetary Board, commercial banking services, or from
operating under an expanded banking authority, nor from exercising, whenever
applicable and not inconsistent with the provisions of this Act and Bangko Sentral
regulations, and such other powers incident to a corporation.
Sec. 11. Limitations on Lending Authority. — Except as the Monetary Board may
otherwise prescribe, the direct indebtedness to thrift banks of any person, company,
corporation, or firm, including the indebtedness of members of a partnership and
association, for money borrowed, excluding: (a) loans secured by obligations of the
Bangko Sentral; (b) loans fully guaranteed by the government as to the payment of
principal and interest; (c) loans to the extent covered by the hold-out on, or assignment
of, deposits maintained in the lending bank and held in the Philippines; and (d) other
loans or credits as the Monetary Board may, from time to time, specify as non-risk
assets, which shall in no time exceed fifteen percent (15%) of unimpaired capital and
surplus of the bank.
Notwithstanding the provisions of the preceding paragraph and subject to such
regulations as the Monetary Board may prescribe, the total indebtedness of any
borrower to the bank may amount to a further fifteen percent (15%) of the unimpaired
capital and surplus of such bank provided the additional indebtedness is for the purpose
of financing subdivision or housing development, medium- and low-income borrowers
and agriculture on a fully secured basis.
The term "indebtedness" as used herein, shall mean the direct liability of the maker or
acceptor of paper discounted with or sold to such bank and liability of the indorser,
drawer or guarantor who obtains a loan from or discounts paper with or sells paper
under his guaranty to such bank; and shall include in the case of liabilities of a
partnership or association the liabilities of the several members thereof; and shall
include in the case of liabilities of a corporation, all liabilities of all the subsidiaries
thereof in which such corporation owns or controls a majority interest: Provided, That
even if the parent corporation, partnership or association has no liability to the bank, the
Monetary Board may prescribe the combination of liabilities of subsidiary corporations or
members of the partnership or association under certain circumstances, including but
need not be limited to any of the following situations: (a) the parent corporation,
partnership or association guarantees the repayment of liabilities; (b) the liabilities were
incurred for the accommodation of the parent corporation or another subsidiary or of the
partnership or association; or (c) the subsidiaries through separate entities operate
merely as departments or divisions of a single entity: Provided, further, That the discount
of bills of exchange drawn in good faith against actually existing values, and the discount
of commercial and business paper actually owned by the person negotiating the same,
shall not be considered as money borrowed for the purpose of this Section: Provided,
finally, That certain types of contingent liabilities of borrowers may be included among
the total liabilities as may be determined by the Monetary Board.
Loan accommodations granted by thrift banks to any other bank, as well as deposits
maintained by them in any bank licensed to do business in the Philippines, shall be
subject to the loan limit of any single borrower as herein prescribed.
Sec. 12. Investment in Allied Undertakings. — Subject to such guidelines as may be
established by the Monetary Board, thrift banks may invest in equities of allied
undertakings as hereinafter enumerated: Provided, That: (a) the total investments in
equities shall not exceed twenty-five percent (25%) of the net worth of the thrift bank; (b)
the equity investment in any single enterprise shall be limited to fifteen percent (15%) of
the net worth of the thrift bank; (c) the equity investment in any single enterprise shall
remain a minority holding in that enterprise; and (d) the equity investment in other banks
shall be subject to the same provisions governing similar investments of commercial
banks and shall be deducted from the investing bank's net worth for the purpose of
computing of the prescribed ratio as provided in Section 9 hereof: Provided, further, That
equity investments shall not be permitted in non-related activities.Where the allied
activity is a wholly- or majority-owned subsidiary of the thrift bank, the Bangko Sentral
may subject it to examination.
Investment in allied undertaking shall include institutions engaged in the following
activities:
(a) Banking and financing;
(b) Warehousing and other post-harvesting activities;
(c) Fertilizer and agricultural chemical and pesticides distribution;
(d) Farm equipment distribution;
(e) Trucking and transportation of agricultural products;
(f) Marketing of agricultural products;
(g) Leasing; and
(h) Other undertakings as may be determined by the Monetary Board.
CHAPTER V
SUPERVISION
Sec. 13. Supervisory Powers of the Monetary Board. — The power to supervise the
operation of any thrift bank by the Monetary Board shall consist in placing limits to the
maximum credit allowed to any individual borrower; in indicating the manner in which
technical assistance shall be extended to thrift banks; in imposing a uniform accounting
system and manner of keeping the accounts and records of thrift banks; in instituting
periodic surveys of loans and lending procedures, audits, test-check of cash and other
transactions of the thrift banks; in conducting training courses for personnel of thrift
banks; and, in general, in supervising the business operations of the thrift banks.
The Bangko Sentral shall have the power to enforce the laws, orders, instructions, rules
and regulations promulgated by the Monetary Board applicable to thrift banks; to require
thrift banks, their directors, officers and agents to conduct and manage the affairs of the
thrift bank in a lawful and orderly manner; and upon proof that the thrift bank or its board
of directors or officers are conducting and managing the affairs of the bank in a manner
contrary to laws, orders, instructions, rules and regulations promulgated by the Monetary
Board or in a manner substantially prejudicial to the interest of the government,
depositors, creditors, or the general public, to appoint a conservator pursuant to Section
29 of Republic Act No. 7653 without prejudice to the prosecution of persons responsible
for such violations under the provisions of Sections 36 and 37 of Republic Act No. 7653.
The director and examiners of the department of Bangko Sentral charged with the
supervision of thrift banks are hereby authorized to administer oaths to any director,
officer or employee of any thrift bank or to any voluntary witness and to compel the
presentation of all books, documents, papers or records necessary in his or their
judgment to ascertain the facts relative to the true conditions of any thrift bank or to any
loan.
CHAPTER VI
INCENTIVES
Sec. 14. Reserve Requirement Differential. — Reserve requirement imposed on thrift
banks by the Monetary Board shall enjoy equitable preferential terms over those
imposed on commercial banks: Provided, That the Monetary Board may change reserve
differentials for the purpose of stimulating economic growth in the countryside, thereby
promoting national economic development.
Sec. 15. Liberalized Branching Rules. — Thrift banks shall have unrestricted branching
right within the region, free from any assessment or surcharges required in setting up a
branch, but under coordination with the Bangko Sentral which will have to assess that
there are qualified personnel, control and procedures to operate the branch.
Sec. 16. Notices of Statement of Condition. — Subject to Monetary Board approval, a
thrift bank may publish its statement of condition in a newspaper of general circulation,
or post it in the most conspicuous area of its premises, municipal building, municipal
public market, barangay hall and barangay public market if there be any, where the thrift
bank concerned is located.
CHAPTER VII
EXEMPTIONS
Sec. 17. Tax Exemptions. — All thrift banks, whether created or organized under this Act
or in operation as of the date of effectivity of this Act, shall be exempt from payment of
all taxes, fees and charges of whatever nature and description, except the corporate
income taxes and local taxes, fees and charges for a period of five (5) years, counted
from the date of commencement of operations for thrift banks created under this Act and
from the date of the effectivity of this Act for existing thrift banks.
Sec. 18. Exemption from Publication Requirement. — The foreclosure of mortgage
covering loans granted by thrift banks and executions of judgments thereon involving
real properties and levied upon by a sheriff shall be exempt from publication
requirements where the total amount of the loan, excluding interest due and unpaid,
does not exceed One hundred thousand pesos (P100,000) or such amount as the
Monetary Board may prescribe, as may be warranted by the prevailing economic
conditions and by the nature of service of customers served by each category of the
thrift bank. It shall be sufficient publication in such cases if the notice of foreclosure and
execution of judgment are posted in the conspicuous area of a thrift bank's premises,
municipal building, the municipal public market, the barangay hall, and the barangay
public market, if there be any, where the land mortgaged is situated within a period of
sixty (60) days immediately preceding the public auction of the execution of
judgment. Proof of publication as required herein shall be accomplished by an affidavit of
the sheriff or officer conducting the foreclosure sale or execution of judgment and shall
be attached with the records of the case.
A thrift bank shall be allowed to foreclose lands mortgaged to it; Provided, That said
lands shall be covered under Republic Act No. 6657.
Sec. 19. Exemption from Notarial Charges. — Any metropolitan, municipal, or municipal
circuit trial court judge in his capacity as notary public ex officio shall administer the oath
to or acknowledge the instrument of any thrift bank and its borrowers or mortgagor free
from all charges, fees and documentary stamp tax, collectible under existing laws,
relative to any loan or transaction not exceeding Fifty pesos (P50.00) or such amount as
the Secretary of Finance, upon recommendation of the Monetary Board, may prescribe
as may be necessary to promote and expand the economy.
Sec. 20. Exemption from Registration Fees. — Any register of deeds shall accept from
any thrift bank and its borrowers and mortgagors for registration, free from all charges,
fees and documentary stamp tax, collectible under existing laws, any instrument,
whether voluntary or involuntary, relating to loans or transactions extended by any thrift
bank in an amount not exceeding Fifty thousand pesos (P50,000): Provided, however,
That charges, if any, shall be collectible on the amount in excess of Fifty thousand pesos
(P50,000); and that an instrument related to assignments of several mortgages
consolidated in a single deed, if any, shall be levied only on the amount in excess of Fifty
thousand pesos (P50,000) of the consideration in the assignment of each mortgage, or
such amount as the Secretary of Finance, upon recommendation of the Monetary Board,
may prescribe as may be necessary to promote and expand the economy.
CHAPTER VIII
PROHIBITIONS
Sec. 21. Prohibited Acts. — Without prejudice to any prosecution under any law which
may have been violated, a fine of not more than Ten thousand pesos (P10,000) or
imprisonment for not less than six (6) months but not more than ten (10) years, or both,
at the discretion of the court, shall be imposed upon:
(a) Any officer, employee, or agent of a thrift bank who shall:
(1) Make false entries in any bank report or statement thereby affecting the financial
interest of, or causing damage to, the bank or any person; or
(2) Without order of a court of competent jurisdiction, disclose any information relative to
the funds or properties in the custody of the bank belonging to private individuals,
corporations, or any other entity; or
(3) Accept gifts, fees or commissions or any other form of remuneration in connection
with the approval of a loan from said bank; or
(4) Overvalue or aid in the overvaluing any security for the purpose of influencing in any
way the action of the bank on any loan; or
(5) Appear and sign as guarantor, indorser, or surety for loans granted; or
(6) Violate any provision of this Act.
(b) Any applicant for a loan from, or borrower of a thrift bank who shall:
(1) Misuse, misapply or divert the proceeds of the loan obtained by him from its declared
purpose; or
(2) Fraudulently overvalue property offered as security for a loan from said bank; or
(3) Give out or furnish false or willful misinterpretation of material facts for the purpose of
obtaining, renewing, or increasing a loan extending the period thereof; or
(4) Attempt to defraud the said bank in the event of court action to recover the loan; or
(5) Offer any officer, employee or agent of a thrift bank a gift, fee, commission or other
forms of compensation in order to influence such bank personnel into approving a loan
application; or
(6) Dispose or encumber the property offered as security for the loan.
(c) Any examiner, or officer or employee of the Bangko Sentral or of any department,
bureau, office, branch, or agency of the government who is assigned to examine,
supervise, assist or render technical service to thrift banks and who shall connive or aid
in the commission of the same.
(d) Any metropolitan, municipal, or municipal circuit trial court judge or register of deeds
who shall demand or accept, directly or indirectly, any gift, fee, commission, or any other
form of compensation in connection with the service, or shall arbitrarily and without
reasonable cause delay the acknowledgment or administration of oath or the registration
of documents required to be performed by said judge or by said register of deeds shall
be punished with a fine of not more than One (1) thousand pesos (P1,000) or by
imprisonment of not more than one (1) year, or both, at the discretion of the court.
(e) Any bank not organized under this Act and any person, association, or corporation
doing the business of banking, not authorized under this Act or existing laws which shall
use the words "Development Bank," "Savings Bank," "Mortgage Bank," "Savings and
Mortgage Bank," or "Savings and Loan Association," as part of the name or title of such
bank or of such person, association, or corporation, shall be punished by a fine of not
less than One hundred pesos (P100), but in no case to exceed Thirty thousand pesos
(P30,000), for each day during which the said words are so used.
CHAPTER IX
GENERAL PROVISIONS
Sec. 22. Minors as Depositors. — Minors in their own rights and in their own names may
make deposits and withdraw the same, and may receive dividends and interest:
Provided, however, That, if any guardian shall give notice in writing to any thrift bank not
to make payments of deposits, dividends, or interest to the minor of whom he is the
guardian, then such payment shall be made only to the guardian.
Sec. 23. Return of Deposits. — Deposits shall be returned to the depositors or to their
legal representatives in the manner and at the time and under the conditions which shall
be determined by the board of directors and stipulated in regulations which shall be in
conformity with laws and with such regulations as the Monetary Board may prescribe.
Sec. 24. Deposit Insurance. — Deposit in thrift banks shall be eligible for insurance
coverage under Republic Act No. 3591, as amended.
Sec. 25. Annual Fees. — Consistent with the provisions of Section 28 of Republic Act
No. 7653, any thrift bank organized under this Act may, pursuant to regulations
promulgated for the purpose by the Monetary Board, be required to contribute to the
Bangko Sentral an annual fee in an amount to be determined by the Monetary Board.
Sec. 26. Implementation. — For the purpose of carrying the objectives of this Act, the
Bangko Sentral is authorized to require the services and facilities of any department or
instrumentality of the government or any officer or employee of any such department or
government instrumentality.
Sec. 27. Annual Report. — The Monetary Board shall submit a report to the Congress of
the Philippines at the end of each calendar year of all the rules and regulations
promulgated by it in accordance with the provisions of this Act, as well as its other
actuations in connection with thrift banks together with an explanation of its reasons
therefor and recommendations on legislative actions.
Sec. 28. Parity Clause Under Same Circumstances. — The incentives granted shall be
enjoyed by financial institutions giving the same services for countryside lending and
development under such terms as may be equitable and as may be defined by the
Monetary Board.
Sec. 29. Separability Clause. — If any provision of this Act or the application thereof to
any person or circumstances is held invalid, the other provisions of this Act and the
application of such provisions to other persons and circumstances, shall not be affected
thereby.
Sec. 30. Repealing Clause. — Republic Act No. 4093, Republic Act No. 3779 to the
extent that it applies to thrift banks, and Chapter 5 of Republic Act No. 337 are hereby
repealed. Any law or parts of any law inconsistent with the provisions of this Act are
hereby repealed. In all matters affecting the price stability of the peso, the provisions of
Republic Act No. 7653 shall prevail.
Sec. 31. Applicability of Other Laws. — The provisions of Republic Act No. 7653 and
Republic Act No. 337, as amended, insofar as they are applicable and not in conflict with
any provision of this Act, shall apply to thrift banks organized hereunder.
Sec. 32. Effectivity. — This Act shall take effect fifteen (15) days following the
completion of its publication in the Official Gazette or in two (2) national newspapers of
general circulation.
Approved: February 23, 1995
.

Cando vs. Cando

Sunday, June 06, 2010
12:20 AM

PHILIPPINE JURISPRUDENCE – FULL TEXT

The Lawphil Project - Arellano Law Foundation
G.R. No. 160741 March 22, 2007
HERMINIA CANDO VS. SPS. AURORA OLAZO ETC.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 160741 March 22, 2007
HERMINIA CANDO, Petitioner,
vs.
SPS. AURORA OLAZO and CLAUDIO OLAZO, Respondents.
DECISION
TINGA, J.:
The instant petition for review assails the Decision of the Court of Appeals dated 13 November 2003 in CA
G.R. CV No. 61151 captioned "Herminia Cando v. Spouses Aurora Olazo and Claudio Olazo."1
The facts of the case are not disputed.
On 27 April 1987, Aurora and Claudio Olazo (respondents) mortgaged to Herminia Cando (petitioner) a
parcel of land with improvements thereon to secure the payment of theirP240,000.00 loan. The real
estate mortgage was embodied in a written instrument titled "Mortgage of Realty." In the said
instrument, the parties agreed that should the mortgagors fail to pay the loan within one (1) year from
the date of the execution of the document, the mortgage shall be foreclosed.
Alleging that respondents failed to pay their obligation within the prescribed period despite demands,
petitioner filed a complaint for judicial foreclosure of mortgage before the Regional Trial Court of
Olongapo City on 16 February 1998.2 Respondents moved for the dismissal of the complaint, arguing that
the action for foreclosure of the mortgage has already prescribed; that petitioner is barred from filing the
complaint under the principle of laches; and that respondents have already paid the mortgage obligation.
On 25 May 1998, the trial court issued an Order which reads:
Acting on the Motion to Dismiss on the ground that the Action to Foreclose Mortgage of Realty dated April
27, 1987 has prescribed in accordance with Article 1142 of the Civil Code "that the action for foreclosure
of mortgage prescribes after ten (10) years" and it appearing that this Complaint was filed on February
16, 1998 after the expiration of the said period, this case is hereby DISMISSED.
SO ORDERED.3
Petitioner sought reconsideration of the Order but her motion was denied by the trial court,4 prompting
her to appeal the case before the Court of Appeals.
In her brief as appellant,5 petitioner interposed a lone assignment of error, to wit:
THE LOWER COURT HAD CLEARLY ERRED IN DISMISSING THE PLAINTIFF’S COMPLAINT IN THE INSTANT
CASE ON THE GROUND OF PRESCRIPTION OF ACTION.6
The appellate court dismissed the appeal on the ground of lack of jurisdiction. It found that the issue
raised in the appeal is a pure question of law, that is, what is the proper computation of the ten (10) year
prescriptive period for filing an action for foreclosure of mortgage. According to the Court of Appeals, the
dismissal was based on Sec. 2, Rule 50 of the Rules of Civil Procedure which provides that an appeal
under Rule 41 taken from the Regional Trial Court to the Court of Appeals raising only questions of law
shall be dismissed.7
In the present petition for review under Rule 45, petitioner claims that the Court of Appeals erred in
holding that her action to enforce the mortgage obligation had already prescribed. She posits that the ten
(10) year period for foreclosure of the mortgaged property must be counted from the time the stipulated
one (1) year period within which to pay the loan elapsed. Thus, it should be reckoned from 27 April 1988,
and not 27 April 1987, or the date of the mortgage instrument.8 Petitioner thus prays that the Decision of
the Court of Appeals be reconsidered and/or set aside and the case remanded to the court of origin for
further proceedings.
On the other hand, respondents point out that the petition is a mere rehash of the issues and arguments
raised and resolved by the lower court and the Court of Appeals. They insist that the ten (10) year period
for foreclosure is counted from the date of the execution of the mortgage deed.9
The trial court’s dismissal of the complaint for judicial foreclosure of mortgage is a final order which
terminated the litigation of the case and left nothing more to be done by the lower court. Petitioner had
no more remedy but to appeal the order of dismissal.
There are two modes of appeal from a final order of the trial court in the exercise of its original
jurisdiction–(1) by writ of error under Section 2(a), Rule 41 of the Rules of Court if questions of fact or
questions of fact and law are raised or involved; or (2) appeal by certiorari under Section 2(c), Rule 41, in
relation to Rule 45, where only questions of law are raised or involved.10 If the aggrieved party appeals
via a writ of error under Rule 41, but it turns out that only questions of law are raised, the appeal shall be
dismissed.11
There is a question of law in a given case when the doubt or difference arises as to what the law is on a
certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or
falsehood of alleged facts.12
The test of whether a question is one of law or of fact is not the appellation given to such question by the
party raising the same; rather, it is whether the appellate court can determine the issue raised without
reviewing or evaluating the evidence, in which case, it is a question of law; otherwise, it is a question of
fact.13
Admittedly, petitioner’s appeal entailed a lone assignment of error, which turned out be a pure question
of law. The appellate court can easily determine the plausibility of the trial court’s conclusion that the ten
(10) year prescriptive period for an action for foreclosure of mortgage should be computed from the date
of the deed of mortgage without reviewing or evaluating the evidence, but of course with due regard to
the governing case law on the matter. A strict adherence to the rules leads us to the conclusion that the
Court of Appeals is correct in dismissing the appeal on the ground of lack of jurisdiction. However, equity
considerations behoove a different course of action.
Even from a cursory reading of the appeal, it is indelibly clear that the trial court committed an appalling
blunder when it ruled that an action for foreclosure of mortgage prescribes after ten (10) years from the
date of the mortgage contract. Under Article 1142 of the Civil Code, a mortgage action prescribes after
ten (10) years. Jurisprudence, however, has clarified this rule by holding that a mortgage action
prescribes after ten (10) years from the time the right of action accrued,14 which is obviously not the
same as the date of the mortgage contract. Stated differently, an action to enforce a right arising from a
mortgage should be enforced within ten (10) years from the time the right of action accrues; otherwise, it
will be barred by prescription and the mortgage creditor will lose his rights under the mortgage.15 The
right of action accrues when the mortgagor defaults in the payment of his obligation to the mortgagee.16
The foregoing basic principles must have been unknown to the trial court when it reached its erroneous
conclusion that the action to foreclose the mortgage covered by the "Mortgage of Realty dated April 27,
1987 has prescribed in accordance with Article 1142 of the Civil Code which provides that ‘the action for
foreclosure of mortgage prescribes after ten (10) years’ and it appearing that this Complaint was filed on
February 16, 1998 after the expiration of the said period x x x. "17
The dismissal of the appeal by the appellate court would have put the instant case to rest. Yet if the Court
will affirm the appellate court’s dismissal of the case and disregard the error of the trial court, great
injustice and undue prejudice will be caused petitioner.
We have ruled time and again that litigants should have the amplest opportunity for a proper and just
disposition of their cause–free, as much as possible, from the constraints of procedural technicalities. In
the interest of its equity jurisdiction, the Court may disregard procedural lapses so that a case may be
resolved on its merits. Rules of procedure should promote, not defeat, substantial justice. Hence, the
Court may opt to apply the Rules liberally to resolve substantial issues raised by the parties.18
Rules of procedure ought not to be applied in a very rigid, technical sense, for they are adopted to help
secure, not override, substantial justice, and thereby defeat their very ends. Indeed, rules of procedure
are mere tools designed to expedite the resolution of cases and other matters pending in court. A strict
and rigid application of the rules that would result in technicalities that tend to frustrate rather than
promote justice must be avoided.19
In the instant case, the strict adherence to the rules will definitely cause injustice to petitioner since the
erroneous conclusion of the trial court will bar her from pursuing her right of action against respondents,
assuming that the latter really failed to pay their obligation within the prescribed period.
If procedural lapses on the part of the litigants are sometimes overlooked by the Court in the interest of
justice, with all the more reason will the Court overlook these rules when the injustice will be
compounded by the error of the courts below. Ultimately, the interest of substantial justice must
transcend rigid observance of the rules of procedure. We cannot allow the trial court’s egregious error to
perpetuate simply because petitioner had pursued the wrong recourse or erred in drafting her appeal.
WHEREFORE, the petition is GRANTED and the assailed Decision dated 13 November 2003 of the Court of
Appeals is hereby
REVERSED. Let the case be REMANDED to the Regional Trial Court of Olongapo City for further
proceedings with deliberate dispatch.
SO ORDERED.
DANTE O. TINGA
Associate Justice
WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
ANTONIO T. CARPIO CONCHITA CARPIO MORALES
Associate Justice Asscociate Justice
PRESBITERO J. VELASCO, JR.
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, it is
hereby certified that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Foonotes
1 Penned by Associate Justice Marina L. Buzon, with Associate Justices Sergio Pestano and Jose C.
Mendoza concurring.
2 The case was raffled to Branch 72, Third Judicial Region, Olongapo City.
3 Rollo, p. 31.
 4 Order dated 14 July 1998; id. at 34.
5 Appellant’s Brief; id. at 36-43.
6 Id. at 37.
7 Id. at 55-60.
8 Petition; id. at 8-13.
9 Comment; id. at 75-79.
10 First Bancorp, Inc. v. Court of Appeals, G.R. No. 151132, 22 June 2006, 492 SCRA 221, 235.
11 Rules of Court, Rule 50, Sec. 2. Dismissal of improper appeal to the Court of Appeals.—An appeal
under Rule 41 taken from the Regional Trial Court to the Court of Appeals raising only questions of law
shall be dismissed, issues purely of law not being reviewable by said court. Similarly, an appeal by notice
of appeal instead of by petition for review from the appellate judgment of a Regional Trial Court shall be
dismissed.
An appeal erroneously taken to the Court of Appeals shall not be transferred to the appropriate court but
shall be dismissed outright.
12 Barcenas v. Tomas, G.R. No. 150321, 31 March 2005, 454 SCRA 593, 606.
13 Crisologo v. Globe Telecom, Inc., G.R. No. 167631, 16 December 2005, 478 SCRA 433, 441, citing
China Road and Bridge Corporation v. Court of Appeals, G.R. No. 137898, 15 December 2000, 348 SCRA
401, 411.
14 Quirino Gonzales Logging Concessionaire v. Court of Appeals, 450 Phil. 218, 229 (2003).
15 Tambunting, Jr. v. Sumabat, G.R. No. 144101, 16 September 2005, 470 SCRA 92, 97.
16 Tambunting, Jr. v. Sumabat, G.R. No. 144101, 16 September 2005, 470 SCRA 92.
17 Order dated 25 May 1998; Annex "C," rollo, p. 31.
18 Durban Apartments Corporation v. Catacutan, et al., G.R. No. 167136, 14 December 2005, 477 SCRA
801, 808.
19 Id. at 809.
The Lawphil Project - Arellano Law Foundation

Pasted from <http://www.lawphil.net/judjuris/juri2007/mar2007/gr_160741_2007.html>

BANK OF AMERICA, NT and SA, petitioner, vs. AMERICAN REALTY CORPORATION and COURT OF
APPEALS, respondents.
Sunday, June 06, 2010
12:21 AM
SECOND DIVISION

[G.R. No. 133876. December 29, 1999]

BANK OF AMERICA, NT and SA, petitioner, vs. AMERICAN REALTY CORPORATION and COURT OF
APPEALS, respondents.
DECISION
BUENA, J.:
Does a mortgage-creditor waive its remedy to foreclose the real estate mortgage constituted over a
third party mortgagor’s property situated in the Philippines by filing an action for the collection of the
principal loan before foreign courts?
Sought to be reversed in the instant petition for review on certiorari under Rule 45 of the Rules of
Court are the decision[1] of public respondent Court of Appeals in CA G.R. CV No. 51094,
promulgated on 30 September 1997 and its resolution,[2] dated 22 May 1998, denying petitioner’s
motion for reconsideration.
Petitioner Bank of America NT & SA (BANTSA) is an international banking and financing institution
duly licensed to do business in the Philippines, organized and existing under and by virtue of the laws
of the State of California, United States of America while private respondent American Realty
Corporation (ARC) is a domestic corporation.
Bank of America International Limited (BAIL), on the other hand, is a limited liability company
organized and existing under the laws of England.
As borne by the records, BANTSA and BAIL on several occasions granted three major multi-million
United States (US) Dollar loans to the following corporate borrowers: (1) Liberian Transport
Navigation, S.A.; (2) El Challenger S.A. and (3) Eshley Compania Naviera S.A. (hereinafter collectively
referred to as “borrowers”), all of which are existing under and by virtue of the laws of the Republic
of Panama and are foreign affiliates of private respondent.[3]
 Due to the default in the payment of the loan amortizations, BANTSA and the corporate borrowers
signed and entered into restructuring agreements. As additional security for the restructured loans,
private respondent ARC as third party mortgagor executed two real estate mortgages,[4] dated 17
February 1983 and 20 July 1984, over its parcels of land including improvements thereon, located at
Barrio Sto. Cristo, San Jose Del Monte, Bulacan, and which are covered by Transfer Certificate of Title
Nos. T-78759, T-78760, T-78761, T-78762 and T-78763.
Eventually, the corporate borrowers defaulted in the payment of the restructured loans prompting
petitioner BANTSA to file civil actions[5] before foreign courts for the collection of the principal loan,
to wit:
“a) In England, in its High Court of Justice, Queen’s Bench Division, Commercial Court (1992-Folio No.
2098) against Liberian Transport Navigation S.A., Eshley Compania Naviera S.A., El Challenger S.A.,
Espriona Shipping Company S.A., Eddie Navigation Corp., S.A., Eduardo Katipunan Litonjua and Aurelio
Katipunan Litonjua on June 17, 1992.
b) In England, in its High Court of Justice, Queen’s Bench Division, Commercial Court (1992-Folio No. 2245)
against El Challenger S.A., Espriona Shipping Company S.A., Eduardo Katipuan Litonjua & Aurelio
Katipunan Litonjua on July 2, 1992;
c) In Hongkong, in the Supreme Court of Hongkong High Court (Action No. 4039 of 1992) against Eshley
Compania Naviera S.A., El Challenger S.A., Espriona Shipping Company S.A. Pacific Navigators Corporation,
Eddie Navigation Corporation S.A., Litonjua Chartering (Edyship) Co., Inc., Aurelio Katipunan Litonjua, Jr.
and Eduardo Katipunan Litonjua on November 19, 1992; and
d) In Hongkong, in the Supreme Court of Hongkong High Court (Action No. 4040 of 1992) against Eshley
Compania Naviera S.A., El Challenger S.A., Espriona Shipping Company, S.A., Pacific Navigators
Corporation, Eddie Navigation Corporation S.A., Litonjua Chartering (Edyship) Co., Jr. and Eduardo
Katipunan Litonjua on November 21, 1992.”
In the civil suits instituted before the foreign courts, private respondent ARC, being a third party
mortgagor, was not impleaded as party-defendant.
On 16 December 1992, petitioner BANTSA filed before the Office of the Provincial Sheriff of Bulacan,
Philippines, an application for extrajudicial foreclosure[6] of real estate mortgage.
On 22 January 1993, after due publication and notice, the mortgaged real properties were sold at
public auction in an extrajudicial foreclosure sale, with Integrated Credit and Corporation Services Co.
(ICCS) as the highest bidder for the sum of Twenty Four Million Pesos (P24,000,000.00).[7]
On 12 February 1993, private respondent filed before the Pasig Regional Trial Court, Branch 159, an
action for damages[8] against the petitioner, for the latter’s act of foreclosing extrajudicially the real
estate mortgages despite the pendency of civil suits before foreign courts for the collection of the
principal loan.
In its answer[9] petitioner alleged that the rule prohibiting the mortgagee from foreclosing the
mortgage after an ordinary suit for collection has been filed, is not applicable in the present case,
claiming that:
“a) The plaintiff, being a mere third party mortgagor and not a party to the principal restructuring
agreements, was never made a party defendant in the civil cases filed in Hongkong and England;
“b) There is actually no civil suit for sum of money filed in the Philippines since the civil actions were filed
in Hongkong and England. As such, any decisions (sic) which may be rendered in the abovementioned
courts are not (sic) enforceable in the Philippines unless a separate action to enforce the foreign
judgments is first filed in the Philippines, pursuant to Rule 39, Section 50 of the Revised Rules of Court.
“c) Under English Law, which is the governing law under the principal agreements, the mortgagee does
not lose its security interest by filing civil actions for sums of money.”
On 14 December 1993, private respondent filed a motion for suspension[10] of the redemption
period on the ground that “it cannot exercise said right of redemption without at the same time
waiving or contradicting its contentions in the case that the foreclosure of the mortgage on its
properties is legally improper and therefore invalid.”
In an order[11] dated 28 January 1994, the trial court granted the private respondent’s motion for
suspension after which a copy of said order was duly received by the Register of Deeds of
Meycauayan, Bulacan.
On 07 February 1994, ICCS, the purchaser of the mortgaged properties at the foreclosure sale,
consolidated its ownership over the real properties, resulting to the issuance of Transfer Certificate of
Title Nos. T-18627, T-186272, T-186273, T-16471 and T-16472 in its name.
On 18 March 1994, after the consolidation of ownership in its favor, ICCS sold the real properties to
Stateland Investment Corporation for the amount of Thirty Nine Million Pesos (P39,000,000.00).
[12]Accordingly, Transfer Certificate of Title Nos. T-187781(m), T-187782(m), T-187783(m), T-
16653P(m) and T-16652P(m) were issued in the latter’s name.
 After trial, the lower court rendered a decision[13] in favor of private respondent ARC dated 12 May
1993, the decretal portion of which reads:
“WHEREFORE, judgment is hereby rendered declaring that the filing in foreign courts by the defendant of
collection suits against the principal debtors operated as a waiver of the security of the
mortgages. Consequently, the plaintiff’s rights as owner and possessor of the properties then covered by
Transfer Certificates of Title Nos. T-78759, T-78762, T-78763, T-78760 and T-78761, all of the Register of
Deeds of Meycauayan, Bulacan, Philippines, were violated when the defendant caused the extrajudicial
foreclosure of the mortgages constituted thereon.
“Accordingly, the defendant is hereby ordered to pay the plaintiff the following sums, all with legal interest
thereon from the date of the filing of the complaint up to the date of actual payment:
“1) Actual or compensatory damages in the amount of Ninety Nine Million Pesos (P99,000,000.00);
“2) Exemplary damages in the amount of Five Million Pesos (P5,000,000.00); and
“3) Costs of suit.
“SO ORDERED.”
On appeal, the Court of Appeals affirmed the assailed decision of the lower court prompting petitioner
to file a motion for reconsideration which the appellate court denied.
Hence, the instant petition for review[14] on certiorari where herein petitioner BANTSA ascribes to
the Court of Appeals the following assignment of errors:
1. The Honorable Court of Appeals disregarded the doctrines laid down by this Hon. Supreme Court
in the cases of Caltex Philippines, Inc. vs. Intermediate Appellate Court docketed as G.R. No.
74730 promulgated on August 25, 1989 and Philippine Commercial International Bank vs.
IAC, 196 SCRA 29 (1991 case), although said cases were duly cited, extensively discussed and
specifically mentioned, as one of the issues in the assignment of errors found on page 5 of the
decision dated September 30, 1997.
2. The Hon. Court of Appeals acted with grave abuse of discretion when it awarded the private
respondent actual and exemplary damages totalling P171,600,000.00, as of July 12, 1998 although
such huge amount was not asked nor prayed for in private respondent’s complaint, is contrary to law
and is totally unsupported by evidence (sic).
In fine, this Court is called upon to resolve two main issues:
1. Whether or not the petitioner’s act of filing a collection suit against the principal debtors for the
recovery of the loan before foreign courts constituted a waiver of the remedy of foreclosure.
2. Whether or not the award by the lower court of actual and exemplary damages in favor of private
respondent ARC, as third-party mortgagor, is proper.
The petition is bereft of merit.
First, as to the issue of availability of remedies, petitioner submits that a waiver of the remedy of
foreclosure requires the concurrence of two requisites: an ordinary civil action for collection should be
filed and subsequently a final judgment be correspondingly rendered therein.
According to petitioner, the mere filing of a personal action to collect the principal loan does not
suffice; a final judgment must be secured and obtained in the personal action so that waiver of the
remedy of foreclosure may be appreciated. To put it differently, absent any of the two requisites, the
mortgagee-creditor is deemed not to have waived the remedy of foreclosure.
We do not agree.
Certainly, this Court finds petitioner’s arguments untenable and upholds the jurisprudence laid down
in Bachrach[15] and similar cases adjudicated thereafter, thus:
“In the absence of express statutory provisions, a mortgage creditor may institute against the mortgage
debtor either a personal action for debt or a real action to foreclose the mortgage. In other words, he may
pursue either of the two remedies, but not both. By such election, his cause of action can by no means be
impaired, for each of the two remedies is complete in itself. Thus, an election to bring a personal action
will leave open to him all the properties of the debtor for attachment and execution, even including the
mortgaged property itself. And, if he waives such personal action and pursues his remedy against the
mortgaged property, an unsatisfied judgment thereon would still give him the right to sue for a deficiency
judgment, in which case, all the properties of the defendant, other than the mortgaged property, are again
open to him for the satisfaction of the deficiency. In either case, his remedy is complete, his cause of
action undiminished, and any advantages attendant to the pursuit of one or the other remedy are purely
accidental and are all under his right of election. On the other hand, a rule that would authorize the
plaintiff to bring a personal action against the debtor and simultaneously or successively another action
against the mortgaged property, would result not only in multiplicity of suits so offensive to justice
(Soriano vs. Enriques, 24 Phil. 584) and obnoxious to law and equity (Osorio vs. San Agustin, 25 Phil., 404),
but also in subjecting the defendant to the vexation of being sued in the place of his residence or of the
residence of the plaintiff, and then again in the place where the property lies.”
 In Danao vs. Court of Appeals,[16] this Court, reiterating jurisprudence enunciated in Manila
Trading and Supply Co. vs. Co Kim[17]and Movido vs. RFC,[18] invariably held:
“x x x The rule is now settled that a mortgage creditor may elect to waive his security and bring, instead,
an ordinary action to recover the indebtedness with the right to execute a judgment thereon on all the
properties of the debtor, including the subject matter of the mortgage x x x, subject to the qualification
that if he fails in the remedy by him elected, he cannot pursue further the remedy he has waived.
(Underscoring Ours)
Anent real properties in particular, the Court has laid down the rule that a mortgage creditor may
institute against the mortgage debtor either a personal action for debt or a real action to foreclose
the mortgage.[19]
In our jurisdiction, the remedies available to the mortgage creditor are deemed alternative and not
cumulative. Notably, an election of one remedy operates as a waiver of the other. For this purpose,
a remedy is deemed chosen upon the filing of the suit for collection or upon the filing of the
complaint in an action for foreclosure of mortgage, pursuant to the provision of Rule 68 of the 1997
Rules of Civil Procedure. As to extrajudicial foreclosure, such remedy is deemed elected by the
mortgage creditor upon filing of the petition not with any court of justice but with the Office of the
Sheriff of the province where the sale is to be made, in accordance with the provisions of Act No.
3135, as amended by Act No. 4118.
In the case at bench, private respondent ARC constituted real estate mortgages over its properties as
security for the debt of the principal debtors. By doing so, private respondent subjected itself to the
liabilities of a third party mortgagor. Under the law, third persons who are not parties to a loan may
secure the latter by pledging or mortgaging their own property.[20]
Notwithstanding, there is no legal provision nor jurisprudence in our jurisdiction which makes a third
person who secures the fulfillment of another‘s obligation by mortgaging his own property, to be
solidarily bound with the principal obligor. The signatory to the principal contract—loan—remains to
be primarily bound. It is only upon default of the latter that the creditor may have recourse on the
mortgagors by foreclosing the mortgaged properties in lieu of an action for the recovery of the
amount of the loan.[21]
In the instant case, petitioner’s contention that the requisites of filing the action for collection and
rendition of final judgment therein should concur, is untenable.
Thus, in Cerna vs. Court of Appeals,[22] we agreed with the petitioner in said case, that
the filing of a collection suit barred the foreclosure of the mortgage:
“A mortgagee who files a suit for collection abandons the remedy of foreclosure of the chattel mortgage
constituted over the personal property as security for the debt or value of the promissory note when he
seeks to recover in the said collection suit.”
“ x x x When the mortgagee elects to file a suit for collection, not foreclosure, thereby abandoning the
chattel mortgage as basis for relief, he clearly manifests his lack of desire and interest to go after the
mortgaged property as security for the promissory note x x x.”
Contrary to petitioner’s arguments, we therefore reiterate the rule, for clarity and emphasis, that the
mere act of filing of an ordinary action for collection operates as a waiver of the mortgage-creditor’s
remedy to foreclose the mortgage. By the mere filing of the ordinary action for collection against the
principal debtors, the petitioner in the present case is deemed to have elected a remedy, as a result
of which a waiver of the other necessarily must arise. Corollarily, no final judgment in the collection
suit is required for the rule on waiver to apply.
Hence, in Caltex Philippines, Inc. vs. Intermediate Appellate Court,[23] a case relied upon by
petitioner, supposedly to buttress its contention, this Court had occasion to rule that the mere act
offiling a collection suit for the recovery of a debt secured by a mortgage constitutes waiver of the
other remedy of foreclosure.
In the case at bar, petitioner BANTSA only has one cause of action which is non-payment of the
debt. Nevertheless, alternative remedies are available for its enjoyment and exercise. Petitioner
then may opt to exercise only one of two remedies so as not to violate the rule against splitting a
cause of action.
As elucidated by this Court in the landmark case of Bachrach Motor Co., Inc. vs. Icarangal.[24]
“For non-payment of a note secured by mortgage, the creditor has a single cause of action against the
debtor. This single cause of action consists in the recovery of the credit with execution of the security. In
other words, the creditor in his action may make two demands, the payment of the debt and the
foreclosure of his mortgage. But both demands arise from the same cause, the non-payment of the debt,
and for that reason, they constitute a single cause of action. Though the debt and the mortgage constitute
separate agreements, the latter is subsidiary to the former, and both refer to one and the same
obligation. Consequently, there exists only one cause of action for a single breach of that
obligation. Plaintiff, then, by applying the rules above stated, cannot split up his single cause of action by
filing a complaint for payment of the debt, and thereafter another complaint for foreclosure of the
mortgage. If he does so, the filing of the first complaint will bar the subsequent complaint. By allowing
the creditor to file two separate complaints simultaneously or successively, one to recover his credit and
another to foreclose his mortgage, we will, in effect, be authorizing him plural redress for a single breach
of contract at so much cost to the courts and with so much vexation and oppression to the debtor.”
Petitioner further faults the Court of Appeals for allegedly disregarding the doctrine enunciated in
Caltex, wherein this High Court relaxed the application of the general rules to wit:
“In the present case, however, we shall not follow this rule to the letter but declare that it is the collection
suit which was waived and/or abandoned. This ruling is more in harmony with the principles underlying
our judicial system. It is of no moment that the collection suit was filed ahead, what is determinative is the
fact that the foreclosure proceedings ended even before the decision in the collection suit was rendered. x
x x”
Notably, though, petitioner took the Caltex ruling out of context. We must stress that the Caltex case
was never intended to overrule the well-entrenched doctrine enunciated in Bachrach, which to our
mind still finds applicability in cases of this sort. To reiterate, Bachrach is still good law.
We then quote the decision[25]of the trial court, in the present case, thus:
“The aforequoted ruling in Caltex is the exception rather than the rule, dictated by the peculiar
circumstances obtaining therein. In the said case, the Supreme Court chastised Caltex for making “ x x x a
mockery of our judicial system when it initially filed a collection suit then, during the pendency thereof,
foreclosed extrajudicially the mortgaged property which secured the indebtedness, and still pursued the
collection suit to the end.” Thus, to prevent a mockery of our judicial system”, the collection suit had to be
nullified because the foreclosure proceedings have already been pursued to their end and can no longer
be undone.
xxx xxx xxx
“In the case at bar, it has not been shown whether the defendant pursued to the end or are still pursuing
the collection suits filed in foreign courts. There is no occasion, therefore, for this court to apply the
exception laid down by the Supreme Court in Caltex, by nullifying the collection suits. Quite obviously,
too, the aforesaid collection suits are beyond the reach of this Court. Thus the only way the court may
prevent the spector of a creditor having “plural redress for a single breach of contract” is by holding, as
the Court hereby holds, that the defendant has waived the right to foreclose the mortgages constituted by
the plaintiff on its properties originally covered by Transfer Certificates of Title Nos. T-78759, T-78762, T-
78760 and T-78761.” (RTC Decision pp., 10-11)
In this light, the actuations of Caltex are deserving of severe criticism, to say the least.[26]
Moreover, petitioner attempts to mislead this Court by citing the case of PCIB vs. IAC.[27] Again,
petitioner tried to fit a square peg in a round hole. It must be stressed that far from overturning the
doctrine laid down in Bachrach, this Court in PCIB buttressed its firm stand on this issue by declaring:
“While the law allows a mortgage creditor to either institute a personal action for the debt or a real action
to foreclosure the mortgage, he cannot pursue both remedies simultaneously or successively as was done
by PCIB in this case.”
xxx xxx xxx
“Thus, when the PCIB filed Civil Case No. 29392 to enforce payment of the 1.3 million promissory note
secured by real estate mortgages and subsequently filed a petition for extrajudicial foreclosure, it violates
the rule against splitting a cause of action.”
Accordingly, applying the foregoing rules, we hold that petitioner, by the expediency of filing four civil
suits before foreign courts, necessarily abandoned the remedy to foreclose the real estate mortgages
constituted over the properties of third-party mortgagor and herein private respondent
ARC. Moreover, by filing the four civil actions and by eventually foreclosing extrajudicially the
mortgages, petitioner in effect transgressed the rules against splitting a cause of action well-
enshrined in jurisprudence and our statute books.
In Bachrach, this Court resolved to deny the creditor the remedy of foreclosure after the collection
suit was filed, considering that the creditor should not be afforded “plural redress for a single breach
of contract.” For cause of action should not be confused with the remedy created for its
enforcement.[28]
Notably, it is not the nature of the redress which is crucial but the efficacy of the remedy chosen in
addressing the creditor’s cause. Hence, a suit brought before a foreign court having competence and
jurisdiction to entertain the action is deemed, for this purpose, to be within the contemplation of the
remedy available to the mortgagee-creditor. This pronouncement would best serve the interest of
justice and fair play and further discourage the noxious practice of splitting up a lone cause of action.
Incidentally, BANTSA alleges that under English Law, which according to petitioner is the governing
law with regard to the principal agreements, the mortgagee does not lose its security interest by
simply filing civil actions for sums of money.[29]
 We rule in the negative.
This argument shows desperation on the part of petitioner to rivet its crumbling cause. In the case at
bench, Philippine law shall apply notwithstanding the evidence presented by petitioner to prove the
English law on the matter.
In a long line of decisions, this Court adopted the well-imbedded principle in our jurisdiction that
there is no judicial notice of any foreign law. A foreign law must be properly pleaded and proved as a
fact.[30] Thus, if the foreign law involved is not properly pleaded and proved, our courts will presume
that the foreign law is the same as our local or domestic or internal law.[31] This is what we refer to
as the doctrine of processual presumption.
In the instant case, assuming arguendo that the English Law on the matter were properly pleaded
and proved in accordance with Section 24, Rule 132 of the Rules of Court and the jurisprudence laid
down in Yao Kee, et al. vs. Sy-Gonzales,[32] said foreign law would still not find applicability.
Thus, when the foreign law, judgment or contract is contrary to a sound and established public policy
of the forum, the said foreign law, judgment or order shall not be applied.[33]
Additionally, prohibitive laws concerning persons, their acts or property, and those which have for
their object public order, public policy and good customs shall not be rendered ineffective by laws or
judgments promulgated, or by determinations or conventions agreed upon in a foreign country.[34]
The public policy sought to be protected in the instant case is the principle imbedded in our
jurisdiction proscribing the splitting up of a single cause of action.
Section 4, Rule 2 of the 1997 Rules of Civil Procedure is pertinent -
“If two or more suits are instituted on the basis of the same cause of action, the filing of one or a
judgment upon the merits in any one is available as a ground for the dismissal of the others.”
Moreover, foreign law should not be applied when its application would work undeniable injustice to
the citizens or residents of the forum. To give justice is the most important function of law; hence, a
law, or judgment or contract that is obviously unjust negates the fundamental principles of Conflict of
Laws.[35]
Clearly then, English Law is not applicable.
As to the second pivotal issue, we hold that the private respondent is entitled to the award of actual
or compensatory damages inasmuch as the act of petitioner BANTSA in extrajudicially foreclosing the
real estate mortgages constituted a clear violation of the rights of herein private respondent ARC, as
third-party mortgagor.
Actual or compensatory damages are those recoverable because of pecuniary loss in business,
trade, property, profession, job or occupation and the same must be proved, otherwise if the proof is
flimsy and non-substantial, no damages will be given.[36] Indeed, the question of the value of
property is always a difficult one to settle as valuation of real property is an imprecise process since
real estate has no inherent value readily ascertainable by an appraiser or by the court.[37] The
opinions of men vary so much concerning the real value of property that the best the courts can do is
hear all of the witnesses which the respective parties desire to present, and then, by carefully
weighing that testimony, arrive at a conclusion which is just and equitable.[38]
In the instant case, petitioner assails the Court of Appeals for relying heavily on the valuation made
by Philippine Appraisal Company. In effect, BANTSA questions the act of the appellate court in giving
due weight to the appraisal report composed of twenty three pages, signed by Mr. Lauro Marquez
and submitted as evidence by private respondent. The appraisal report, as the records would readily
show, was corroborated by the testimony of Mr. Reynaldo Flores, witness for private respondent.
On this matter, the trial court observed:
“The record herein reveals that plaintiff-appellee formally offered as evidence the appraisal report dated
March 29, 1993 (Exhibit J, Records, p. 409), consisting of twenty three (23) pages which set out in detail
the valuation of the property to determine its fair market value (TSN, April 22, 1994, p. 4), in the amount of
P99,986,592.00 (TSN, ibid., p. 5), together with the corroborative testimony of one Mr. Reynaldo F. Flores,
an appraiser and director of Philippine Appraisal Company, Inc. (TSN, ibid., p. 3). The latter’s testimony
was subjected to extensive cross-examination by counsel for defendant-appellant (TSN, April 22, 1994, pp.
6-22).”[39]
In the matter of credibility of witnesses, the Court reiterates the familiar and well-entrenched rule
that the factual findings of the trial court should be respected.[40] The time-tested jurisprudence is
that the findings and conclusions of the trial court on the credibility of witnesses enjoy a badge of
respect for the reason that trial courts have the advantage of observing the demeanor of witnesses
as they testify.[41]
This Court will not alter the findings of the trial court on the credibility of witnesses, principally
because they are in a better position to assess the same than the appellate court.[42] Besides, trial
courts are in a better position to examine real evidence as well as observe the demeanor of
witnesses.[43]
 Similarly, the appreciation of evidence and the assessment of the credibility of witnesses rest
primarily with the trial court.[44] In the case at bar, we see no reason that would justify this Court to
disturb the factual findings of the trial court, as affirmed by the Court of Appeals, with regard to the
award of actual damages.
In arriving at the amount of actual damages, the trial court justified the award by presenting the
following ratiocination in its assailed decision[45], to wit:
“Indeed, the Court has its own mind in the matter of valuation. The size of the subject real properties are
(sic) set forth in their individual titles, and the Court itself has seen the character and nature of said
properties during the ocular inspection it conducted. Based principally on the foregoing, the Court makes
the following observations:
“1. The properties consist of about 39 hectares in Bo. Sto. Cristo, San Jose del Monte, Bulacan, which is
(sic) not distant from Metro Manila – the biggest urban center in the Philippines – and are easily accessible
through well-paved roads;
“2. The properties are suitable for development into a subdivision for low cost housing, as admitted by
defendant’s own appraiser (TSN, May 30, 1994, p. 31);
“3. The pigpens which used to exist in the property have already been demolished. Houses of strong
materials are found in the vicinity of the property (Exhs. 2, 2-1 to 2-7), and the vicinity is a growing
community. It has even been shown that the house of the Barangay Chairman is located adjacent to the
property in question (Exh. 27), and the only remaining piggery (named Cherry Farm) in the vicinity is
about 2 kilometers away from the western boundary of the property in question (TSN, November 19, p. 3);
“4. It will not be hard to find interested buyers of the property, as indubitably shown by the fact that on
March 18, 1994, ICCS (the buyer during the foreclosure sale) sold the consolidated real estate properties to
Stateland Investment Corporation, in whose favor new titles were issued, i.e., TCT Nos. T-187781(m); T-
187782(m), T-187783(m); T-16653P(m) and T-166521(m) by the Register of Deeds of Meycauayan (sic),
Bulacan;
“5. The fact that ICCS was able to sell the subject properties to Stateland Investment Corporation for
Thirty Nine Million (P39,000,000.00) Pesos, which is more than triple defendant’s appraisal (Exh. 2) clearly
shows that the Court cannot rely on defendant’s aforesaid estimate (Decision, Records, p. 603).”
It is a fundamental legal aphorism that the conclusions of the trial judge on the credibility of
witnesses command great respect and consideration especially when the conclusions are supported
by the evidence on record.[46] Applying the foregoing principle, we therefore hold that the trial court
committed no palpable error in giving credence to the testimony of Reynaldo Flores, who according
to the records, is a licensed real estate broker, appraiser and director of Philippine Appraisal
Company, Inc. since 1990.[47] As the records show, Flores had been with the company for 26 years
at the time of his testimony.
Of equal importance is the fact that the trial court did not confine itself to the appraisal report dated
29 March 1993, and the testimony given by Mr. Reynaldo Flores, in determining the fair market value
of the real property. Above all these, the record would likewise show that the trial judge in order to
appraise himself of the characteristics and condition of the property, conducted an ocular inspection
where the opposing parties appeared and were duly represented.
Based on these considerations and the evidence submitted, we affirm the ruling of the trial court as
regards the valuation of the property –
“x x x a valuation of Ninety Nine Million Pesos (P99,000,000.00) for the 39-hectare properties (sic)
translates to just about Two Hundred Fifty Four Pesos (P254.00) per square meter. This appears to be, as
the court so holds, a better approximation of the fair market value of the subject properties. This is the
amount which should be restituted by the defendant to the plaintiff by way of
actual or compensatory damages x x x.”[48]
Further, petitioner ascribes error to the lower court for awarding an amount allegedly not asked nor
prayed for in private respondent’s complaint.
Notwithstanding the fact that the award of actual and compensatory damages by the lower court
exceeded that prayed for in the complaint, the same is nonetheless valid, subject to certain
qualifications.
On this issue, Rule 10, Section 5 of the Rules of Court is pertinent:
“SEC. 5. Amendment to conform to or authorize presentation of evidence. – When issues not raised by
the pleadings are tried with the express or implied consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise these issues may be made upon motion
of any party at any time, even after judgement; but failure to amend does not affect the result of the trial
of these issues. If evidence is objected to at the trial on the ground that it is not within the issues made by
the pleadings, the court may allow the pleadings to be amended and shall do so with liberality if the
presentation of the merits of the action and the ends of substantial justice will be subserved thereby. The
court may grant a continuance to enable the amendment to be made.”
The jurisprudence enunciated in Talisay-Silay Milling Co., Inc. vs. Asociacion de Agricultures
de Talisay-Silay, Inc.[49] citing Northern Cement Corporation vs. Intermediate Appellate
Court [50] is enlightening:
“There have been instances where the Court has held that even without the necessary amendment, the
amount proved at the trial may be validly awarded, as in Tuazon v. Bolanos (95 Phil. 106), where we said
that if the facts shown entitled plaintiff to relief other than that asked for, no amendment to the complaint
was necessary, especially where defendant had himself raised the point on which recovery was
based. The appellate court could treat the pleading as amended to conform to the evidence although the
pleadings were actually not amended. Amendment is also unnecessary when only clerical error or non
substantial matters are involved, as we held in Bank of the Philippine Islands vs. Laguna (48 Phil. 5). In Co
Tiamco vs. Diaz (75 Phil. 672), we stressed that the rule on amendment need not be applied rigidly,
particularly where no surprise or prejudice is caused the objecting party. And in the recent case
of National Power Corporation vs. Court of Appeals (113 SCRA 556), we held that where there is a variance
in the defendant’s pleadings and the evidence adduced by it at the trial, the Court may treat the pleading
as amended to conform with the evidence.
“It is the view of the Court that pursuant to the above-mentioned rule and in light of the decisions cited,
the trial court should not be precluded from awarding an amount higher than that claimed in the pleading
notwithstanding the absence of the required amendment. But it is upon the condition that the evidence
of such higher amount has been presented properly, with full opportunity on the part of the opposing
parties to support their respective contentions and to refute each other’s evidence.
“The failure of a party to amend a pleading to conform to the evidence adduced during trial does not
preclude an adjudication by the court on the basis of such evidence which may embody new issues not
raised in the pleadings, or serve as a basis for a higher award of damages. Although the pleading may not
have been amended to conform to the evidence submitted during trial, judgment may nonetheless be
rendered, not simply on the basis of the issues alleged but also on the basis of issues discussed and the
assertions of fact proved in the course of trial. The court may treat the pleading as if it had been amended
to conform to the evidence, although it had not been actually so amended. Former Chief Justice Moran put
the matter in this way:
`When evidence is presented by one party, with the expressed or implied consent of the adverse party, as
to issues not alleged in the pleadings, judgment may be rendered validly as regards those issues, which
shall be considered as if they have been raised in the pleadings. There is implied consent to the evidence
thus presented when the adverse party fails to object thereto.’
“Clearly, a court may rule and render judgment on the basis of the evidence before it even though the
relevant pleading had not been previously amended, so long as no surprise or prejudice is thereby caused
to the adverse party. Put a little differently, so long as the basis requirements of fair play had been met,
as where litigants were given full opportunity to support their respective contentions and to object to or
refute each other’s evidence, the court may validly treat the pleadings as if they had been amended to
conform to the evidence and proceed to adjudicate on the basis of all the evidence before it.”
In the instant case, inasmuch as the petitioner was afforded the opportunity to refute and object to
the evidence, both documentary and testimonial, formally offered by private respondent, the
rudiments of fair play are deemed satisfied. In fact, the testimony of Reynaldo Flores was put under
scrutiny during the course of the cross-examination. Under these circumstances, the court acted
within the bounds of its jurisdiction and committed no reversible error in awarding actual damages
the amount of which is higher than that prayed for. Verily, the lower court’s actuations are
sanctioned by the Rules and supported by jurisprudence.
Similarly, we affirm the grant of exemplary damages although the amount of Five Million Pesos
(P5,000,000.00) awarded, being excessive, is subject to reduction. Exemplary or corrective damages
are imposed, by way of example or correction for the public good, in addition to the moral,
temperate, liquidated or compensatory damages.[51] Considering its purpose, it must be fair and
reasonable in every case and should not be awarded to unjustly enrich a prevailing party.[52] In our
view, an award of P50,000.00 as exemplary damages in the present case qualifies the test of
reasonableness.
WHEREFORE, premises considered, the instant petition is DENIED for lack of merit. The decision of
the Court of Appeals is hereby AFFIRMED with MODIFICATION of the amount awarded as exemplary
damages. Accordingly, petitioner is hereby ordered to pay private respondent the sum of
P99,000,000.00 as actual or compensatory damages; P50,000.00 as exemplary damage and the
costs of suit.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and De Leon, Jr., JJ., concur.
[1] CA Decision in CA-G.R. CV No. 51094, penned by Justice Ricardo P. Galvez and concurred in by Justice
Fidel V. Purisima and Justice B.A. Adefuin-De la Cruz; Rollo, pp. 38-58.
[2] CA Resolution in CA G.R. CV No. 51094, dated 22 May 1998; Rollo, p. 60.
[3] Rollo, p. 38.
[4] Ibid., p. 39.
[5] Ibid.
[6] Ibid., p. 40.
[7] Ibid.
[8] Ibid.
[9] Ibid.
[10] Rollo, p. 41.
[11] Ibid.
[12] Ibid.
[13] Rollo,, pp. 41-42.
[14] Rollo, pp. 10-36.
[15] Bachrach Motor Co., Inc. vs. Esteban Icarangal, 68 Phil. 287.
[16] 154 SCRA 446.
[17] 71 Phil. 448.
[18] 105 Phil. 886.
[19] Danao vs. Court of Appeals 154 SCRA 446.
[20] Article 2085, Civil Code; Lustan vs. Court of Appeals, 266 SCRA 663.
[21] Cerna vs. Court of Appeals 220 SCRA 517.
[22] Ibid.
[23] 176 SCRA 741.
[24] 68 Phil. 287.
[25] Rollo, p.94.
[26]Caltex Philippines, Inc. vs. Intermediate Appellate Court, 176 SCRA 741.
[27] 196 SCRA 29.
[28] Bachrach Motor vs. Icarangal, 68 Phil. 287.
[29] Rollo, p.16.7
[30] Adong vs. Cheong Seng Gee, 43 Phil. 43; Sy Joc Lieng vs. Syquia, 16 Phil. 137.
[31] Lim vs. Collector, 36 Phil. 472.
[32] 167 SCRA 736.
[33] Philippine Conflict of Laws, Eighth Edition, 1996, Paras, page 46.
[34] Article 17, par. 3, Civil Code.
[35] Philippine Conflict of Laws, Eight Edition, 1996, Paras, p. 60.
[36] Perfecto vs. Gonzales, 128 SCRA 640, as cited in Danao vs. Court of Appeals, 154 SCRA 447.
[37] City of Manila vs. Corrales, 32 Phil. 85, 96.
[38] 22 Am. Jur. 2d 193.
[39] Rollo, p. 103.
[40] People vs. Morales, 241 SCRA 267.
[41] People vs. Gamiao, 240 SCRA 254.
[42] People vs. Cascalla, 240 SCRA 482.
[43] Lee Eng Hong vs. Court of Appeals, 241 SCRA 392.
[44] Ibid.
[45] Rollo, pp. 46-47.
[46] People vs. Asoy, 251 SCRA 682.
[47] TSN, April 22, 1994, p. 6.
[48] Decision, Records, ibid.
[49] 247 SCRA 361, 377-378.
[50] 158 SCRA 408.
[51] Article 2229, Civil Code.
[52] Philtranco Service Exporters, Inc. vs. Court of Appeals, 273 SCRA 562.

Pasted from <http://sc.judiciary.gov.ph/jurisprudence/1999/dec99/133876.htm>

Olizon vs. CA (1994)

Sunday, June 06, 2010
12:22 AM

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 107075 September 1, 1994

ARMANDO S. OLIZON and ILUMINADA C. OLIZON, petitioners,
vs.
COURT OF APPEALS and PRUDENTIAL BANK, respondents.
Roberto T. Neri for petitioners.
Magno & Associates for private respondent.

REGALADO, J.:
The factual alpha of the present dispute was sometime in 1967 when the spouses Armando and Iluminada
Olizon obtained a loan from respondent Prudential Bank in the amount of P25,000.00 and, as security
therefor, they executed in favor of respondent bank a real estate mortgage over a parcel of land consisting
of 1,000 square meters located at Barrio Calaanan, Kalookan City and registered in their names under
Transfer Certificate of Title No. 24604 of the Registry of Deeds of Kalookan City. Unfortunately, that
transaction spawned the succeeding events hereunder chronologically narrated, eventuating in this appeal
wherein we are now expected to pen the judicial omega.
It appears from the records that the Olizon spouses failed to pay their aforestated obligation upon its
maturity, so private respondent extrajudicially foreclosed the real estate mortgage. At a public auction
thereafter held on March 11, 1975, the subject property was sold to respondent bank as the highest
bidder, pursuant to which it was issued a certificate of sale as of the same date. On March 12, 1974, the
said certificate of sale was duly annotated at the back of petitioner's Transfer Certificate of Title No.
24604.
On June 5, 1978, again due to the failure of petitioner spouses to redeem the foreclosed property within
the period of redemption, title to the property was consolidated in favor of respondent bank. 1
On January 14, 1986, respondent bank filed with the Regional Trial Court of Kalookan City a petition to
reconstitute Transfer Certificate of Title No. 24604, which was lost in the Office of the Registry of Deeds of
Kalookan City, the said proceeding being docketed as Case No. C-2746. 2
On June 11, 1986, the Regional Trial Court of Kalookan City ordered the reconstitution prayed for. As a
consequence, Transfer of Certificate of Title No. 24604 in the name of the Olizon spouses was cancelled
and, in lieu thereof, Transfer Certificate of Title No. 149858 was issued on June 5, 1987 in the name of
respondent bank.3
On November 27, 1989, respondent bank this time filed with the Regional Trial Court of Kalookan City, a
petition for the issuance of a writ of possession against petitioner spouses, docketed as LRC Case No. C-
3094, 4 and which petition was granted by the trial court on February 8, 1990. 5
On March 8, 1990, a petition, by way of opposition, was filed by petitioner spouses wherein they sought
the cancellation of the writ of possession, the nullification of the certificate of sale dated March 11, 1974,
and/or the nullification of the foreclosure proceedings. In support thereof, they alleged lack of notice of the
auction sale and lack of posting of the notice of sale as required by Section 3 of Act No. 3135, as
amended. 6
After trial, the court a quo issued an order dated July 16, 1990, with the following dispositive portion:
WHEREFORE, the Court hereby declares that:
1. The foreclosure of the real estate mortgage executed by the spouses Olizons, as well as the certificate
of sale dated March 11, 1974 as (sic) null and void;
2. The writ of possession is hereby set aside; and
3. Ordering the Register of Deeds of Caloocan City to cancel Transfer Certificate of Title No. 149858 issued
in the name of Prudential Bank and to reinstate Transfer Certificate of Title No. 24604 to (sic) spouses
Armando S. Olizon and Iluminada C. Olizon.
SO ORDERED. 7
Private respondent appealed the said decision to the Court of Appeals which rendered its questioned
decision in CA—G.R. CV No. 29482, dated September 9, 1992, with a disposition of reversal, thus:
WHEREFORE, the Decision (sic) dated July 16, 1990 of the Regional Trial Court of Caloocan in LRC Case No.
3094 is hereby REVERSED and SET ASIDE and another rendered upholding the validity of the foreclosure
sale of the real estate mortgage and the writ of possession dated February 8, 1990. 8
Petitioners have now come to us through the present petition wherein they contend that:
1. The Court of Appeals erred in reversing the trial court since there is evidence to show that the
requirements of Sec. 3, Act No. 3135, as amended, were not complied with.
2. The Court of Appeals erred in holding that petitioners had notice of the foreclosure sale.
3. The Court of Appeals erred in holding that petitioners had totally abandoned the subject property, as
this is not supported by the evidence. 9
We do not find substantial merit in the petition.
Herein petitioners are now seeking the annulment of the extrajudicial foreclosure sale conducted more
than 20 years ago, invoking therefor two grounds, namely, lack of personal notice to the mortgagors about
the foreclosure sale, and the failure of the mortgagee bank to comply with the posting requirement under
Section 3 of Act No. 3135, as amended.
It is now a well-settled rule that personal notice to the mortgagor in extrajudicial foreclosure proceedings is
not necessary. 10 Section 3 of Act No. 3135 governing extrajudicial foreclosure of real estate mortgages,
as amended by Act No. 4118, requires only the posting of the notice of sale in three public places and the
publication of that notice in a newspaper of general circulation. Hence, the lack of personal notice to the
mortgagors, herein petitioners, is not a ground to set aside the foreclosure sale.
Neither can the supposed failure of respondent bank to comply with the posting requirement as provided
under the aforesaid Section 3, under the factual ambiance and circumstances which obtained in this case,
be considered a sufficient ground for annulling the aforementioned sale. We are not unaware of the rulings
in some cases that, under normal situations, the statutory provisions governing publication of notice of
extrajudicial foreclosure sales must be strictly complied with and that failure to publish the notice of
auction sale as required by the statute constitutes a jurisdictional defect which invalidates the sale.
However, the unusual nature of the attendant facts and the peculiarity of the confluent circumstances
involved in this case require that we rule otherwise.
Petitioners' cited authority on the requisite publication of notices is not so all-embracing as to deny
justified exceptions thereto under appropriate situations. Petitioners quote this passage from Tambunting
et al. vs. Court of Appeals, et al. 11 which is not conclusive hereon for not being exactly in point, based as
it is on different facts, thus:
The rule is that statutory provisions governing publication of notice of mortgage foreclosure sales must be
strictly complied with, and that even slight deviations therefrom will invalidate the notice and render the
sale at least voidable. Interpreting Sec. 457 of the Code of Civil Procedure (reproduced in Sec. 18[c] of
Rule 39, Rules of Court and in Sec. 3 of Act No. 3135) in Campomanes vs. Bartolome and German &
Co. (38 Phil. 8081), this Court held that if a sheriff sells without the notice prescribed by the Code of Civil
Procedure induced thereto by the judgment creditor, the sale is absolutely void and no title passes. . . .
(Emphasis supplied.)
At any rate, respondent Court of Appeals has this commendable ratiocination on the aforestated twin
errors assigned by petitioners:
The decisive issue which must be resolved is whether or not the statutory requirements of notice have
been complied with in this case. Section 12 of the mortgage contract reads:
"12. All correspondence relative to this mortgage, including demand letters, summonses, subpoenas or
notifications of any judicial or extrajudicial action shall be sent to the Mortgagor at No. 82 Naval Street,
Malabon, Rizal or at the address that may hereafter be given in writing by the Mortgagor to the Mortgagee.
The mere act of sending any correspondence by mail or by personal delivery to the said address shall be
valid and effective notice to the Mortgagor for all legal purposes, and . . . shall not excuse or relieve the
mortgagor from the effects of such notice." (Emphasis supplied.)
The foregoing stipulation is the law between petitioner and oppositors-spouses and should be complied
with faithfully.
That the mortgagors were actually notified by appellant bank of the foreclosure proceedings is shown by
its letters to the Olizons before the actual sale at public auction of the subject property, to wit: (1) Letter
dated January 16, 1973 of Atty. Octavio D. Fule, Legal Officer of appellant bank to the Olizons informing
the latter that their failure to pay their obligations will constrain appellant bank to institute appropriate
legal action against them; (2) Letter dated January 31, 1974 of Atty. Octavio D. Fule, Legal Officer of
appellant bank, informing the Olizons that Prudential Bank has filed foreclosure proceedings under Act
3135, as amended.
xxx xxx xxx
Furthermore, notice of sale was duly published in accordance with law and furnished the Olizons. The
evidence presented during the trial of the case show that the then Clerk of Court, Emma Ona, sent a
printed letter dated February 18, 1974 informing the Olizons that appellant bank had filed an application to
foreclosure their real estate mortgage and the public auction of the mortgaged parcel of land was sent on
March 11, 1974, together with a copy of the Notice of Sale. The document is more than ten (10) years old
and the absence of a registry receipt in the case folder of the foreclosure records of the Sheriff of the City
of Caloocan, does not indicate that the Olizons did not receive a copy of the aforesaid notice of sale, it
being presumed that the sheriff performed her duties and that foreclosure proceedings are regular. . . .
(Citations omitted.) 12
Furthermore, unlike the situation in previous cases 13 where the foreclosure sales were annulled by
reason of failure to comply with the notice requirement under Section 3 of Act No. 3135, as amended,
what is allegedly lacking here is the posting of the notice in three public places, and not the publication
thereof in a newspaper of general circulation.
We take judicial notice of the fact that newspaper publications have more far-reaching effects than posting
on bulletin boards in public places. There is a greater probability that an announcement or notice
published in a newspaper of general circulation, which is distributed nationwide, shall have a readership of
more people than that posted in a public bulletin board, no matter how strategic its location may be, which
caters only to a limited few. Hence, the publication of the notice of sale in the newspaper of general
circulation alone is more than sufficient compliance with the notice-posting requirement of the law. By
such publication, a reasonably wide publicity had been effected such that those interested might attend
the public sale, and the purpose of the law had been thereby subserved.
The object of a notice of sale is to inform the public of the nature and condition of the property to be sold,
and of the time, place and terms of the sale. Notices are given for the purpose of securing bidders and to
prevent a sacrifice of the property. If these objects are attained, immaterial errors and mistakes will not
affect the sufficiency of the notice; but if mistakes or omissions occur in the notices of sale, which are
calculated to deter or mislead bidders, to depreciate the value of the property, or to prevent it from
bringing a fair price, such mistakes or omissions will be fatal to the validity of the notice, and also to the
sale made pursuant thereto. 14
In the instant case, the aforesaid objective was attained since there was sufficient publicity of the sale
through the newspaper publication. There is completely no showing that the property was sold for a price
far below its value as to insinuate any bad faith, nor was there any showing or even an intimation of
collusion between the sheriff who conducted the sale and respondent bank. This being so, the alleged non-
compliance with the posting requirement, even if true, will not justify the setting aside of the sale.
Moreover, herein petitioners failed to discharge the burden of proving by convincing evidence their
allegation that there was actually no compliance with the posting requirement. The foreclosure proceeding
has in its favor the presumption of regularity, 15 and the burden of evidence to rebut the same is on
petitioners. Where the allegation is an essential part of the cause of action or defense in a civil case,
whether posited in an affirmative or negative form, the burden of evidence thereon lies with the
pleader. 16 Besides, the fact alone that there was no certificate of posting attached to the sheriff's records
of the extrajudicial foreclosure sale is not sufficient to prove the lack of posting, especially in this case
where the questioned act and the record thereof are already 16 years old. It is quite unfair to now shift to
respondent bank the burden of proving the fact of posting considering the length of time that has elapsed,
aside from the fact that the sheriff who conducted the public sale and who was responsible for the posting
of the notice of sale is already out of the country, with the records being silent on his present whereabouts
or the possibility of his returning here.
Indeed, even on equitable considerations alone, the presumption of regularity in the performance of
official duty must stand. As aptly found by the Court of Appeals:
. . . It is not a matter of lack of compliance with the requirements of the law, rather, it is a matter of
unavailability of certain documents due to the loss thereof, considering that more than sixteen (16) years
had lapsed from the date of the extra-judicial foreclosure of the real estate mortgage. Indeed, the
presumption of regularity in the performance of official duty by the sheriff, more particularly, compliance
with the provisions of Act 3135, as amended, has not been overturned by the Olizons. 17
Nor are these all that we wish to expound hereon, for this is one case where we find the necessity for the
application of the equitable principle of estoppel by laches in order to avoid an injustice.
Laches has been defined as the failure or neglect, for an unreasonable and unexplained length of time, to
do that which by exercising due diligence could nor should have been done earlier; it is negligence or
omission to assert a right within a reasonable time, warranting a presumption that the party entitled to
assert it either has abandoned it or declined to assert it. 18
In the case at bar, petitioners are already considered estopped through laches from questioning the
regularity of the sale as well as the ownership of the land in question. It is evident from the records that
the petition to annul the foreclosure sale was filed by herein petitioners only after 16 long years from the
date of sale and only after a transfer certificate of title over the subject property had long been issued to
respondent bank. Herein petitioners failed to advance any justification for their prolonged inaction. It
would be inequitable to allow petitioners, after the lapse of an almost interminable period of time, to
defeat an otherwise indefeasible title by the simple and dubious expedient of invoking a purported
irregularity in the foreclosure proceedings.
Although a sale under a power contained in a mortgage or trust deed has been defectively executed and
the mortgagor has the right to disaffirm the same, he may, by laches or by acts amounting to an estoppel
or ratification, cure the defect and render the sale valid. 19 Where a sale under a power is voidable at the
election of the mortgagor for some irregularity — such as that the mortgagee purchased without authority,
or that there was an inadequacy in the price obtained, a want of sufficient or proper notice, or the like —
the mortgagor must institute proceedings for avoidance within apt and reasonable time, or his laches will
bar him of relief. 20 Thus, a party seeking to set aside a foreclosure sale made under a power of sale must
bring his action without unreasonable delay. The court generally will refuse to grant relief when there has
been great and unreasonable delay, amounting to laches, in seeking its aid. 21
Besides, it has been said that in seeking to set aside a foreclosure sale, the moving party must act
promptly after he becomes aware of the facts on which he bases his complaint, and in this connection,
notice of an irregularity may be presumed from the fact that the mortgagor has knowledge of the sale, as
he is thereby put on inquiry, and is bound to use diligence in discovering any defects in the
proceedings. 22 Having failed to do so, petitioners cannot now be heard on their much belated plaints.
Moreover, it is an entrenched doctrine in our jurisdiction that registration in a public registry is notice to
the whole world. The record is a constructive notice of its contents as well as of all interest, legal and
equitable, included therein. All persons are charged with knowledge of what it contains. 23 Therefore, in
the case at bar, the annotation of the certificate of sale on petitioners' Transfer Certificate of Title No.
24604 and the filing of the affidavit of consolidation with the Register of Deeds constituted constructive
notice of both acts to herein petitioners. Consequently, as early as March 11, 1974 24 when the certificate
of sale was annotated at the back of their title, petitioners were already charged with knowledge of the
foreclosure sale, yet they still failed or refused to take the necessary steps to protect their rights over the
subject property.
It also bears stressing that petitioners entered their appearance in the Regional Trial Court of Kalookan
City where the petition for reconstitution of Transfer Certificate of Title No. 24604 was filed by respondent
bank, as shown by said court's order dated June 11, 1986. 25 It was then incumbent on petitioners to have
filed an objection or opposition to the reconstitution if they sincerely believed that the property rightfully
belongs to them. Significantly, petitioners neither moved for the reconsideration of nor appealed from the
order of the lower court granting reconstitution of title in the name of respondent bank.
Finally, the negligence or omission to assert a right within a reasonable time warrants not only a
presumption that the party entitled to assert it either had abandoned it or declined to assert it, but also
casts doubt on the validity of the claim of ownership. Such neglect to assert a right taken in conjunction
with the lapse of time, more or less great, and other circumstances causing prejudice to the adverse party,
operates as a bar in a court of equity. 26 In the present case, at no time after the debt became due and
demandable and the mortgage property had been foreclosed, or even thereafter, did petitioners offer to
pay their mortgage obligation to redeem their property. Petitioners' collective acts are, therefore,
indicative of their acquiescence to and acknowledgment of the validity of the foreclosure proceedings and
the sale, as well as a recognition of respondent bank's just and legal title over the property acquired
thereby.
We, therefore, cannot but concur in these observations of respondent Court:
The evidence on record, likewise show that after the foreclosure proceedings in 1974, the Olizons had
totally abandoned actual ownership over the subject property in favor of appellant bank, leaving it to
appellant bank to pay the real estate taxes over the subject property. In fact, in the reconstitution of the
owner's title in Case No. C-2746, while the Olizons entered their appearance before the Regional Trial
Court of Caloocan, they did not oppose the petition of appellant bank, despite the fact that the certificate
of sale and final deed of sale as well as consolidation of the ownership were submitted as evidence by
appellant bank in the reconstitution process. It was only after they noticed the lack of certain documents in
the possession of the sheriff that they thought of raising technicalities. . . . 27
WHEREFORE, the instant petition is DENIED for lack of merit and the assailed judgment of respondent
Court of Appeals is hereby AFFIRMED in toto.
SO ORDERED.
Narvasa, Padilla, Puno and Mendoza, JJ., concur.
#Footnotes

* The word "Spouses" (or the abbreviation "Sps."), stated before the names of petitioners in the title of this
case during the proceedings in the two lower courts, has been eliminated from the caption here as it is
neither indicative of an official position nor an accepted honorific.
1 Decision, CA-G.R. CV No. 29482, 1-2; Rollo, 21-22.
2 See Exhibit N-1, Folder of Exhibits, LRC Case No. C-3094, Regional Trial Court, Branch 120, Kalookan
City.
3 Original Record, 7.
4 Ibid., 1-4.
5 Ibid., 23.
6 Ibid., 43-45.
7 Ibid., 80-82; per Judge Arturo A. Romero.
8 Rollo, 26. Justice Jorge S. Imperial, ponente, with Justices Serafin E. Camilon and Cancio C. Garcia,
concurring.
9 Ibid., 11.
10 Cortes, et al. vs. Intermediate Appellate Court, et al., G.R. No. 73678, July 21, 1989, 175 SCRA 545;
Cruz, et al. vs. Court of Appeals, et al., G.R. No. 90369, October 31, 1990, 191 SCRA 170;Gravina, et al. vs.
Court of Appeals, et al., G.R. No. 97070, March 19, 1993, 220 SCRA 178.
11 L-48278, November 8, 1988, 167 SCRA 16; Rollo, 96.
12 Rollo, 24-25.
13 Tambunting, et al. vs. Court of Appeals, et al., supra; Masantol Rural Bank, Inc. vs. Court of Appeals, et
al., G.R. Nos. 97132 and 70937, December 10, 1991, 204 SCRA 752.
14 Bacon vs. Northwestern Mut. L. Ins. Co., 131 U.S. 258, 33 L. Ed 128, 9 S Ct 787; State ex rel. Raulerson
vs. Sloan, 134 Fla 632, 14 So 128.
15 Philippine National Bank vs. Adul, etc., et al., G.R. No. 52823, November 2, 1982, 118 SCRA 110.
16 See Industrial Finance Corporation vs. Tobias, L-41555, July 27, 1977, 78 SCRA 28.
17 Rollo, 26.
18 Tejido, et al. vs. Zamacoma, et al., G.R. No. 63048, August 7, 1985, 138 SCRA 78, citing Tijam, et al. vs.
Sibonghanoy, et al., No. L-21450, April 15, 1963, 23 SCRA 29; Sotto vs. Teves, et al., L-38018, October 31,
1978, 86 SCRA 154.
19 55 Am. Jur. 2d, Ratification and Estoppel, 750.
20 55 Am. Jur. 2d, Laches, 751.
21 59 C.J.S., Mortgages, 1059.
22 59 C.J.S., Mortgages, 1060.
23 People vs. Reyes, G.R. Nos. 74226-27, July 27, 1989, 175 SCRA 597.
24 Exhibit A, Folder of Exhibits, LRC Case No. C-3094, Regional Trial Court, Branch 120, Kalookan City.
25 Exhibit N-1, ibid., id.
26 Guerrero, et al. vs. Court of Appeals, et al., L-35250, November 29, 1983, 126 SCRA 109; Villamor, et al.
vs. Court of Appeals, et al., L-41508, June 27, 1988, 162 SCRA 574.
27 Rollo, 26.

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Metrobank vs. Penafiel (2009)

Sunday, June 06, 2010
12:23 AM

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 173976 February 27, 2009
METROPOLITAN BANK AND TRUST COMPANY, INC., Petitioner,
vs.
EUGENIO PEÑAFIEL, for himself and as Attorney-in-Fact of ERLINDA PEÑAFIEL, Respondents.
DECISION
NACHURA, J.:
This is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) dated July 29, 2005
and Resolution dated July 31, 2006. The assailed decision nullified the extrajudicial foreclosure sale of
respondents’ properties because the notice of sale was published in a newspaper not of general
circulation in the place where the properties were located.
Respondent Erlinda Peñafiel and the late Romeo Peñafiel are the registered owners of two parcels of land
covered by Transfer Certificate of Title (TCT) No. (350937) 6195 and TCT No. 0085, both issued by the
Register of Deeds of Mandaluyong City. On August 1, 1991, the Peñafiel spouses mortgaged their
properties in favor of petitioner Metropolitan Bank and Trust Company, Inc. The mortgage deed was
amended on various dates as the amount of the loan covered by said deed was increased.
The spouses defaulted in the payment of their loan obligation. On July 14, 1999, petitioner instituted an
extrajudicial foreclosure proceeding under Act No. 3135 through Diego A. Alleña, Jr., a notary public.
Respondent Erlinda Peñafiel received the Notice of Sale, stating that the public auction was to be held on
September 7, 1999 at ten o’clock in the morning, at the main entrance of the City Hall of Mandaluyong
City. The Notice of Sale was published in Maharlika Pilipinas on August 5, 12 and 19, 1999, as attested to
by its publisher in his Affidavit of Publication.2 Copies of the said notice were also posted in three
conspicuous places in Mandaluyong City.3
At the auction sale, petitioner emerged as the sole and highest bidder. The subject lots were sold to
petitioner forP6,144,000.00. A certificate of sale4 was subsequently issued in its favor.
On August 8, 2000, respondent Erlinda Peñafiel, through her attorney-in-fact, Eugenio Peñafiel, filed a
Complaint5praying that the extrajudicial foreclosure of the properties be declared null and void. They
likewise sought (a) to enjoin petitioner and the Register of Deeds from consolidating ownership, (b) to
enjoin petitioner from taking possession of the properties, and (c) to be paid attorney’s fees.
On June 30, 2003, the Regional Trial Court (RTC) rendered judgment in favor of petitioner:
ACCORDINGLY, judgment is hereby rendered as follows:
1. The extrajudicial foreclosure of real estate mortgage instituted by defendants Metrobank and Notary
Public Diego A. Alleña, Jr. over the two parcels of land covered by TCT Nos. (350937) 6195 and TCT No.
0085 is hereby declared VALID; and
2. The counterclaim of herein defendants are hereby DISMISSED for insufficiency of evidence.
SO ORDERED.6
Respondents appealed to the CA, raising, among others, the issue of whether petitioner complied with the
publication requirement for an extrajudicial foreclosure sale under Act No. 3135.
On this issue, the CA agreed with respondents. The CA noted that the law requires that publication be
made in a newspaper of general circulation in the municipality or city where the property is situated.
Based on the testimony of the publisher of Maharlika Pilipinas, it concluded that petitioner did not comply
with this requirement, since the newspaper was not circulated in Mandaluyong City where the subject
properties were located. Thus, in its Decision dated July 29, 2005, the CA reversed the RTC Decision, thus:
WHEREFORE, the appealed decision is REVERSED and SET ASIDE. A new one is hereby entered declaring
the extrajudicial foreclosure sale of the properties covered by TCT Nos. (350937) 6195 and 0085 NULL
and VOID.
SO ORDERED.7
Petitioner filed a motion for reconsideration8 of the decision which the CA denied on July 31, 2006.
Petitioner now brings before us this petition for review on certiorari, raising the following issues:
I. WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT RULED TO
APPLY THE PROVISIONS ON THE PUBLICATION OF JUDICIAL NOTICES UNDER SECTION 1 OF P.D. NO.
1079 TO THE EXTRAJUDICIAL FORECLOSURE OF THE MORTGAGE BY NOTARY PUBLIC OVER THE
PROPERTIES COVERED BY TCT NO. (350927) 6195 AND TCT NO. 0085.
II. WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT RULED THAT
"MAHARLIKA PILIPINAS" IS NOT A NEWSPAPER OF GENERAL CIRCULATION IN MANDALUYONG CITY.
III. WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT REVERSED
AND SET ASIDE THE DECISION DATED JUNE 30, 2003 ISSUED BY THE REGIONAL TRIAL COURT OF
MANDALUYONG CITY, BRANCH 208 AND DECLARED THE EXTRAJUDICIAL FORECLOSURE SALE OF THE
PROPERTIES COVERED BY TCT NO. (350937) 6195 AND TCT NO. 0085 NULL AND VOID.9
This controversy boils down to one simple issue: whether or not petitioner complied with the publication
requirement under Section 3, Act No. 3135, which provides:
SECTION 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least
three public places of the municipality or city where the property is situated, and if such property is worth
more than four hundred pesos, such notice shall also be published once a week for at least three
consecutive weeks in a newspaper of general circulation in the municipality or city.10
We hold in the negative.
Petitioner insists that Maharlika Pilipinas is a newspaper of general circulation since it is published for the
dissemination of local news and general information, it has a bona fide subscription list of paying
subscribers, and it is published at regular intervals. It asserts that the publisher’s Affidavit of Publication
attesting that Maharlika Pilipinas is a newspaper of general circulation is sufficient evidence of such
fact.11 Further, the absence of subscribers in Mandaluyong City does not necessarily mean that Maharlika
Pilipinas is not circulated therein; on the contrary, as testified to by its publisher, the said newspaper is in
fact offered to persons other than its subscribers. Petitioner stresses that the publisher’s statement that
Maharlika Pilipinas is also circulated in Rizal and Cavite was in response to the question as to where else
the newspaper was circulated; hence, such testimony does not conclusively show that it is not circulated
in Mandaluyong City.12
Petitioner entreats the Court to consider the fact that, in an Order13 dated April 27, 1998, the Executive
Judge of the RTC of Mandaluyong City approved the application for accreditation of Maharlika Pilipinas as
one of the newspapers authorized to participate in the raffle of judicial notices/orders effective March 2,
1998. Nonetheless, petitioner admits that this was raised for the first time only in its Motion for
Reconsideration with the CA.14
The accreditation of Maharlika Pilipinas by the Presiding Judge of the RTC is not decisive of whether it is a
newspaper of general circulation in Mandaluyong City. This Court is not bound to adopt the Presiding
Judge’s determination, in connection with the said accreditation, that Maharlika Pilipinas is a newspaper
of general circulation. The court before which a case is pending is bound to make a resolution of the
issues based on the evidence on record.1avvphi1
To prove that Maharlika Pilipinas was not a newspaper of general circulation in Mandaluyong City,
respondents presented the following documents: (a) Certification15 dated December 7, 2001 of Catherine
de Leon Arce, Chief of the Business Permit and Licensing Office of Mandaluyong City, attesting that
Maharlika Pilipinas did not have a business permit in Mandaluyong City; and (b) List of Subscribers16 of
Maharlika Pilipinas showing that there were no subscribers from Mandaluyong City.
In addition, respondents also presented Mr. Raymundo Alvarez, publisher of Maharlika Pilipinas, as a
witness. During direct examination, Mr. Alvarez testified as follows:
Atty. Mendoza: And where is your principal place of business? Where you actually publish.
Witness: At No. 80-A St. Mary Avenue, Provident Village, Marikina City.
Atty. Mendoza: Do you have any other place where you actually publish Maharlika Pilipinas?
Witness: At No. 37 Ermin Garcia Street, Cubao, Quezon City.
Atty. Mendoza: And you have a mayor’s permit to operate?
Witness: Yes.
Atty. Mendoza: From what city?
Witness: Originally, it was from Quezon City, but we did not change anymore our permit.
Atty. Mendoza: And for the year 1996, what city issued you a permit?
Witness: Quezon City.
Atty. Mendoza: What about this current year?
Witness: Still from Quezon City.
Atty. Mendoza: So, you have no mayor’s permit from Marikina City?
Witness: None, it’s only our residence there.
Atty. Mendoza: What about for Mandaluyong City?
Witness: We have no office in Mandaluyong City.
Atty. Mendoza: Now, you said that you print and publish Maharlika Pilipinas in Marikina and Quezon City?
Witness: Yes.
Atty. Mendoza: Where else do you circulate your newspaper?
Witness: In Rizal and in Cavite.
Atty. Mendoza: In the subpoena[,] you were ordered to bring the list of subscribers.
Witness: Yes.
xxxx
Atty. Mendoza: How do these subscribers listed here in this document became (sic) regular subscribers?
Witness: They are friends of our friends and I offered them to become subscribers.
Atty. Mendoza: Other than this list of subscribers, you have no other subscribers?
Witness: No more.
Atty. Mendoza: Do you offer your newspaper to other persons other than the subscribers listed here?
Witness: Yes, but we do not just offer it to anybody.17 (Emphasis supplied.)
It bears emphasis that, for the purpose of extrajudicial foreclosure of mortgage, the party alleging non-
compliance with the requisite publication has the burden of proving the same.18 Petitioner correctly
points out that neither the publisher’s statement that Maharlika Pilipinas is being circulated in Rizal and
Cavite, nor his admission that there are no subscribers in Mandaluyong City proves that said newspaper is
not circulated in Mandaluyong City.
Nonetheless, the publisher’s testimony that they "do not just offer [Maharlika Pilipinas] to anybody"
implies that the newspaper is not available to the public in general. This statement, taken in conjunction
with the fact that there are no subscribers in Mandaluyong City, convinces us that Maharlika Pilipinas is,
in fact, not a newspaper of general circulation in Mandaluyong City.
The object of a notice of sale is to inform the public of the nature and condition of the property to be sold,
and of the time, place and terms of the sale. Notices are given for the purpose of securing bidders and to
prevent a sacrifice of the property.19 The goal of the notice requirement is to achieve a "reasonably wide
publicity" of the auction sale. This is why publication in a newspaper of general circulation is required. The
Court has previously taken judicial notice of the "far-reaching effects" of publishing the notice of sale in a
newspaper of general circulation.20
True, to be a newspaper of general circulation, it is enough that it is published for the dissemination of
local news and general information, that it has a bona fide subscription list of paying subscribers, and that
it is published at regular intervals.21 Over and above all these, the newspaper must be available to the
public in general, and not just to a select few chosen by the publisher. Otherwise, the precise objective of
publishing the notice of sale in the newspaper will not be realized.
In fact, to ensure a wide readership of the newspaper, jurisprudence suggests that the newspaper must
also be appealing to the public in general. The Court has, therefore, held in several cases that the
newspaper must not be devoted solely to the interests, or published for the entertainment, of a particular
class, profession, trade, calling, race, or religious denomination. The newspaper need not have the largest
circulation so long as it is of general circulation.22
Thus, the Court doubts that the publication of the notice of sale in Maharlika Pilipinas effectively caused
widespread publicity of the foreclosure sale.
Noticeably, in the Affidavit of Publication, Mr. Alvarez attested that he was the "Publisher of Maharlika
Pilipinas, a newspaper of general circulation, published every Thursday." Nowhere is it stated in the
affidavit that Maharlika Pilipinas is in circulation in Mandaluyong City. To recall, Sec. 3 of Act No. 3135
does not only require that the newspaper must be of general circulation; it also requires that the
newspaper be circulated in the municipality or city where the property is located. Indeed, in the
cases23 wherein the Court held that the affidavit of the publisher was sufficient proof of the required
publication, the affidavit of the publisher therein distinctly stated that the newspaper was generally
circulated in the place where the property was located.
Finally, petitioner argues that the CA, in effect, applied P.D. No. 107924 when it cited Fortune Motors
(Phils.) Inc. v. Metropolitan Bank and Trust Company,25 which involved an extrajudicial foreclosure sale
by a sheriff. Petitioner avers that the general reference to "judicial notices" in P.D. No. 1079, particularly
Section 226 thereof, clearly shows that the law applies only to extrajudicial foreclosure proceedings
conducted by a sheriff, and not by a notary public.27 P.D. No. 1079 allegedly applies only to notices and
announcements that arise from court litigation.28
The Court does not agree with petitioner that the CA applied P.D. 1079 to the present case. The appellate
court cited Fortune Motors merely to emphasize that what is important is that the newspaper is actually
in general circulation in the place where the properties to be foreclosed are located.
In any case, petitioner’s concern that the CA may have applied P.D. 1079 to the present case is trifling.
While P.D. No. 1079 requires the newspaper to be "published, edited and circulated in the same city
and/or province where the requirement of general circulation applies," the Court, in Fortune Motors, did
not make a literal interpretation of the provision. Hence, it brushed aside the argument that New Record,
the newspaper where the notice of sale was published, was not a newspaper of general circulation in
Makati since it was not published and edited therein, thus:
The application given by the trial court to the provisions of P.D. No. 1079 is, to our mind, too narrow and
restricted and could not have been the intention of the said law. Were the interpretation of the trial court
(sic) to be followed, even the leading dailies in the country like the "Manila Bulletin," the "Philippine Daily
Inquirer," or "The Philippine Star" which all enjoy a wide circulation throughout the country, cannot
publish legal notices that would be honored outside the place of their publication. But this is not the
interpretation given by the courts. For what is important is that a paper should be in general circulation in
the place where the properties to be foreclosed are located in order that publication may serve the
purpose for which it was intended.29
Therefore, as it stands, there is no distinction as to the publication requirement in extrajudicial
foreclosure sales conducted by a sheriff or a notary public. The key element in both cases is still general
circulation of the newspaper in the place where the property is located.
WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated July 29,
2005 and Resolution dated July 31, 2006 in CA-G.R. CV No. 79862 are AFFIRMED.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice
WE CONCUR:
LEONARDO A. QUISUMBING*
Associate Justice
ANTONIO T. CONCHITA CARPIO MORALES***
CARPIO** Associate Justice
Associate Justice
MINITA V. CHICO-NAZARIO****
Associate Justice
Acting Chairperson
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
MINITA V. CHICO-NAZARIO
Associate Justice
Acting Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Acting Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
* Additional member in lieu of Associate Justice Consuelo Ynares-Santiago per Special Order No. 564 dated February 12, 2009.

** Additional member in lieu of Associate Justice Ma. Alicia Austria-Martinez per Special Order No. 568 dated February 12, 2009.

*** Additional member per Raffle dated September 24, 2007.

**** In lieu of Associate Justice Consuelo Ynares-Santiago per Special Order No. 563 dated February 12, 2009.

1 Penned by Associate Justice Ruben T. Reyes (now a retired member of this Court), with Associate
Justices Rebecca de Guia-Salvador and Fernanda Lampas Peralta, concurring; rollo, pp. 27-45.
2 Rollo, p. 100.
3 Id. at 101.
4 Id. at 72-73.
5 Id. at 48-53.
6 Id. at 198.
7 Id. at 44.
8 Id. at 46-47.
9 Id. at 326.
10 Emphasis supplied.
11 Rollo, pp. 329-331.
12 Id. at 332-334.
13 Id. at 265.
14 Id. at 332.
15 Id. at 149.
16 Id. at 150-161.
17 Id. at 272-273.
18 Ruiz, et al. v. Sheriff of Manila, et al., 145 Phil. 111, 114 (1970).
19 Olizon v. Court of Appeals, G.R. No. 107075, September 1, 1994, 236 SCRA 148, 156.
20 Id. at 155.
21 Perez v. Perez, G.R. No. 143768, March 28, 2005, 454 SCRA 72, 81.
22 Id.
23 Fortune Motors (Phils.) Inc. v. Metropolitan Bank and Trust Co., 332 Phil. 844 (1996); Bonnevie, et al. v.
Court of Appeals, et al., 210 Phil. 100 (1983).
24 Revising and Consolidating All Laws and Decrees Regulating Publication of Judicial Notices,
Advertisements for Public Bidding, Notices of Auction Sales and Other Similar Notices.
25 Supra note 23
26 Sec. 2 of P.D. No. 1079 provides:
SECTION 2. The executive judge of the court of first instance shall designate a regular working day and a
definite time each week during which the said judicial notices or advertisements shall be distributed
personally by him for publication to qualified newspapers or periodicals as defined in the preceding
section, which distribution shall be done by raffle: Provided, That should the circumstances require that
another day be set for the purpose, he shall notify in writing the editors and publishers concerned at least
three (3) days in advance of the designated date: Provided, further, That the distribution of the said
notices by raffle shall be dispensed with in case only one newspaper or periodical is in operation in a
particular province or city. (Emphasis supplied.)
27 Rollo, pp. 327-328, 332-333.
28 Id. at 331, 336.
29 Fortune Motors (Phils.) Inc. v. Metropolitan Bank and Trust Co., supra note 23 at 850.

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Global Holiday vs. Metrobank (2009)

Sunday, June 06, 2010
12:24 AM
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 184081 June 19, 2009
GLOBAL HOLIDAY OWNERSHIP CORPORATION, Petitioner,
vs.
METROPOLITAN BANK & TRUST COMPANY, Respondent.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the March 31, 2008 Decision1 of the Court of Appeals in CA-
G.R. SP No. 97287, which annulled and set aside the July 26, 2006 and October 6, 2006 Orders of the
Regional Trial Court of Makati, Branch 146, granting petitioner’s prayer for a writ of preliminary injunction
in Civil Case No. 06-549 and directed the judge to dissolve the said writ. Also assailed is the August 7,
2008 Resolution2 denying the motion for reconsideration.
The facts as found by the appellate court are as follows:
Global Holiday Ownership Corporation (Global for short) obtained on various dates several loans from x x
x Metrobank in the total principal amount of P5,700,000.00 secured by a real estate mortgage over a
condominium unit under Condominium Certificate of Title No. 29774 of the Registry of Deeds for Makati
City. Upon default in the payment of the loan, x x x Global requested for a restructuring of its loan in the
total principal amount of P6,375,000.00 as of September 3, 2001. (Metrobank) acceded to its request.
As x x x Global defaulted anew in the payment of its loan, it requested for another restructuring which
was likewise granted by the bank. Hence, a Debt Settlement Agreement was executed by the parties on
November 15, 2001 detailing a schedule of payment of the principal obligation of P6,375,000.00 within a
3-year period up to August 19, 2004 as well (sic) the interest on the principal, payable quarterly based on
the prevailing market rates beginning December 2, 2001 and every 90 days thereafter, without need of
notice or demand, the full payment of which shall be on or before August 29, 2002.
xxxx
Global failed to comply with the terms and conditions of the Debt Settlement Agreement. Despite
demands made upon it for payment on December 22, 2005 and May 18, 2006, it still failed and refused to
pay (Metrobank) the loans which are all past due.
Thus on May 22, 2006, (Metrobank) requested the Clerk of Court of the RTC of Makati City to cause the
sale at public auction of CCT No. 29774 pursuant to Act 3135 as amended. The sale was scheduled on July
10, 2006 at 10:00 a.m. per notice of sheriff’s sale.
Four (4) days before the date of the auction sale or on July 6, 2006, x x x Global filed the instant
complaint for annulment of extrajudicial foreclosure proceedings, damages and injunction with
application for TRO and/or writ of preliminary injunction. Respondent judge granted Global’s application
for temporary restraining order on July 7, 2006 and set the prayer for a writ of preliminary injunction for
hearing on July 14, 2006. After hearing, respondent judge issued an Order on July 26, 2006 granting
Global’s application for a writ of preliminary injunction. (Metrobank) moved to reconsider this Order but
respondent judge denied the motion in the Order dated October 6, 2006.3
Metrobank filed a petition for certiorari before the Court of Appeals arguing that Global is not entitled to
injunctive relief because it has not shown that it had a legal right that must be protected. Metrobank thus
prayed that the trial court’s issuances dated July 26, 2006 and October 6, 2006 be annulled and set aside.
(Metrobank) stresses that in view of x x x Global’s admission that it failed to pay its loan, the latter has
definitely no right in esse to be protected as it was clearly provided in the deed of real estate mortgage
and in the Debt Settlement Agreement that the mortgage can be foreclosed by (Metrobank) in case of
default.
(Metrobank) contends that x x x Global’s claim of not having been notified of the foreclosure proceedings
is debunked by the Certification issued by the Makati Central Post Office dated August 2, 2006 stating
that a copy of the notice of sheriff sale was sent to Global and was received by it on June 23, 2006.
Moreover, (Metrobank’s) several demand letters to x x x Global urging it to pay its overdue account with a
warning that in case of failure to do, actions to protect the bank’s interests will be initiated, more than
satisfies the requirement of notice. Additionally, (Metrobank) emphasizes that Sec. 14 of the real estate
mortgage was already superseded by Sec. 5 of the Debt Settlement Agreement whereby Global waived
its right to be personally notified in case of default.
(Metrobank) argues that no personal notice of the extrajudicial foreclosure is even required as said
proceeding is an action in rem where only notice by publication and posting is necessary to bind the
interested parties, citing Bobanan vs. Court of Appeals, G.R. No. 111654, April 18, 1996. The law itself,
Act No. 3135, does not require personal notice to the mortgagor. Only notice by publication and posting
are required. Likewise, (Metrobank) points to Administrative Matter No. 99-10-05-0 dated February 26,
2002 (Re: Procedure in the Extrajudicial Foreclosure of Mortgage) wherein the Supreme Court
acknowledged that personal notice to the debtor-mortgagor in case of extrajudicial foreclosure of real
estate mortgage is not required by Act No. 3135 as the addition of such requirement can only make the
proceedings cumbersome.
For its part, x x x Global avers that after it defaulted in its quarterly payment under the Debt Settlement
Agreement, (Metrobank) informed it on May 30, 2003 that its account is being considered for transfer to a
Special Purpose Vehicle under the SPV Act of 2002. Within the period given to signify its conformity to the
plan, x x x Global wrote (Metrobank) on July 4, 2003 informing (Metrobank) that it is (sic) amenable to its
proposal to transfer the loan to a special purpose vehicle company. Instead of transferring its account to a
SPV Company, (Metrobank) decided to proceed with the extrajudicial foreclosure of the mortgaged
property with the sheriff setting the auction sale on July 10, 2006. Such being the case, there is nothing
that can be ascribed in the July 26, 2006 Order of respondent judge that could be considered whimsical,
capricious, arbitrary and despotic, x x x Global asserts.
Mere failure to pay a secured obligation, according to Global, does not give the mortgagee bank the
unbridled right to foreclose the mortgage, more so in this case when the interest rate on a loan is
unilaterally imposed or increased by (Metrobank) without Global’s consent, in violation of mutuality of
contract. Besides, there is already a perfected contract between (Metrobank) and x x x Global to transfer
the latter’s account to a special purpose vehicle company.
Finally, x x x Global claimed that it has not waived its right to be notified of the foreclosure when it
executed the Debt Settlement Agreement. The statement "without need of demand" in the debt
settlement agreement refers to the payment of the principal and interest, which is different from notice of
extrajudicial foreclosure that is required to be given to a mortgagor.4
In the assailed March 31, 2008 Decision, the Court of Appeals granted Metrobank’s petition and set aside
the July 26, 2006 and October 6, 2006 orders of the trial court, with a directive to dissolve the writ of
preliminary injunction it issued. The appellate court found that Global had no legal right to an injunction;
that Metrobank had the undeniable right to foreclose on the real estate mortgage in view of Global’s
default in the settlement of its obligation to the bank; that Global had not shown any legal justification to
enjoin it from enforcing this right; that it is not required that Global be personally informed of the
foreclosure of its mortgaged property, since personal notice is not necessary; the applicable law – Act
31355 – requires only notice by publication and posting; that under Administrative Matter No. 99-10-05-
06 in relation to Act 3135, as amended, personal notice to the debtor-mortgagor in case of extrajudicial
foreclosure of real estate mortgage is not required; and that by declaring that the foreclosure
proceedings were defective and null and void, the trial court’s issuances granting Global’s prayer for a
writ of preliminary injunction constituted a premature disposition of the case on its merits, a pre-
judgment that went beyond the nature of the proceeding then being taken, which was merely for the
issuance of a writ of preliminary injunction.7
Global moved to reconsider the decision, however, it was denied by the Court of Appeals in the assailed
August 7, 2008 Resolution.
Hence, this petition by Global raising the following as errors:
First Assigned Error:
The Honorable Court of Appeals (erred in) ruling x x x that personal notice to the debtor-mortgagor of the
extrajudicial foreclosure is not necessary despite the parties’ stipulation in their Real Estate Mortgage
contract requiring personal notice thereof x x x.
Second Assigned Error:
The Honorable Court of Appeals seriously erred in its interpretation and application of Supreme Court
Administrative Matter No. 99-10-05-0 dated February 26, 2002 that in extrajudicial foreclosure of real
estate mortgage, personal notice to the debtor-mortgagor is not necessary.
Third Assigned Error:
The Honorable Court of Appeals erred in applying the superseded case of Cortez v. Intermediate
Appellate Court (G.R. No. 73678, July 21, 1989) in support of its ruling that the parties’ stipulation in their
Real Estate Mortgage contract requiring all correspondence relative to the mortgage to be sent at the
mortgagor’s given address is a mere expression of "general intent" which cannot prevail over the parties’
"specific intent" to apply the provisions of Act 3135 in the extrajudicial foreclosure of the mortgage as the
same is contrary to subsequent rulings of the Supreme Court.
Fourth Assigned Error
The Honorable Court of Appeals erred in relying on the cases of BPI Family Savings Bank, Inc. v. Veloso,
436 SCRA 1; China Banking Corporation v. CA, 265 SCRA 327; and Selegna Mgnt. & Devt. Corp. v. UCPB,
G.R. No. 165662, May 3, 2006, to support its findings that petitioner has no clear legal right to be
protected, since the trial court’s issuance of the injunctive writ was founded on the mortgagee’s non-
compliance with the stipulated personal notice to the mortgagor.
Fifth Assigned Error
The Honorable Court of Appeals’ ruling that there was no perfected contract to transfer petitioner’s
account to a Special Purpose Vehicle despite its finding that respondent MBTC made a proposal thereon
to GHOC is contrary to the provision of Article 1319 of the Civil Code of the Philippines since there was
unqualified acceptance of the proposal.
Sixth Assigned Error
The Honorable Court of Appeals erroneously ruled that petitioner was personally notified of the
foreclosure proceedings as evidenced by the Certification of the Clerk of Court of Makati RTC when such
Certification is non-existent in the records of the case.
Seventh Assigned Error
The Honorable Court of Appeals erred in denying petitioner’s Motion for Reconsideration despite the
apparent falsified Certification submitted by respondent thru its Comment to the motion.
Eighth Assigned Error
The Honorable Court of Appeals seriously erred in finding that the grant by the trial court of the injunctive
writ is completely without justification and in grave abuse of its discretion.
The issues for resolution are: whether Metrobank’s failure to serve personal notice upon Global of the
foreclosure proceedings renders the same null and void; and whether the trial court properly issued a writ
of injunction to prevent Metrobank from proceeding with the scheduled auction sale of Global’s
condominium unit.
We grant the petition.
Paragraph 14 of the real estate mortgage contract states that:
All correspondence relative to this mortgage, including demand letters, summonses, subpoenas or
notifications of any judicial or extra-judicial actions shall be sent to the Mortgagor at the address
hereinabove given or at the address that may hereafter be given in writing by the Mortgagor to the
Mortgagee, and the mere act of sending any correspondence by mail or by personal delivery to the said
address shall be valid and effective notice to the Mortgagor for all legal purposes, and the fact that any
communication is not actually received by the Mortgagor, or that it has been returned unclaimed to the
Mortgagee, or that no person was found at the address given, or that the address is fictitious, or cannot
be located, shall not excuse or relieve the Mortgagor from the effect of such notice.8
This specific provision in the parties’ real estate mortgage agreement is the same provision involved in
the case of Metropolitan Bank and Trust Company v. Wong,9 where the Court made the following
pronouncement:
It is bad enough that the mortgagor has no choice but to yield his property in a foreclosure proceeding. It
is infinitely worse, if prior thereto, he was denied of his basic right to be informed of the impending loss of
his property. This is another instance when law and morals echo the same sentiment.1awphi1
xxxx
Thus, disregarding all factual issues which petitioner interjected in his petition, the only crucial legal
queries in this case are: first, is personal notice to respondent a condition sine qua non to the validity of
the foreclosure proceedings? and, second, is petitioner’s non-compliance with the posting requirement
under Section 3, Act No. 3135 fatal to the validity of the foreclosure proceedings?
In resolving the first query, we resort to the fundamental principle that a contract is the law between the
parties and, that absent any showing that its provisions are wholly or in part contrary to law, morals, good
customs, public order, or public policy, it shall be enforced to the letter by the courts. Section 3, Act No.
3135 reads:
"Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three
public places of the municipality or city where the property is situated, and if such property is worth more
than four hundred pesos, such notice shall also be published once a week for at least three consecutive
weeks in a newspaper of general circulation in the municipality and city."
The Act only requires (1) the posting of notices of sale in three public places, and (2) the publication of
the same in a newspaper of general circulation. Personal notice to the mortgagor is not necessary.
Nevertheless, the parties to the mortgage contract are not precluded from exacting additional
requirements. In this case, petitioner and respondent in entering into a contract of real estate mortgage,
agreed inter alia:
"all correspondence relative to this mortgage, including demand letters, summonses, subpoenas, or
notifications of any judicial or extra-judicial action shall be sent to the MORTGAGOR at 40-42 Aldeguer St.,
Iloilo City, or at the address that may hereafter be given in writing by the MORTGAGOR to the
MORTGAGEE."
Precisely, the purpose of the foregoing stipulation is to apprise respondent of any action which petitioner
might take on the subject property, thus according him the opportunity to safeguard his rights. When
petitioner failed to send the notice of foreclosure sale to respondent, he committed a contractual breach
sufficient to render the foreclosure sale on November 23, 1981 null and void.10 (Emphasis supplied)
We do not see how a different outcome could have been expected in the present case which involves the
same contractual provision as that in the abovementioned case – not to mention the same mortgagee. In
cases subsequent to Wong, we sustained the same principle: that personal notice to the mortgagor in
extrajudicial foreclosure proceedings is not necessary, unless stipulated.11
If respondent wanted to rid itself of the effects of the Court’s pronouncement in Wong, considering that it
was a party to the case and knows firsthand about the Court’s disposition, it should have caused the
deletion of Paragraph 14 from all its subsequent standard form real estate mortgage agreements, or if
not, modified the provision or the contracts accordingly. A modification of the mortgage contract on this
point, with respect to Global, would not have been difficult; an addendum would have sufficed.
Taking from Wong, we must interpret Paragraph 14 of the parties’ mortgage contract as one having been
made for the benefit of the mortgagor, and one which Metrobank knowingly incorporated into the
agreement. Having been in the business of banking since 1962 – or for more than forty years now – it
certainly had the knowledge, experience and the resources to correct any perceived oversight it was
guilty of making in the past with respect to its contracts. Although we do not view Paragraph 14 to be one
such oversight; as we have declared in Wong, the purpose of said stipulation is benign: to apprise the
mortgagor of any action which Metrobank might take on the subject property, thus according him the
opportunity to safeguard his rights. We cannot allow Metrobank to disavow its solemn covenant with
Global, to turn its back on a contract which it prepared on its own, without the intervention of the other
party. A party should not, after having its opportunity to enjoy the benefits of an agreement, be allowed
to later disown the arrangement when the terms thereof ultimately would prove to operate against its
hopeful expectations.12
The business of banking is imbued with public interest. It carries with it a fiduciary duty that requires high
standards of integrity and performance.13 Our decision in Wong was not a mere declaration of what the
law is on a given point; its underlying message is our acknowledgment that banks must play a
compassionate role amidst these changing times. That in the wake of huge profits being made from their
operations, all that is required is for them to inform the borrower of the impending loss of his property
when their covenants require it. This is a valid argument when viewed within the context of the principle
that any attempt to vest ownership of the encumbered property in the mortgagee without proper
observance of the requirements of law is against public policy.14
Paragraph 14 is clear that "all correspondence relative to this mortgage, including demand letters,
summonses, subpoenas or notifications of any judicial or extrajudicial actions shall be sent to the
mortgagor at the address hereinabove given or at the address that may hereafter be given in writing by
(it)." It must be recalled that the principal object of a notice of sale in a foreclosure of mortgage is not so
much to notify the mortgagor as to inform the public generally of the nature and condition of the property
to be sold, and of the time, place, and terms of the sale. Notices are given to secure bidders and prevent
a sacrifice of the property. Clearly, the statutory requirements of posting and publication are mandated,
not for the mortgagor’s benefit, but for the public or third persons.15 Taking this into context, the
stipulation in the mortgage agreement requiring notice to the mortgagor of extrajudicial actions to be
taken operates as a contractual undertaking for the latter’s sole benefit, such that the mortgagee is
mandated to strictly abide by the same.
Metrobank claims that Cortes v. Intermediate Appellate Court16 should be applied in the resolution of the
present controversy. In said case, the Court held:
But in pleading their case, petitioners invoke paragraph 10 of the Deed of Mortgage (vide, p. 28, Rollo)
which provides:
"10. All correspondence relative to this mortgage, including demand letters, summons, subpoenas, or
notification of any judicial or extrajudicial action, shall be sent to the Mortgagor at _________ or at the
address that may hereafter be given in writing by the Mortgagor to the Mortgagee."
While the above stipulation points to a place (which, notably was clearly stated) where all correspondence
relative to the mortgage are to be sent, it does not specifically require that personal notice of foreclosure
sale be given to petitioner. The said paragraph 10 presumes that a specific correspondence is made but
does not definitely require which correspondence must be made. It would, therefore, be erroneous to say
that notice of extrajudicial foreclosure to the petitioners is required for such is not the clear intention of
the parties, and, thus, may not be pursued. (Rule 130, Section 10).
But even if the contrary were true, the sending of "All correspondence relative to this mortgage . . . " to
the petitioners may only be deemed, at the most, as an expression of a general intent. As such, it may
not prevail against the parties' specific intent that Act No. 3135 be the controlling law between them. This
is so since "a particular intent will control a general one that is inconsistent with it." (Rule 130, Sec. 10). It
is clear from the Deed of Mortgage that the Mortgagee Bank (DBP) may, under any of the specific
circumstances enumerated, proceed to "foreclose this mortgage . . . extrajudicially under Act No. 3135,
as amended." (p. 28, Rollo). Having invoked the said Act, it shall "govern the manner in which the sale
and redemption shall be effected" (Sec. 1, Act 3135). And as already shown earlier Act 3135 does not
require personal notice of the foreclosure sale to the mortgagor. Incidentally, it was found by the trial
court that notices of the foreclosure sale were duly posted and published in accordance with law. As such,
petitioners are in estoppel; they cannot now deny that they were not informed of the said
sale.17 (Emphasis supplied)lawphil.net
But what is stated in Cortes no longer applies in light of the Court’s rulings in Wong and all the
subsequent cases, which have been consistent. Cortes has never been cited in subsequent rulings of the
Court, nor has the doctrine therein ever been reiterated. Its doctrinal value has been diminished by the
policy enunciated in Wong and the subsequent cases; that is, that in addition to Section 3 of Act 3135,
the parties may stipulate that personal notice of foreclosure proceedings may be required. Act 3135
remains the controlling law, but the parties may agree, in addition to posting and publication, to include
personal notice to the mortgagor, the non-observance of which renders the foreclosure proceedings null
and void, since the foreclosure proceedings become an illegal attempt by the mortgagee to appropriate
the property for itself.
Thus, we restate: the general rule is that personal notice to the mortgagor in extrajudicial foreclosure
proceedings is not necessary, and posting and publication will suffice. Sec. 3 of Act 3135 governing extra-
judicial foreclosure of real estate mortgages, as amended by Act 4118, requires only posting of the notice
of sale in three public places and the publication of that notice in a newspaper of general circulation.
The exception is when the parties stipulate that personal notice is additionally required to be given the
mortgagor. Failure to abide by the general rule, or its exception, renders the foreclosure proceedings null
and void.18
Global’s right to be furnished with personal notice of the extrajudicial foreclosure proceedings has been
established. Thus, to continue with the extrajudicial sale without proper notice would render the
proceedings null and void; injunction is proper to protect Global’s rights and to prevent unnecessary
injury that would result from the conduct of an irregular sale. It is beyond question that a writ of
preliminary injunction is issued to prevent an extrajudicial foreclosure, upon a clear showing of a violation
of the mortgagor’s unmistakable right.19 The trial court was thus correct in granting an injunction.
Metrobank’s reliance on Ardiente v. Provincial Sheriff20 is misplaced. The cited case is merely a
reiteration of the general rule, since the parties therein did not stipulate in their mortgage agreement
that personal notice of judicial or extrajudicial actions shall be furnished the mortgagor.
Neither can the circumstance that Global received a notice of sheriff’s sale from the Office of the Clerk of
Court of the Regional Trial Court of Makati City cure the defect occasioned by Metrobank’s violation of its
covenant under the mortgage agreement. As already stated, the object of a notice of sale in a foreclosure
of mortgage is not for the mortgagor’s benefit, but for the public or third persons; on the other hand, the
undertaking in a mortgage deed to notify the mortgagor of all judicial or extrajudicial actions relative to
the mortgage is especially for the mortgagor’s benefit, so that he may safeguard his rights.
Under the parties’ Debt Settlement Agreement,21 Global’s obligation was reduced (Metrobank waived the
penalties incurred), but the agreement carried a proviso that if such reduced obligation was not timely
settled and Global defaulted on two consecutive amortizations, Metrobank shall be entitled to treat
Global’s obligation as outstanding, impose a penalty at the rate of 18% per annum, and/or foreclose on
the real estate mortgage, without need of demand. According to Metrobank, this provision in the Debt
Settlement Agreement resulted in a waiver by Global of the required personal notice under Paragraph 14
of the mortgage contract.
We disagree. Demand here relates to the principal obligation, which shall become due and demandable
and shall incur interest and penalties without need of informing Global, were the conditions of the Debt
Settlement Agreement not observed. It does not relieve Metrobank of its obligation under Paragraph 14 of
the Mortgage Contract, which is a separate agreement, distinct and apart from the Debt Settlement
Agreement. As we have said, only an addendum or modification of the mortgage agreement can relieve
Metrobank of the adverse effects of Paragraph 14.
Given the merits of the case, we are not at this point inclined to dismiss the petition, on respondent’s
argument that there was a defective verification and certification accompanying the present petition. We
can simply require petitioner to submit proof of its President Pedro P. Diomampo’s authority to sign the
petition in its behalf, but we no longer see the need to do the same at this late stage. Under the parties’
mortgage agreement, Global was formerly named Diomampo Industries, Inc.;22 certainly, we have been
equally less rigid in previous cases.23
We agree with the appellate court that Metrobank had every right to choose whether to foreclose on the
mortgage or to transfer Global’s account to a special purpose vehicle. In this respect, Global has no right
to interfere. Besides, what Metrobank conveyed to Global about transferring the latter’s account to a
special purpose vehicle was that it was merely considering such move; eventually, it wrote Global of its
decision not to exercise the option, and proceed with foreclosure of the mortgage instead. In the first
place, whether Global’s account could qualify for transfer to a special purpose vehicle is not for the latter
to determine; under the Special Purpose Vehicle Act of 2002,24 the decision belongs to the appropriate
regulatory authority.
Penultimately, we do not subscribe to Metrobank’s argument that the foreclosure proceedings should
continue, since Global is not without adequate protective remedy, like annotation of lis pendens,
participating in the auction sale, or redemption. Annotation of lis pendens is unnecessary, since the issue
may now be resolved at this point; participating in null and void foreclosure proceedings is no valid
option, just as well as redeeming the property following a void auction sale.
Finally, the granting of the writ of preliminary injunction would not in effect dispose of the main case
without trial. The granting of the writ would only enjoin the foreclosure of the mortgage for lack of
personal notice, and the status quo would be maintained. It does not prevent Metrobank from foreclosing
on the mortgage after giving personal notice. The only lesson to be learned from the present case is that
the law must be followed to the letter; no shortcuts are allowed.25
WHEREFORE, the petition is GRANTED. The March 31, 2008 Decision and August 7, 2008 Resolution of the
Court of Appeals in CA-G.R. SP No. 97287 are hereby ANNULLED and SET ASIDE. The July 26, 2006 and
October 6, 2006 Orders of the Regional Trial Court of Makati, Branch 146 are REINSTATED and AFFIRMED.
SO ORDERED.
CONSUELO YNARES-SANTIAGO
Associate Justice
WE CONCUR:
MINITA V. CHICO-NAZARIO
Associate Justice
PRESBITERO J. VELASCO, JR. ANTONIO EDUARDO B. NACHURA
Associate Justice Associate Justice
DIOSDADO M. PERALTA
Associate Justice
ATTESTATION
I attest that the conclusions in the above decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
CONSUELO YNARES-SANTIAGO
Associate Justice Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, it is
hereby certified that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1 Rollo, pp. 50-69; penned by Associate Justice Lucenito N. Tagle and concurred in by Associate Justices
Amelita G. Tolentino and Marlene Gonzales-Sison.
2 Id. at 71-72; penned by Associate Justice Amelita G. Tolentino and concurred in by Associate Justices
Ramon R. Garcia and Marlene Gonzales-Sison.
3 Id. at 51-54.
4 Id. at 55-59.
5 Entitled "An Act To Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real-
Estate Mortgages," it was approved on March 6, 1924, and amended by Act 4118.
6 Procedure in Extra-Judicial Foreclosure of Mortgage, effective January 15, 2000, which was further
amended on March 1, 2001, and on August 7, 2001.
7 According to the Court of Appeals, "(t)his prejudgment violates the well-entrenched principle that courts
should avoid issuing a writ of preliminary injunction which in effect disposes of the main case without
trial." (Rollo, p. 67; citing Medina v. Greenfield Dev. Corp., 443 SCRA 150)
8 Rollo, p. 90
9 G.R. No. 120859, June 26, 2001, 359 SCRA 608.
10 Id. at 610, 614-615.
11 Union Bank v. Court of Appeals, G.R. No. 164910, September 30, 2005, 471 SCRA 751; Ouano v. Court
of Appeals, G.R. No. 129279, March 4, 2003, 398 SCRA 525; Philippine National Bank v. Nepomuceno
Productions, Inc., G.R. No. 139479, December 27, 2002, 394 SCRA 405;. See also earlier cases: Philippine
National Bank v. Rabat, G.R. No. 134406, November 15, 2000, 344 SCRA 706; Concepcion v. Court of
Appeals, G.R. No. 122079, June 27, 1997, 274 SCRA 614; and Fortune Motors (Phils.) Inc. v. Metropolitan
Bank and Trust Company, G.R. No. 115068, November 28, 1996, 265 SCRA 72; Olizon v. Court of Appeals,
G.R. No. 107075, September 1, 1994, 236 SCRA 148.
 12 Dela Cruz v. Court of Appeals, G.R. No. 151298, November 17, 2004, 442 SCRA 492, citing Philippine
Aluminum Wheels, Inc v. FASGI Enterprises, Inc., G.R. No. 137378, October 12, 2000, 342 SCRA 722.
13 The Consolidated Bank and Trust Corporation v. Court of Appeals, G.R. No.138569, September 11,
2003, 410 SCRA 562.
14 Under Article 2088 of the Civil Code:
The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any
stipulation to the contrary is null and void.
15 Philippine National Bank v. Nepomuceno Productions Inc., supra note 11 at 411.
16 G.R. No. 73678, July 21, 1989, 175 SCRA 545.
17 Id. at 548-549.
18 Development Bank of the Philippines v. Court of Appeals, G.R. No. 125838, June 10, 2003, 403 SCRA
460; Ouano v. Court of Appeals, supra note 11; Lucena v. Court of Appeals, G.R. No. L-77468, August 25,
1999, 313 SCRA 47; Roxas v. Court of Appeals, 221 SCRA 729; Metropolitan Bank and Trust Company v.
Wong, supra note 9.
19 Selegna Management & Development Corp. v. United Coconut Planters Bank, G.R. No. 165662, May 3,
2006, 489 SCRA 125, 127.
20 G.R. No. 148448, August 17, 2004, 436 SCRA 655.
21 Rollo, pp. 188-191.
22 Id. at 87, 185.
23 Shipside, Inc. v. Court of Appeals, G.R. No. 143377, February 20, 2001, 352 SCRA 334, and cited cases,
where we held that:
In the instant case, the merits of petitioner’s case should be considered special circumstances or
compelling reasons that justify tempering the requirement in regard to the certificate of non-forum
shopping. Moreover, in Loyola, Roadway, and Uy, the Court excused non-compliance with the
requirement as to the certificate of non-forum shopping. With more reason should we allow the instant
petition since petitioner herein did submit a certification on non-forum shopping, failing only to show
proof that the signatory was authorized to do so. That petitioner subsequently submitted a secretary’s
certificate attesting that Balbin was authorized to file an action on behalf of petitioner likewise mitigates
this oversight. (at 346-347) (Emphasis and underscoring supplied)
In Estribillo v. Department of Agrarian Reform, G.R. No. 159674, June 30, 2006, 494 SCRA 218, we
reiterated the principle, in the following wise:
In Uy v. Land Bank of the Philippines, we, likewise, considered the apparent merits of the substantive
aspect of the case as a special circumstance or compelling reason for the reinstatement of the case, and
invoked our power to suspend our rules to serve the ends of justice. (at 233)
24 Republic Act No. 9182.
25 Gabriel v. Secretary of Labor, G.R. No. 115949, March 16, 2000, 328 SCRA 247.

Pasted from <http://www.lawphil.net/judjuris/juri2009/jun2009/gr_184081_2009.html>

PHILIPPINE NATIONAL BANK, PETITIONER, VS. SPOUSES TOMAS CABATINGAN AND AGAPITA
EDULLANTES REPRESENTED BY RAMIRO DIAZ AS THEIR ATTORNEY-IN-FACT, RESPONDENTS.
(2008)
Sunday, June 06, 2010
12:27 AM
FIRST DIVISION

[G.R. No. 167058, July 09, 2008]

PHILIPPINE NATIONAL BANK, PETITIONER, VS. SPOUSES TOMAS CABATINGAN AND AGAPITA
EDULLANTES REPRESENTED BY RAMIRO DIAZ AS THEIR ATTORNEY-IN-FACT, RESPONDENTS.

RESOLUTION

CORONA, J.:
Respondent spouses Tomas Cabatingan and Agapita Edullantes obtained two loans, secured by a real
estate mortgage,[1] in the total amount of P421,200[2] from petitioner Philippine National Bank. However,
they were unable to fully pay their obligation despite having been granted more than enough time to do
so.[3] Thus, on September 25, 1991, petitioner extrajudicially foreclosed on the mortgage pursuant to Act
3135.[4]
Thereafter, a notice of extrajudicial sale[5] was issued stating that the foreclosed properties would be sold
at public auction on November 5, 1991 between 9:00 a.m. and 4:00 p.m. at the main entrance of the office
of the Clerk of Court on San Pedro St., Ormoc City.

Pursuant to the notice, the properties were sold at public auction on November 5, 1991. The auction began
at 9:00 a.m. and was concluded after 20 minutes with petitioner as the highest bidder.[6]

On March 16, 1993, respondent spouses filed in the Regional Trial Court (RTC) of Ormoc City, Branch 12 a
complaint for annulment of extrajudicial foreclosure of real estate mortgage and the November 5, 1991
auction sale.[7] They invoked Section 4 of Act 3135 which provides:
Section 4. The sale shall be made at public auction, between the hours of nine in the morning
and four in the afternoon, and shall be under the direction of the sheriff of the province, the
justice or auxiliary justice of peace of the municipality in which such sale has to be made, or of a
notary public of said municipality, who shall be entitled to collect a fee of Five pesos for each day of
actual work performed, in addition to his expenses. (emphasis supplied)
Petitioners claimed that the provision quoted above must be observed strictly. Thus, because the public
auction of the foreclosed properties was held for only 20 minutes (instead of seven hours as required by
law), the consequent sale was void.

On November 4, 2004, the RTC issued an order[8] annulling the November 5, 1991 sale at public auction.
It held:
[T]he rationale behind the holding of auction sale between the hours of 9:00 in the morning and 4:00
in the afternoon of a particular day as mandated in Section 4 of Act 3135 is to give opportunity to
more would-be bidders to participate in the auction sale thus giving the judgment-debtor more
opportunity to recover the value of his or her property subject of the auction sale.
Petitioner moved for reconsideration but it was denied in an order dated February 7, 2005.[9]Hence, this
petition.

The issue here is whether a sale at public auction, to be valid, must be conducted the whole day from 9:00
a.m. until 4:00 p.m. of the scheduled auction day.

Petitioner contends that the RTC erred in interpreting Section 4 of Act 3135. The law only prohibits the
conduct of a sale at any time before nine in the morning and after four in the afternoon. Thus, a sale held
within the intervening period (i.e., at any time between 9:00 a.m. and 4:00 p.m.), regardless of duration, is
valid.

We grant the petition.

We note that neither the previous rule (Administrative Order No. 3)[10] nor the current rules (A.M. No. 99-
10-05-O, as amended, and the guidelines for its enforcement, Circular No. 7-2002)[11] governing the
conduct of foreclosure proceedings provide a clear answer to the question at hand.

Statutes should be sensibly construed to give effect to the legislative intention.[12] Act 3135 regulates the
extrajudicial sale of mortgaged real properties[13] by prescribing a procedure which effectively safeguards
the rights of both debtor and creditor. Thus, its construction (or interpretation) must be equally and
mutually beneficial to both parties.

Section 4 of Act 3135 provides that the sale must take place between the hours of nine in the
morning and four in the afternoon. Pursuant to this provision, Section 5 of Circular No. 7-2002 states:

Section 5. Conduct of extrajudicial foreclosure sale—

a. The bidding shall be made through sealed bids which must be submitted to the
Sheriff who shall conduct the sale between the hours of 9 a.m. and 4 p.m. of the date
of the auction (Act 3135, Sec. 4).[14] The property mortgaged shall be awarded to the party
submitting the highest bid and, in case of a tie, an open bidding shall be conducted between the
highest bidders. Payment of the winning bid shall be made in either cash or in manager's check,
in Philippine Currency, within five (5) days from notice. (emphasis supplied)
xxx xxx xxx
A creditor may foreclose on a real estate mortgage only if the debtor fails to pay the principal obligation
when it falls due.[15] Nonetheless, the foreclosure of a mortgage does not ipso factoextinguish a debtor's
obligation to his creditor. The proceeds of a sale at public auction may not be sufficient to extinguish the
liability of the former to the latter.[16] For this reason, we favor a construction of Section 4 of Act 3135
that affords the creditor greater opportunity to satisfy his claim without unduly rewarding the debtor for
not paying his just debt.

The word "between" ordinarily means "in the time interval that separates."[17] Thus, "between the hours
of nine in the morning and four in the afternoon" merely provides a time frame within which an auction
sale may be conducted. Therefore, a sale at public auction held within the intervening period provided by
law (i.e., at any time from 9:00 a.m. until 4:00 p.m.) is valid, without regard to the duration or length of
time it took the auctioneer to conduct the proceedings.

In this case, the November 5, 1991 sale at public auction took place from 9:00 a.m. to 9:20 a.m. Since it
was conducted within the time frame provided by law, the sale was valid.

WHEREFORE, the petition is hereby GRANTED. The November 4, 2004 and February 7, 2005 orders of
the Regional Trial Court of Ormoc City, Branch 12 in Civil Case No. 3111-0 areREVERSED and SET ASIDE.

SO ORDERED.

Puno, C.J., (Chairperson), Carpio, Azcuna, and Leonardo-De Castro, JJ., concur.

[1] Respondent spouses mortgaged the following properties:

1. Lot No. 10650 in the Municipality of Kananga, Leyte covered by TCT No. 168;
2. Lot No. 10654 in the Municipality of Kananga, Leyte covered by OCT No. P-590;
3. Lot No. 10653 in the Municipality of Kananga, Leyte covered by TCT No. 2173;
4. Lot No. 10645 in the Municipality of Kananga, Leyte covered by TCT No. 220;
5. Lot No. 7912 in Brgy. Valencia, Ormoc City covered by TCT No. 11664 and
6. Lot No. 6550 in Brgy. Valencia, Ormoc City covered by TCT No. 6559.
[2] Respondents obtained the following loans:

Year Amount
1973 P 46,200
1977 375,000
TOTAL P 421,200
[3] While petitioner failed to explain how respondent spouses' obligation ballooned to P1,990,421.21 at the time of foreclosure (excluding interest at 28% p.a., penalties and other bank

charges, attorney's fees and expenses for foreclosure), respondent spouses failed to contest petitioner's claim. Thus, they are deemed to have admitted such as the amount of their

liability to petitioner.

[4] An Act to Regulate the Sale of Property under Special Powers Inserted In or Annexed to Real Estate Mortgages. See also Administrative Order No. 3 dated October 19, 1984. (This

issuance was superseded by A.M. No. 99-10-05-0, as amended.)

[5] Dated October 3, 1991.

[6] On March 22, 1992, a certificate of sale was issued to petitioner. This certificate was registered in the Registry of Deeds of the Province of Leyte on May 22, 1992. However, it
appears (based on the records of this case) that no writ of possession was issued to petitioner.

[7] Docketed as Civil Case No. 3111-0.

[8] Penned by Judge Francisco C. Gedorio, Jr. Annex "A" of the petition. Rollo, pp. 29-31.

[9] Annex "B" of the petition, id., p. 32.

[10] Supra note 4.

[11] Dated April 22, 2002.

[12] See Cosico, Jr. v. National Labor Relations Commission, 338 Phil. 1080, 1089 (1997).
[13] Luna v. Encarnacion, 92 Phil. 531, 534 (1952).

[14] Contra Circular No. 7-2002, Sec. 4(a) which provides:

Sec. 4. The Sheriff to whom the application for extra-judicial foreclosure of mortgage was raffled shall do
the following:

a. Prepare a Notice of Extrajudicial Sale using the following form:

"NOTICE OF EXTRA-JUDICIAL SALE"

"Upon extra-judicial petition for sale under Act 3135/1508 filed _________ against (name and address of
Mortgagor/s) to satisfy the mortgage indebtedness which as of ____________ amounts to P __________,
excluding penalties, charges, attorney's fees and expenses of foreclosure, the undersigned or his duly
authorized deputy will sell at public auction on (date of sale) _____ at 10:00 A.M. or soon thereafter at
the main entrance of the ________ (place of sale) to the highest bidder, for cash or manager's check and in
Philippine Currency, the following property with all its improvements, to wit:"

"(Description of Property)"

"All sealed bids must be submitted to the undersigned on the above stated time and date."

"In the event the public auction should not take place on the said date, it shall be held on ________________,
____________ without further notice."

_______________ (date)

"SHERIFF"

xxx xxx x x x (emphasis supplied)

[15] de Leon, COMMENT AND CASES ON CREDIT TRANSACTIONS, 2002 ed., 424-425 (citations omitted).

[16] Id., pp. 437-439 (citations omitted).

[17] WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY, 1993 ed., 209.

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Metrobank vs. BANCE (2008)

Sunday, June 06, 2010
12:30 AM

SECOND DIVISION

[G.R. No. 167280, April 30, 2008]

METROPOLITAN BANK AND TRUST COMPANY, PETITIONER, VS. SPS. ELMOR V. BANCE AND
ROSARIO J. BANCE, RESPONDENTS.

DECISION

QUISUMBING, J.:
Challenged in this petition for review are the Decision [1] and Resolution [2] dated October 29, 2004 and
March 3, 2005, respectively, of the Court of Appeals in CA-G.R. SP No. 78162, which had annulled the
Order [3] dated September 11, 2000 of the Regional Trial Court (RTC) of Manila, Branch 4, in LRC Cad.
Record No. 278.
The antecedent facts, as culled from the records, are as follows:

Respondents Elmor and Rosario Bance obtained several loans in the amount of P24,150,954.84 from
petitioner Metropolitan Bank and Trust Company, Tutuban Branch.[4] As security for the loans,
respondents mortgaged their properties in Binondo and Tondo, Manila, covered by Condominium
Certificate of Title No. 20040 and Transfer Certificates of Title Nos. 179657 and 179711.[5] Respondents
failed to pay their obligations, prompting petitioner to institute extrajudicial foreclosure proceedings over
the mortgage.

During the public auction held on October 2, 1998, petitioner emerged as the highest and winning bidder.
It was issued a Certificate of Sale [6] which was registered in the Registry of Deeds of Manila on May 3,
1999. [7] On April 5, 2000, petitioner demanded from respondents the surrender and possession of the
properties, [8] but the latter failed and refused to do so.

In the meantime, respondents, on May 2, 2000, instituted Civil Case No. 00-97252 in the RTC of Manila,
Branch 32, and sought the declaration of nullity of promissory notes, real estate mortgages, agreements,
continuing surety agreement, extrajudicial foreclosure proceedings, notices, publications, certificates of
sales and the corresponding entries on titles to the subject properties with prayer for temporary
restraining order (TRO) and issuance of writs of preliminary injunction and damages.[9] RTC Branch 32
immediately issued a TRO [10] dated May 15, 2000 enjoining petitioner from consolidating the titles of the
subject properties; from committing acts giving effect to the subject certificates of sales and all documents
thereto; and from committing acts of dispossession of the subject properties against respondents.

On June 23, 2000, petitioner filed with Branch 4 of the RTC of Manila a petition [11] for the issuance of a
writ of possession, docketed as LRC Cad. Record No. 278. RTC Branch 4, on September 11, 2000, granted
the petition and ordered the issuance of the writ. [12] The writ was implemented in March 2001, 2002, and
July 2003. [13]

Meanwhile, RTC Branch 32, on October 20, 2000, issued a preliminary prohibitory and mandatory
injunctive order [14] against petitioner. But for failure of respondents to post a bond, RTC Branch 32
recalled and set aside the order, [15] and accordingly dismissed the case. [16] Upon reconsideration,
however, RTC Branch 32 ordered the issuance of the writ. [17] Petitioner sought reconsideration, but it was
denied.

On July 22, 2003, respondents filed a petition [18] with the Court of Appeals seeking to annul the
September 11, 2000 Order of RTC Branch 4 on the ground of extrinsic fraud. On October 29, 2004, the
Court of Appeals ruled that petitioner employed extrinsic fraud when it deliberately withheld the true
nature of its claims against respondents in foreclosing the mortgage and securing the writ. It also added
that petitioner failed to state in the certification of non-forum shopping attached to the petition for the
issuance of the writ, the pendency of Civil Case No. 00-97252 in RTC Branch 32. In conclusion, it declared
the foreclosure of mortgage null and void and annulled the September 11, 2000 Order of RTC Branch
4. [19] The dispositive portion of the Court of Appeals’ decision reads:
WHEREFORE, the petition is hereby GRANTED. The Order of respondent court dated September 11,
2000 is hereby ANNULLED.

SO ORDERED. [20]
Petitioner sought reconsideration, but it was denied. Hence, this petition, ascribing the following errors to
the Court of Appeals:
I.

…THE COURT OF APPEALS ERRED IN GIVING DUE COURSE TO RESPONDENTS SPOUSES BANCE’S
PETITION FOR ANNULMENT OF THE SEPTEMBER 11, 2000 ORDER OF THE REGIONAL TRIAL COURT OF
MANILA BRANCH IV (04) INSTITUTED UNDER RULE 47 OF THE 1997 REVISED RULES OF CIVIL
PROCEDURE CONSIDERING THAT A WRIT OF POSSESSION CASE FILED UNDER ACT NO. 3135, AS
AMENDED, IS NOT AN ORDINARY ACTION.

II.

…THE COURT OF APPEALS ERRED IN ANNULLING THE SEPTEMBER 11, 2000 ORDER OF THE
REGIONAL TRIAL COURT OF MANILA BRANCH IV (04) GRANTING THE WRIT OF POSSESSION TO
 PETITIONER METROBANK ON THE GROUND THAT PETITIONER METROBANK COMMITTED EXTRINSIC
OR COLLATERAL FRAUD UNDER SECTION 2, RULE 47 OF THE 1997 REVISED RULES OF CIVIL
PROCEDURE.

III.

…THE COURT OF APPEALS ERRED IN NOT DISMISSING RESPONDENTS SPOUSES BANCE’S

PETITION FOR ANNULMENT OF THE ORDER DATED SEPTEMBER 11, 2000 OF THE REGIONAL TRIAL
COURT OF MANILA BRANCH IV (04) GRANTING THE WRIT OF POSSESSION (LRC CAD. RECORD NO.
278) CONSIDERING THAT IT IS AN EX PARTEPROCEEDING AND ITS ISSUANCE IS MINISTERIAL UNDER
ACT NO. 3135, AS AMENDED, AND THERE IS A PENDING CIVIL CASE NO. 00-97252 FILED BY
RESPONDENTS SPOUSES BANCE AGAINST PETITIONER METROBANK BEFORE THE REGIONAL TRIAL
COURT OF MANILA BRANCH XXXII (32) FOR “DECLARATION OF NULLITY OF PROMISSORY NOTES,
REAL ESTATE MORTGAGES, AGREEMENTS, CONTINUING SURETY AGREEMENT, EXTRAJUDICIAL
FORECLOSURE PROCEEDINGS, ETC.” [21]

IV.

…THE COURT OF APPEALS ERRED IN FINDING PETITIONER BANK GUILTY OF FORUM SHOPPING WHEN
IT FILED A PETITION FOR ISSUANCE OF A WRIT OF POSSESSION BEFORE [THE] REGIONAL TRIAL
COURT OF MANILA BRANCH IV WHEN THERE WAS A PENDING ACTION ON THE SAME SUBJECT MATTER
BEFORE REGIONAL TRIAL COURT OF MANILA, BRANCH XXXII. [22]
Simply, the issues are: (1) Did the Court of Appeals err in annulling the writ of possession issued by RTC
Branch 4? (2) Is petitioner guilty of forum shopping?

The petition has merit.

Anent the first issue, petitioner contends that the Court of Appeals erred in annulling the writ of possession
on the ground of extrinsic fraud. It avers that a petition for the issuance of the writ is ex parte in nature;
hence, respondents need not be notified of the proceedings therein. It further argues that since there is
already a pending civil case for declaration of nullity of mortgage, etc., the Court of Appeals should not
have ruled on the validity of the loan documents and foreclosure proceedings. It adds that respondents, in
instituting the annulment of judgment case, failed to pursue the proper remedy provided under Section
8 [23] of Act No. 3135, [24] as amended.

Respondents counter that petitioner employed extrinsic fraud when it secured the writ because it
deliberately withheld from them the foreclosure of the mortgage and institution of the petition for the
issuance of the writ. They add that a petition for the issuance of the writ is an ordinary action, hence, they
must be notified of the true nature of petitioner’s claims against them. They also contend that the writ
was irregularly issued because petitioner was not required to post the bond mandated in Section 7 [25] of
Act No. 3135, as amended.

First, no extrinsic fraud was employed by petitioner in not informing respondents of the institution of the
writ of possession case. A petition for the issuance of the writ, under Section 7 of Act No. 3135, as
amended, is not an ordinary action filed in court, by which one party “sues another for the enforcement
or protection of a right, or prevention or redress of a wrong.” [26] It is in the nature of an ex
parte motion which the court hears only one side. It is taken or granted at the instance and for the benefit
of one party, and without notice to or consent by any party adversely affected.[27] Accordingly, upon the
filing of a proper motion by the purchaser in a foreclosure sale, and the approval of the corresponding
bond, the writ of possession issues as a matter of course and the trial court has no discretion on this
matter. [28]

Second, the writ of possession was not irregular despite the fact that petitioner did not post a bond. The
posting of a bond as a condition for the issuance of the writ of possession becomes necessary only if it is
applied for within one year from the registration of the sale with the register of deeds, i.e., during the
redemption period inasmuch as ownership has not yet vested on the creditor-mortgagee. After the one-
year period, and no redemption was made, the mortgagor loses all interest over it.[29] In this case,
respondents were already stripped of their rights over the properties when they failed to redeem the same
within one year from May 3, 1999, the date of registration of the sale. [30] Hence, when petitioner applied
for the writ after the expiration of the redemption period there was even more reason to issue the writ.
Third, the Court of Appeals, in CA-G.R. SP No. 78162, need not delve on any alleged defect or irregularity
in the foreclosure, inasmuch as the only issue therein was the propriety of the issuance of the
writ. [31] Any question regarding the validity of the mortgage or its foreclosure cannot be a legal ground
for refusing the issuance of the writ. [32] If only to stress the writ’s ministerial character, we have, in
several cases, [33] disallowed injunctions prohibiting its issuance, just as we have held that the issuance of
the writ may not be stayed by a pending action for annulment of mortgage or the foreclosure itself.

Fourth, respondents failed to pursue the proper remedy. Under Section 8 of Act No. 3135, as amended, in
case it is disputed that the writ of possession was irregularly issued, the mortgagor may file with the trial
court that issued the writ a petition to set aside the sale and to cancel the writ of possession within 30
days after the purchaser-mortgagee was given possession. [34] Based on the records, the subject
properties were turned over to petitioner on March 19, 2001, sometime in 2002 and July 2003.
Respondents should have assailed the writ within 30 days therefrom, but they failed to do so.

On the issue of forum shopping, respondents contend that petitioner’s filing of the petition for the
issuance of a writ of possession constitutes forum shopping because there is already a pending case in
RTC Branch 32 involving the subject properties. Petitioner, on the other hand, avers that it was not duty
bound to disclose to respondents the pendency of the writ of possession case and a certificate of non-
forum shopping is not required in a petition for the issuance of the writ under Section 7 of Act No. 3135, as
amended because it is not a complaint or initiatory pleading.

Petitioner is correct. Insofar as LRC Cad. Record No. 278 and Civil Case No. 00-97252 are concerned, there
is no forum shopping. The essence of forum shopping is the filing of multiple suits involving the same
parties for the same cause of action, either simultaneously or successively, for the purpose of obtaining
favorable judgment. It exists where the elements of litis pendentia are present or where a final judgment
in one case will amount to res judicata in another. Since the issuance of a writ of possession is a ministerial
function and summary in nature, it cannot be said to be a judgment on the merits but simply an incident in
the transfer of title. [35] Hence, regardless of whether or not there is a pending suit for annulment of the
mortgage or the foreclosure itself, petitioner is entitled to the writ, subject however to the final outcome of
the case. [36]

Moreover, a certificate of non-forum shopping, as provided in Section 5, [37] Rule 7 of the 1997 Rules of
Civil Procedure, is required only in complaints or other initiatory pleadings, and a petition or motion for the
issuance of the writ under Section 7 of Act No. 3135, as amended, is not a complaint or an initiatory
pleading. [38] Indeed, any insignificant lapse in the certification of non-forum shopping filed by petitioner
does not render the writ irregular for no verification and certification on non-forum shopping need be
attached to the motion at all. [39]

WHEREFORE, the instant petition is GRANTED. The challenged Decision and Resolution dated October
29, 2004 and March 3, 2005, respectively, of the Court of Appeals in CA-G.R. SP No. 78162 are
hereby REVERSED AND SET ASIDE. Costs against the respondents.

SO ORDERED.

Carpio-Morales, Tinga, Velasco, Jr., and Brion, JJ., concur.

[1] Rollo, pp. 31-42. Penned by Associate Justice Eloy R. Bello, Jr., with Associate Justices Regalado E.
Maambong and Lucenito N. Tagle concurring.
[2] Id. at 43-44. Penned by Associate Justice Regalado E. Maambong, with Associate Justices Elvi John S. Asuncion and Lucenito N. Tagle concurring.

[3] Id. at 46-47. Penned by Presiding Judge Socorro B. Inting.

[4] Records, pp. 24-27.

[5] Id. at 22-23 and 28-31.

[6] Id. at 38-40.

[7] Rollo, p. 71.

[8] Records, pp. 67-69.

[9] Id. at 1-21.

[10] Id. at 72-73.

[11] Rollo, pp. 68-73.

[12] Id. at 46-47.

[13] Id. at 152-155. As to the property with Condominium Certificate of Title No. 20040, the Notice to Vacate was served on February 21, 2001 and possession was turned over to

petitioner on March 19, 2001. On the other hand, the Notice to Vacate the property with TCT Nos. 179657 and 179711 was served upon the occupants on March 22, 2001. The property

with TCT No. 179711 was voluntarily turned over to petitioner in 2002, but as to TCT No. 179657, possession was turned over to petitioner sometime in July 2003, after the latter has

secured a “break-open” order from the said court which issued the writ.

[14] Records, pp. 161-163.

[15] Id. at 164.

[16] Id. at 170.

[17] Id. at 270-271.

[18] CA rollo, pp. 2-15.

[19] Rollo, pp. 39-42.

[20] Id. at 42.

[21] Id. at 158-159.

[22] Id. at 180.

[23] SEC. 8. The debtor may, in the proceedings in which possession was requested, but not later than thirty days after the purchaser was given possession, petition

that the sale be set aside and the writ of possession cancelled, specifying the damages suffered by him, because the mortgage was not violated or the sale was not
made in accordance with the provisions hereof, and the court shall take cognizance of this petition in accordance with the summary procedure provided for in section one hundred

and twelve of Act Numbered four hundred and ninety-six and if it finds the complaint of the debtor justified, it shall dispose in his favor of all or part of the bond furnished by the person

who obtained possession. Either of the parties may appeal from the order of the judge in accordance with section fourteen of Act Numbered Four hundred and ninety-six; but the order

of possession shall continue in effect during the pendency of the appeal. (Emphasis supplied.)

[24] An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages, approved on March 6, 1924 (as amended by Act No. 4118, approved

on December 7, 1933).

[25] SEC. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance of the province or place where the property or any part thereof is

situated, to give him possession thereof during the redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify

the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of this Act. Such petition shall be made under oath

and filed in form of an ex parte motion in registration or cadastral proceedings if the property is registered, or in special proceedings in the case of property registered under the

Mortgage Law or under section one hundred and ninety-four of the Administrative Code, or of any other real property, encumbered with a mortgage duly registered in the office of any

register of deeds in accordance with any existing law, and in each case the clerk of the court shall, upon the filing of such petition, collect the fees specified in paragraph eleven of
section one hundred and fourteen of Act Numbered Four hundred and ninety-six, as amended by Act Numbered Twenty-eight hundred sixty-six, and the court shall, upon approval of

the bond, order that a writ of possession issue, addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately. (Emphasis

supplied.)

[26] De Vera v. Agloro, G.R. No. 155673, January 14, 2005, 448 SCRA 203, 215.

[27] Arquiza v. Court of Appeals, G.R. No. 160479, June 8, 2005, 459 SCRA 753, 766.

[28] Yulienco v. Court of Appeals, G.R. No. 141365, November 27, 2002, 393 SCRA 143, 153.
[29] Espiridion v. Court of Appeals, G.R. No. 146933, June 8, 2006, 490 SCRA 273, 278.

[30] See Yulienco v. Court of Appeals, supra at 152.

[31] See Vda. de Zaballero v. Court of Appeals, G.R. No. 106958, February 9, 1994, 229 SCRA 810, 814.

[32] De Vera v. Agloro, supra.

[33] Chailease Finance Corporation v. Ma, G.R. No. 151941, August 15, 2003, 409 SCRA 250, 253; Yulienco v. Court of Appeals, supra at 154.

[34] Ong v. Court of Appeals, G.R. No. 121494, June 8, 2000, 333 SCRA 189, 196.

[35] Id. at 199.

[36] Id. at 198.

[37] SEC. 5. Certification against forum shopping. – The plaintiff or principal party shall certify under oath in the complaint or other initiatory pleading asserting a claim for relief, or in

a sworn certification annexed thereto and simultaneously filed therewith: (a) that he has not theretofore commenced any action or filed any claim involving the same issues in any

court, tribunal or quasi-judicial agency and, to the best of his knowledge, no such other action or claim is pending therein; (b) if there is such other pending action or claim, a complete

statement of the present status thereof; and (c) if he should thereafter learn that the same or similar action or claim has been filed or is pending, he shall report that fact within five (5)

days therefrom to the court wherein his aforesaid complaint or initiatory pleading has been filed.

Failure to comply with the foregoing requirements shall not be curable by mere amendment of the
complaint or other initiatory pleading but shall be cause for the dismissal of the case without prejudice,
unless otherwise provided, upon motion and after hearing. The submission of a false certification or non-
compliance with any of the undertakings therein shall constitute indirect contempt of court, without
prejudice to the corresponding administrative and criminal actions. If the acts of the party or his counsel
clearly constitute willful and deliberate forum shopping, the same shall be ground for summary dismissal
with prejudice and shall constitute direct contempt, as well as a cause for administrative sanctions.
[38] Ancheta v. Metropolitan Bank & Trust Company, Inc., G.R. No. 163410, September 16, 2005, 470 SCRA 157, 164.

[39] See Arquiza v. Court of Appeals, supra note 27, at 762-763.

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Chinabank vs Lozada (2008)

Sunday, June 06, 2010
12:38 AM

THIRD DIVISION

CHINA BANKING CORPORATION, G.R. No. 164919

Petitioner,
Present:

YNARES-SANTIAGO,
Chairperson,
- versus- AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

SPOUSES TOBIAS L. LOZADA and ERLINA P. LOZADA, Promulgated:

 Respondents.

July 4, 2008
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the Revised Rules of Court
filed by petitioner China Banking Corporation (CBC) seeking the reversal and setting aside of the
Decision[2] dated 25 March 2004 and Resolution[3] dated 10 August 2004 of the Court of Appeals in
CA-G.R. SP No. 67399. The assailed Decision of the appellate court annulled and set aside: (1) the
Order[4] dated 31 August 2001 of the Regional Trial Court (RTC), Branch 65,Makati City, in L.R.C.
Case No. M-4184, granting the ex parte petition of CBC for a writ of possession over the
condominium unit covered by Condominium Certificate of Title (CCT) No. 69096; (2) the Writ of
Possession[5] dated 3 September 2001 issued by the RTC Branch Clerk of Court commanding the
Sheriff to place CBC in possession of the said condominium unit and eject all its present occupants;
and (3) the Notices to Vacate[6] dated 17 October 2001 and 22 October 2001 of the Sheriff
addressed, respectively, to Primetown Property Group, Inc. (PPGI) and respondent spouses Tobias
L. Lozada and Erlina P. Lozada (spousesLozada), directing them to vacate the said property within
five days from receipt of the notices.

There is hardly any dispute as to the antecedent facts of the instant Petition.

On 25 June 1995, the spouses Lozada entered into a Contract to Sell[7] with PPGI. PPGI, the
developer of Makati Prime City Condominium TownhomesProject (Project), agreed to sell to the
spouses Lozada Unit No. 402 of Cluster 1 of the Project, a two-bedroom residential unit with an area
of 42.90 square meters, covered by CCT No. 34898, for the total price of P1,444,014.04, payable as
follows:

30% Downpayment P 402,803.92- Payable in 15 months, beginning 2

(including the Residential October 1995
Fee)

70% Balance P 1,010,809.83- Payable upon completion or turn-over

of the unit

About six months later, or on 7 December 1995, PPGI, represented by its President Kenneth T. Yap
and Treasurer Gilbert Y. Yap, and with Mortgage Clearance[8] from the Housing and Land Use Regulatory
Board (HLURB), executed two Deeds of Real Estate Mortgage[9] in favor of CBC to secure the credit
facilities granted by CBC to PPGI in the combined maximum amount of P37,000,000.00. The real estate
mortgages covered 51 units of the Project, including Unit No. 402.

PPGI availed itself of the said credit facilities and incurred a total principal obligation
of P29,067,708.10 to CBC. When PPGI failed to pay its indebtedness despite repeated demands,
CBC filed with the Clerk of Court and Ex Officio Sheriff of the Makati City RTC a Petition for
Extrajudicial Foreclosure[10] of the real estate mortgages on 31 July 1998. The Petition was
docketed as Foreclosure No. 98-098. A Notice of Sheriff’s Sale[11] was issued on 7 August
1998 setting the public auction of the foreclosed properties on 11 September 1998 at 10:00
a.m. The said Notice was published in Metro Profile on 11, 18 and 25 August 1998.[12] The public
auction sale took place as scheduled at which CBC was the highest bidder, offering the amount
of P30,000,000.00 for the foreclosed properties. The Certificate of Sale[13] of the foreclosed
properties was subsequently issued in favor of CBC on 15 October 1998.
 On 25 April 2000, CBC Chief Executive Officer Peter S. Dee executed an Affidavit of
Consolidation[14] stating that 21 of the 51 foreclosed properties had been either “released by take-out by
certain buyers” or partially redeemed; the period for redemption of the remaining foreclosed properties
(which included Unit No. 402) had already expired without having been redeemed; the titles to the
remaining foreclosed properties had already been consolidated in the name of CBC; and for said reason,
the Registry of Deeds of Makati City was requested to issue the corresponding CCTs in the name of
CBC. Pursuant to the Affidavit of Consolidation, the Registry of Deeds of Makati City cancelled CCT No.
34898, covering Unit No. 402, and registered in the name of PPGI, and issued in its place CCT No.
69096[15] in the name of CBC on 12 May 2000.

It appears that a few months prior to the foreclosure of the real estate mortgages, PPGI, through its
Senior Manager Salvador G. Prieto, Jr., sent a letter[16]dated 30 March 1998 to
respondent Erlina P. Lozada (Erlina) in the following tenor:

Dear Ms. Lozada:

This refers to your purchase of Unit 402, Cluster 1 of Makati Prime City, a project
of Primetown Property Group, Inc. (“PPGI”), the development of which has been partially
financed by China Banking Corporation.

We refer to Section 18 of Presidential Decree No. 957, otherwise known as “The Subdivision and
Condominium Buyer’s Protective Decree”. Section 18 states:

SECTION 18. Mortgages. No mortgage on any unit or lot shall be made by the owner or
developer without prior written approval of the Authority. Such approval shall not be granted
unless it is shown that the proceeds of the mortgage loan shall be used for the development of
the condominium or subdivision project and effective measures have been provided to ensure
such utilization. The loan value of each lot or unit covered by the mortgage shall be
determined and the buyer thereof, if any, shall be notified before the release of the loan. The
buyer may, at his option, pay his installment for the lot or unit directly to the mortgagee who
shall apply the payments to the corresponding mortgage indebtedness secured by the
particular lot or unit being paid for, with a view to enabling said buyer to obtain title over the
lot or unit promptly after full payment thereto.

In view of the foregoing, we hereby direct your goodself to remit all payments under your Contract
to Sell directly to China Banking Corporation at its Greenhills Branch located at Padilla
Arcade, Greenhills, M.M. effective April 1, 1998. Attached is your Statement of Account for your
guidance.

This payment arrangement shall in no way cause any amendment of the other terms and conditions,
nor the cancellation of the Contract to Sell you have executed with PPGI.

Very truly yours,

(Signed)
Salvador G. Prieto, Jr.
Sr. Manager
Credit and Collection Department

There is nothing on record to show any immediate action taken by the spouses Lozada on the afore-
quoted letter. But a year following the public auction sale of the foreclosed properties held on 11
September 1998, Erlina executed a Notice of Adverse Claim[17] dated 13 September 1999 as
regards Unit No. 402, which she registered with the Registry of Deeds of Makati City.[18] Said
Notice of Adverse Claim was subsequently annotated on CCT No. 69096 when it was issued in the
name of CBC.

Erlina next sent a letter dated 1 December 1999[19] to both PPGI and CBC, laying down her position
pertaining to Unit No. 402, to wit:
 1. I have been ready, willing, and able since August 25, 1998 to pay the balance under my
contract and I have tendered payment as early as then.
2. My liability is limited to the amount stated thereunder plus reasonable expenses for the
transfer of title; no other liability such as for interests, penalties, charges or any other imposition is
recognized. The VAT is a liability of the seller and I have never consented to accept this burden.
3. On delivery of my full payment, I have a right to demand reasonable assurance that title could
be transferred to me immediately and so to require that the muniments of title and evidence of all
tax payments by seller (necessary for registration) be delivered to me.

In the same letter, she advised that she was tendering payment by opening an escrow account with CBC
in the amount of P1,010,809.83, representing the 70% balance of the purchase price of Unit No. 402 per
the Contract to Sell with PPGI. Not long thereafter, Erlina sent another letter[20] dated 3 December
1999 to PPGI and CBC stating that she was unable to open an escrow account as no one had advised her
on how to go about it. Instead, she opened a special account with the following details:

Account Name : Erlina P. Lozada

Account No. : 103-630621-4
Bank : Chinabank Makati Head Office
Amount : P1,010,809.83

She reiterated that the amount represented the balance of the purchase price for Unit No. 402 under the
Contract to Sell, and shall be available to the party who shall establish the lawful right to the payment
and deliver the muniments of title and other documents necessary for the transfer of the same.

In reply, CBC sent Erlina a letter[21] dated 8 December 1999, telling her that the consideration for
Unit No. 402 was P1,100,788.29; thus, the amount she was tendering was insufficient. CBC also informed
her that all taxes including documentary stamp tax, capital gains tax, transfer tax, and all other expenses
for the transfer of title to her name shall be for her exclusive account.

In another letter dated 15 May 2001 to Erlina, CBC notified her that it had already consolidated its
title and ownership over Unit No. 402 which she presently occupied, and requested her to vacate and
surrender the said property, including the appurtenant keys, to its duly authorized representative within
15 days from receipt of the letter.

Following the 15 May 2001 letter of CBC to Erlina, a conference was held and more letters were
exchanged between the parties,[22] but, apparently, no agreement was reached.

On 27 July 2001, CBC filed an Ex Parte Petition for Issuance of a Writ of Possession[23] with
the Makati City RTC, docketed as Land Registration Commission (L.R.C.) Case No. M-4184. CBC prayed to
the court a quo for the following:

WHEREFORE, it is most respectfully prayed of this Honorable Court that the corresponding Writ
of Possession be issued ex parte by the Honorable Court in favor of petitioner [CBC] and
against Erlinda [sic] Lozada and/or all persons claiming rights under her name, over the
condominium unit covered by CCT No. 69096 (formerly CCT No. 34898), of the Registry of
Deeds for the City of Makati, with all the improvements existing thereon.

On the other hand, on 7 August 2001, the spouses Lozada instituted a Complaint[24] with the
HLURB, docketed as HLURB Case No. REM-0080701-11582, with the following prayer:

WHEREFORE, [herein respondents spouses Lozada] pray of this Honorable Board to order the
annulment of mortgage, foreclosure, sale, consolidation of ownership between CBC and [PPGI]
insofar as they pertain to [spouses Lozada] and to order the respondent Register of Deeds
of Makati City to cancel Condominium Certificate of Title No. 69096. It is likewise prayed that a
Temporary Restraining Order and/or Writ of Preliminary Injunction be issued to prevent [herein
petitioner] CBC from taking possession of the unit in question.
 [Spouses Lozada] pray for such other relief and remedies that are just and equitable under the
premises.

L.R.C. Case No. M-4184 and HLURB Case No. REM-0080701-11582 proceeded simultaneously,
although it is principally the former which concerns this Court in the present Petition.

The Makati City RTC, finding that the prayer for issuance of a writ of possession of CBC in L.R.C.
Case No. M-4184 needed to be substantiated by evidence, initially set the hearing on 15 August
2001 at 10:00 a.m.[25] However, on motion of CBC, the Makati City RTC issued an Order[26] dated
15 August 2001 canceling the hearing for that day and transferring the same to 31 August 2001 at
10:00 a.m. The same Order expressly directed that Erlina be notified, but the records do not show
that said notice was actually sent and received by her.

The hearing on 31 August 2001 pushed through, even without the presence of the spouses Lozada,
during which the CBC presented and marked its documentary evidence.

On 31 August 2001, the Makati City RTC issued an Order[27] granting the Ex Parte Petition of CBC,
and decreeing that:

Finding the petition to be duly substantiated by the evidence presented and pursuant to the
provisions of section 7 of Act 3135 as amended by Act 4118, let a writ of possession issue in
favor of the petitioner China Banking Corporation.

In accordance with the foregoing Order, the RTC Branch Clerk of Court issued the Writ of
Possession[28] dated 3 September 2001 commanding the Sheriff to place CBC in possession of Unit
No. 402 and eject all its present occupants. The Sheriff, in turn, issued the Notices to
Vacate[29] dated 17 October 2001 and 22 October 2001 addressed to PPGI and the spouses Lozada,
respectively, directing them to vacate the said property within five days from receipt of the notices.

When the Sheriff went to Unit No. 402 on 30 October 2001, he failed to enforce the Writ of
Possession because the main door of the said property was padlocked,[30] prompting CBC to file
with the Makati City RTC an Urgent Ex Parte Motion to Break Open[31] the door to Unit No. 402 and
place CBC in possession thereof.

While the afore-mentioned events were unfolding in L.R.C. Case No. M-4184, the
spouses Lozada were seeking recourse elsewhere.

They were able to secure an Order[32] dated 25 October 2001 in HLURB Case No. REM-0080701-
11582 directing the parties therein to maintain status quoawaiting the resolution of the Application
for a Writ of Preliminary Injunction of the spouses Lozada.

Four days later, on 29 October 2001, the spouses Lozada filed with the Court of Appeals their
Petition for Certiorari and Prohibition, with Application for Writ of Preliminary Injunction/Temporary
Restraining Order[33] against the Makati City RTC, Sheriff, CBC, and PPGI, docketed as CA-G.R. SP
No. 67399, which was anchored on the following grounds:

I. Respondent Presiding Judge deprived your [herein respondents spouses Lozada] of due
process of law and their day in court, when he unjustifiably failed to order the service of notice on
[spouses Lozada] of the ex-parte petition of [herein petitioner] CBC;

II. The respondent Judge, contrary to law and existing jurisprudence, issued arbitrarily, without
jurisdiction and in excess of jurisdiction, the Writ of Possession to the irreparable damage and
[prejudice] of [spouses Lozada];

III. The respondent Judge in grave abuse of discretion, without jurisdiction and in excess of
jurisdiction, without giving [spouses Lozada] the opportunity to fully ventilate their possession over
the condominium unit purchased by them, he capriciously, arbitrarily and unjustifiably issued the
questioned Writ of Possession intended to eject the [spouses Lozada] from the condominium unit
that they purchased;
 IV. The respondent Presiding Judge committed a grave abuse of discretion, amounting to lack or
excess of jurisdiction, when he issued the Order of August 31, 2001 granting the Writ of Possession
sought by [petitioner] CBC that will certainly interfere with the authority of [the] HLURB being
exercised in HLURB Case No. REM-008070-11582.

On 30 October 2001, the Court of Appeals issued a Resolution[34] granting in favor of the
spouses Lozada a temporary restraining order enjoining the Sheriff and the other respondents
therein from enforcing the Writ of Possession and Notices to Vacate. The spouses Lozada, however,
were directed to file an injunctive bond in the amount of P200,000.00.

The Court of Appeals rendered its assailed Decision[35] on 25 March 2004 ruling in favor of the
spouses Lozada. According to the appellate court, the issuance of the Writ of Possession was not
mandatory and ministerial on the part of the Makati City RTC, and the court a quo should have
afforded the spouses Lozada a hearing, considering that (1) Unit No. 402 was no longer in the
possession of the original debtor/mortgagor PPGI, but was already being enjoyed by the
spousesLozada; (2) the Makati City RTC was aware that Unit No. 402 was already in the possession
of the spouses Lozada because it was so stated in the ex parte petition of CBC, as well as the Notice
of Adverse Claim annotated on CCT No. 69096 presented by CBC as evidence before the trial court;
(3) the spouses Lozada , under Section 18 of Presidential Decree No. 957, had the right to continue
paying for Unit No. 402 to CBC, the purchaser thereof at the foreclosure sale, still in accordance with
the tenor of the Contract to Sell; and (4) the spouses Lozada had a perfect cause of action for the
annulment of the mortgage constituted by PPGI in favor of CBC since PPGI failed to comply with the
requirement in Union Bank of the Philippines v. Housing and Land Use Regulatory Board,[36] to
notify the installment buyer of the condominium unit of the mortgage constituted
thereon. The dispositive portion of the Decision reads:

WHEREFORE, premises considered, there being grave abuse of discretion on the part of the
court a quo in issuing the herein assailed Order, the instant Petition is GRANTED. Accordingly,
the August 31, 2001 Order, the Writ of Possession and the Notice to Vacate are hereby
ANNULLED and SET ASIDE.[37]

In its Resolution[38] dated 10 August 2004, the Court of Appeals denied the Motion for
Reconsideration of CBC, maintaining that the possession of the spousesLozada of Unit No. 402
constituted an effective obstacle barring the Makati City RTC from issuing a writ to place CBC in
possession of the same. The appellate court reiterated that there was grave abuse of discretion on
the part of the Makati City RTC when it included Unit No. 402 within the coverage of the writ of
possession, notwithstanding the fact that said unit was in possession of the spouses Lozada under a
legitimate claim of ownership on the strength of a Contract to Sell executed in their favor by PPGI.

Comes now CBC before this Court via the present Petition for Review on Certiorari under Rule 45 of
the Revised Rules of Court with the following assignment of errors:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT TOOK COGNIZANCE OF THE
PETITION, STOPPED THE IMPLEMENTATION OF THE WRIT OF POSSESSION AND EVENTUALLY HAD IT
ANNULLED AND SET ASIDE.

II

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE RESPONDENTS WERE
HOLDING THE SUBJECT PROPERTY ADVERSELY TO THE JUDGMENT DEBTOR THUS THE ISSUANCE OF
THE WRIT OF POSSESSION WAS IMPROPER AND UNWARRANTED, WHICH IS IN DIRECT COLLISSION
(SIC) WITH APPLICABLE JURISPRUDENCE.

III
 THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT FAILED TO APPRECIATE THE
FACTUALITY THAT RESPONDENTS WERE SUBSEQUENTLY INFORMED OF THE MORTGAGE WITH AN
ADVISE OF PAYMENT OF INSTALLMENTS TO HEREIN PETITIONERS [sic], BUT WHICH RESPONDENTS
IGNORED, HENCE THEY MADE [sic] THEMSELVES BEYOND THE MANTLE OF PROTECTION UNDER P.D.
957.[39]

Sorting through the allegations and arguments presented by the parties, the Court ascertains that
the pivotal issue for its consideration is, given the circumstances in the present case, whether the
writ of possession may be granted and issued by the Makati City RTC ex parte or without notice to
other parties.[40]

The Court answers in the affirmative.

Procedural due process

At the outset, this Court establishes that the issue herein is one involving procedural due
process. Procedural due process "refers to the method or manner by which the law is
enforced."[41] It consists of the two basic rights of notice and hearing, as well as the guarantee of
being heard by an impartial and competent tribunal. True to the mandate of the due process clause,
the basic rights of notice and hearing pervade not only in criminal and civil proceedings, but in
administrative proceedings as well. Non-observance of these rights will invalidate the
proceedings. Individuals are entitled to be notified of any pending case affecting their interests; and
upon notice, they may claim the right to appear therein, present their side and refute the position of
the opposing parties.[42]

At the crux of the opposition of the spouses Lozada to the ex parte issuance by the Makati City RTC
of the writ of possession in favor of CBC was that it supposedly deprived them of the opportunity to
defend their title and right to possess; or simply, that it denied them due process.

The procedure for extrajudicial foreclosure of real estate mortgage is governed by Act No. 3135,
[43] as amended. The purchaser at the public auction sale of anextrajudicially foreclosed real
property may seek possession thereof in accordance with Section 7 of Act No. 3135, as amended,
which provides:

SEC. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court
of First Instance of the province or place where the property or any part thereof is situated, to
give him possession thereof during the redemption period, furnishing bond in an amount
equivalent to the use of the property for a period of twelve months, to indemnify the debtor in
case it be shown that the sale was made without violating the mortgage or without complying
with the requirements of this Act. Such petition shall be made under oath and filed in
form or an ex parte motion in the registration or cadastral proceedings if the property is
registered, or in special proceedings in the case of property registered under the Mortgage Law
or under section one hundred and ninety-four of the Administrative Code, or of any other real
property encumbered with a mortgage duly registered in the office of any register of deeds in
accordance with any existing law, and in each case the clerk of court shall, upon the filing of
such petition, collect the fees specified in paragraph eleven of section one hundred and
fourteen of Act Numbered Four hundred and ninety six as amended by Act Numbered Twenty-
eight hundred and sixty-six, and the court shall, upon approval of the bond, order that a writ of
possession issue addressed to the sheriff of the province in which the property is situated, who
shall execute said order immediately. (Emphasis supplied.)

The Court expounded on the application of the foregoing provision in De Gracia v. San Jose,
[44] thus:

As may be seen, the law expressly authorizes the purchaser to petition for a writ of possession
during the redemption period by filing an ex parte motion under oath for that purpose in the
corresponding registration or cadastral proceeding in the case of property with Torrens title;
and upon the filing of such motion and the approval of the corresponding bond, the law also in
express terms directs the court to issue the order for a writ of possession. Under the legal
 provisions above copied, the order for a writ of possession issues as a matter of course upon
the filing of the proper motion and the approval of the corresponding bond. No discretion is
left to the court. And any question regarding the regularity and validity of the sale (and the
consequent cancellation of the writ) is left to be determined in a subsequent proceeding as
outlined in section 8. Such question is not to be raised as a justification for opposing the
issuance of the writ of possession, since, under the Act, the proceeding for this
is ex parte. (Emphasis supplied.)

Strictly, Section 7 of Act No. 3135, as amended, refers to a situation wherein the purchaser seeks
possession of the foreclosed property during the 12-month period for redemption. Upon the
purchaser’s filing of the ex parte petition and posting of the appropriate bond, the RTC[45] shall, as
a matter of course, order the issuance of the writ of possession in the purchaser’s favor.

In IFC Service Leasing and Acceptance Corporation v. Nera,[46] the Court reasoned that if under
Section 7 of Act No. 3135, as amended, the RTC has the power during the period of redemption to
issue a writ of possession on the ex parte application of the purchaser, there is no reason why it
should not also have the same power after the expiration of the redemption period, especially where
a new title has already been issued in the name of the purchaser. Hence, the procedure under
Section 7 of Act No. 3135, as amended, may be availed of by a purchaser seeking possession of the
foreclosed property he bought at the public auction sale after the redemption period has expired
without redemption having been made.

The Court recognizes the rights acquired by the purchaser of the foreclosed property at the public
auction sale upon the consolidation of his title when no timely redemption of the property was
made, to wit:

It is settled that upon receipt of the definitive deed in an execution sale, legal title over the
property sold is perfected (33 C. J. S. 554). And this court has also [said] and that the land
bought by him and described in the deed deemed (sic) within the period allowed for that
purpose, its ownership becomes consolidated in the purchaser, and the latter, "as absolute
owner . . . is entitled to its possession and to receive the rents and fruits thereof." (Powell v.
Philippine National Bank, 54 Phil., 54, 63.) x x x.[47]

It is thus settled that the buyer in a foreclosure sale becomes the absolute owner of the property
purchased if it is not redeemed during the period of one year after the registration of the sale. As
such, he is entitled to the possession of the said property and can demand it at any time following
the consolidation of ownership in his name and the issuance to him of a new transfer certificate of
title. The buyer can in fact demand possession of the land even during the redemption period
except that he has to post a bond in accordance with Section 7 of Act No. 3135, as amended. No
such bond is required after the redemption period if the property is not redeemed. Possession of the
land then becomes an absolute right of the purchaser as confirmed owner. Upon proper application
and proof of title, the issuance of the writ of possession becomes a ministerial duty of the court.[48]

The purchaser, therefore, in the public auction sale of a foreclosed property is entitled to a writ of
possession; and upon an ex parte petition of the purchaser, it is ministerial upon the RTC to issue
such writ of possession in favor of the purchaser. However, while this is the general rule, as in all
general rules, there is an exception. The exception and its basis were summarized by the Court
in Roxas v. Buan,[49] thus:

In the extrajudicial foreclosure of real estate mortgages, possession of the property may be
awarded to the purchaser at the foreclosure sale during the pendency of the period of
redemption under the terms provided in Sec. 6 of Act 3135, as amended (An Act to Regulate
the Sale of Property Under Special Powers Inserted In or Annexed to Real Estate Mortgages), or
after the lapse of the redemption period, without need of a separate and independent action
[IFC Service Leasing and Acceptance Corp. v. Nera, G.R. No. L-21720, January 30, 1967, 19
SCRA 181). This is founded on his right of ownership over the property which he purchased at
the auction sale and his consequent right to be placed in possession thereof.

This rule is, however, not without exception. Under Sec. 35, Rule 39 of the Revised Rules of
Court, which was made applicable to the extrajudicial foreclosure of real estate mortgages by
 Sec. 6 Act No. 3135, the possession of the mortgaged property may be awarded to a purchaser
in extrajudicial foreclosures "unless a third party is actually holding the property adversely to
the judgment debtor." (Clapano v. Gapultos, G.R. Nos. 51574-77, September 30, 1984, 132
SCRA 429, 434; Philippine National Bank v. Adil, G.R. No. 52823, November 2, 1982, 118 SCRA
110; IFC Service Leasing and Acceptance Corp. v. Nera, supra.) As explained by the Court
in IFC Service Leasing and Acceptance Corp. v. Nera, supra:

x x x The applicable provision of Act No. 3135 is Section 6 which provides that, in
cases in which an extrajudicial sale is made, "redemption shall be governed by the
provisions of sections four hundred and sixty-four to four hundred and sixty-six,
inclusive, of the Code of Civil Procedure in so far as these are not inconsistent with
the provisions of this Act." Sections 464-466 of the Code of Civil Procedure were
superseded by Sections 25-27 and Section 31 of Rule 39 of the Rules of Court which
in turn were replaced by Sections 29-31 and Section 35 of Rule 39 of the Revised
Rules of Court. Section 35 of the Revised Rules of Court expressly states that "If no
redemption be made within twelve (12) months after the sale, the purchaser, or his
assignee, is entitled to a conveyance and possession of the property x x x." The
possession of the property shall be given to the purchaser or last redemptioner by
the officer unless a party is actually holding the property adversely to the judgment
debtor, [Id. at 184-185; Emphasis in the original.]

After further revision of the Rules of Court, Section 35 of Rule 39 referred to above is now Section 33
of Rule 39, which reads:

SEC. 33. Deed and possession to be given at expiration of redemption period; by whom
executed or given. – If no redemption be made within one (1) year from the date of the
registration of the certificate of sale, the purchaser is entitled to a conveyance and possession
of the property; x x x.

Upon the expiration of the right of redemption, the purchaser or redemptioner shall be
substituted to and acquire all the rights, title, interest and claim of the judgment obligor to the
property as of the time of the levy. The possession of the property shall be given to the
purchaser or last redemptioner by the same officer unless a third party is actually holding
the property adversely to the judgment obligor. (Emphasis supplied.)

Where a parcel levied upon on execution is occupied by a party other than a judgment debtor, the
procedure is for the court to order a hearing to determine the nature of said adverse possession.
[50] Similarly, in an extrajudicial foreclosure of real property, when the foreclosed property is in the
possession of a third party holding the same adversely to the defaulting debtor/mortgagor, the
issuance by the RTC of a writ of possession in favor of the purchaser of the said real property ceases
to be ministerial and may no longer be done ex parte. For the exception to apply, however, the
property need not only be possessed by a third party, but also held by the third party adversely to
the debtor/mortgagor.

General rule v. exception

While CBC invokes the general rule in the Petition at bar, the spouses Lozada assert the exception.

The spouses Lozada aver that they are holding Unit No. 402 adversely to the debtor/mortgagor PPGI,
and that their possession is sufficient obstacle to the exparte issuance of a writ of possession in
favor of CBC. CBC, however, counters that the spouses Lozada are mere successors-in-interest of
PPGI who only stepped into the latter’s shoes and may not claim the defense of possession by third
persons.

It is thus incumbent upon this Court to scrutinize the nature of the spouses Lozada’s possession of
Unit No. 402.

The spouses Lozada acquired possession of Unit No. 402 pursuant to the Contract to Sell executed
in their favor by PPGI. According to the Contract to Sell, PPGI shall deliver Unit No. 402 to the
 spouses Lozada upon the completion thereof, and the spouses Lozada, in turn, shall already be
bound at that point to pay the 70% balance of the purchase price for the said property. The records
do not establish the date when the spouses Lozada actually entered into possession of Unit No.
402. However, it is undisputed that they were already in possession thereof at the time CBC filed
its Ex Parte Petition for the Issuance of a Writ of Possession with theMakati City RTC on July 2001.

Given the foregoing, it is apparent that the spouses Lozada’s possession of Unit No. 402 cannot be
considered adverse to that of PPGI. Their right to possess the said property was derived from PPGI
under the terms of the Contract to Sell executed by the latter in their favor. It was because PPGI
contractually agreed to deliver Unit No. 402 to them even prior to the transfer of ownership and title
over the same that they came into its possession. They cannot assert that said right of possession
is adverse or contrary to that of PPGI when they have no independent right of possession other than
what they acquired from PPGI. The spouses Lozadacan be more appropriately considered the
transferee of or successor to the right of possession of PPGI over Unit No. 402.

Again relevant herein is the Court’s ruling in Roxas v. Buan,[51] which involved factual
circumstances akin to the instant Petition. Valentin executed a Deed of Real Estate Mortgage over a
house and lot in favor of Buan to secure a loan granted by the latter to the
former. When Valentin failed to pay his loan when it matured,Buan caused the extrajudicial
foreclosure of the real estate mortgage and was the winning bidder at the auction sale of the
foreclosed property. Upon the expiration of the period for redemption without Valentin redeeming
the foreclosed property, a Final Bill of Sale was issued by the Sheriff in Buan’s favor. Buan then filed
a petition for the issuance of a writ of possession, which, being uncontested, was granted by the trial
court. However, the Sheriff was unable to execute the writ of possession because the foreclosed
property was occupied by Roxas and the spouses De Guia. Roxas allegedly bought the foreclosed
property from Valentin and leased the same to the spouses De Guia. Roxas and the spouses
De Guia argued that the writ of possession was ineffective as against them, being third
parties. They also insisted thatBuan should file an independent action to recover the property,
otherwise, their right to due process of law would be violated since they were not given their day in
court to prove their adverse claim.

In the said case, the character of Roxas’ possession was directly put in issue. The Court determined
that Roxas was the successor-in-interest of the mortgagorValentin, and not a third party holding the
property adversely to the latter. The Court ratiocinated as follows:

Contending that petitioner Roxas is a party actually holding the property adversely to the
debtor, Arcadio Valentin, petitioners argue that under the provisions of Act No. 3135 they
cannot be ordered to vacate the property. Hence, the question of whether, under the
circumstances, petitioner Roxas indeed is a party actually holding the property adversely
to Valentin.

It will be recalled that Roxas' possession of the property was premised on its alleged sale to
him by Valentin for the amount of P100,000.00. Assuming this to be true, it is readily apparent
that Roxas holds title to and possesses the property as Valentin's transferee. Any right he has
to the property is necessarily derived from that of Valentin

Pasted from <http://sc.judiciary.gov.ph/jurisprudence/2008/july2008/164919.htm>

Metrobank vs. Tan (2008)

Sunday, June 06, 2010
12:48 AM

THIRD DIVISION

[G.R. No. 178449, October 17, 2008]

METROPOLITAN BANK AND TRUST COMPANY, PETITIONER, VS. SPOUSES ELISA TAN AND
ANTONIO TAN AND SPOUSES LILIAN TAN AND MARCIAL SEE, RESPONDENTS.
DECISION

CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure which
seeks to set aside the Decision[1] of the Court of Appeals dated 31 January 2007 in CA-G.R. CV No. 86214
affirming in toto the Decision[2] of Branch 32 of the Regional Trial Court (RTC) of Manila in Civil Case No.
97-85012 and its Resolution[3] dated 15 June 2007 denying petitioner's motion for reconsideration.

The factual antecedents are as follows:

In June 1974, Ylang-Ylang Merchandising Company, a partnership between Angelita Rodriguez and
respondent Antonio Tan, obtained a loan in the amount of P250,000.00 from petitioner Metropolitan Bank
and Trust Company (Metrobank). To secure payment of the same, respondents spouses Marcial See and
Lilian Tan[4] constituted a real estate mortgage in favor of petitioner over their property consisting of
469.40 square meters, located in the District of Paco, Manila, covered by Transfer Certificate of Title (TCT)
No. 105233 of the Registry of Deeds of Manila. The mortgage, dated 14 June 1974, was annotated at the
back of the title.[5]

Subsequently, after the partnership had changed its name to Ajax Marketing Company, albeit without
changing its composition, it obtained another loan in July 1976 in the amount of P150,000.00 from
Metrobank. Again, to secure the loan, spouses Marcial See and Lilian Tan executed in favor of Metrobank a
second real estate mortgage dated 26 August 1976 over the same property. As in the first instance, the
mortgage was annotated at the back of TCT No. 105233.[6]

On 19 February 1979, the partnership (Ajax Marketing Company) was converted into a corporation
denominated as Ajax Marketing and Development Corporation (Ajax Marketing), with the original partners
(Angelita Rodriguez and Antonio Tan) as incorporators and three additional incorporators, namely,
respondent Elisa Tan, the wife of respondent Antonio Tan, and Jose San Diego and Tessie San Diego. Ajax
Marketing obtained from Metrobank a loan in the amount P600,000.00, the payment of which was secured
by another real estate mortgage executed by the spouses Marcial See and Lilian Tan over the same
property in favor of Metrobank. The third real estate mortgage was annotated at the back of TCT No.
105233.

On 2 December 1980, the three loans with an aggregate amount of P1,000,000.00 were re-structured and
consolidated into one loan and Ajax Marketing, represented by Antonio Tan as Board Chairman/President
and in his personal capacity as solidary co-obligor, and Elisa Tan as Vice-President/Treasurer and in her
personal capacity as solidary co-obligor, executed Promissory Note (PN) No. BDS-3605. Said loan was
payable in eight (8) equal quarterly installments of P125,000.00 starting 2 March 1981 until fully paid.[7]

On 24 April 1984, Metrobank filed a case for sum of money before the RTC of Manila against Ajax
Marketing, Elisa Tan and Antonio Tan for another loan earlier obtained in the amount of P970,000.00 that
the latter obtained from the former for which they executed Promissory Note (PN) No. BDS-3583. The
case was docketed as Civil Case No. 84-24065.[8] Subsequently, the lower court decided this case in favor
of Metrobank which decision was affirmed by the Court of Appeals.

For failure of Ajax Marketing to pay its obligation contained in PN No. BDS-3605, Metrobank foreclosed the
real estate mortgage. On 19 June 1984, the mortgaged property was sold at public auction for
P1,775,040.00 to Metrobank, it having the highest and winning bid.

On 11 December 1984, Civil Case No. 85-33933 for Annulment and Cancellation of Extra-judicial
Foreclosure Sale with Preliminary Injunction, Restraining Order and Damages was filed by Ajax Marketing
and spouses Marcial See and Lilian Tan, represented by their Attorney-in-Fact, Elisa Tan, and spouses
Antonio Tan and Elisa Tan (spouses Tan) against Metrobank and the Registry of Deeds of Manila. The
complaint asked that the extrajudicial foreclosure, as well as the auction sale, be declared null and void on
the ground that the real estate mortgages constituted on the property covered by TCT No. 105233 have
been extinguished or novated when PN No. BDS-3605 was executed. The trial court upheld the validity of
the extra-judicial foreclosure. On appeal to the Court of Appeals, the appellate court affirmed the decision
of the trial court. The decision was appealed to the Supreme Court.

In a letter dated 2 February 1995, spouses Antonio Tan and Elisa Tan wrote Metrobank a
letter[9] containing, inter alia, the following:
 To end the controversy once and for all, the undersigned spouses hereby proposes (sic) to fully settle
the obligations of the borrowers in exchange of your release of the Real Estate Mortgage you are
presently holding, to wit:

1. We propose to pay the total amount of P2MM to be paid as follows:

a) Downpayment of P600,000.00 two (2) weeks upon approval of our proposal;

b) Balance of P1.4MM shall no longer be subject to interest and to be liquidated in 24 months or

P58,333.33 to be covered by postdated checks.

2. Attorney's fees shall be separately paid by us.

On 14 September 1995, this Court rendered its Decision[10] in Civil Case No. 85-33933 for Annulment and
Cancellation of Extra-judicial Foreclosure Sale with Preliminary Injunction, Restraining Order and Damages.
We ruled:
[P]etitioners argue that a novation occurred when their three (3) loans which are all secured by the
same real estate property covered by TCT No. 105233 were consolidated into a single loan of P1
million under Promissory Note No. BDS-3605, thereby extinguishing their monetary obligations and
releasing the mortgaged property from liability.

xxxx

The attendant facts herein do not make a case of novation. There is nothing in the records to show
the unequivocal intent of the parties to novate the three loan agreements through the execution of
PN No. BDS-3065. The provisions of PN No. BDS-3605 yield no indication of the extinguishment of, or
an incompatibility with, the three loan agreements secured by the real estate mortgages over TCT
No. 105233. x x x

xxxx

x x x [P]etitioners posit that the extra-judicial foreclosure is invalid as it included two unsecured
loans: one, the consolidated loan of P1.0 million under PN BDS No. 3605, and two, the P970,000.00
loan under PN BDS No. 3583 subsequently extended by Metrobank.

An action to foreclose a mortgage is usually limited to the amount mentioned in the mortgage, but
where on the four corners of the mortgage contracts, as in this case, the intent of the contracting
parties is manifest that the mortgaged property shall also answer for future loans or advancements
then the same is not improper as it is valid and binding between the parties. For merely consolidating
and expediently making current the three previous loans, the loan of P1.0 million under PN BDS No.
3605, secured by the real estate property, was correctly included in the foreclosure's bid price. The
inclusion of the unsecured loan of P970,000.00 under PN BDS No. 3583, however, was found to be
improper by public respondent which ruling we shall not disturb for Metrobank's failure to appeal
therefrom. Nonetheless, the inclusion of PN BDS No. 3583 in the bid price did not invalidate the
foreclosure proceedings. As correctly pointed out by the Court of Appeals, the proceeds of the
auction sale should be applied to the obligation pertaining to PN BDS No. 3605 only, plus interests,
expenses and other charges accruing thereto. It is Metrobank's duty as mortgagee to return the
surplus in the selling price to the mortgagors.
On 12 September 1997, spouses Elisa Tan and Antonio Tan and spouses Lilian Tan and Marcial See filed a
civil case for Specific Performance, Injunction and Damages before the RTC of Manila, Branch 30, against
Metrobank and Ajax Marketing (origin of the instant petition). They prayed, among other things, that
Metrobank be ordered to allow them (spouses Tan) to exercise their right of redemption over the subject
foreclosed property and to accept the amount of P1,609,334.61 as the redemption price, and to order Ajax
Marketing to reimburse them the amount which they will pay as redemption price for the foreclosed
property.[11]

On 4 November 1997, an amended compliant was filed.[12] They included as defendants John Doe and
Peter Doe. They made the following allegations:

Spouses See and spouses Tan alleged that the property covered by TCT No. 105233, though registered in
the names of spouses Marcial See and Lilian Tan See is, in reality, co-owned by respondents and their
other siblings. They further allege that after the foreclosure sale, they offered to redeem the property
within the one-year redemption period and they discovered that Metrobank included in the bid price an
amount covered by PN No. BDS-3583 not secured by the mortgage over TCT No. 105233. They claim that
while the tender and offer of the redemption was seasonably made, same cannot be made because
Metrobank was ambivalent with respect to the redemption price. Redemption, they claim, was rendered
doubly difficult when Metrobank filed Civil Case No. 84-24065 with the RTC of Manila to collect on PN No.
BDS-3583. On their part, they filed Civil Case No. 85-33933 before the RTC of Manila for annulment and
cancellation of the extra-judicial foreclosure of the mortgage over TCT No. 105233 rendering more difficult
the resumption of negotiation for redemption of the foreclosed property. On 14 September 1995, the
Supreme Court, in G.R. No. 118585, declared the extra-judicial foreclosure valid but found the inclusion of
PN No. BDS-3583 in the bid price to be improper but same did not invalidate the foreclosure proceedings.
After said decision, they resumed to negotiate for the redemption of the foreclosed property and tendered
and offered P1,609,334.61 which Metrobank rejected and declined. They further alleged that Metrobank
encouraged their other siblings to repurchase the foreclosed property at a price over and above the lawful
redemption price. In fact, Metrobank sold the property to John and Peter Doe for P11,500,000.00 in
complete disregard of their right of redemption. They claim that Metrobank cannot sell the property
because ownership thereof has not been vested absolutely in its favor until they have exercised their right
of redemption. The sale of the property to their other siblings was fraudulent and therefore void. Because
of the sale, they and their other siblings were divested of their share in the property and are additionally
required by the purchasing siblings to reimburse a portion of the repurchase price (P11,500,000.00),
thereby fomenting trouble within the family. They asked, among other things, that the sale of the property
between Metrobank and defendants John and Peter Doe be declared null and void ab initio and that
Metrobank be ordered to allow them to exercise their right of redemption by accepting the amount of
P1,609,334.61 as the redemption price.

On 6 November 1997, Spouses Marcial See and Lilian Tan executed a document entitled "Deed of
Redemption and Reconveyance" wherein it was stated that the latter (redemptioners) paid Metrobank on
12 September 1997 the amount of P11,500,000.00 representing the redemption price for the
reconveyance/redemption of the foreclosed property (TCT No. 105233).[13]

On 2 February 1998, Metrobank filed a Motion to Dismiss on the ground that the claims and demands in
the amended complaint have been extinguished. Metrobank disclosed that the subject property was not
sold to John and Peter Doe, but to spouses Marcial See and Lilian Tan. As registered owners of the
property, the spouses were allowed to exercise their right of redemption on 6 November 1997 as
evidenced by the Deed of Redemption and Reconveyance.[14] On 7 December 1998, the motion was
denied.[15]

On 3 February 1999, Metrobank filed its Answer with Counterclaim. It declared that John and Peter Doe are
none other than spouses Marcial See and Lilian Tan. It alleged that neither Ajax Marketing nor the plaintiffs
(respondents herein) were able to redeem the subject property within the one-year period which
commenced from the date (20 June 1984) the Certificate of Sale issued by the auctioning sheriff was
registered with the concerned Registry of Deeds. Respondents did not even approach Metrobank to
negotiate the redemption of said property. Instead, Ajax Marketing and respondents instituted on 11
December 1984 an action to annul said extra-judicial foreclosure which foreclosure was upheld by the
Supreme Court in G.R. No. 118585 on 14 September 1995. It was only in 1997 that spouses Marcial See
and Lilian Tan communicated with Metrobank their intention to buy back the subject property. Metrobank
agreed to sell the property for the "redemption" price of P11,500,000.00. It further denied the allegations
with respect to the actual ownership of the subject property. It added that the sale of the foreclosed
property to spouses Marcial See and Lilian Tan was not fraudulent and that property was redeemed at a
mutually agreed price. It explained that spouses Marcial See and Lilian Tan are the proper "redemptioners"
of the subject property being the registered owners thereof. As such, Metrobank had the right to allow said
spouses to redeem the property and to reconvey the same under mutually agreed terms. It stressed that
assuming arguendothat spouses Marcial See and Lilian Tan never redeemed the subject property, spouses
Elisa Tan and Antonio Tan offered the amount of P1,609,334.61 when they communicated with Metrobank
in 1997 which amount they believe was the redemption price "in esse," Metrobank had rightfully rejected
the same for Act No. 3135, as amended, requires the payment of the redemption price equivalent to the
winning bid price (P1,775,040.00) plus interest up to the time of redemption, together with the amount of
any assessments or taxes paid by the purchaser after the auction sale, and interest on such last-named
amount at the same rate.[16]

In its Reply to the Answer, respondents claim the "Deed of Redemption and Reconveyance" does not bear
the true and genuine signatures of spouses Marcial See and Lilian Tan. It said that assuming arguendo that
the Deed of Redemption and Reconveyance is true, the difference between P11,500,000.00 and
P1,775,040.00 should be refunded to them.[17]

On 10 January 2000, the pre-trial of the case was terminated.[18] Thereafter, the case was heard.

Respondents-spouses Elisa and Antonio Tan testified in court on their behalf, while for the defense, only
Rito A. Negado, employee of Metrobank, testified on respondents' loan with Metrobank, the execution of
respondents Marcial See and Lilian Tan of the accommodation mortgage in favor of Metrobank, and
respondents' failure to pay their obligation which led Metrobank to initiate extra-judicial foreclosure
proceedings.

While the case was being heard, the presiding judge hearing the case voluntarily inhibited himself from the
case. Consequently, the case was re-raffled to Branch 32 of RTC, Manila.[19]

On 5 May 2005, the trial court rendered its decision, the dispositive portion of which reads:
WHEREFORE, premises considered, JUDGMENT is hereby rendered DECLARING the "DEED OF
REDEMPTION AND RECONVEYANCE" between Defendant Bank and the Sps. Marcial See and Lilian Tan
NULL and VOID ab initio. It is hereby further ADJUDGED that:
1. Plaintiffs Spouses Elisa and Antonio Tan are reinstated as Redemptioners with the right to
redeem the property foreclosed and mortgaged as they are hereby directed to pay Defendant
Bank the sum of Php 1,609,334.61 as redemption price in accordance with the Decision in G.R.
No. 118585 and in turn, Defendant Metrobank is ordered to reconvey TCT No. 105233 to
plaintiffs in exchange for the said redemption price.
2. Defendant Bank is ordered to refund and pay to plaintiffs Sps. Marcial See and Lilian Tan the
sum of Php11,500,000.00 with interests at the rate of 12% per annum beginning September
1995 until the whole obligation is fully paid;
3. Defendant Bank is finally ordered to pay, in addition to the costs of suit, the sum of
Php50,000.00 as and for attorney's fees over and above the contingent arrangement for legal
services rendered to plaintiffs Elisa and Antonio Tan by their lawyers.[20]
The RTC ruled that the nullification of the Deed of Redemption and Reconveyance dated 6 November 1997
is warranted. It declared that spouses Elisa and Antonio Tan, as mortgagors of the foreclosed property, are
entitled to exercise their right as redemptioners. As such, they should pay Metrobank as redemption price
the amount of Php1,609,334.61 or Php1,775,040.00, as the case may be, the latter price being
Metrobank's winning bid. The fact that spouses Marcial See and Lilian Tan are the registered owners of the
property foreclosed is not sufficient to entitle them to redeem over and above the willingness of spouses
Elisa and Antonio Tan to exercise their right of redemption. Spouses Elisa and Antonio Tan have the
preferential right as redemptioners of what they have mortgaged.

The trial court ruled that spouses Elisa and Antonio Tan are fully within their right to redeem the foreclosed
property after the finality of the Decision in G.R. No. 118585. Technically, it said, the tender and offer of
redemption of spouses Elisa and Antonio Tan was within the one-year period reckoned from the
registration of the Certificate of Sale in the Registry of Deeds because the redemption period was
"freezed" when respondents were forced to file Civil Case No. 85-33933 (Annulment and Cancellation of
Extra-judicial Foreclosure Sale with Preliminary Injunction, Restraining Order and Damages) on 11
December 1984 after said tender of redemption price was refused as a result of a misunderstanding as to
its amount. Respondents insisted to redeem on the basis of their PN No. BDS-3605 while Metrobank
demanded that the redemption price should include the unsecured PN No. BDS-3583. The filing of Civil
Case No. 85-33933 within the one-year redemption period preserved spouses Elisa and Antonio Tan's right
of redemption until said case has been decided with finality. Citing State Investment House, Inc. v. Court
of Appeals,[21] Belisario v. Intermediate Appellate Court[22] and Hi-Yield Realty, Inc. v. Court of Appeals,
[23] the Court said that the filing of the Civil Complaint has the effect of freezing the redemption period
and preserves the right of the mortgagor to redeem the property foreclosed, and that the filing of the court
action to enforce the correct redemption price is equivalent to a formal offer to redeem. The offer to
redeem in this case made sometime in 1985 was "frozen" and remained fresh and unexpired until Civil
Case No. 85-33933 was finally decided by the Supreme Court on 14 September 1995. Thereafter, the
redemption period resumed to run anew.

Metrobank appealed said decision to the Court of Appeals. On 31 January 2007, the appellate court
affirmed in toto the decision of the trial court. It disposed of the case as follows:
WHEREFORE, premises considered, the appeal is DISMISSED for lack of merit and the assailed
decision of the court a quo is hereby AFFIRMED in toto. No costs.[24]
The Court of Appeals said that the spouses Elisa and Antonio Tan were granted, no less by the Supreme
Court, the right to redeem the contested property. However, despite the finality of the Supreme Court
decision in G.R. No. 118585, Metrobank ignored spouses Elisa and Antonio Tan's right to redeem and
instead allowed spouses Marcial See and Lilian Tan to redeem the property. It described such act of
Metrobank to be contemptuous. It brushed away Metrobank's argument that spouses Elisa and Antonio
Tan have no more right to redeem as they failed to make a valid tender since what they did was a mere
proposal failing to actually deliver the redemption price. The appellate court added that Metrobank has no
right to demand from spouses Elisa and Antonio Tan the actual delivery of the redemption price because it
is not legally capacitated to surrender the possession and title of the subject property to said spouses until
such time the redemption of spouses Marcial See and Lilian Tan is declared null and void. It agreed with
the trial court that the one-year period to redeem the foreclosed property was deemed suspended.

The motion for reconsideration filed by Metrobank was denied.

Hence, this appeal via petition for review on certiorari.

Initially, this Court denied the petition for insufficient or defective verification and for failure to show that
the appellate court committed reversible error as to warrant the exercise by this Court of its discretionary
appellate jurisdiction.[25] Metrobank filed a motion for the reconsideration. On 12 November 2007, the
Court granted the motion and set aside the resolution denying the petition, and required respondents to
comment thereon within ten days from receipt of notice.[26] Respondents filed their Comment[27] to
which Metrobank filed a Reply.[28]

The Court gave due course to the petition and required the parties to submit their respective memoranda.
[29]

Metrobank makes the following assignment of errors:

WHETHER THE COURT OF APPEALS ERRED IN DECLARING THAT METROBANK MUST BE LEGALLY
CAPACITATED TO SURRENDER POSSESSION AND TITLE TO THE SUBJECT PROPERTY IN ORDER FOR IT
TO BE ABLE TO INVOKE THE LEGAL REQUIREMENT OF THE LAW THAT THERE MUST BE AN ACTUAL
TENDER OR DELIVERY OF THE REDEMPTION PRICE FOR AN OFFER TO REDEEM TO BE BINDING.

WHETHER THE COURT OF APPEALS ERRED WHEN IT DECLARED THAT RESPONDENT SPOUSES
ANTONIO AND ELISA TAN'S TENDER AND OFFER OF REDEMPTION WAS WITHIN THE ONE-YEAR PERIOD
STARTING FROM THE REGISTRATION OF THE CERTIFICATE OF SALE CONSIDERING THAT THE
REDEMPTION PERIOD WAS "FREEZED" WHEN RESPONDENTS WERE FORCED TO FILE CIVIL CASE NO.
85-33933 ON DECEMBER 11, 1984 AFTER THEIR TENDER OF THE REDEMPTION PRICE WAS REFUSED
BY METROBANK AND THAT THE REDEMPTION PERIOD REMAINED FRESH AND UNEXPIRED UNTIL CIVIL
CASE NO. 85-33933 WAS FINALLY ADJUDICATED BY THE SUPREME COURT IN SEPTEMBER 1995.

WHETHER THE COURT OF APPEALS ERRED IN DECLARING THAT METROBANK IS LIABLE TO PAY
RESPONDENTS ATTORNEY'S FEES.

WHETHER THE COURT OF APPEALS ERRED IN DECLARING THAT THE TRIAL COURT WAS CORRECT IN
SUBMITTING THE CASE IMMEDIATELY FOR DECISION AS THERE WAS UNREASONABLE DELAY ON THE
PART OF METROBANK IN THE PRESENTATION OF ITS EVIDENCE.[30]
There is no dispute that respondents were already in default in the payment of their obligation. Thus,
Metrobank had the right to foreclose any real estate mortgage executed in its favor as security for the
loans it has given to respondents. Foreclosure is valid where the debtor is in default in the payment of his
obligation. In a real estate mortgage when the principal obligation is not paid when due, the mortgagee
has the right to foreclose the mortgage and to have the property seized and sold with the view of applying
the proceeds to the payment of the obligation.[31]

In the resolution of this case, two primary issues have to be resolved:

1. Did the filing of Civil Case No. 85-33933 (Annulment and Cancellation of Extra-judicial
Foreclosure Sale with Preliminary Injunction, Restraining Order and Damages) by respondents on 11
December 1984 interrupt the running of the one-year redemption period?
2. Did spouses Elisa and Antonio Tan exercise their right of redemption within the one-year
period allowed by law?
From the records, the foreclosure sale was on 19 June 1984 and the Certificate of Sale issued by the sheriff
was registered with the Registry of Deeds of Manila on 20 June 1984. On 11 December 1984, Civil Case No.
85-33933 for Annulment and Cancellation of Extra-judicial Foreclosure Sale was filed by respondents. On 2
February 1995, spouses Antonio Tan and Elisa Tan wrote Metrobank a letter proposing to redeem the
subject for P2,000,000.00 payable as follows: downpayment of P600,000.00 and the balance payable in 24
months (P58,333.33/month) without interest. Thereafter, on 14 September 1995, this Court, in G.R. No.
118585, ruled with finality that the extrajudicial foreclosure and sale were valid.

The lower courts ruled that the filing of Civil Case No. 85-33933 suspended the running of the one-year
redemption period for which spouses Elisa and Antonio Tan can exercise their right of redemption. The
tender and offer of redemption made by spouses Elisa and Antonio Tan was within the one-year
redemption period. On the other hand, Metrobank insists that the filing of said case did not toll the running
of said redemption period and that they failed to exercise said right with the allowable period of one year.

The filing of Civil Case No. 85-33933 (Annulment and Cancellation of Extra-judicial Foreclosure Sale ) did
not toll the running of the one-year redemption period. Settled is the rule that the period within which to
redeem the property sold at a sheriff's sale is not suspended by the institution of an action to annul the
foreclosure sale.[32] Thus, both lower courts erred in ruling that the one-year redemption period was
interrupted.

It is apparent from the complaint filed in Civil Case No. 85-33933 that the issue advanced by respondents
is whether the extrajudicial foreclosure, as well as the auction sale, is void because the real estate
mortgages constituted on the property covered by TCT No. 105233 have been extinguished or novated
when PN No. BDS-3605 was executed. There is nothing in the complaint that deals with any right of
redemption. Respondents wanted to have the extrajudicial foreclosure proceedings nullified on the ground
that their obligation under PN No. BDS-3605 was no longer secured by any mortgage.

We likewise find the declaration of the Court of Appeals that the spouses Elisa and Antonio Tan were
granted by the Supreme Court the right to redeem the contested property pursuant to G.R. No. 118585 to
be without basis. There is nothing in G.R. No. 118585 that gave respondents the right to redeem. This
Court did not even determine the amount of the redemption price which, in the first place, was not raised
as an issue. What was upheld in said case was the validity of the extrajudicial foreclosure despite the
inclusion therein of an unsecured loan.

Having ruled that Civil Case No. 85-33933 did not toll the running of the one-year redemption period, did
spouses Elisa and Antonio Tan exercise their right o redemption within this period? They did not.

Section 6 of Republic Act No. 3135,[33] as amended by Republic Act No. 4118, provides:
Sec. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore
referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said
debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust
under which the property is sold, may redeem the same at any time within the term of one
year from and after the date of the sale; x x x. (Emphasis supplied.)
We, however, have consistently ruled that the one-year redemption period should be counted not from the
date of foreclosure sale, but from the time the certificate of sale is registered with the Registry of Deeds.
[34]

In the case before us, the certificate of sale was registered with the Registry of Deeds of Manila on 20 June
1984. Under Article 13 of the Civil Code, a year is understood to be three hundred sixty-five (365) days.
Thus excluding the first day and counting from 20 June 1984, respondents spouses Tan had only until 20
June 1985 within which to redeem the foreclosed property in accordance with law. Prior to this date, they
did not exercise their right to redeem the foreclosed property.

The only credible evidence respondents presented to show that they allegedly offered to redeem the
subject property was the letter[35] of spouses Elisa and Antonio Tan dated 2 February 1995 where they
offered the amount of two million pesos (in installment) as settlement of their obligation and for the
release of the real estate mortgages on TCT No. 105233. Other than this, we find nothing concrete to
prove that they (spouses Tan) tried to redeem within the one-year period and even after when this Court
ruled in G.R. No. 118585 on 14 September 1995. Their claims that they tendered their offer to redeem on
various times are all unsubstantiated and which Metrobank has denied.

The general rule in redemption is that it is not sufficient that a person offering to redeem manifests his/her
desire to do so. The statement of intention must be accompanied by an actual and simultaneous tender of
payment. This constitutes the exercise of the right to repurchase. Bona fide redemption necessarily implies
a reasonable and valid tender of the entire purchase price, otherwise the rule on the redemption period
fixed by law can easily be circumvented.[36] There is no cogent reason for requiring the vendee to accept
payment by installments from the redemptioner, as it would ultimately result in an indefinite extension of
the redemption period.[37]

In order to effect a redemption, the judgment debtor must pay the purchaser the redemption price
composed of the following: (1) the price which the purchaser paid for the property; (2) interest of 1% per
month on the purchase price; (3) the amount of any assessment or taxes which the purchaser may have
paid on the property after the purchase; and (4) interest of 1% per month on such assessment and taxes.
[38]

Even assuming that such offer was made by the spouses Elisa and Antonio Tan within the one-year
redemption period, we find said offer in the amount of two million pesos to be invalid and ineffectual. It is
clear from the letter that the tender was in installments. Same will not do for there is no showing that
Metrobank agreed via such payment. By paying in installments, the redemption period will be extended. It
could be otherwise if Metrobank agreed; in such case, the concept of legal redemption will be converted
into one of conventional redemption.[39] Moreover, though there was an offer, there was no evidence that
there was an actual and simultaneous tender of payment. Redemption within the period allowed by law is
not a matter of intent but a question of payment or valid tender of the full redemption price within said
period.[40]

The trial court, citing State Investment House, Inc. v. Court of Appeals,[41] Belisario v. Intermediate
Appellate Court[42] and Hi-Yield Realty, Inc. v. Court of Appeals,[43]declared that the filing of the Civil
Complaint has the effect of freezing the redemption period and preserves the right of the mortgagor to
redeem the property foreclosed, and that the filing of the court action to enforce the correct redemption
price is equivalent to a formal offer to redeem. Such rule has no application in the instant case. Such rule
applies only when the complaint to enforce a repurchase is filed within the period of redemption in
which case, the same will be equivalent to an offer to redeem and have the effect of preserving the right
of redemption. In the case before us, the complaint for redemption (Specific Performance) was
filed beyond the one-year redemption period or on 12 September 1997 , more than twelve
years from 20 June 1985 which is the last day of said period. We do not consider the complaint filed
by respondents on 11 December 1984, docketed as Civil Case No. 85-33933, for Annulment and
Cancellation of Extra-judicial Foreclosure Sale to be an action for judicial redemption because its purpose
was not for redemption but for nullification of extrajudicial foreclosure sale.

In the case at bar, respondents spouses Elisa and Antonio Tan failed to show good faith on their part. They
have failed to validly tender any redemption price nor consigned any amount, in any of the cases they
have filed, which they believed was the correct amount, if only to show their willingness and ability to pay.
It is not difficult to understand why the redemption price should either be fully offered in legal tender or
else validly consigned in court. Only by such means can the auction winner be assured that the offer to
redeem is being done in good faith.[44]

In the case before us, though the respondents spouses Marcial See and Lilian Tan signed a document
entitled "Deed of Redemption and Reconveyance" wherein they were called the "Redemptioners" and that
they paid the amount of P11,500,000.00 for the subject property, this Court finds that what was entered
into by them and Metrobank was not a redemption, but a sale. Being already the absolute owner of the
subject property because spouses Elisa and Antonio Tan failed to properly exercise their right of
redemption, Metrobank can sell, to a price of its liking, the foreclosed property to interested buyers which
in this case are respondents spouses Marcial See and Lilian Tan. The price itself (P11,500,000.00) is
indicative of a sale. If it were a redemption, the price would only be the winning bid price (P1,775,040.00)
plus interest up to the time of redemption, together with the amount of any assessments or taxes paid by
the purchaser after the auction sale, and interest on such last-named amount at the same rate.

The appellate court's ruling that Metrobank had no right to demand from spouses Elisa and Antonio Tan
the actual delivery of the redemption price because it is not legally capacitated to surrender the
possession and title of the subject property to said spouses until such time the redemption of spouses
Marcial See and Lillian Tan is declared null and void, is flawed.

Metrobank, as the highest bidder in the public auction sale, can demand from the redemptioner, in this
case spouses Elisa and Antonio Tan, the purchase price and taxes it had paid for the property, together
with interests with the one-year redemption period. If same is not paid by the redemptioner within the
time prescribed by law, the latter loses his/her right to redeem, and the buyer of the foreclosed property
becomes its absolute owner. Prior to selling the property to spouses Marcial See and Lilian
Tan via the Deed of Redemption and Reconveyance, Metrobank already consolidated its ownership over
the foreclosed property. We will not nullify the "redemption" (purchase) made by spouses Marcial See and
Lilian Tan so that respondents spouses Elisa and Antonio Tan can exercise their right of redemption which
has long been lost for their failure to exercise the same in accordance with law.

The trial court's ruling that respondents spouses Elisa and Antonio Tan should be allowed to redeem the
foreclosed property because Metrobank "allowed the execution of the Deed of Redemption and
Reconveyance to a wrong person and for wrong reason" is erroneous. As explained above, we consider the
"redemption" for P11,500,000.00 made by spouses Marcial See and Lilian Tan to be a sale in the guise of a
redemption. Such "redemption" will not restore respondents spouses Elisa and Antonio Tan's right to
legally redeem the subject property which right they have lost.

Respondents spouses Elisa and Antonio Tan were granted by the law the right of redemption which they
failed to exercise validly and effectively. Having failed to redeem the foreclosed property in the manner
and within the period prescribed by law, they have lost any right and interest over the subject property. In
so doing, Metrobank has the right to dispose of said property as it deems fit.

WHEREFORE, all the foregoing considered, the instant petition for review on certiorari is GRANTED and
the Decision of the Court of Appeals dated 31 January 2007 and its Resolution dated 15 June 2007 in CA-
G.R. CV No. 86214 are hereby REVERSED andSET ASIDE. The complaint in Civil Case No. 97-85012
before the Regional Trial Court of Manila, Branch 32, is DISMISSED.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

ADOLFO S. AZCUNA
Associate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

* Per Special Order No. 521, dated 29 September 2008, signed by Chief Justice Reynato S. Puno,
designating Associate Justice Adolfo S. Azcuna to replace Associate Justice Ruben T. Reyes, who is on
official leave.
[1] Penned by Associate Justice Andres B. Reyes, Jr. with Associate Justices Noel G. Tijam and Sesinando E. Villon , concurring; rollo, pp. 35-48.

[2] Records, pp. 356-364.

[3] Id. at 33-34.

[4] Referred to as Lillian in some documents.

[5] Records, p. 22.

[6] Id. at 23.

[7] Records, p. 14.

[8] Id. at 17-19, 101.

[9] Exh. D, records, p. 239.

[10] Ajax Marketing & Development Corporation v. Court of Appeals, G.R. No. 118585, 14 September 1995, 248 SCRA 222, 226-230.

[11] Records, pp. 8-9.

[12] Id. at 49-56.

[13] Exh. E; Records, pp. 240-241.

[14] Records, pp. 62-65.

[15] Id. at 93.

[16] Records, pp. 99-106.

[17] Id. at 108-110.

[18] Id. at 139.

[19] Id. at 142, 144.

[20] Id. at 364.

[21] G.R. No. 99308, 13 November 1992, 215 SCRA 734.

[22] G.R. No. L-73503, 30 August 1988, 165 SCRA 101.

[23] 437 Phil. 483 (2002).

[24] Rollo, p. 48.

[25] Id. at 54.

[26] Id. at 185.

[27] Id. at 186-193.

[28] Id. at 195-202

[29] Id. at 262.

[30] Id. at 299-300.

[31] State Investment House, Inc. v. Court of Appeals, supra note 21 at 744.

[32] Landrito, Jr. v. Court of Appeals, G.R. No. 133079, 9 August 2005, 466 SCRA 107, 118; citing Conejero v. Court of Appeals, 123 Phil. 605, 612 (1966); Daza v. Tomacruz, 58 Phil.

414, 418 (1933); Sumerariz v. Development Bank of the Philippines, 129 Phil. 641, 648 (1967).

[33] An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed to Real Real Estate Mortgages.

[34] Quimson v. Philippine National Bank, 146 Phil. 629, 636 (1970); Eastman Chemical Industries v. Court of Appeals, G.R. No. 76733, 30 June 1989, 174 SCRA 619, 630.

[35] Exh. D; records, p. 239.

[36] Tolentino v. Court of Appeals, G.R. No. 171354, 7 March 2007, 517 SCRA 732, 744.

[37] State Investment House, Inc. v. Court of Appeals, supra note 21 at 746.

[38] Bodiongan v. Court of Appeals, G.R. No. 114418, 21 September 1995, 248 SCRA 496, 501.

[39] Lazo v. Republic Surety & Insurance Co., Inc., G.R. No. L-27365, 30 January 1970, 31 SCRA 329, 340.

[40] BPI Family Savings Bank, Inc. v. Veloso, G.R. No. 141974, 9 August 2004, 436 SCRA 1, 8.

[41] Supra note 21.

[42] Supra note 22.

[43] Supra note 23.

[44] BPI Family Savings Bank, Inc. v. Veloso, supra note 40 at 7

Pasted from <http://elibrary.judiciary.gov.ph/decisions.php?doctype=Decisions%20/%20Signed

%20Resolutions&docid=12257632611104551535>

Tolentino vs. CA (2007)

Sunday, June 06, 2010
12:49 AM

THIRD DIVISION

MARYLOU B. TOLENTINO, M.D., G.R. No. 171354

Petitioner,
Present:

- versus - Ynares-Santiago, J. (Chairperson),

Austria-Martinez,
Callejo, Sr.,*
Chico-Nazario, and
Nachura, JJ.
COURT OF APPEALS and CITYTRUST
BANKING CORPORATION, Promulgated:
Respondents.
March 7, 2007

x ---------------------------------------------------------------------------------------- x

DECISION

YNARES-SANTIAGO, J.:

This Petition for Review on Certiorari[1] assails the October 28, 2005 Decision[2] of the Court of
Appeals in CA-G.R. CV. No. 83794, which reversed the April 22, 2004 Decision[3] of the Regional Trial Court
of Mandaluyong City, Branch 213 in Civil Case No. MC-00-1063, as well as the January 31, 2006
Resolution[4]denying petitioner’s Motion for Reconsideration.

The antecedent facts are as follows:

In May 1996, petitioner Marylou B. Tolentino (Tolentino) applied for and was granted by private
respondent Citytrust Banking Corporation (“Citytrust,” now Bank of the Philippine Islands) a Business
Credit Line Facility for P2,450,000[5] secured by a First Real Estate Mortgage[6] over her property
covered by Transfer Certificate of Title (TCT) No. 1933.[7]

On July 16, 1998, Citytrust informed Tolentino that her credit line has expired thereby making her
P2,611,440.23 outstanding balance immediately due and demandable.[8] Tolentino failed to settle
her obligations thus her property was extrajudicially foreclosed and sold in a public auction, with
Citytrust as the highest bidder. On April 13, 1999, the Certificate of Sale was registered and duly
annotated on TCT No. 1933.

As of March 17, 2000, the “Statement of Account To Redeem” [9] sent by Citytrust showed
petitioner’s outstanding obligation at P5,386,993.91. Petitioner asked for a re-computation and the
deletion of certain charges, such as the late payment charges, foreclosure expenses, attorney’s fees,
liquidated damages, and interests, but was denied by Citytrust. As of April 10, 2000, petitioner’s
outstanding balance amounted to P5,431,337.41.

On April 7, 2000, petitioner filed a Complaint for Judicial Redemption, Accounting and Damages, with
application for the issuance of a Temporary Restraining Order/Writ of Preliminary Injunction, against
Citytrust and the Register of Deeds of Mandaluyong City.[10] Petitioner alleged that the bank
unilaterally increased the interest charges in her credit line from 17.75% to 23.04%; that she was
forced to convert her existing Home Owners Credit Line into an Amortized Term Loan with interest of
19.50%;[11] that the bank cancelled her credit line when she refused the said conversion; that her
mortgaged property was foreclosed and sold at public auction but the bank did not remit the balance
of the proceeds of the foreclosure sale; and that the bank unjustifiably refused her request for
accounting and re-computation of the redemption amount.

In its Answer with Counterclaim,[12] Citytrust asserted that petitioner’s credit line has a term of one
year and that upon the expiration of the said period, it may be cancelled and closed; that the
inclusion of late payment charges, foreclosure expense, attorney’s fees, liquidated damages,
foreclosure fee, and interests in the redemption price was in accordance with the terms and
conditions of their loan and mortgage contracts; that the bid price was applied to the outstanding
obligations of petitioner; and that the Complaint of petitioner was merely dilatory and frivolous
considering that she has admitted having defaulted in the payment of her obligations.

Meanwhile, TCT No. 1933 was cancelled and a new title[13] was issued in favor of
Citytrust. However, petitioner was able to secure a writ of preliminary injunction,[14] which enjoined
Citytrust from taking possession, selling, and/or otherwise disposing of the foreclosed property.

After trial on the merits, the Regional Trial Court of Mandaluyong City, Branch 213, rendered
judgment upholding petitioner’s right of redemption, but at the price computed by private
respondent. The dispositive portion of the Decision reads:

WHEREFORE, judgment is hereby rendered upholding the right of the herein plaintiff MARILOU
TOLENTINO to redeem the foreclosed property covered by Transfer Certificate of Title No. 1933
in accordance however with the computation stated in the account to redeem as of April 10,
2000 issued by the defendant CITYTRUST BANKING CORPORATION (now FAMILY BANK)
particularly marked as Exhibit 10 for the Defendant.

SO ORDERED.[15]

The trial court held that the filing of an action for judicial redemption by petitioner is equivalent to a
formal offer to redeem. Having exercised her right of legal redemption, petitioner should not be
barred from redeeming the property, but at the redemption price as computed by Citytrust pursuant
to the provisions of their loan agreement. The trial court held that petitioner cannot belatedly claim
that the loan agreement and mortgage contract are contracts of adhesion considering that she freely
and voluntarily executed the same, nor was she ignorant of the nature and provisions of the
agreements.
Both the petitioner and the bank appealed to the Court of Appeals, which rendered the assailed
Decision, the dispositive portion of which reads:

WHEREFORE, premises considered, the appeal of plaintiff is DISMISSED for lack of merit, while
the appeal of defendant Bank of the Philippine Islands is hereby GRANTED. The appealed
Decision dated April 22, 2004 of the Regional Trial Court of Mandaluyong City, Branch 213 is
hereby REVERSED and SET ASIDE. A new judgment is hereby entered DISMISSING the
complaint in Civil Case No. MC-00-1063.

With costs against the plaintiff-appellant.

SO ORDERED.[16]

The Court of Appeals held that petitioner’s act of filing an action for judicial redemption without
simultaneous consignation of redemption money was not valid. Having failed to exercise her right of
redemption within the one-year period provided by law, petitioner thus lost all her rights over the
foreclosed property. The appellate court noted that as early as March 17, 2000, Citytrust computed
the redemption price at P5,386,993.91; however, petitioner only offered to pay P3 million pesos,
without attempting to tender a single centavo to private respondent. Further, records show that
when asked during trial if she was prepared to tender the amount, petitioner replied in the negative.

Petitioner’s motion for reconsideration was denied; hence, this petition.

Petitioner insists that the mortgage agreement is a contract of adhesion since it was solely prepared
by the bank and her only participation thereto was to affix her signature; that the 25% attorney’s
fees, penalty, late payment charges, and liquidated damages are excessive and unconscionable; that
the capital gains tax should not have been added to the computation of the redemption price; that
the filing of the complaint for judicial redemption effectively tolled the running one-year prescriptive
period; that the consignation of the redemption price is only necessary if the redemption suit was
filed after the expiration of the redemption period; and that without admitting the loss of right to
redeem, the surplus of the proceeds of the foreclosure sale should have been returned to her.

The petition lacks merit.

A contract of adhesion is an agreement where one of the parties imposes a ready-made form of
contract which the other party may accept or reject, but which the latter cannot modify. One
party prepares the stipulation in the contract, while the other party merely affixes his signature or his
“adhesion” thereto giving no room for negotiation and depriving the latter of the opportunity to
bargain on equal footing.[17]

It bears stressing that a contract of adhesion is just as binding as ordinary contracts. However, there
are instances when this Court has struck down such contract as void when the weaker party is
imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of
taking it or leaving it, completely deprived of the opportunity to bargain on equal footing.
Nevertheless, a contract of adhesion is not invalid per se; it is not entirely prohibited. The one who
adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent.[18]

Should there be any ambiguity in a contract of adhesion, such ambiguity is to

be construed against the party who prepared it. If, however, the stipulations are not obscure, but
are clear and leave no doubt on the intention of the parties, the literal meaning of its stipulations
must be held controlling.[19]

In the instant case, it has not been shown that petitioner signed the contracts through mistake,
violence, intimidation, undue influence, or fraud. Petitioner even admitted during trial that she was
not compelled to sign the contracts, nor was she totally ignorant of their nature, having been
engaged in business since 1984.[20] Petitioner only raised in issue the following stipulations before
the redemption period expired, to wit:

2. Loan Line – CityTrust shall make the Loan Line available to Client for a period of one (1) year
from the date of this Agreement subject to Section 19; xxx
19. Cancellation – (a) The Loan Line may be cancelled by either party upon thirty-day written
notice to the other party.
(b) CityTrust may shorten the period of availability of the Loan Line upon thirty-day written notice to
Client.
(c) Upon cancellation of the Loan Line or expiration of the period of availability of the Loan Line, the
Loan Account and CityTrust Business Credit Line Current Account shall be automatically
cancelled/closed and Client shall immediately pay the entire Outstanding Balance. Client shall
immediately surrender to CityTrust any and all unused CityTrust Business Credit Line Check(s) as well
as the ATM card issued to access the CityTrust Business Credit Line Current Account.

7. Interest on Outstanding Balance – The Outstanding Balance shall earn simple interest,
computed daily, at such per annum rate for such interest period (of not less than 30 days) as shall be
determined in advance by CityTrust and advised initially through the Letter of Approval and
thereafter through the Statement of Loan Account. Interest shall be calculated on the basis of actual
number of days elapsed and a year of 360 days. Interest accrued shall be automatically debited by
the CityTrust against the Loan Account.

9. Penalty Charges – Failure to make the full remittance required to cover the Excess
Availment within fifteen (15) days from the date that the same is incurred shall subject the Excess
Availment to penalty charge. Failure to make the full remittance required to cover an Excess
Availment within fifty-nine (59) days from the date that the same is incurred shall subject the entire
Outstanding Balance to the aforesaid penalty charge. Penalty charges shall be imposed by CityTrust
without prejudice to Sections 7 (Interest on Outstanding Balance) and 15 [Events of Default].

The penalty charge shall be such per annum rate as shall be determined by CityTrust and advised
through the Statement of Loan Account and Demand Statement. Sail penalty charge shall be fixed
for thirty (30) days or such other period as may be determined by CityTrust and shall be
automatically debited against the Loan Account.

20. Collection/Attorney’s Fees – in the event CityTrust is compelled to litigate or engage the
services of a lawyer or collection agent for collection or implementation of the terms of the
Agreements, Client shall pay attorney’s fees in the sum equivalent to twenty-five (25%) percent of
the amount due but which attorney’s fees shall in any case be not less than FIVE THOUSAND PESOS
(P5,000.00) plus costs of suit and other litigation expenses and, in addition, liquidated damages in
the sum equivalent to ten (10%) percent of the amount due but which liquidated damages shall in
any case be not less than ONE THOUSAND PESOS (P1,000.00).[21]

We find the above-quoted provisions explicit and leave no room for construction. It is easily
understood, especially by a businesswoman like the petitioner. Thus, we agree with the conclusion of
the trial and appellate courts that no compelling reasons were presented to declare the subject
contractual documents as void contracts of adhesion.[22]

Anent the legality of petitioner’s judicial redemption and the bank’s computation of the redemption
price, Section 6 of Act No. 3135,[23] as amended,[24]provides for the requisites for a valid
redemption, to wit:

SEC. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore
referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said
debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust
under which the property is sold, may redeem the same at any time within the term of one year from
and after the date of sale; and such redemption shall be governed by the provisions of sections four
hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, insofar
as these are not inconsistent with the provisions of this Act.

However, considering that private respondent is a banking institution, the determination of the
redemption price is governed by Section 78 of the General Banking Act,[25] as amended by
Presidential Decree No. 1828, which provides:

In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which
is security for any loan granted before the passage of this Act or under the provisions of this Act, the
mortgagor or debtor whose real property has been sold at public auction, judicially or extrajudicially,
for the full or partial payment of an obligation to any bank, banking or credit institution, within the
purview of this Act shall have the right, within one year after the sale of the real estate as a result of
the foreclosure of the respective mortgage, to redeem the property by paying the amount fixed by
the court in the order of execution, or the amount due under the mortgage deed, as the case may be,
with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other
expenses incurred by the bank or institution concerned by reason of the execution and sale and as a
result of the custody of said property less the income received from the property.

Section 78 of the General Banking Act amended Section 6 of Act No. 3135 insofar as the redemption
price is concerned when the mortgagee is a bank or a banking or credit institution.[26] Thus, the
amount at which the foreclosed property is redeemable is the amount due under the mortgage deed,
or the outstanding obligation of the mortgagor plus interest and expenses in accordance with Section
78 of the General Banking Act.[27]

In Banco Filipino Savings and Mortgage Bank v. Court of Appeals,[28] we ruled that the redemptioner
should make an actual tender in good faith of the full amount of the purchase price, i.e., the amount
fixed by the court in the order of execution or the amount due under the mortgage deed, as the case
may be, with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and
other expenses incurred by the bank or institution concerned by reason of the execution and sale and
as a result of the custody of said property less the income received from the property.[29]

As correctly pointed out by the appellate court, the general rule in redemption is that it is not
sufficient that a person offering to redeem simply manifests his/her desire to do so. The statement of
intention must be accompanied by an actual and simultaneous tender of payment. This constitutes
the exercise of the right to repurchase. Bona fide redemption necessarily implies a reasonable and
valid tender of the entire purchase price, otherwise the rule on the redemption period fixed by law
can easily be circumvented.[30]

Petitioner however claims, citing Banco Filipino Savings and Mortgage Bank v. Court of
Appeals [31] and Lee Chuy Realty Corporation v. Court of Appeals[32] that in case of disagreement
over the redemption price, the redemptioner may preserve his right of redemption through judicial
action which must be filed within the one-year period of redemption. The filing of a court action to
enforce redemption, being equivalent to a formal offer to redeem, would have the effect of
preserving his redemptive rights and “freezing” the expiration of the one-year period.[33] Bona
fide tender of the redemption price, within the prescribed period is only essential to preserve the
right of redemption for future enforcement beyond such period of redemption and within the period
prescribed for the action by the statute of limitations. Where the right to redeem is exercised
through judicial action within the reglementary period, the offer to redeem, accompanied by a bona
fide tender of the redemption price, while proper, may be unessential.[34]

It should, however, be noted that in Hi-Yield Realty, Inc. v. Court of Appeals,[35] we held that the
action for judicial redemption should be filed on time and in good faith, the redemption price is finally
determined and paid within a reasonable time, and the rights of the parties are respected. Stated
otherwise, the foregoing interpretation has three critical dimensions: (1) timely redemption or
redemption by expiration date; (2) good faith as always, meaning, the filing of the action must have
been for the sole purpose of determining the redemption price and not to stretch the redemptive
period indefinitely; and (3) once the redemption price is determined within a reasonable time, the
redemptioner must make prompt payment in full.[36]

The records show that the correct redemption price had been determined prior to the filing of the
complaint for judicial redemption. Petitioner had been furnished updated Statements of Account
specifying the redemption price even prior to the consolidation of the title of the foreclosed property
in the bank’s name. The inclusion of late payment charges, foreclosure expense, attorney’s fees,
liquidated damages, foreclosure fee, and interests therein was pursuant to the Loan
Agreement. Considering that the Loan Agreement was read and freely adhered to by petitioner, the
stipulations therein are binding on her.[37]

Moreover, petitioner admitted during trial that she was not questioning the computation of the
redemption price, but she was requesting for a condonation of certain fees and charges.
Q. Now Madam Witness, during the last hearing, you were questioning the statement of account,
the computation, is that correct?
A. Yes, sir.

Q. In particular, you were questioning the attorney’s fees of twenty five percent (25%), is that
correct?
A. Yes, sir.

Q. Did you not read the mortgage loan agreement, Madam Witness?
A. I know its [sic] there in the mortgage loan what I said is that I was requesting for a
condonation.

Q. So, you are [sic] not questioning it?

A. Yes, sir.

Q. In your complaint there is an allegation that the computation has no basis, do you confirm
that, do you still maintain that?
A. Yes.

Q. Why do you say so?

A. I was just hoping that some of the items could be condone[d] because they were
rather high, although, normally, in the mortgage contract it is really stated that they
charge twenty five percent for attorney’s fees, so I agreed with it.

Q. So, it is not your statement in your complaint that the computation has no basis, is not
correct?
A. Yes, sir.

Q. So, the twenty five percent computation here has a basis, which is the mortgage
loan agreement, correct?
A. Yes, in your agreement.

Q. And in that agreement you have your signature therein?

A. Yes.

Q. And you have read that before signing it?

A. Yes, sir.

Q. So, also with this liquidated damages of ten percent (10%), there is a basis under the
mortgage loan agreement?
A. I’m not sure.

Q. I will show you again the mortgage loan agreement xxx.

xxxx

Q. Now, Ms. Witness, can you now say that this statement of account is with basis,
accurate and with basis [sic]?
A. It has a basis, based on your conditions as prepared by the bank.

Q. Which you have conform[ed] to?

A. Yes, I have to because I executed a loan.

Q. But the bank did not compel you to apply for a loan?
A. No, they did not compel me.

Q. And you are only asking this court to reduce?

A. Yes, if possible.[38] (Emphasis supplied)

The records also reveal that petitioner offered to redeem the foreclosed property for P3 million but
failed to tender or consign the same, to wit:
 Q. Ms. Witness, you stated that based on your computation[,] the redemption price should be
three million pesos (P3,000,000.00) more or less?
A. More or less.

Q. Do you have this amount right now? Do you have this three million (P3M) more or less, do
you have this amount right now?
A. Not right now, but if we will be given a few days to produce it, we will give us [sic] that kind.

xxxx

Q. Did you tender this amount of three million pesos (P3M) more or less, to the bank?
A. No, because that is not the amount that they were asking for.

Q. Did you at least offer to pay this amount of three million pesos (P3M) more or less?
A. During the discussion with the manager, Ms. Lolita Carrido, I ask [sic] her if the deletion of the
said [sic] is possible but she said it’s not possible.

xxxx

Q. Did you also consign with this amount of three million pesos (P3M) more or less?
A. No, sir.[39]

Based on the foregoing, it is clear that petitioner did not file the instant case for judicial redemption
in good faith. It was not filed for the purpose of determining the correct redemption price but to
stretch the redemption period indefinitely, which is not allowed by law.

WHEREFORE, the instant Petition for Review on Certiorari is DENIED. The Decision of the Court of
Appeals in CA-G.R. CV. No. 83794 dismissing the complaint for judicial redemption for lack of merit
and the Resolution denying petitioner’s motion for reconsideration are AFFIRMED.

SO ORDERED.

CONSUELO YNARES-SANTIAGO
Associate Justice

WE CONCUR:

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

ROMEO J. CALLEJO, SR. MINITA V. CHICO-NAZARIO

Associate Justice Associate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

ATTESTATION

I attest that the conclusions in the above decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
 CONSUELO YNARES-SANTIAGO
Associate
Justice Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, it is
hereby certified that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

* On leave.
[1] Rollo, pp. 8-32.
[2] Id. at 33-48; penned by Associate Justice Martin S. Villarama, Jr. and concurred in by Associate Justices
Edgardo F. Sundiam and Japar B. Dimaampao.
[3] Id. at 33-34.
[4] Id. at 49.
[5] Records, pp. 51-54, 99-101, also known as Homeowners’ Credit Line.
[6] Rollo, pp. 50-53.
[7] Records, pp. 20-23.
[8] Id. at 24.
[9] Id. at 32.
[10] Id. at 7-14.
[11] Id. at 102.
[12] Id. at 44-49.
[13] TCT No. 15625, id. at 72.
[14] Id. at 167-168.
[15] CA Rollo, pp. 44-56.
[16] Id. at 48.
[17] South Pachem Development, Inc. v. Court of Appeals, G.R. No. 126260, December 16, 2004, 447 SCRA
85, 95.
[18] Rizal Commercial Banking Corporation v. Court of Appeals, 364 Phil. 947, 953-954 (2002).
[19] South Pachem Development, Inc. v. Court of Appeals, supra note 17 at 95-96.
[20] TSN, October 7, 2002, pp. 14-15.
[21] Records, pp. 51-53.
[22] Rollo, p. 40.
[23] An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate
Mortgages (1924).
[24] Act No. 4118 (1933).
[25] Republic Act No. 337 (1948).
[26] Sy v. Court of Appeals, G.R. No. 83139, April 12, 1989, 172 SCRA 125, 133-134.
[27] Union Bank of the Philippines v. Court of Appeals, 412 Phil. 64, 76 (2001).
[28] G.R. No. 143896, July 8, 2005, 463 SCRA 64.
[29] Id. at 75.
[30] BPI Family Savings Bank, Inc. v. Veloso, G.R. No. 141974, August 9, 2004, 436 SCRA 1, 6.
[31] Supra note 28.
[32] 321 Phil. 185 (1995).
[33] Banco Filipino Savings and Mortgage Bank v. Court of Appeals, supra note 28 at 75.
[34] Lee Chuy Realty Corporation v. Court of Appeals, supra note 32 at 190-191.
[35] 437 Phil. 483 (2002).
[36] Id. at 493.
[37] Consing v. Court of Appeals, G.R. No. 143584, March 10, 2004, 425 SCRA 192, 203.
[38] TSN, October 7, 2002, pp. 16-19.
[39] TSN, September 22, 2000, pp. 33-35.
Pasted from <http://sc.judiciary.gov.ph/jurisprudence/2007/march2007/171354.htm>

Heirs of Quisumbing vs. PNB (2009)

Sunday, June 06, 2010
12:58 AM

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 178242 January 20, 2009
HEIRS OF NORBERTO J. QUISUMBING, Petitioners,
vs.
PHILIPPINE NATIONAL BANK and SANTIAGO LAND DEVELOPMENT CORPORATION, Respondents.
DECISION
CARPIO MORALES, J.:
From the Court of Appeals Decision1 of February 14, 2007 denying petitioners’ appeal from the
Decision2 of the Regional Trial Court, Branch 62, Makati City in Civil Case No. 10513, they come to this
Court on petition for review on certiorari.
Culled from the eight-volume records of the case are the following facts:
In 1984, spouses Ricardo C. Silverio and Beatriz Sison-Silverio (spouses Silverio) and Ricardo C. Silverio as
Chairman of the Board of the following companies, namely Delta Motors Corporation (Delta Motors),
Komatsu Industries (Komatsu), R.C. Silverio Management Corporation (RCSMC), through Deeds of
Assignment3 dated April 11 and 12, 1985, assigned to Atty. Norberto J. Quisumbing (Quisumbing) their
rights of redemption with respect to various real properties which herein respondent Philippine National
Bank (PNB) had foreclosed and acquired as the highest bidder. The properties included lots in Quezon
City, Manila, Pampanga and Bulacan in the name of Ricardo C. Silverio, married to Beatriz Sison; a lot in
Tagaytay in the name of Ricardo C. Silverio; lots in Nueva Ecija in the name of RCSMC; lots in Baguio and
Benguet in the name of Delta Motors; a lot in Zambales in the name of RCSMC; and a lot in Rizal (actually
Pasong Tamo, Makati) including improvements in the name of Komatsu (hereafter referred to as Pasong
Tamo property).
By letter4 dated April 8, 1985, Quisumbing made a formal tender of redemption to PNB for the
abovementioned properties, with the request that he be informed within 10 days of the total amount of
the redemption prices so "he would know how much to pay." Quisumbing furnished the sheriffs who
conducted the sales, as well as the registers of deeds in the various localities where the properties are
situated, with a copy of said tender letter.
Acting on Quisumbing’s tender of redemption, the PNB, by letter of April 15, 1985, requested copies of
the Deeds of Assignment so that it may "have a basis to reply to" his request.5 Quisumbing furnished PNB
with copies of the Deeds, requesting a reply to his tender letter and requested for the computation of the
total amount of redemption price for which he gave PNB until April 30, 1985 to do so. Before PNB could
reply, however, or on April 23, 1985, Quisumbing executed an Affidavit of Redemption,6 furnishing PNB,
the sheriffs and the registers of deeds a copy thereof.
Before the one-year redemption period expired, PNB, by letter dated May 3, 1985,7 denied Quisumbing’s
offer of redemption on the ground that the Deeds of Assignment were invalid for not having been
registered and for being against Art. 1491 (5) of the Civil Code; that the tender was not proper because it
was not accompanied by actual money payment; and that the amount Quisumbing offered was way
below that required under Sec. 25 of P.D. No. 694.
Quisumbing thus filed a Complaint8 before the Regional Trial Court (RTC) of Makati9 against PNB to
compel it to allow him to exercise his right of redemption over the foreclosed properties and to inform
him of the total amount of redemption price. At the same time, he caused the annotation of a notice of lis
pendens on the certificates of title of the properties.
In its Answer,10 PNB contended that Quisumbing had no cause of action as his tender offer was "pro-
forma," as the same was unaccompanied by cash payment; that the offer was not in accordance with
Section 25 of P.D. No. 694, as amended; that the assignment of rights made in Quisumbing’s favor was
ineffectual because the same was not registered and annotated on the certificates of title of the
properties; that the Deeds of Assignment executed by RSCMC, Komatsu and Delta Motors were
defectively acknowledged as public instruments; and that the assignments were barred by Article 1491
(5) of the Civil Code.11 During the pendency of the case, Quisumbing died, hence, he was substituted by
his heirs-herein petitioners on September 14, 1990.
On December 8, 1989, with the approval by Branch 149 of the Makati RTC, the herein other respondent
Santiago Land Development Corporation (SLDC) intervened, it having purchased pendente lite from PNB
the Pasong Tamo property, and adopted in its Answer-in-Intervention PNB’s defenses as set forth in its
Answer, and raised additional defenses.
Petitioners thus filed before the appellate court a Petition for Certiorari, docketed as CA-G.R. SP No.
25826, questioning, inter alia, the trial court’s grant of SLDC’s move to intervene, arguing that SLDC
should have joined as an additional defendant for it to be bound by all prior proceedings.
By Decision dated July 6, 1992, the appellate court granted the petition of petitioners and nullified the
trial court’s Order granting SLDC’s intervention. SLDC appealed to this Court via certiorari, docketed as
G.R. No. 106194.
By Decision12 of January 28, 1997, the Court dismissed SLDC’s petition and affirmed the appellate court’s
decision, ruling that SLDC is a transferee pendente lite and, as such, could no longer intervene as the law
already considers it joined or substituted in the pending action, hence, bound by all prior proceedings and
barred from presenting a new or different claim.
SLDC thereupon filed a Motion for Partial Substitution in Civil Case No. 10513, which was granted on April
14, 1998.
By Decision13 of October 24, 2000, the trial court dismissed petitioner’s Amended Complaint as against
PNB, as well as that against SLDC, ruling that Quisumbing did not make a valid tender of redemption as it
was not accompanied by cash payment; that Sec. 25 of P.D. No. 694 is not unconstitutional and was
applicable not only to direct debtors/mortgagors but constructively also to accommodation mortgagors
following Nepomuceno v. RFC.14Aggrieved, petitioners appealed to the Court of Appeals.
By the assailed Decision of February 14, 2007, the appellate court affirmed the trial court’s decision,
holding that there was no valid offer to redeem the properties owing to Quisumbing’s failure to validly
tender payment; and that even if his filing of the complaint was considered as judicial redemption, it was
still ineffectual due to non-tender of the redemption price. On account of such ruling, the appellate court
no longer ruled on the issue of the constitutionality of Sec. 25 of P.D. 694 and on the validity of the Deeds
of Assignment. Petitioners’ motion for reconsideration having been denied by Resolution dated June 5,
2007, this present petition was filed.
Petitioners insist that Quisumbing made a valid tender of redemption because he did not have to tender
the redemption prices due to, so they claim, PNB’s outright refusal to accept or allow any redemption,
and that he perfected a ‘judicial redemption’ following Tioseco v. CA.15 They assail the ruling of the trial
court that spouses Silverio were accommodation mortgagors or direct debtors/mortgagors and that Sec.
25 of P.D. No. 694 applies to accommodation mortgagors, as well as the trial and appellate court’s ruling
that Sec. 25 is not unconstitutional despite its being violative, so petitioners contend, of the due process
and equal protection clauses of the Constitution.
Petitioners maintain that Sec. 25 applies only to debtors-mortgagors, hence, the case at bar should have
been governed by the general law on redemption ─ Sec. 6 of Republic Act No. 3135 vis a vis Rule 39, Sec.
30. In support of their position, they draw attention to the fact that all the certificates of sale state that
the proceedings/sale were pursuant to an "extra-judicial foreclosure of real estate mortgage under RA
3135 as amended," without any mention whatsoever of P.D. No. 694. Petitioners thus conclude that Sec.
25 of P.D. No. 694 should be struck down for being void for vagueness; and that it is arbitrary and
unreasonable because it grants a preferred position to PNB which may abuse to unjustly enrich itself at
the expense of mortgagors, hence, violative of the right to due process.
At all events, they argue that assuming that Sec. 25 applies to accommodation mortgagors such as the
spouses Silverio still, the redemption price would be based on the value of the properties foreclosed, not
on the obligations of the debtor, as what PNB insists on doing.
In its Comment,16 PNB, averring that what petitioners are raising are questions of fact, maintains that the
Deeds of Assignment are void for being against public policy because at the time they were executed,
Quisumbing was already the lawyer not only of the spouses Silverio but also of Komatsu and the other
companies, the properties of which were being foreclosed.
In its separate Comment,17 SLDC argues that the present petition, insofar as the Pasong Tamo property
is concerned, is barred by res judicata, the Court in Komatsu Industries (Phils.) Inc. v. Philippine National
Bank and Santiago Land Development Corporation and Maximo Contreras, (Komatsu case)18 having
declared PNB’s extrajudicial foreclosure of the said property and eventual sale to SLDC valid. It adds that,
since in G.R. No. 106194 or the "Intervention Case," it was held that a purchaser pendente lite ─ SLDC is
bound by the outcome of the case instituted by the transferor ─ PNB, then Quisumbing, as transferee
pendente lite of Komatsu’s right to redeem the Pasong Tamo property, "must also necessarily be bound
by the outcome of the Komatsu case" ─ and that, perforce, "if he cannot intervene, then neither can he be
allowed to file or maintain a separate case."
Maintaining that Quisumbing’s "judicial redemption" should not be allowed, SLDC contends that since
redemption is inconsistent with the claim of invalidity of a foreclosure sale, then Komatsu’s act of
assigning its right of redemption to Quisumbing was incompatible with its earlier remedy of contesting
the validity of PNB’s foreclosure and is, therefore, prohibited.
SLDC further avers that Sec. 25 of PD No. 694 does not violate the due process clause, its provision
requiring the mortgagors to pay the redemption price being in line with the purpose of the law, viz "to
protect the investment of the government in the institution."
Aside from reiterating their previous arguments, petitioners, in their Consolidated Reply,19 refute SLDC’s
and PNB’s arguments. They contend that the action is not barred by res judicata because in the Komatsu
case, the Court "contemplated" that the issue of validity of the exercise of redemption would not be
resolved in that case but in Civil Case No. 10513, and the reason why Quisumbing was not required to
intervene in Komatsu was because he was not a party thereto, and the case involved annulment of the
foreclosure sale, not the exercise of the right of redemption.
Petitioners further maintain that the issue of whether the assignment of rights made in Quisumbing’s
favor was barred for being against public policy (under Art. 1491[5] of the Civil Code) can no longer be
raised as an issue, respondents having failed to raise it in the proceedings below; and assuming arguendo
that it had been raised, said provision would not apply, as what were assigned were merely the rights of
redemption, not the properties themselves, and Quisumbing did not represent Komatsu or the other
companies in the annulment of foreclosure proceedings.
In a Supplemental Petition20 filed on August 28, 2007, petitioners submit that the sale of the Philippine
Government’s remaining minority shares (12.28%) in the PNB on August 1, 2007 reinforces their
argument that if Sec. 25 of P.D. No. 694 is made applicable to accommodation mortgagors, the same
should be struck down for being unconstitutional, as it would then be violative of the equal protection
clause. And they assert that if, indeed, the purpose of said provision is to protect the government’s
investment in PNB, then it has ceased to exist due to the privatization of said institution and, as such,
Sec. 25 should be struck down.
The pivotal issue that needs to be resolved is whether the original plaintiff, Atty. Norberto J. Quisumbing,
made a valid tender of redemption.
The Court rules in the negative.
Sec. 25 of P.D. No. 694 otherwise known as the Revised Charter of the Philippine National Bank enacted
on May 8, 1975 provides:
Section 25. Right of redemption of foreclosed property Right of possession during redemption
period. Within one year from the registration of the foreclosure sale of real estate, the mortgagor shall
have the right to redeem the property by paying all claims of the Bank against him on the date of the sale
including all the costs and other expenses incurred by reason of the foreclosure sale and custody of the
property, as well as charges and accrued interests.
The Bank may take possession of the foreclosed property during the redemption period. When the Bank
takes possession during such period, it shall be entitled to the fruits of the property with no obligation to
account for them, the same being considered compensation for the interest that would otherwise accrue
on the account. Neither shall the Bank be obliged to post a bond for the purpose of such possession.
(Emphasis supplied)
On the other hand, under Act No. 3135, An Act to Regulate the Sale of Property under Special Powers
Inserted in or Annexed to Real Estate Mortgages (which took effect on March 6, 1924), as amended by
Act. No. 4118, redemption of extra-judicially foreclosed properties is undertaken as follows:
SECTION 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore
referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said
debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under
which the property is sold, may redeem the same at any time within the term of one year from and after
the date of the sale; and such redemption shall be governed by the provisions of sections four hundred
and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these
are not inconsistent with the provisions of this Act. (Emphasis supplied)
And the pertinent provision of the Code of Civil Procedure, now Section 28 of Rule 39 of the Revised Rules
of Civil Procedure, reads:
SEC. 28. Time and manner of, and amounts payable on, successive redemptions; notice to be given and
filed. – The judgment obligor, or redemptioner, may redeem the property from the purchaser, at any time
within one (1) year from the date of the registration of the certificate of sale, by paying the purchaser the
amount of his purchase, with one per centum per month interest thereon in addition, up to the time of
redemption, together with the amount of any assessments or taxes which the purchaser may have paid
thereon after purchase, and interest on such last named amount of the same rate; and if the purchaser
be also a creditor having a prior lien to that of the redemptioner, other than the judgment under which
such purchase was made, the amount of such other lien, with interest. (Emphasis supplied)
As to the requisites for a valid tender of redemption in case of extra-judicially foreclosed properties by
banks, Banco Filipino Savings and Mortgage Bank, Inc., v. Court of Appeals,21 instructs:
Section 6 of Act 3135 provides for the requisites for a valid redemption, thus:
SEC. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred
to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said debtor, or
any person having a lien on the property subsequent to the mortgage or deed of trust under which the
property is sold, may redeem the same at any time within the term of one year from and after the date of
sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to
four hundred and sixty-six, inclusive, of the Code of Civil Procedure, insofar as these are not inconsistent
with the provisions of this Act.
However, considering that petitioner is a banking institution, the determination of the redemption price is
governed by Section 78 of the General Banking Act which provides:
In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is
security for any loan granted before the passage of this Act or under the provisions of this Act, the
mortgagor or debtor whose real property has been sold at public auction, judicially or extrajudicially, for
the full or partial payment of an obligation to any bank, banking or credit institution, within the purview of
this Act shall have the right, within one year after the sale of the real estate as a result of the foreclosure
of the respective mortgage, to redeem the property by paying the amount fixed by the court in the order
of execution, or the amount due under the mortgage deed, as the case may be, with interest thereon at
the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred by the bank
or institution concerned by reason of the execution and sale and as a result of the custody of said
property less the income received from the property.
Clearly, the right of redemption should be exercised within the specified time limit, which is one year from
the date of registration of the certificate of sale. The redemptioner should make an actual tender in good
faith of the full amount of the purchase price as provided above, i.e., the amount fixed by the court in the
order of execution or the amount due under the mortgage deed, as the case may be, with interest
thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred
by the bank or institution concerned by reason of the execution and sale and as a result of the custody of
said property less the income received from the property.
xxxx
In BPI Family Savings Bank, Inc. vs. Veloso, we held:
The general rule in redemption is that it is not sufficient that a person offering to redeem manifests his
desire to do so. The statement of intention must be accompanied by an actual and simultaneous tender
of payment. This constitutes the exercise of the right to repurchase.
xxxx
Whether or not respondents were diligent in asserting their willingness to pay is irrelevant. Redemption
within the period allowed by law is not a matter of intent but a question of payment or valid tender of the
full redemption price within said period. (Emphasis supplied)
Evidently, whether the redemption is being made under Act No. 3135 or the General Banking Act, as
amended by Presidential Decree No. 1828, or under P.D. No.
694, the mortgagor or his assignee is required to tender paymentto make said redemption valid –
something which petitioners’ predecessor failed to do. The only instance when this rule may be construed
liberally, i.e., allow the non-simultaneous tender of payment, is if a judicial action is instituted by the
redemptioner. 22
Petitioner however claims, citing Banco Filipino Savings and Mortgage Bank v. Court of Appeals and Lee
Chuy Realty Corporation v. Court of Appeals that in case of disagreement over the redemption price, the
redemptioner may preserve his right of redemption through judicial action which must be filed within the
one-year period of redemption. The filing of a court action to enforce redemption, being equivalent to a
formal offer to redeem, would have the effect of preserving his redemptive rights and "freezing" the
expiration of the one-year period. Bona fidetender of the redemption price, within the prescribed period is
only essential to preserve the right of redemption for future enforcement beyond such period of
redemption and within the period prescribed for the action by the statute of limitations. Where the right
to redeem is exercised through judicial action within the reglementary period, the offer to redeem,
accompanied by a bona fide tender of the redemption price, while proper, may be unessential. (Emphasis
supplied)
For this exception to apply, however, certain conditions must be met, viz:
It should, however, be noted that in Hi-Yield Realty, Inc. v. Court of Appeals, we held that the action for
judicial redemption should be filed on time and in good faith, the redemption price is finally determined
and paid within a reasonable time, and the rights of the parties are respected. Stated otherwise, the
foregoing interpretation has three critical dimensions: (1) timely redemption or redemption by expiration
date; (2) good faith as always, meaning, the filing of the action must have been for the sole purpose of
determining the redemption price and not to stretch the redemptive period indefinitely; and (3) once the
redemption price is determined within a reasonable time, the redemptioner must make prompt payment
in full. (Emphasis supplied)
While Quisumbing filed the Complaint on May 7, 1985, days or even weeks before the expiration of the
one-year redemption period reckoned from the dates of registration of the different certificates of sale, it
cannot be said that he was motivated by good faith when he filed the Complaint, as contemplated in the
above ruling. For the Complaint was filed not for the sole purpose of determining the redemption price,
but, as Quisumbing himself admitted on direct examination, it was to seek the annulment of Sec. 25 of
P.D. No. 694, thus:
Q: And what is the purpose of your present suit?
A: To compel the redemption, because the redemption were (sic) disallowed unless the entire obligation
rather than just leaving the purchase price of the foreclosure sale is paid. The purpose of suit therefore,
is to seek the annulment of that provision of Section 25 of the Revised Chapter (sic) of the Philippine
National Bank, which provides that redemption can be effected only by paying the entire claim of the
Philippine National Bank, against in this case, Delta Motors Corporation. As the Complaint alleges the
sale . . . contrary to law, moral, customs, public security, since the law favors in the long line of decisions
of the right of redemption. Second, with such a provision no one can get a fair price at a foreclosure sale
of an individual property.23 (Emphasis and underscoring supplied)
And on cross-examination, when questioned why he wrote to PNB on April 8, 1985 offering to redeem the
property when the Deeds of Assignment in his favor were not yet executed, Quisumbing replied:
xxxx
Q: The Deeds of Assignment were executed either on April 12 or 11 in the case of Komatsu, 1985. Why
did you write PNB a tender of letter as early as April 8 when the Deeds of Assignment were not yet
executed – have not yet been executed?
A: Well, there might have been a delay in the execution of the Deeds of Assignment; but since I was
certain that PNB will reject a redemption, not in accordance with Sec. 25 of its charter. In other words,
just offering the purchase price derive from… we began the process of redemption early. Besides, the
Philippine National Bank, in some cases, in other creditors of . . . 24
x x x x (Emphasis and underscoring supplied)
Clearly, from the admissions reflected in the testimony, Quisumbing’s filing of the Complaint was not
solely due to a mere disagreement in the redemption price; rather, it was because he was not willing to
pay whatever amount PNB would compute on the basis of Sec. 25 of P.D. No. 694. By questioning the
constitutionality of said provision, Quisumbing, wittingly delayed the redemption, since he must have
known that raising the issue of constitutionality of a statute in any suit would result in a litigious process
which could stretch for an indefinite period as, in fact, the history of the present case shows. More
importantly, his act of executing his Affidavit of Redemption on April 23, 1985 and alleging therein his oft-
repeated excuse of "PNB’s refusal to allow him to redeem the subject properties" even before PNB could
provide him the computations by April 30, 1985, as he himself requested in his April 23, 1985 letter, and
before PNB’s actual refusal as stated in its May 3, 1985 letter, reflected that from the very beginning, his
mindset was that if any redemption would be had, the same should be made according to his terms and
conditions and under Act No. 3135, not P.D. No. 694. Indubitably, such actuations belie good faith and,
therefore, the exception as enunciated in Tolentino case would not apply.
Had Quisumbing believed in good faith that Act No. 3135 was applicable, he could have tendered the
amount as computed thereunder, if only to show that he was able and willing to redeem the properties.
Respecting the issues raised by petitioners that Sec. 25 of P.D. No. 694 is unconstitutional, the same has
been rendered moot and academic by the full privatization of PNB pursuant to E.O. 8025 which repealed
said P.D., as well as the subsequent sale of the remaining shares of the government on August, 2007
which converted it from a government financial institution to a private banking institution.
The foregoing discussions render it unnecessary to address the other points pleaded by petitioners, such
as the validity of the Deeds of Assignment, whether the Silverio spouses are accommodation mortgagors
or direct debtors/mortgagors, or whether the suit is barred by the principle of res judicata.
WHEREFORE, the petition is DENIED. The February 14, 2007 Decision of the Court of Appeals and the June
5, 2007 Resolution in CA-G.R. CV No. 69337 are AFFIRMED.
Costs against petitioner.
SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice
WE CONCUR:
DANTE O. TINGA MINITA V. CHICO-NAZARIO*
Associate Justice Associate Justice
PRESBITERO J. VELASCO, JR. ARTURO D. BRION
Associate Justice Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
CONCHITA CARPIO MORALES*
Associate Justice
Acting Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Acting Chairperson’s Attestation, I
certify that the conclusions in the above decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
* Acting Chairperson in lieu of Justice Leonardo A. Quisumbing who took no part.
** Additional member per Raffle dated September 3, 2007 and pursuant to Administrative Circular No. 42-2007 in A.M. No. 07-6-13-SC.

1 "Heirs of Norberto Quisumbing v. Philippine National Bank and Santiago Land Development
Corporation," Annex "A" of Petition, rollo, pp. 130-145. Penned by Associate Justice Jose C. Reyes, Jr., and
concurred in by Associate Justices Jose L. Sabio, Jr., and Myrna Dimaranan Vidal.
2 Annex "EE," id at. 747-757. Penned by Judge Roberto C. Diokno.
3 Exhibit "BB," id at 316-324.
4 Annex "N," id at 188-192.
5 Vide letter, Annex "O," id at 357 and 359.
6 Annex "Q," id at 193-196.
7 Vide letter, records, Vol. I, pp. 142-143.
8 Annex "C," id at 147-155.
9 N.B.: initially filed with Branch 149 but assailed Decision rendered by Branch 62.
10 Annex "D," id. at 209-213.
11 Art. 1491(5) justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other
officers and employees connected with the administration of justice, the property and rights in litigation
or levied upon an execution before the court within whose jurisdiction or territory they exercise their
respective functions; this prohibition includes the act of acquiring by assignment and shall apply to
lawyers, with respect to the property and rights which may be the object of any litigation in which they
may take part by virtue of their profession;
12 Santiago Land Development Corporation v. Court of Appeals, G.R. No. 106194, January 28, 1997, 267
SCRA 79.
13 Vide note 2.
14 110 Phil 42 (1960).
15 G.R. No. L-66597, August 29, 1986, 143 SCRA 705.
16 Rollo, pp. 1663-1715.
17 Id. at 1485-1589.
18 G.R. No. 127682, April 24, 1998, 289 SCRA 604.
19 Rollo, pp. 1728-1809.
20 Id. at 1469-1479.
21 G.R. No. 143896, July 8, 2005, 463 SCRA 64, 73-76.
22 Tolentino v. Court of Appeals and Citytrust Banking Corporation, G.R. No. 171354, March 7, 2007, 517
SCRA 732, 744-745.
23 TSN, hearing of Civil Case No. 10513 on March 3, 1987, records, Vol. III, pp. 190-191.
24 Id. at 199.
25 EXECUTIVE ORDER NO. 80
PROVIDING FOR THE 1986 REVISED CHARTER OF THE PHILIPPINE NATIONAL BANK (December
3, 1986)
xxxx
Sec. 38. Repealing Clauses. Subject to Section 31 of this Charter, Presidential Decree No. 694, as
amended, is hereby repealed. All other laws, decrees, acts, executive orders, administrative orders,
proclamations, rules and regulations or parts thereof inconsistent with any of the provisions of this
Charter are hereby repealed or modified accordingly. (emphasis supplied)
xxxx
Sec. 31. Banking Operations under the 1986 Revised Charters; Governing Laws. The Banking operations
of the Bank shall be governed by the provisions of this Charter beginning on January 1, 1987, or on such
subsequent date as may be determine by the President of the Philippine upon the recommendation of the
Minister of Finance. (Emphasis supplied)

Pasted from <http://www.lawphil.net/judjuris/juri2009/jan2009/gr_178242_2009.html>

DBP v. Prime Neighborhood (2009)

Sunday, June 06, 2010
1:00 AM

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. Nos. 175728 & 178914 May 8, 2009
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,
vs.
PRIME NEIGHBORHOOD ASSOCIATION Respondents.
DECISION
TINGA, J.:
Before this court are two consolidated cases involving two petitions for review on certiorari. The petitions
seek to set aside the following decisions and resolutions of the Court of Appeals: in G.R.
No. 175728, the Decision1 dated 15 September 2006 and Resolution2 dated 11 December 2006 of the
Court of Appeals Eleventh Division, while in G.R. No. 178914, the Decision3 dated 28 August 2006 and
Resolution4 dated 17 July 2007 of the Fifteenth Division.
These consolidated cases arose from an Ex-Parte Petition for Issuance of a Writ of Possession5 filed
before the Regional Trial Court (RTC) of Quezon City, Branch 92, filed by petitioner Development Bank of
the Philippines (DBP) against Y-Electric Power Corporation (Y-Electric), mortgagor and previous owner of
the subject parcel of land. Sometime in June 1960, Y-Electric obtained from DBP an industrial loan
of P408,000.00 secured by a Real Estate Mortgage executed by the spouses Victorino Yenko and Rosa
Jaranilla-Yenko in favor of DBP, over the parcel of land situated in Quezon City, covered by certificate of
title TCT No. 342461 (RT-101612).
Y-Electric failed to pay its loan obligation; hence, DBP instituted extrajudicial foreclosure of the mortgage.
On 4 March 1977, the property was sold at public auction to DBP as the highest bidder. A certificate of
sale was issued in favor of DBP and was registered on 25 May 1977. The redemption period expired on 25
May 1978 without the property being redeemed. On 20 May 2000, DBP consolidated its ownership of the
property. Thereafter, DBP subdivided the parcel of land, and on 12 March 2003, had TCT No. 342461
cancelled and in lieu thereof TCT Nos. 247959 and 247960 issued in its name.
On 12 March 2004, DBP filed the Ex-Parte Petition for Issuance of a Writ of Possession.6 On 28 May 2004,
the RTC issued an order7 granting the petition and a writ of possession was issued on 1 June 2004.
On 29 July 2004, respondent Prime Neighborhood Association (PNA) filed its Opposition to the Writ of
Possession with Prayer for Temporary Restraining Order (TRO).8 PNA claimed to represent third persons
in possession of the property in their own right and adverse to the mortgagor Y-Electric. It alleged that it
became aware of the writ only when it was being served upon its president Oscar Estopin and several of
its members on 14 July 2004. PNA claimed that it should have been notified of the proceedings as it is the
owner of the subject property pursuant to a Deed of Sale executed to them by Julian M. Tallano, the
registered owner’s predecessor-in-interest and court-appointed administrator. It disputed the ownership
of Y-Electric as mortgagor and DBP as purchaser at auction as their claims arose from a spurious title.
PNA alleged it had filed a case for unlawful detainer against DBP and Luzonville Homeowners Association
before the Metropolitan Trial Court (MeTC) of Quezon City, Branch 21, docketed as Civil Case No. 32412.
The unlawful detainer case was dismissed on 6 April 2004. PNA filed a notice of appeal on 11 May 2004,
and said appeal was still pending at another branch of the Quezon City RTC. PNA claimed that as it was
not included as a party in the proceedings of the issuance of the writ of possession, it was deprived of due
process when the said writ was issued.
On 5 August 2004, the RTC issued an order noting PNA’s opposition and denying its prayer for the
issuance of a TRO.9 Aggrieved, PNA filed a petition for certiorari10 with the Court of Appeals docketed as
CA-G.R. SP No. 85870 to annul the writ of possession issued on 28 May 2004, with prayer for issuance of a
restraining order to prevent DBP from dispossessing them of the property.
In the meantime, on 17 September 2004, DBP served a notice to vacate the premises against PNA
through Sheriff Wilfredo Villanueva of the RTC. The occupants of the property however refused to receive
the notice and the sheriff was forced to leave the notice to vacate at their residences. DBP thus filed a
Motion to Issue an Order of Demolition to Effect the Implementation of the Writ of Possession11 against
PNA, all persons occupying the subject property and all the improvements thereon. On 30 November
2004, the RTC denied the motion.12 DBP’s motion for reconsideration was likewise denied. Thus, DBP
filed a petition for certiorari13 with the Court of Appeals docketed as CA-G.R. SP No. 89051 to annul the
orders denying its motion for issuance of a demolition order and its motion for reconsideration.
In CA-G.R. SP No. 85870, the Court of Appeals promulgated the assailed Decision14 dated 15 September
2006 granting PNA’s petition for certiorari and setting aside the RTC’s order for the issuance of the writ of
possession. The appellate court relied on Philippine National Bank v. Court of Appeals15 and Capital
Credit Dimension, Inc. v. Chua16 which both held that the obligation of a court to issue an ex parte writ of
possession in favor of a purchaser in an extrajudicial foreclosure sale ceases to be ministerial once it
appears that there is a third party in possession of the property who is claiming a right adverse to that of
the debtor/mortgagor, and that the issuance of the writ of possession in such a case would be to sanction
a summary ejectment in violation of the basic tenets of due process. The Court of Appeals thus held that
the RTC should not just ignore PNA’s claims but should allow their opposition to be heard in order to
determine whether they are actual occupants of the subject property. The dispositive portion of the
decision reads:
WHEREFORE, in view of all the foregoing, the petition is GRANTED and the assailed orders of the public
respondent are declared NULL and VOID and are hereby SET ASIDE.
This case is hereby remanded to the court a quo for further proceedings, specifically, to determine
whether or not members of petitioner Prime Neighborhood Association, Inc., are actually in possession of
subject property who are claiming right adverse to that of the original mortgagor.
SO ORDERED.17
The appellate court also denied DBP’s motion for reconsideration in the assailed Resolution18 dated 11
December 2006 for lack of merit.
In CA-G.R. SP No. 89051, the Court of Appeals promulgated the assailed Decision19 dated 28 August
2006 dismissing DBP’s petition for certiorari and affirming the RTC’s orders denying DBP’s motion for the
issuance of a demolition order. The appellate court again cited Philippine National Bank v. Court of
Appeals, saying that the general rule that the issuance of a writ of possession in favor of a purchaser in a
foreclosure sale after the lapse of the redemption period and after title is consolidated in its favor does
not apply to affect the possession of third persons claiming adverse ownership against the judgment
debtor and who were not made a party therein. The Court of Appeals noted that DBP already knew of the
actual adverse possession of PNA and that it was for the purpose of racing to beat the proceedings in the
ejectment case filed by PNA that the Ex-Parte Petition for Issuance of a Writ of Possession was filed.
The fallo of the decision thus reads:
WHEREFORE, premises considered, the Petition is hereby DISMISSED. The questioned Orders of Br. 92,
Regional Trial Court, Quezon City, dated 30 November 2004 and 17 January 2005 respectively, in LRC
Case No. Q-17793(04) are hereby AFFIRMED in toto.
SO ORDERED.20
DBP filed a motion for reconsideration but this was denied in the assailed Resolution21 dated 17 July
2007.
DBP thus filed these petitions for review. In G.R. No. 175728 assailing the decision and resolution in CA-
G.R. SP No. 85870, DBP assigns the following errors:
(a) The Court of Appeals erred in granting the intervention of PNA in a proceeding which is ex parte in
nature.
(b) The Court of Appeals erred in giving due course to the petition for certiorari filed by PNA which is
clearly frivolous and unfounded and a collateral attack on herein petitioner’s valid and subsisting title.
(c) The Court of Appeals erred in disregarding the ruling of this Honorable Supreme Court in St. Dominic
Corp. v. Intermediate Appellate Court22 where it was held that there is no denial of the right of a third
party in an ex parte proceeding when the latter is merely an intruder/squatter.23
In G.R. No. 178914 assailing the decision and resolution in CA-G.R. SP No. 178914, DBP raises the
following grounds:
(a) The Court of Appeals erred in denying DBP’s motion for demolition for its reliance on Philippine
National Bank v. Court of Appeals is off tangent and hence, bereft of basis.
(b) The Court of Appeals should not have considered PNA’s allegations collaterally attacking the integrity
of DBP’s titles.
(c) DBP’s right to the property is founded on the right to ownership, hence its right over the property is
absolute, vesting upon it the right of possession of the property which the court must aid in effecting its
delivery.24
The propriety of the issuance of the writ of possession relating to the foreclosure of the real estate
mortgage is at issue in these consolidated cases. Consequently, DBP’s arguments in the two petitions are
inter-related, if not similar.
DBP argues that as the purchaser of the foreclosed property in the public auction, it has the right to
petition the trial court to place him in possession of the property through the filing of an ex parte motion,
pursuant to Sec. 725of Act No. 3135,26 as amended by Act No. 4118.27 The issuance of a writ of
possession to the purchaser in the extrajudicial foreclosure has long been held to be a ministerial function
of the trial court. By the very nature of anex parte proceeding that it is brought for the benefit of one
party only and without notice to or consent by any person adversely interested, PNA should not have
been allowed to intervene by filing an opposition to the motion for issuance of writ of possession. Instead,
DBP claims, PNA should have filed a direct proceeding to have DBP’s title declared void and not have
resorted to the procedural short cut of intervention.
DBP also argues that PNA’s claim of ownership upon which it based its opposition is baseless. DBP alleges
that PNA, through its president Oscar Estopoin, recognized DBP’s ownership over the subject property.
Estopin was the former Vice President of Luzonville Homeowner’s Association, Inc. (LHA) and one of its
incorporators. The Articles of Incorporation and By-Laws of LHA were registered with the Home Insurance
and Guaranty Corporation on 21 August 1998 as "Luzonville Homeowners Association, Inc. (Development
Bank of the Philippines Property)." The By-Laws also indicated that the members of LHA were all
homeowners or long term lessees of houses at the subject property owned by DBP. DBP claims that it was
only on 9 February 2004 that PNA started to falsely claim ownership of the foreclosed property by virtue
of an alleged Deed of Sale with Real Estate Mortgage from the vendor, a certain Don Julian M. Tallano,
when they learned that DBP agreed to sell the subject property to LHA pursuant to a Memorandum of
Agreement dated 22 December 2003. DBP clarifies that PNA is merely a break-away group from LHA.
With LHA’s recognition of DBP’s ownership of the foreclosed property under the Memorandum of
Agreement, PNA is estopped from making an adverse claim of ownership against DBP.
PNA claims that DBP’s title to the foreclosed property is void, having as its source a fraudulent original
certificate of title, OCT No. 614. Such a claim, DBP argues, constitutes a collateral attack on DBP’s titles to
the foreclosed property. DBP points out that the property is covered by a certificate of title and has
passed through different owners until it was acquired by DBP. DBP has already consolidated its title to the
property and has had it registered in its name. Previous to that, nobody claimed ownership thereof
adverse to the former owners and to DBP. In sanctioning PNA’s baseless claim of ownership, DBP alleges
that the Court of Appeals has ignored the protection given by law to the Torrens system and to the
certificates of title issued to DBP. DBP thus argues that the Court of Appeals should not have relied
on Philippine National Bank v. Court of Appeals because PNA cannot be considered a third party in
possession of the subject property under a claim of title adverse to DBP’s. PNA is neither the owner nor is
in possession of rights under a color of title, but a mere squatter/intruder. On the other hand, DBP’s right
to the property is founded on its right of ownership. It has an indefeasible right to the property and its
right over the property is absolute, vesting upon it the right of possession. Thus, the Court of Appeals
should have allowed DBP to enforce its right to the possession of the property. The Court of Appeals
should have relied on St. Dominic Corp. v. Intermediate Appellate Court28 which emphasized the
indefeasibility of Torrens title vis-à-vis baseless claims of ownership. It held that as the purchaser of the
properties in the foreclosure sale, and to which the respective titles thereto have already been issued,
DBP’s right over the property has become absolute, vesting upon it the right of possession of the property
which the court must aid in effecting its delivery.
DBP thus prays that the decision of the CA in CA-G.R. SP No. 85870 be set aside and the writ of
possession granted by the RTC be reinstated, and that the decision in CA-G.R. SP No. 89051 affirming the
denial of the motion for a writ of demolition be set aside and the implementation of the writ of possession
through the issuance of the writ of demolition against PNA be ordered.
The Court finds the petitions bereft of merit. They should be denied.
It is ministerial upon the court to issue a writ of possession after the foreclosure sale and during the
period of redemption. The governing law, Act No. 3135, as amended, in Section 7 thereof, explicitly
authorizes the purchaser in a foreclosure sale to apply for a writ of possession during the redemption
period by filing an ex partemotion under oath for that purpose in the corresponding registration or
cadastral proceeding in the case of property with Torrens title. Upon the filing of such motion and the
approval of the corresponding bond, the law also in express terms directs the court to issue the order for
a writ of possession.29 The writ of possession issues as a matter of course even without the filing and
approval of a bond after consolidation of ownership and the issuance of a new transfer certificate of title
in the name of the purchaser.30
But the rule is not without exception. Under Section 35,31 Rule 39 of the Rules of Court, which is made
suppletory to the extrajudicial foreclosure of real estate mortgages by Section 6 of Act 3135, as amended,
the possession of the mortgaged property may be awarded to a purchaser in the extrajudicial
foreclosure unless a third party is actually holding the property adversely to the judgment debtor. Thus, in
the cited case of Philippine National Bank v. Court of Appeals,32 the Court held that the obligation of a
court to issue an ex parte writ of possession in favor of the purchaser in an extrajudicial foreclosure sale
ceases to be ministerial once it appears that there is a third party in possession of the property who is
claiming a right adverse to that of the debtor/mortgagor.33 This is substantiated by the Civil Code which
protects the actual possessor of a property. The discussion in Philippine National Bank on this matter is
informative:
Under [Article 43334 of the Civil Code], one who claims to be the owner of a property possessed by
another must bring the appropriate judicial action for its physical recovery. The term "judicial process"
could mean no less than an ejectment suit or reivindicatory action in which ownership claims of the
contending parties may be properly heard and adjudicated.
An ex parte petition for issuance of a possessory writ under Section 7 of Act 3135[, as amended,] is not,
strictly speaking, a "judicial process" as contemplated above. Even if the same may be considered a
judicial proceeding for the enforcement of one’s right of possession as purchaser in a foreclosure sale, it
is not an ordinary suit filed in court by which one party "sues another for the enforcement or protection of
a right, or the prevention or redress of a wrong."
It should be emphasized that an ex parte petition for issuance of a writ of possession is a non-litigious
proceeding authorized in an extrajudicial foreclosure of mortgage pursuant to Ac 3135, as amended.
Unlike a judicial foreclosure of real estate mortgage under Rule 68 of the Rules of Court, any property
brought within the ambit of the act is foreclosed by the filing of a petition, not with any court of justice,
but with the office of the sheriff of the province where the sale is to be made.
As such, a third person in possession of an extrajudicially foreclosed realty, who claims a right superior to
that of the original mortgagor, will have no opportunity to be heard on his claim in a proceeding of this
nature. It stands to reason, therefore, that such third person may not be dispossessed on the strength of
a mere ex parte possessory writ, since to do so would be tantamount to his summary ejectment, in
violation of the basic tenets of due process.
Besides, as earlier stressed, Article 433 of the Civil Code, cited above, requires nothing less that an action
for ejectment to be brought even by the true owner. After all, the actual possessor of a property enjoys a
legal presumption of just title in his favor, which must be overcome by the party claiming otherwise.35
This was reiterated in Dayot v. Shell Chemical Company (Phils.), Inc.36
The question now is whether PNA is a third party in possession of the property claiming a right adverse to
that of the debtor/mortgagor. The answer is yes.
DBP’s right of possession is founded on its right of ownership over the property which he purchased at the
auction sale. Upon expiration of the redemption period and consolidation of the title to the property in its
name, DBP became substituted to and acquired all the rights, title and interest of the mortgagor Y
Electric. As the new owner of the property, DBP can validly exercise his right of possession over it. Thus,
as against Y Electric and its successors-in-interest, DBP can apply for the issuance of a writ of possession
against them to compel them to deliver and transfer possession to DBP. Note, however, that a third party
not privy to the debtor/mortgagor—in this case, Y Electric—is protected by law. The purchaser’s right of
possession is recognized only as against the judgment debtor and his successor-in-interest but not
against persons whose right of possession is adverse to the latter.37 As previously stated, under the law,
such third party’s possession of the property is legally presumed to be pursuant to a just title which may
be overcome by the purchaser in a judicial proceeding for recovery of the property. It is through such a
judicial proceeding that the nature of such adverse possession by the third party is determined, according
such third party due process and the opportunity to be heard. The third party may be ejected from the
property only after he has been given an opportunity to be heard, conformably with the time-honored
principle of due process.38
In its petition for certiorari in CA-G.R. No. SP No. 85870, PNA claims that it is the owner of the property in
dispute as it purchased it from its true owner, and that the title to the property upon which Y Electric and
DBP base their claim is fictitious and non-existent. In exercise of its right of ownership, PNA filed an
ejectment case against DBP which is now on appeal with the RTC of Quezon City. There is nothing in the
records that would show that PNA derives its claim of ownership from Y Electric or from Y Electric’s
predecessors-in-interest, or that PNA is a successor-in-interest or transferee of Y Electric’s rights. It is thus
clear that PNA asserts a claim of ownership adverse to that of Y Electric and DBP, and that it acquired title
and possession of the property by virtue of a title entirely distinct from that through which DBP claims.
PNA thus stands in the same position as a stranger or third party whose rights to the property cannot be
resolved in an ex parte proceeding where it was not impleaded or where it could appear to present its
side.1 a vv p h i 1 . z w +
St. Dominic Corp. v. Intermediate Appellate Court,39 cited by DBP, actually supports the finding that PNA
is a third party possessor claiming against DBP an adverse right. The facts in St. Dominic are as follows:
In 1961, the People’s Homesite and Housing Corporation (PHHC) awarded a parcel of land covered by TCT
No. 83783 to Cristobal Santiago, who sold the same to the spouses Carlos Robes and Adelia Francisco.
The spouses Robes mortgaged the lot to Manufacturer’s Bank and Trust Company, and this fact was duly
annotated on the back of TCT No. 84387. Thereafter, Civil Case No. Q-11895, entitled "Ricardo Castulo
and Juan V. Ebreo v. Carlos Robes, Adelia Francisco, and People’s Homesite and Housing Corporation,"
was filed seeking the cancellation of TCT No. 83783. Claiming legal interest in the property, the
Bustamante spouses were allowed to intervene in the case. A notice of lis pendens was annotated on the
title at the instance of the Bustamante spouses. For failure of the Robes spouses to pay the mortgage
obligation, Manufacturer’s Bank foreclosed the lot which was then bought at public auction by Aurora
Francisco, who was subsequently issued a certificate of sale. As no redemption of the property was
effected, TCT No. 84387 issued in the name of the Robes spouses was cancelled and TCT No. 217192 was
issued to the buyer Aurora Francisco. The notice of lis pendens was not carried over to TCT No. 217192.
Aurora Francisco applied for, and was issued, a writ of possession for the property. The Bustamante
spouses filed a motion to quash the writ, which motion was denied by the lower court. The spouses then
filed a petition for certiorari with the Supreme Court. Thereafter, Aurora Francisco sold the property to
petitioner St. Dominic Corp, which was issued TCT No. 22337. Again, no notice of any lien or
encumbrance appeared on the title.
Meanwhile, Civil Case No. Q-11895 was decided. The trial court ruled that the sale by PHHC to Cristobal
Santiago was void and cancelled TCT No. 83783. The sale of the same lot to the spouses Robes was
likewise declared void and TCT No. 84387 was cancelled. PHHC was ordered to process Bustamante’s
application to purchase the lot and execute documents awarding the lot to her. A writ of execution was
issued to the Bustamante spouses, with the qualification, however, that the writ could not be enforced
against St. Dominic Corp. The spouses questioned the order via certiorari [with St. Dominic Corp. and
Aurora Francisco, though not parties to Civil Case No. Q-11895, made respondents thereto] with the
Intermediate Appellate Court, which granted the writ of certiorari and ordered the trial court to issue the
writ of execution against St. Dominic Corp. 40
This Court reversed the ruling of the Intermediate Appellate Court and held that St. Dominic Corp. was not
bound by the decision in that case because it was never impleaded in Civil Case No. Q-11895. Anent the
effect of the trial court’s judgment on Manufacturer’s Bank’s (mortgagee bank) rights and on the
foreclosure of the property in question, it was held that where a Torrens title was issued as a result of
regular land registration proceedings and was in the name of the mortgagor when given as a security for
a bank loan, the subsequent declaration of said title as null and void would not nullify the rights of the
mortgagee who acted in good faith. The mortgagee is under no obligation to look beyond the certificate
of title and has the right to rely on what appears on its face. The title to the property given as security to
Manufacturer’s Bank by the spouses Robes was valid, regular, and free from any lien or encumbrance.
The title of Aurora Francisco, as a purchaser at the auction sale of the property in question, could not be
affected by any adverse claim of the plaintiffs in Civil Case No. Q-11895. This is even more true with
petitioner St. Dominic Corp. which had acquired title from Francisco without any notice or flaw.41
The Bustamante spouses assailed the grant ex parte by the trial court of the writ of possession over the
property in favor of Aurora Francisco, alleging that a court has no jurisdiction, power and authority to
eject a third person who is not a party to the foreclosure proceedings or mortgage by a mere writ of
possession summarily issued in a foreclosure suit. This Court approved of the trial court’s disquisition on
this matter. The trial court was aware of the limitation that a writ of possession may not issue when the
property is in the possession of a third party who holds the property adverse to the buyer in the
foreclosure sale. But by their express admission in their motion to intervene, the Bustamante spouses
were merely occupants-applicants for the purchase of the land from PHHC. Their claim was at best
inchoate, and cannot prevent the issuance of the writ of possession prayed for; to do so would becloud
the integrity of the Torrens title and in derogation of its indefeasibility. Their inchoate right cannot prevail
over the clean title of Aurora Francisco and/or St. Dominic Corp. The Bustamante spouses had no clear
title or right that may be enforced, thus, the writ of possession should issue in favor of Aurora Francisco
and/or St. Dominic Corp.42 The Court added:
Indeed, the rules contemplate a situation where a third party holds the property by adverse title or right
such as a co-owner, tenant or usufructuary. In such cases, a grant of a writ of possession would be denial
of such third person’s rights without giving them their day in court. Especially where question of title is
involved, the matter would well be threshed out in a separate action and not in a motion for a writ of
possession.43
Clearly, the facts in St. Dominic are hugely different from the facts of the case at bar. The Bustamante
spouses’ claim is not as owner of the property, but only as an occupant-applicant thereto; it rests on a
mere expectancy. They did not hold the property by any adverse title or right. In the case at bar,
however, PNA claims ownership of the property through a title adverse to that of DBP and DBP’s
predecessor-in-interest.
The other cases44 cited by DBP also support the finding of PNA as a third party claiming an adverse right.
These cases support the ruling that trespassers or intruders without title can be evicted by writ of
possession. However, the issuance of the writ of possession in these cases, except for one, is not
pursuant to the foreclosure of a mortgage under Act No. 3135, as amended. The said cases involve
different judicial proceedings which have for its purpose the recovery of property. Thus, Caballero v.
Court of Appeals involves an action for cancellation of sale. Mendoza v. National Housing
Authority and Galay v. Court of Appeals are cases for ejectment. E.B. Marcha Transport Co. v.
Intermediate Appellate Court involves a case for recovery of possession of property. Rodil v.
Benedicto and Demorar v. Ibanez concern registration proceedings. It should be noted too that in these
cases, there was a categorical finding by the courts, or there was an admission by the parties, that the
persons to be evicted are indeed squatters or intruders without any right to the property.
The only case cited by DBP which involves the issuance of a writ of possession under Act No. 3135
is Rivero de Ortega v. Natividad which, however, supports the finding that PNA is a third party possessor
protected under the law. Thus:
But where a party in possession was not a party to the foreclosure, and did not acquire his possession
from a person who was bound by the decree, but who is a mere stranger and who entered into possession
before the suit was begun, the court has no power to deprive him of possession by enforcing the decree.
x x x Thus, it was held that only parties to the suit, persons who came in under them pendente lite, and
trespassers or intruders without title, can be evicted by a writ of possession. x x x The reason for this
limitation is that the writ does not issue in case of doubt, nor will a question of legal title be tried or
decided in proceedings looking to the exercise of the power of the court to put a purchaser in possession.
A very serious question may arise upon full proofs as to where the legal title to the property rests, and
should not be disposed of in a summary way. The petitioner, it is held, should be required to establish his
title in a proceeding directed to that end.45
PNA also need not prove its ownership of the foreclosed property in the same ex parte proceeding
instituted by DBP. The jurisdiction of the court in the ex parte proceeding is limited only to the issuance of
the writ of possession. It has no jurisdiction to determine who between the parties is the rightful owner
and lawful possessor of the property. As earlier stated, the appropriate judicial proceeding must be
resorted to.46 Consequently, the Court of Appeals’ order in CA-G.R. SP No. 85870 to remand the case to
the court a quo to determine whether PNA and its members are actually in possession of the property
claiming a right adverse to that of the original mortgagor is unnecessary.
WHEREFORE, the petitions for review in certiorari are DENIED.
In G.R. No. 175728, the Court of Appeals Decision dated 15 September 2006 is AFFIRMED insofar as it
declares as null and void the Regional Trial Court’s Order dated 5 August 2004. The Resolution dated 11
December 2006 is also AFFIRMED.
In G.R. No. 178914, the Decision dated 28 August 2006 and Resolution dated 17 July 2007 are AFFIRMED.
SO ORDERED.
DANTE O. TINGA
Associate Justice
WE CONCUR:
CONCHITA CARPIO MORALES*
Associate Justice
Acting Chairperson
PRESBITERO J. VELASCO, JR. TERESITA J. LEONARDO-DE CASTRO**
Associate Justice Associate Justice
ARTURO D. BRION
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
CONCHITA CARPIO MORALES
Associate Justice
Acting Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, it is
hereby certified that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
* Acting Chairperson.
** Per Special Order No. 619, Justice Teresita J. Leonardo-De Castro is hereby designated as additional member of the Second Division in lieu of Justice Leonardo A. Quisumbing, who is

on official leave

1 Rollo (G.R. No. 175728), pp. 56-64.

2 Id. at 66-67.
3 Id. at 25-26.
4 Id. at 68-75.
5 Id. at 68-75/
6 Rollo (G.R. No. 178914), pp. 104-109.
7 Rollo (G.R. No. 175728), pp. 79-80.
8 Rollo (G.R. No. 178914), pp. 115-122.
9 Rollo (G.R. No. 178914), p. 127.
10 Rollo (G.R. No. 175728), pp. 81-88.
11 Rollo (G.R. No. 178914), pp. 139-142.
12 Rollo (G.R. No. 178914), pp. 101-102.
13 Rollo (G.R. No. 178914), pp. 86-100.
14 Supra note 1. Penned by Associate Justice Sesinando E. Villon and concurred in by Associate Justices
Elvi John S. Asuncion and Jose Catral Mendoza.
15 424 Phil. 757 (2002).
16 G.R. No. 157213, 28 April 2004, 428 SCRA 259.
17 Rollo (G.R. No. 175728), p.63.
18 Supra note 2.
19 Supra note 3. Penned by Associate Justice Normandie B. Pizarro, concurred in by Associate Justices
Eliezer R. De Los Santos and Aurora Santiago-Lagman.
20 Id. at 22..
21 Supra note 4.
22 Cited as 151 SCRA 577.
23 Rollo (G.R. No. 175728), p. 31.
24 Rollo (G.R. No. 178914), pp. 39-49.
25 Sec. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First
Instance of the province or place where the property or any part thereof is situated, to give him
possession thereof during the redemption period, furnishing bond in an amount equivalent to the use of
the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was
made without violating the mortgage or without complying with the requirements of this Act. Such
petition shall be made under oath and filed in form of an ex parte motion in the registration or cadastral
proceedings if the property is registered, or in special proceedings in the case of property registered
under the Mortgage Law or under section one hundred and ninety-four of the Administrative Code, or of
any other real property encumbered with a mortgage duly registered in the office of any register of deeds
in accordance with any existing law, and in each case the clerk of the court shall, upon the filing of such
petition, collect the fees specified in paragraph eleven of section one hundred and fourteen of Act
Numbered Four hundred and ninety-six, as amended by Act Numbered Twenty-eight hundred and sixty-
six, and the court shall, upon approval of the bond, order that a writ of possession issue, addressed to the
sheriff of the province in which the property is situated, who shall execute said order immediately.
26 An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed To Real Estate
Mortgages, 6 March 1924.
27 An Act to Amend Act Numbered Thirty-One Hundred and Thirty-Five, Entitled "An Act to Regulate the
Sale of Property Under Special Powers Inserted In or Annexed To Real Estate Mortgages," 7 December
1933.
28 235 Phil. 582 (1987).
29 Sulit v. Court of Appeals, 335 Phil. 914, 924 (1997).
30 Penson v. Maranan, G.R. No. 148630, 20 June 2006, 491 SCRA 396, 405.
31 Now Section 33, Rule 39 of the Rules of Court as revised. The second paragraph thereof reads: "Sec.
33. Deed and possession to be given at expiration of redemption period; by whom executed or given.—x
x x Upon the expiration of the right of redemption, the purchaser or redemptioner shall be substituted to
and acquire all the rights, title, interest and claim of the judgment obligor to the property as of the time of
the levy. The possession of the property shall be given to the purchaser or last redemptioner by the same
officer unless a third party is actually holding the property adversely to the judgment obligor."
32 Supra note 5.
33 Penson v. Maranan, G.R. No. 148630, 20 June 2006, 491 SCRA 396, 406.
34 Art. 43. Actual possession under claim of ownership raises a disputable presumption of ownership. The
true owners must resort to judicial process for the recovery of the property.
35 PNB v. Court of Appeals, supra note 10 at 769-771.
 36 G.R. No. 156542, 26 June 2007, 525 SCRA 535.
37 Roxas v. Buan, No. L-53798, 8 November 1988, 167 SCRA 43, 50.
38 Unchuan v. Court of Appeals (Fifth Division), No. L-78775, 31 May 1988, 161 SCRA 710, 716.
39 Supra note 28.
40 As summarized in the Malayan Bank v. Lagrama, 409 Phil. 493, 505-506 (2001).
41 St. Dominic Corp. v. Intermediate Appellate Court, supra note 34, at 592-594.
42 St. Dominic Corp. v. Intermediate Appellate Court, supra note 34 at 595-597.
43 St. Dominic Corp. v. Intermediate Appellate Court, supra note 34 at 596.
44 Caballero v. Court of Appeals, G.R. No. 59888, 29 January 1993, 218 SCRA 56, 64; Mendoza v. National
Housing Authority, 197 Phil. 596 (1982); E.B. Marcha Transport Co., Inc. v.. Intermediate Appellate Court,
231 Phil. 275 (1987); Galay v. Court of Appeals, 321 Phil. 224 (1995); Lourdes Rivero D. Ortega v. Hon.
Felipe Natividad, et al., 71 Phil. 340, 342; Tomas Rodil, et al. v. Judge Benedicto, 184 Phil. 107 (1980);
andDemorar v. Ibanez, etc., 97 Phil. 72, 74 (1955).
45 Rivero de Ortega v. Natividad, 71 Phil. 340, 342-343 (1941).
46 See Civil Code, Art. 43, supra note 29; Philippine National Bank v. Court of Appeals, supra note 10, at
32; and Rivero de Ortega v. Natividad, supra note 40, at 343.

Pasted from <http://www.lawphil.net/judjuris/juri2009/may2009/gr_175728_2009.html>

PNB vs. Gotesco (2009)

Sunday, June 06, 2010
1:02 AM

THIRD DIVISION

PHILIPPINE NATIONAL BANK, G.R. No. 183211

Petitioner,
Present:

YNARES-SANTIAGO, J.,
Chairperson,
- versus - CARPIO,*
CORONA,**
NACHURA, and
PERALTA, JJ.

GOTESCO TYAN MING DEVELOPMENT, INC., Promulgated:

Respondent.
June 5, 2009

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

This petition for review filed by Philippine National Bank (PNB) seeks to nullify and set aside the
March 12, 2008 Decision[1] of the Court of Appeals (CA) in CA-G.R. SP No. 99194, which affirmed the
Orders dated August 24, 2006[2] and March 2, 2007[3] of the Regional Trial Court (RTC) of Pasig
City, and the June 6, 2008 Resolution,[4] denying PNB’s motion for reconsideration.

The antecedents.
 On April 7, 1995, PNB, along with Metropolitan Bank and Trust Company (MBTC), United Coconut
Planters Bank (UCB), and Citytrust Banking Corporation (CBC), extended credit facilities
worth P800,000,000.00 to respondent Gotesco Tyan Ming Development, Inc. (GOTESCO). To secure
the credit facility, GOTESCO executed a Mortgage Trust Indenture over a parcel of land in Pasig City,
covered by Transfer Certificate of Title (TCT) No. PT-97306.[5] GOTESCO availed itself
of P800,000,000.00 from its credit line, but failed to pay it in full. Accordingly, PNB, MBTC, UCB, and
CBC instituted foreclosure proceedings on the GOTESCO property.

On July 30, 1999, the property was auctioned and was awarded to PNB as the highest bidder
for P1,240,000,496.82. A Certificate of Sale[6] was issued on August 4, 1999 and was registered
with the Register of Deeds on November 9, 1999.

The one-year redemption period expired without GOTESCO exercising its right of redemption.
Accordingly, PNB consolidated the title in its name and, on July 18, 2005, TCT No. PT-127557[7] in
the name of PNB was issued. Consequently, PNB filed an Ex-Parte Petition for Issuance of Writ of
Possession with the RTC of Pasig City. The case was docketed as LRC Case No. R-6695-PSG and was
raffled to Branch 155.

GOTESCO then filed a motion to consolidate LRC Case No. R-6695-

PSG with its case for annulment of foreclosure proceedings, specific
performance and damages against PNB, docketed as Civil Case No. 68139, and pending with RTC Branch
161.

On August 24, 2006, Hon. Judge Luis R. Tongco of Branch 155 issued an Order granting the motion
for consolidation:

Finding merit in the Motion For Consolidation filed by [respondent] Gotesco Tyan Ming
Development, Inc., through counsel, on August 7, 2006, and as prayed for and over the
opposition of x x x petitioner Philippine National Bank (PNB), the same is hereby GRANTED.

Let, therefore, the entire records of the instant case be forwarded to the Office of the Clerk of
Court, RTC, Pasig City for CONSOLIDATION with Civil Case No. 68139, entitled “Gotesco Tyan
Ming Development, Inc. v. Philippine National Bank, et al.” filed on October 30, 2000 pending
before Branch 161, Regional Trial Court, Pasig City.

SO ORDERED.[8]

PNB filed a motion for reconsideration, but RTC Branch 161 denied the same, viz.:

After a careful and judicious consideration of the arguments raised by the parties in their
respective pleadings, this Court resolves to DENY the Urgent Motion for Reconsideration.

A perusal of the arguments/issues raised by the petitioner in its pleadings would clearly show
that they were mere reiteration of its previous arguments/issues which have been duly
considered and passed upon by Honorable Judge Luis R. Tongco who ordered the consolidation
of this case, in his discretion, to the civil case pending before this Court and no new matter was
raised to warrant the reconsideration of the assailed Order dated August 24, 2006.

As a rule, the consolidation of several cases involving the same parties and subject matter is
discretionary with the trial court. However, consolidation of these cases becomes a matter of
duty if two or more cases are tried before the same judge, or, if filed with different branches of
the same Court of First Instance, one of such cases has not been partially tried. (Raymundo, et
al. v. Felipe, L-30887, Dec. 24, 1971). Noteworthy is the fact that the civil case pending
before this Court is in the stage of presentation of [GOTESCO’s] initial evidence.

As stressed by the Honorable Supreme Court in the case of Philippine Savings Bank v. Spouses
Rodolfo C. Mañalac, Jr., G.R. No. 145441, April 26, 2005, to wit:

“In Active Wood Products Co., Inc. v. Court of Appeals, x x x The Court held that
while a petition for a writ of possession is an ex-parte proceeding, being made on a
 presumed right of ownership, when such presumed right of ownership is contested
and is made the basis of another action, then the proceedings for writ of possession
would also become groundless. The entire case must be litigated and if need be
must be consolidated with a related case so as to thresh out thoroughly all related
issues.

In the same case, the Court likewise rejected the contention that under the Rules of
Court only actions can be consolidated. The Court held that the technical difference
between an action and a proceeding, which involve the same parties and subject
matter, becomes insignificant and consolidation becomes a logical conclusion in
order to avoid confusion and unnecessary expenses with the multiplicity of suits.”

WHEREFORE, in view of the foregoing, finding no cogent reason to reverse and set aside the
assailed Order dated August 24, 2006, the Urgent Motion for Reconsideration is hereby DENIED
and the two (2) cases being consolidated, this Court deems it proper to treat Civil Case No.
68139 for Annulment of Foreclosure Sale, etc. as an opposition to this case (LR Case No. R-
6695-PSG). Thus, petitioner should first present evidence.

Accordingly, the March 30, 2007 setting in Civil Case No. 68139 is cancelled and reset to April
13, 2007 at 1:30 o’clock (sic) in the afternoon for the presentation of x x x PNB’s evidence.

SO ORDERED.[9]

PNB then filed a petition for certiorari with the CA. On March 12, 2008, the CA rendered the assailed
Decision dismissing the petition. Citing Philippine Savings Bank v. Mañalac, Jr.,[10] the CA rejected
PNB’s argument that a petition for issuance of a writ of possession cannot be consolidated with an
ordinary civil action. The CA further held that the RTC merely complied with the express mandate
of Section 1, Rule 31 of the 1997 Rules of Civil Procedure in granting the motion for consolidation.
Thus, it cannot be charged with grave abuse of discretion.

PNB moved for reconsideration of the decision, but the CA denied it on June 6, 2008.

PNB is now before us faulting the CA for dismissing its petition.

On March 27, 2009, PNB moved for the issuance of a temporary restraining order (TRO) and/or writ
of preliminary injunction to enjoin the proceedings in LRC Case No. R-6695-PSG and in Civil Case No.
68139. PNB claimed that its petition for issuance of a writ of possession, which is supposed to be
summary in nature, is in grave and imminent danger of being wrongfully subjected to litigation. It
alleged that its witness is set to be cross-examined on April 23, 2009 at 1:30 p.m. despite PNB’s
continuing objection as to the flow of trial. It argued that, in the event that the RTC further proceeds
with the hearing of the consolidated cases, the present petition will become moot and
academic. Thus, unless the RTC is restrained or enjoined from further hearing the two improperly
consolidated cases, PNB’s right to due process, particularly to an expeditious and summary hearing
of its ex-parte petition, will be utterly violated. PNB added that it would also suffer grave and
irreparable injury as its right to take immediate possession of the mortgaged property, with the title
thereto now consolidated in its name, would be rendered nugatory. In its April 20, 2009 Resolution,
this Court granted PNB’s prayer and issued a TRO enjoining the proceedings a quo.

In the main, PNB contends that the consolidation of its petition for issuance of a writ of possession
with GOTESCO’s case for annulment of foreclosure proceedings has seriously prejudiced its right to
a writ of possession. It points that after the consolidation of title in its name, when GOTESCO failed
to redeem the property, entitlement to a writ of possession becomes a matter of right. Moreover, a
petition for issuance of a writ of possession is a non-litigious proceeding; hence, it must not be
consolidated with a civil action for the annulment of foreclosure proceedings, specific performance,
and damages, which is litigious in nature. It faults the CA for affirming the RTC’s action.

GOTESCO, on the other hand, submits that the RTC and the CA did not err, much less abuse their
discretion, in granting the motion for consolidation. It cites judicial economy and convenience of
both parties as justification for granting the motion for consolidation.
 The petition is meritorious.

The legal basis of an order of consolidation of two (2) cases is Section 1, Rule 31 of the Rules of Civil
Procedure, which states:

SECTION 1. Consolidation. — When actions involving a common question of law or fact are
pending before the court, it may order a joint hearing or trial of any or all the matters in issue
in the actions; it may order all the actions consolidated; and it may make such orders
concerning proceedings therein as may tend to avoid unnecessary costs or delay.

In Teston v. Development Bank of the Philippines,[11] we laid down the requisites for the
consolidation of cases, viz.:

A court may order several actions pending before it to be tried together where they arise from
the same act, event or transaction, involve the same or like issues, and depend largely or
substantially on the same evidence, provided that the court has jurisdiction over the cases to
be consolidated and that a joint trial will not give one party an undue advantage or prejudice
the substantial rights of any of the parties.[12]

The rule allowing consolidation is designed to avoid multiplicity of suits, to guard against oppression
or abuse, to prevent delays, to clear congested dockets, and to simplify the work of the trial court; in
short, the attainment of justice with the least expense and vexation to the parties- litigants.[13]

Thus, in Philippine Savings Bank v. Mañalac, Jr.,[14] we disregarded the technical difference
between an action and a proceeding, and upheld the consolidation of a petition for the issuance of a
writ of possession with an ordinary civil action in order to achieve a more expeditious resolution of
the cases, thus:

In the instant case, the consolidation of Civil Case No. 53967 with LRC Case No. R-3951 is more
in consonance with the rationale behind the consolidation of cases which is to promote a more
expeditious and less expensive resolution of the controversy than if they were heard
independently by separate branches of the trial court. Hence, the technical difference between
Civil Case No. 53967 and LRC Case No. R-3951 must be disregarded in order to promote the
ends of justice.[15]

But in the instant case, the consolidation of PNB’s petition for a writ of possession with GOTESCO’s
complaint for annulment of foreclosure proceeding serves none of the purposes cited above. On the
contrary, it defeated the very rationale of consolidation.

The record shows that PNB’s petition was filed on May 26, 2006, and remains pending after three (3)
years, despite the summary nature of the petition. Obviously, the consolidation only delayed the
issuance of the desired writ of possession. Further, it prejudiced PNB’s right to take immediate
possession of the property and gave GOTESCO undue advantage, for GOTESCO continues to possess
the property during the pendency of the consolidated cases, despite the fact that title to the
property is no longer in its name.

It should be stressed that GOTESCO was well aware of the expiration of the period to redeem the
property. Yet, it did not exercise its right of redemption. There was not even an attempt to redeem
the property. Instead, it filed a case for annulment of foreclosure, specific performance, and
damages and prayed for a writ of injunction to prevent PNB from consolidating its title. GOTESCO’s
maneuvering, however, failed, as the CA and this Court refused to issue the desired writ of
injunction.

Cognizant that the next logical step would be for PNB to seek the delivery of possession of the
property, GOTESCO now tries to delay the issuance of writ of possession. It is clear that the motion
for consolidation was filed merely to frustrate PNB’s right to immediate possession of the
property. It is a transparent ploy to delay, if not to prevent, PNB from taking possession of the
property it acquired at a public auction ten (10) years ago. This we cannot tolerate.
 Jurisprudence teems with pronouncements that, upon the expiration of the redemption period, the
right of the purchaser to the possession of the foreclosed property becomes absolute. Thus, the
mere filing of an ex parte motion for the issuance of a writ of possession would suffice, and there is
no bond required since possession is a necessary consequence of the right of the confirmed owner.
It is a settled principle that a pending action for annulment of mortgage or foreclosure sale does not
stay the issuance of the writ of possession.[16] Indisputably, the consolidation of PNB’s petition with
GOTESCO’s complaint runs counter to this well established doctrine.

In De Vera v. Agloro[17] this Court upheld the denial by the RTC of a motion for consolidation of a
petition for issuance of a writ of possession with a civil action, as it would prejudice the right of one
of the parties, viz.:

It bears stressing that consolidation is aimed to obtain justice with the least expense and
vexation to the litigants. The object of consolidation is to avoid multiplicity of suits, guard
against oppression or abuse, prevent delays and save the litigants unnecessary acts and
expense. Consolidation should be denied when prejudice would result to any of the parties or
would cause complications, delay, prejudice, cut off, or restrict the rights of a party.

In the present case, the trial court acted in the exercise of its sound judicial discretion in
denying the motion of the petitioners for the consolidation of LRC Case No. P-97-2000 with Civil
Case No. 109-M-2000.

First. The proceedings in LRC Case No. P-97-2000 is not, strictly speaking, a judicial process
and is a non-litigious proceeding; it is summary in nature. In contrast, the action in Civil Case
No. 109-M-2000 is an ordinary civil action and adversarial in character. The rights of the
respondent in LRC Case No. P-97-2000 would be prejudiced if the said case were to be
consolidated with Civil Case No. 109-M-2000, especially since it had already adduced its
evidence.[18]

Likewise, in Teston v. Development Bank of the Philippines,[19] this Court explicitly declared that:

Consolidation should be denied when prejudice would result to any of the parties or would cause
complications, delay, cut off, or restrict the rights of a party.[20]

It is true that the trial court is vested with discretion whether or not to consolidate two or more
cases. But in the present case, we are of the considered view that the exercise of such discretion by
the RTC was less than judicious. We are constrained to agree with PNB that, given the
circumstances herein cited, the RTC’s discretion has been gravely abused. Accordingly, the CA
committed reversible error in upholding the RTC.

WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the Court of
Appeals in CA-G.R. SP. No. 99194 and the Orders dated August 24, 2006 and March 2, 2007 of
the Regional Trial Court of Pasig City, Branch 155, are SET ASIDE. Let the Ex-Parte Petition for
Issuance of a Writ of Possession (LRC Case No. R-6695-PSG) and the Complaint for Annulment of
Foreclosure, Specific Performance and Damages (Civil Case No. 68139) proceed and be heard
independently in accordance with the Rules, and be resolved with dispatch.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

ANTONIO T. CARPIO RENATO C. CORONA

Associate Justice Associate Justice

DIOSDADO M. PERALTA
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

* Additional member in lieu of Associate Justice Conchita Carpio Morales per Special Order No.
646 dated May 15, 2009.
** Additional member in lieu of Associate Justice Minita V. Chico-Nazario per Special Order No. 631
dated April 29, 2009.
[1] Penned by Associate Justice Amelita G. Tolentino, with Associate Justices Lucenito N. Tagle
and Agustin S. Dizon, concurring; rollo, pp. 49-56.
[2] Rollo, p. 113.
[3] Id. at 114-116.
[4] Id. at 19-20.
[5] Id. at 83-85.
[6] Id. at 80-82.
[7] Id. at 87-89.
[8] Id. at 113.
[9] Id. at 114-115.
[10] G.R. No. 145441, April 26, 2005, 457 SCRA 203.

[11] G.R. No. 144374, November 11, 2005, 474 SCRA 597.
[12] Teston v. Development Bank of the Philippines, id. at 605.
[13] Id.
[14] G.R. No. 145441, April 26, 2005, 457 SCRA 203.
[15] Philippine Savings Bank v. Mañalac, Jr., id. at 214.
[16] See Fernandez v. Espinoza, G.R. No. 156421, April 14, 2008, 551 SCRA 136, 150.
[17] G.R. No. 155673, January 14, 2005, 448 SCRA 203.
 [18] De Vera v. Agloro, id. at 218. (Citations omitted.)
[19] Teston v. Development Bank of the Philippines, supra note 11.
[20] Id. at 606.

Pasted from <http://sc.judiciary.gov.ph/jurisprudence/2009/june2009/183211.htm>

Rural Bank vs. MB (2007)

Sunday, June 06, 2010
1:05 AM

PHILIPPINE JURISPRUDENCE – FULL TEXT

The Lawphil Project - Arellano Law Foundation
G.R. No. 150886 February 16, 2007
RURAL BANK OF SAN MIGUEL, INC. VS. MONETARY BOARD ET AL.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 150886 February 16, 2007
RURAL BANK OF SAN MIGUEL, INC. and HILARIO P. SORIANO, in his capacity as majority
stockholder in the Rural Bankof San Miguel, Inc., Petitioners,
vs.
MONETARY BOARD, BANGKO SENTRAL NG PILIPINAS and PHILIPPINE DEPOSIT INSURANCE
CORPORATION, Respondents.
DECISION
CORONA, J.:
This is a petition for review on certiorari1 of a decision2 and resolution3 of the Court of Appeals (CA)
dated March 28, 2000 and November 13, 2001, respectively, in CA-G.R. SP No. 57112.
Petitioner Rural Bank of San Miguel, Inc. (RBSM) was a domestic corporation engaged in banking. It
started operations in 1962 and by year 2000 had 15 branches in Bulacan.4Petitioner Hilario P. Soriano
claims to be the majority stockholder of its outstanding shares of stock.5
On January 21, 2000, respondent Monetary Board (MB), the governing board of respondent Bangko
Sentral ng Pilipinas (BSP), issued Resolution No. 105 prohibiting RBSM from doing business in the
Philippines, placing it under receivership and designating respondent Philippine Deposit Insurance
Corporation (PDIC) as receiver:
On the basis of the comptrollership/monitoring report as of October 31, 1999 as reported by Mr. Wilfredo
B. Domo-ong, Director, Department of Rural Banks, in his memorandum dated January 20, 2000, which
report showed that [RBSM] (a) is unable to pay its liabilities as they become due in the ordinary course of
business; (b) cannot continue in business without involving probable losses to its depositors and
creditors; that the management of the bank had been accordingly informed of the need to infuse
additional capital to place the bank in a solvent financial condition and was given adequate time within
which to make the required infusion and that no infusion of adequate fresh capital was made, the Board
decided as follows:
1. To prohibit the bank from doing business in the Philippines and to place its assets and affairs under
receivership in accordance with Section 30 of [RA 7653];
2. To designate the [PDIC] as receiver of the bank;
xxx xxx xxx6
On January 31, 2000, petitioners filed a petition for certiorari and prohibition in the Regional Trial Court
(RTC) of Malolos, Branch 22 to nullify and set aside Resolution No. 105.7However, on February 7, 2000,
petitioners filed a notice of withdrawal in the RTC and, on the same day, filed a special civil action for
certiorari and prohibition in the CA. On February 8, 2000, the RTC dismissed the case pursuant to Section
1, Rule 17 of the Rules of Court.8
The CA’s findings of facts were as follows.
To assist its impaired liquidity and operations, the RBSM was granted emergency loans on different
occasions in the aggregate amount of P375 [million].
As early as November 18, 1998, Land Bank of the Philippines (LBP) advised RBSM that it will terminate
the clearing of RBSM’s checks in view of the latter’s frequent clearing losses and continuing failure to
replenish its Special Clearing Demand Deposit with LBP. The BSP interceded with LBP not to terminate the
clearing arrangement of RBSM to protect the interests of RBSM’s depositors and creditors.
After a year, or on November 29, 1999, the LBP informed the BSP of the termination of the clearing
facility of RBSM to take effect on December 29, 1999, in view of the clearing problems of RBSM.
On December 28, 1999, the MB approved the release of P26.189 [million] which is the last tranche of
the P375 million emergency loan for the sole purpose of servicing and meeting the withdrawals of its
depositors. Of the P26.180 million, xxx P12.6 million xxx was not used to service withdrawals [and]
remains unaccounted for as admitted by [RBSM’s Treasury Officer and Officer-in-Charge of Treasury].
Instead of servicing withdrawals of depositors, RBSM paid Forcecollect Professional Solution, Inc. and
Surecollect Professional, Inc., entities which are owned and controlled by Hilario P. Soriano and other
RBSM officers.
On January 4, 2000, RBSM declared a bank holiday. RBSM and all of its 15 branches were closed from
doing business.
Alarmed and disturbed by the unilateral declaration of bank holiday, [BSP] wanted to examine the books
and records of RBSM but encountered problems.
Meanwhile, on November 10, 1999, RBSM’s designated comptroller, Ms. Zenaida Cabais of the BSP,
submitted to the Department of Rural Banks, BSP, a Comptrollership Report on her findings on the
financial condition and operations of the bank as of October 31, 1999. Another set of findings was
submitted by said comptroller [and] this second report reflected the financial status of RBSM as of
December 31, 1999.
The findings of the comptroller on the financial state of RBSM as of October 31, 1999 in comparison with
the financial condition as of December 31, 1999 is summed up pertinently as follows:
FINANCIAL CONDITION OF RBSM
As of Oct. 31, 1999 As of Dec. 31, 1999
Total obligations/ P1,076,863,000.00 1,009,898,000.00
Liabilities
Realizable Assets 898,588,000.00 796,930,000.00
Deficit 178,275,000.00 212,968,000.00
Cash on Hand 101,441.547.00 8,266,450.00
Required Capital Infusion P252,120,000.00
Capital Infusion P5,000,000.00
(On Dec. 20, 1999)
Actual Breakdown of Total Obligations:
1) Deposits of 20,000 depositors – P578,201,000.00
2) Borrowings from BSP – P320,907,000.00
3) Unremitted withholding and gross receipt taxes – P57,403,000.00.9
Based on these comptrollership reports, the director of the Department of Rural Banks Supervision and
Examination Sector, Wilfredo B. Domo-ong, made a report to the MB dated January 20, 2000.10 The MB,
after evaluating and deliberating on the findings and recommendation of the Department of Rural Banks
Supervision and Examination Sector, issued Resolution No. 105 on January 21, 2000.11 Thereafter, PDIC
implemented the closure order and took over the management of RBSM’s assets and affairs.
In their petition12 before the CA, petitioners claimed that respondents MB and BSP committed grave
abuse of discretion in issuing Resolution No. 105. The petition was dismissed by the CA on March 28,
2000. It held, among others, that the decision of the MB to issue Resolution No. 105 was based on the
findings and recommendations of the Department of Rural Banks Supervision and Examination Sector,
the comptroller reports as of October 31, 1999 and December 31, 1999 and the declaration of a bank
holiday. Such could be considered as substantial evidence.13
Pertinently, on June 9, 2000, on the basis of reports prepared by PDIC stating that RBSM could not resume
business with sufficient assurance of protecting the interest of its depositors, creditors and the general
public, the MB passed Resolution No. 966 directing PDIC to proceed with the liquidation of RBSM under
Section 30 of RA 7653.14
Hence this petition.
It is well-settled that the closure of a bank may be considered as an exercise of police power.15 The
action of the MB on this matter is final and executory.16 Such exercise may nonetheless be subject to
judicial inquiry and can be set aside if found to be in excess of jurisdiction or with such grave abuse of
discretion as to amount to lack or excess of jurisdiction.17
Petitioners argue that Resolution No. 105 was bereft of any basis considering that no complete
examination had been conducted before it was issued. This case essentially boils down to one core issue:
whether Section 30 of RA 7653 (also known as the New Central Bank Act) and applicable jurisprudence
require a current and complete examination of the bank before it can be closed and placed under
receivership.
Section 30 of RA 7653 provides:
SECTION 30. Proceedings in Receivership and Liquidation. — Whenever, upon report of the head of
the supervising or examining department, the Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That
this shall not include inability to pay caused by extraordinary demands induced by financial panic in the
banking community;
(b) has insufficient realizable assets, as determined by the [BSP] to meet its liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has become final, involving acts
or transactions which amount to fraud or a dissipation of the assets of the institution; in which cases, the
Monetary Board may summarily and without need for prior hearing forbid the institution from
doing business in the Philippines and designate the Philippine Deposit Insurance Corporation
as receiver of the banking institution.
xxx xxx xxx
The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be final
and executory, and may not be restrained or set aside by the court except on petition for certiorari on the
ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to
amount to lack or excess of jurisdiction. The petition for certiorari may only be filed by the stockholders of
record representing the majority of the capital stock within ten (10) days from receipt by the board of
directors of the institution of the order directing receivership, liquidation or conservatorship. (Emphasis
supplied)
xxx xxx xxx
Petitioners contend that there must be a current, thorough and complete examination before a bank can
be closed under Section 30 of RA 7653. They argue that this section should be harmonized with Sections
25 and 28 of the same law:
SECTION 25. Supervision and Examination. — The [BSP] shall have supervision over, and conduct
periodic or special examinations of, banking institutions and quasi-banks, including their subsidiaries
and affiliates engaged in allied activities.
xxx xxx xxx
SECTION 28. Examination and Fees. — The supervising and examining department head, personally
or by deputy, shall examine the books of every banking institution once in every twelve (12) months, and
at such other time as the Monetary Board by an affirmative vote of five (5) members may deem
expedient and to make a report on the same to the Monetary Board: Provided that there shall be
an interval of at least twelve (12) months between annual examinations. (Emphasis supplied)
xxx xxx xxx
According to the petitioners, it is clear from these provisions that the "report of the supervising or
examining department" required under Section 30 refers to the report on the examination of the bank
which, under Section 28, must be made to the MB after the supervising or examining head conducts an
examination mandated by Sections 25 and 28.18They cite Banco Filipino Savings & Mortgage Bank v.
Monetary Board, Central Bank of the Philippines19 wherein the Court ruled:
There is no question that under Section 29 of the Central Bank Act, the following are the mandatory
requirements to be complied with before a bank found to be insolvent is ordered closed and forbidden
to do business in the Philippines: Firstly, an examination shall be conducted by the head of the
appropriate supervising or examining department or his examiners or agents into the
condition of the bank; secondly, it shall be disclosed in the examination that the condition of the bank
is one of insolvency, or that its continuance in business would involve probable loss to its depositors or
creditors; thirdly, the department head concerned shall inform the Monetary Board in writing, of the facts;
and lastly, the Monetary Board shall find the statements of the department head to be true.20 (Emphasis
supplied)
Petitioners assert that an examination is necessary and not a mere report, otherwise the decision to close
a bank would be arbitrary.
Respondents counter that RA 7653 merely requires a report of the head of the supervising or examining
department. They maintain that the term "report" under Section 30 and the word "examination" used in
Section 29 of the old law are not synonymous. "Examination" connotes in-depth analysis, evaluation,
inquiry or investigation while "report" connotes a simple disclosure or narration of facts for informative
purposes.21
Petitioners’ contention has no merit. Banco Filipino and other cases petitioners cited22 were decided
using Section 29 of the old law (RA 265):
SECTION 29. Proceedings upon insolvency. — Whenever, upon examination by the head of the
appropriate supervising or examining department or his examiners or agents into the
condition of any bank or non-bank financial intermediary performing quasi-banking functions, it shall be
disclosed that the condition of the same is one of insolvency, or that its continuance in business would
involve probable loss to its depositors or creditors, it shall be the duty of the department head concerned
forthwith, in writing, to inform the Monetary Board of the facts. The Board may, upon finding the
statements of the department head to be true, forbid the institution to do business in the Philippines and
designate an official of the Central Bank or a person of recognized competence in banking or finance, as
receiver to immediately take charge of its assets and liabilities, as expeditiously as possible collect and
gather all the assets and administer the same for the benefits of its creditors, and represent the bank
personally or through counsel as he may retain in all actions or proceedings for or against the institution,
exercising all the powers necessary for these purposes including, but not limited to, bringing and
foreclosing mortgages in the name of the bank or non-bank financial intermediary performing quasi-
banking functions. (Emphasis supplied)
xxx xxx xxx
Thus in Banco Filipino, we ruled that an "examination [conducted] by the head of the appropriate
supervising or examining department or his examiners or agents into the condition of the bank"23 is
necessary before the MB can order its closure.
However, RA 265, including Section 29 thereof, was expressly repealed by RA 7653 which took effect in
1993. Resolution No. 105 was issued on January 21, 2000. Hence, petitioners’ reliance on Banco
Filipino which was decided under RA 265 was misplaced.
In RA 7653, only a "report of the head of the supervising or examining department" is necessary. It is an
established rule in statutory construction that where the words of a statute are clear, plain and free from
ambiguity, it must be given its literal meaning and applied without attempted interpretation:24
This plain meaning rule or verba legis derived from the maxim index animi sermo est (speech is the index
of intention) rests on the valid presumption that the words employed by the legislature in a statute
correctly express its intention or will and preclude the court from construing it differently. The legislature
is presumed to know the meaning of the words, to have used words advisedly, and to have expressed its
intent by use of such words as are found in the statute. Verba legis non est recedendum, or from the
words of a statute there should be no departure.25
The word "report" has a definite and unambiguous meaning which is clearly different from "examination."
A report, as a noun, may be defined as "something that gives information" or "a usually detailed account
or statement."26 On the other hand, an examination is "a search, investigation or scrutiny."27
This Court cannot look for or impose another meaning on the term "report" or to construe it as
synonymous with "examination." From the words used in Section 30, it is clear that RA 7653 no longer
requires that an examination be made before the MB can issue a closure order. We cannot make it a
requirement in the absence of legal basis.
Indeed, the court may consider the spirit and reason of the statute, where a literal meaning would lead to
absurdity, contradiction, injustice, or would defeat the clear purpose of the lawmakers.28 However, these
problems are not present here. Using the literal meaning of "report" does not lead to absurdity,
contradiction or injustice. Neither does it defeat the intent of the legislators. The purpose of the law is to
make the closure of a bank summary and expeditious in order to protect public interest. This is also why
prior notice and hearing are no longer required before a bank can be closed.29
Laying down the requisites for the closure of a bank under the law is the prerogative of the legislature
and what its wisdom dictates. The lawmakers could have easily retained the word "examination" (and in
the process also preserved the jurisprudence attached to it) but they did not and instead opted to use the
word "report." The insistence on an examination is not sanctioned by RA 7653 and we would be guilty of
judicial legislation were we to make it a requirement when such is not supported by the language of the
law.
What is being raised here as grave abuse of discretion on the part of the respondents was the lack of an
examination and not the supposed arbitrariness with which the conclusions of the director of the
Department of Rural Banks Supervision and Examination Sector had been reached in the report which
became the basis of Resolution No. 105.1awphi1.net
The absence of an examination before the closure of RBSM did not mean that there was no basis for the
closure order. Needless to say, the decision of the MB and BSP, like any other administrative body, must
have something to support itself and its findings of fact must be supported by substantial evidence. But it
is clear under RA 7653 that the basis need not arise from an examination as required in the old law.
We thus rule that the MB had sufficient basis to arrive at a sound conclusion that there were grounds that
would justify RBSM’s closure. It relied on the report of Mr. Domo-ong, the head of the supervising or
examining department, with the findings that: (1) RBSM was unable to pay its liabilities as they became
due in the ordinary course of business and (2) that it could not continue in business without incurring
probable losses to its depositors and creditors.30 The report was a 50-page memorandum detailing the
facts supporting those grounds, an extensive chronology of events revealing the multitude of problems
which faced RBSM and the recommendations based on those findings.
In short, MB and BSP complied with all the requirements of RA 7653. By relying on a report before placing
a bank under receivership, the MB and BSP did not only follow the letter of the law, they were also faithful
to its spirit, which was to act expeditiously. Accordingly, the issuance of Resolution No. 105 was untainted
with arbitrariness.
Having dispensed with the issue decisive of this case, it becomes unnecessary to resolve the other minor
issues raised.31
WHEREFORE, the petition is hereby DENIED. The March 28, 2000 decision and November 13, 2001
resolution of the Court of Appeals in CA-G.R. SP No. 57112 areAFFIRMED.
Costs against petitioners.
SO ORDERED.
RENATO C. CORONA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson
ANGELINA SANDOVAL- ADOLFO S. AZCUNA
GUTIERREZ Asscociate Justice
Associate Justice
CANCIO C. GARCIA
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above decision
had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s
Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1 Under Rule 45 of the Rules of Court.
2 Penned by Associate Justice Eugenio S. Labitoria (now retired) and concurred in by Associate Justices
Bernardo P. Abesamis (now retired) and Elvi John S. Asuncion of the Thirteenth Division of the Court of
Appeals; rollo, pp. 32-50.
3 Id., pp. 52-57.
4 Id., pp. 6 and 33.
5 Id., p. 6.
6 Id., p. 93.
7 Docketed as Civil Case No. 66-M-2000; id. p. 187.
8 Id., p. 38. Section 1, Rule 17 states:
Dismissal upon notice by plaintiff. — A complaint may be dismissed by the plaintiff by filing a notice of
dismissal at any time before service of the answer or of a motion for summary judgment. Upon such
notice being filed, the court shall issue an order confirming the dismissal. Unless otherwise stated in the
notice, the dismissal is without prejudice, except that a notice operates as an adjudication upon the
merits when filed by a plaintiff who has once dismissed in a competent court an action based on or
including the same claim.
9 Id., pp. 33-36.
10 Id., pp. 375-426.
11 Id., pp. 33-37.
12 Under Rule 65 of the Rules of Court.
13 Rollo, p. 43.
14 Id., p. 172.
15 Rural Bank of Buhi, Inc. v. Court of Appeals, G.R. No. L-61689, 20 June 1988, 162 SCRA 288, 303.
16 Section 30, RA 7653.
17 Id.
18 Rollo, pp. 13-14.
19 G.R. No. 70054, 11 December 1991, 204 SCRA 767.
20 Id., p. 794.
21 Rollo, pp. 368-369.
 22 Supra note 15, at 302; and Central Bank of the Philippines v. Court of Appeals, G.R. No. 76118, 30
March 1993, 220 SCRA 536, 548.
23 Supra note 19 at 794.
24 National Food Authority (NFA) v. Masada Security Agency, Inc., G.R. No. 163448, 8 March 2005, 453
SCRA 70, 79; Philippine National Bank v. Garcia, Jr., G.R. No. 141246, 9 September 2002, 388 SCRA 485,
487, 491.
25 National Food Authority (NFA) v. Masada Security Agency, Inc., id., citations omitted.
26 Webster’s Third New International Dictionary (1993).
27 Id.
28 Ursua v. Court of Appeals, G.R. No. 112170, 10 April 1996, 256 SCRA 147, 152, citations omitted.
29 Central Bank of the Philippines v. Court of Appeals, supra note 22, at 544; Banco Filipino Savings &
Mortgage Bank v. Monetary Board, Central Bank of the Philippines,supra note 19 at 798; Rural Bank of
Buhi, Inc. v. Court of Appeals, supra note 22,z at 303.
In Rural Bank of Buhi, we stated:
x x x [D]ue process does not necessarily require a prior hearing; a hearing or an opportunity to be heard
may be subsequent to the closure. One can just imagine the dire consequences of a prior hearing: bank
runs would be the order of the day, resulting in panic and hysteria. In the process, fortunes may be wiped
out and disillusionment will run the gamut of the entire banking community.
30 Incidentally, the declaration of a bank holiday (done by RBSM in January 4, 2000) is also a ground for
the closure of a bank by the MB under Section 53 of RA 8791 or the General Banking Law of 2000.
However, RA 8791 became effective only on June 13, 2000 and consequently is not applicable to this
case.
31 1) Whether petitioner Hilario P. Soriano has legal personality to file this petition;
2) Whether petitioners are guilty of forum shopping;
3) Whether petitioners failed to formally offer their evidence/documents in the CA; rollo, pp. 326, 330,
364.

Pasted from <http://www.lawphil.net/judjuris/juri2007/feb2007/gr_150886_2007.html>

Koruga vs. Arcenas (2009)

Sunday, June 06, 2010
1:05 AM

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 168332 June 19, 2009
ANA MARIA A. KORUGA, Petitioner,
vs.
TEODORO O. ARCENAS, JR., ALBERT C. AGUIRRE, CESAR S. PAGUIO, FRANCISCO A. RIVERA, and
THE HONORABLE COURT OF APPEALS, THIRD DIVISION, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 169053 June 19, 2009
TEODORO O. ARCENAS, JR., ALBERT C. AGUIRRE, CESAR S. PAGUIO, and FRANCISCO A.
RIVERA,Petitioners,
vs.
HON. SIXTO MARELLA, JR., Presiding Judge, Branch 138, Regional Trial Court of Makati City,
and ANA MARIA A. KORUGA, Respondents.
DECISION
NACHURA, J.:
Before this Court are two petitions that originated from a Complaint filed by Ana Maria A. Koruga (Koruga)
before the Regional Trial Court (RTC) of Makati City against the Board of Directors of Banco Filipino and
the Members of the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) for violation of the
Corporation Code, for inspection of records of a corporation by a stockholder, for receivership, and for the
creation of a management committee.
G.R. No. 168332
The first is a Petition for Certiorari under Rule 65 of the Rules of Court, docketed as G.R. No. 168332,
praying for the annulment of the Court of Appeals (CA) Resolution1 in CA-G.R. SP No. 88422 dated April
18, 2005 granting the prayer for a Writ of Preliminary Injunction of therein petitioners Teodoro O.
Arcenas, Jr., Albert C. Aguirre, Cesar S. Paguio, and Francisco A. Rivera (Arcenas, et al.).
Koruga is a minority stockholder of Banco Filipino Savings and Mortgage Bank. On August 20, 2003, she
filed a complaint before the Makati RTC which was raffled to Branch 138, presided over by Judge Sixto
Marella, Jr.2Koruga’s complaint alleged:
10. 1 Violation of Sections 31 to 34 of the Corporation Code ("Code") which prohibit self-dealing and
conflicts of interest of directors and officers, thus:
(a) For engaging in unsafe, unsound, and fraudulent banking practices that have jeopardized the welfare
of the Bank, its shareholders, who includes among others, the Petitioner, and depositors. (sic)
(b) For granting and approving loans and/or "loaned" sums of money to six (6) "dummy" borrower
corporations ("Borrower Corporations") which, at the time of loan approval, had no financial capacity to
justify the loans. (sic)
(c) For approving and accepting a dacion en pago, or payment of loans with property instead of cash,
resulting to a diminished future cumulative interest income by the Bank and a decline in its liquidity
position. (sic)
(d) For knowingly giving "favorable treatment" to the Borrower Corporations in which some or most of
them have interests, i.e. interlocking directors/officers thereof, interlocking ownerships. (sic)
(e) For employing their respective offices and functions as the Bank’s officers and directors, or omitting to
perform their functions and duties, with negligence, unfaithfulness or abuse of confidence of fiduciary
duty, misappropriated or misapplied or ratified by inaction the misappropriation or misappropriations, of
(sic) almost P1.6 Billion Pesos (sic) constituting the Bank’s funds placed under their trust and
administration, by unlawfully releasing loans to the Borrower Corporations or refusing or failing to impugn
these, knowing before the loans were released or thereafter that the Bank’s cash resources would be
dissipated thereby, to the prejudice of the Petitioner, other Banco Filipino depositors, and the public.
10.2 Right of a stockholder to inspect the records of a corporation (including financial statements) under
Sections 74 and 75 of the Code, as implemented by the Interim Rules;
(a) Unlawful refusal to allow the Petitioner from inspecting or otherwise accessing the corporate records
of the bank despite repeated demand in writing, where she is a stockholder. (sic)
10.3 Receivership and Creation of a Management Committee pursuant to:
(a) Rule 59 of the 1997 Rules of Civil Procedure ("Rules");
(b) Section 5.2 of R.A. No. 8799;
(c) Rule 1, Section 1(a)(1) of the Interim Rules;
(d) Rule 1, Section 1(a)(2) of the Interim Rules;
(e) Rule 7 of the Interim Rules;
(f) Rule 9 of the Interim Rules; and
(g) The General Banking Law of 2000 and the New Central Bank Act.3
On September 12, 2003, Arcenas, et al. filed their Answer raising, among others, the trial court’s lack of
jurisdiction to take cognizance of the case. They also filed a Manifestation and Motion seeking the
dismissal of the case on the following grounds: (a) lack of jurisdiction over the subject matter; (b) lack of
jurisdiction over the persons of the defendants; (c) forum-shopping; and (d) for being a
nuisance/harassment suit. They then moved that the trial court rule on their affirmative defenses, dismiss
the intra-corporate case, and set the case for preliminary hearing.
In an Order dated October 18, 2004, the trial court denied the Manifestation and Motion, ruling thus:
The result of the procedure sought by defendants Arcenas, et al. (sic) is for the Court to conduct a
preliminary hearing on the affirmative defenses raised by them in their Answer. This [is] proscribed by the
Interim Rules of Procedure on Intracorporate (sic) Controversies because when a preliminary hearing is
conducted it is "as if a Motion to Dismiss was filed" (Rule 16, Section 6, 1997 Rules of Civil Procedure). A
Motion to Dismiss is a prohibited pleading under the Interim Rules, for which reason, no favorable
consideration can be given to the Manifestation and Motion of defendants, Arcenas, et al.
The Court finds no merit to (sic) the claim that the instant case is a nuisance or harassment suit.
WHEREFORE, the Court defers resolution of the affirmative defenses raised by the defendants Arcenas, et
al.4
Arcenas, et al. moved for reconsideration5 but, on January 18, 2005, the RTC denied the motion.6 This
prompted Arcenas, et al. to file before the CA a Petition for Certiorari and Prohibition under Rule 65 of the
Rules of Court with a prayer for the issuance of a writ of preliminary injunction and a temporary retraining
order (TRO).7
On February 9, 2005, the CA issued a 60-day TRO enjoining Judge Marella from conducting further
proceedings in the case.8
On February 22, 2005, the RTC issued a Notice of Pre-trial9 setting the case for pre-trial on June 2 and 9,
2005. Arcenas, et al. filed a Manifestation and Motion10 before the CA, reiterating their application for a
writ of preliminary injunction. Thus, on April 18, 2005, the CA issued the assailed Resolution, which reads
in part:
(C)onsidering that the Temporary Restraining Order issued by this Court on February 9, 2005 expired on
April 10, 2005, it is necessary that a writ of preliminary injunction be issued in order not to render
ineffectual whatever final resolution this Court may render in this case, after the petitioners shall have
posted a bond in the amount of FIVE HUNDRED THOUSAND (P500,000.00) PESOS.
SO ORDERED.11
Dissatisfied, Koruga filed this Petition for Certiorari under Rule 65 of the Rules of Court. Koruga alleged
that the CA effectively gave due course to Arcenas, et al.’s petition when it issued a writ of preliminary
injunction without factual or legal basis, either in the April 18, 2005 Resolution itself or in the records of
the case. She prayed that this Court restrain the CA from implementing the writ of preliminary injunction
and, after due proceedings, make the injunction against the assailed CA Resolution permanent.12
In their Comment, Arcenas, et al. raised several procedural and substantive issues. They alleged that the
Verification and Certification against Forum-Shopping attached to the Petition was not executed in the
manner prescribed by Philippine law since, as admitted by Koruga’s counsel himself, the same was only a
facsimile.
They also averred that Koruga had admitted in the Petition that she never asked for reconsideration of
the CA’s April 18, 2005 Resolution, contending that the Petition did not raise pure questions of law as to
constitute an exception to the requirement of filing a Motion for Reconsideration before a Petition for
Certiorari is filed.
They, likewise, alleged that the Petition may have already been rendered moot and academic by the July
20, 2005 CA Decision,13 which denied their Petition, and held that the RTC did not commit grave abuse of
discretion in issuing the assailed orders, and thus ordered the RTC to proceed with the trial of the case.
Meanwhile, on March 13, 2006, this Court issued a Resolution granting the prayer for a TRO and enjoining
the Presiding Judge of Makati RTC, Branch 138, from proceeding with the hearing of the case upon the
filing by Arcenas, et al. of a P50,000.00 bond. Koruga filed a motion to lift the TRO, which this Court
denied on July 5, 2006.
On the other hand, respondents Dr. Conrado P. Banzon and Gen. Ramon Montaño also filed their
Comment on Koruga’s Petition, raising substantially the same arguments as Arcenas, et al.
G.R. No. 169053
G.R. No. 169053 is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, with prayer for
the issuance of a TRO and a writ of preliminary injunction filed by Arcenas, et al.
In their Petition, Arcenas, et al. asked the Court to set aside the Decision14 dated July 20, 2005 of the CA
in CA-G.R. SP No. 88422, which denied their petition, having found no grave abuse of discretion on the
part of the Makati RTC. The CA said that the RTC Orders were interlocutory in nature and, thus, may be
assailed by certiorari or prohibition only when it is shown that the court acted without or in excess of
jurisdiction or with grave abuse of discretion. It added that the Supreme Court frowns upon resort to
remedial measures against interlocutory orders.
Arcenas, et al. anchored their prayer on the following grounds: that, in their Answer before the RTC, they
had raised the issue of failure of the court to acquire jurisdiction over them due to improper service of
summons; that the Koruga action is a nuisance or harassment suit; that there is another case involving
the same parties for the same cause pending before the Monetary Board of the BSP, and this constituted
forum-shopping; and that jurisdiction over the subject matter of the case is vested by law in the BSP.15
Arcenas, et al. assign the following errors:
I. THE COURT OF APPEALS, IN "FINDING NO GRAVE ABUSE OF DISCRETION COMMITTED BY PUBLIC
RESPONDENT REGIONAL TRIAL COURT OF MAKATI, BRANCH 138, IN ISSUING THE ASSAILED
ORDERS," FAILED TO CONSIDER AND MERELY GLOSSED OVER THE MORE TRANSCENDENT ISSUES
OF THE LACK OF JURISDICTION ON THE PART OF SAID PUBLIC RESPONDENT OVER THE SUBJECT
MATTER OF THE CASE BEFORE IT, LITIS PENDENTIA AND FORUM SHOPPING, AND THE CASE BELOW
BEING A NUISANCE OR HARASSMENT SUIT, EITHER ONE AND ALL OF WHICH GOES/GO TO RENDER
THE ISSUANCE BY PUBLIC RESPONDENT OF THE ASSAILED ORDERS A GRAVE ABUSE OF DISCRETION.
II. THE FINDING OF THE COURT OF APPEALS OF "NO GRAVE ABUSE OF DISCRETION COMMITTED BY
PUBLIC RESPONDENT REGIONAL TRIAL COURT OF MAKATI, BRANCH 138, IN ISSUING THE ASSAILED
ORDERS," IS NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THIS HONORABLE
COURT.16
Meanwhile, in a Manifestation and Motion filed on August 31, 2005, Koruga prayed for, among others, the
consolidation of her Petition with the Petition for Review on Certiorari under Rule 45 filed by Arcenas, et
al., docketed as G.R. No. 169053. The motion was granted by this Court in a Resolution dated September
26, 2005.
Our Ruling
Initially, we will discuss the procedural issue.
Arcenas, et al. argue that Koruga’s petition should be dismissed for its defective Verification and
Certification Against Forum-Shopping, since only a facsimile of the same was attached to the Petition.
They also claim that the Verification and Certification Against Forum-Shopping, allegedly executed in
Seattle, Washington, was not authenticated in the manner prescribed by Philippine law and not certified
by the Philippine Consulate in the United States.
This contention deserves scant consideration.
On the last page of the Petition in G.R. No. 168332, Koruga’s counsel executed an Undertaking, which
reads as follows:
In view of that fact that the Petitioner is currently in the United States, undersigned counsel is attaching a
facsimile copy of the Verification and Certification Against Forum-Shopping duly signed by the Petitioner
and notarized by Stephanie N. Goggin, a Notary Public for the Sate (sic) of Washington. Upon arrival of
the original copy of the Verification and Certification as certified by the Office of the Philippine Consul, the
undersigned counsel shall immediately provide duplicate copies thereof to the Honorable Court.17
Thus, in a Compliance18 filed with the Court on September 5, 2005, petitioner submitted the original copy
of the duly notarized and authenticated Verification and Certification Against Forum-Shopping she had
executed.19 This Court noted and considered the Compliance satisfactory in its Resolution dated
November 16, 2005. There is, therefore, no need to further belabor this issue.
We now discuss the substantive issues in this case.
First, we resolve the prayer to nullify the CA’s April 18, 2005 Resolution.
We hold that the Petition in G.R. No. 168332 has become moot and academic. The writ of preliminary
injunction being questioned had effectively been dissolved by the CA’s July 20, 2005 Decision. The
dispositive portion of the Decision reads in part:
The case is REMANDED to the court a quo for further proceedings and to resolve with deliberate dispatch
the intra-corporate controversies and determine whether there was actually a valid service of summons.
If, after hearing, such service is found to have been improper, then new summons should be served
forthwith.20
Accordingly, there is no necessity to restrain the implementation of the writ of preliminary injunction
issued by the CA on April 18, 2005, since it no longer exists.
However, this Court finds that the CA erred in upholding the jurisdiction of, and remanding the case to,
the RTC.
The resolution of these petitions rests mainly on the determination of one fundamental issue: Which body
has jurisdiction over the Koruga Complaint, the RTC or the BSP?
We hold that it is the BSP that has jurisdiction over the case.
A reexamination of the Complaint is in order.
Koruga’s Complaint charged defendants with violation of Sections 31 to 34 of the Corporation Code,
prohibiting self-dealing and conflict of interest of directors and officers; invoked her right to inspect the
corporation’s records under Sections 74 and 75 of the Corporation Code; and prayed for Receivership and
Creation of a Management Committee, pursuant to Rule 59 of the Rules of Civil Procedure, the Securities
Regulation Code, the Interim Rules of Procedure Governing Intra-Corporate Controversies, the General
Banking Law of 2000, and the New Central Bank Act. She accused the directors and officers of Banco
Filipino of engaging in unsafe, unsound, and fraudulent banking practices, more particularly, acts that
violate the prohibition on self-dealing.
It is clear that the acts complained of pertain to the conduct of Banco Filipino’s banking business. A bank,
as defined in the General Banking Law,21 refers to an entity engaged in the lending of funds obtained in
the form of deposits.22 The banking business is properly subject to reasonable regulation under the
police power of the state because of its nature and relation to the fiscal affairs of the people and the
revenues of the state. Banks are affected with public interest because they receive funds from the
general public in the form of deposits. It is the Government’s responsibility to see to it that the financial
interests of those who deal with banks and banking institutions, as depositors or otherwise, are protected.
In this country, that task is delegated to the BSP, which pursuant to its Charter, is authorized to
administer the monetary, banking, and credit system of the Philippines. It is further authorized to take the
necessary steps against any banking institution if its continued operation would cause prejudice to its
depositors, creditors and the general public as well.23
The law vests in the BSP the supervision over operations and activities of banks. The New Central Bank
Act provides:
Section 25. Supervision and Examination. - The Bangko Sentral shall have supervision over, and conduct
periodic or special examinations of, banking institutions and quasi-banks, including their subsidiaries and
affiliates engaged in allied activities.24
Specifically, the BSP’s supervisory and regulatory powers include:
4.1 The issuance of rules of conduct or the establishment of standards of operation for uniform
application to all institutions or functions covered, taking into consideration the distinctive character of
the operations of institutions and the substantive similarities of specific functions to which such rules,
modes or standards are to be applied;
4.2 The conduct of examination to determine compliance with laws and regulations if the
circumstances so warrant as determined by the Monetary Board;
4.3 Overseeing to ascertain that laws and Regulations are complied with;
4.4 Regular investigation which shall not be oftener than once a year from the last date of
examination to determine whether an institution is conducting its business on a safe or sound
basis: Provided, That the deficiencies/irregularities found by or discovered by an audit shall be
immediately addressed;
4.5 Inquiring into the solvency and liquidity of the institution (2-D); or
4.6 Enforcing prompt corrective action.25
Koruga alleges that "the dispute in the trial court involves the manner with which the Directors’ (sic) have
handled the Bank’s affairs, specifically the fraudulent loans and dacion en pago authorized by the
Directors in favor of several dummy corporations known to have close ties and are indirectly controlled by
the Directors."26 Her allegations, then, call for the examination of the allegedly questionable loans.
Whether these loans are covered by the prohibition on self-dealing is a matter for the BSP to determine.
These are not ordinary intra-corporate matters; rather, they involve banking activities which are, by law,
regulated and supervised by the BSP. As the Court has previously held:
It is well-settled in both law and jurisprudence that the Central Monetary Authority, through the Monetary
Board, is vested with exclusive authority to assess, evaluate and determine the condition of any bank,
and finding such condition to be one of insolvency, or that its continuance in business would involve a
probable loss to its depositors or creditors, forbid bank or non-bank financial institution to do business in
the Philippines; and shall designate an official of the BSP or other competent person as receiver to
immediately take charge of its assets and liabilities.27
Correlatively, the General Banking Law of 2000 specifically deals with loans contracted by bank directors
or officers, thus:
SECTION 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and Their
Related Interests. — No director or officer of any bank shall, directly or indirectly, for himself or as the
representative or agent of others, borrow from such bank nor shall he become a guarantor, indorser or
surety for loans from such bank to others, or in any manner be an obligor or incur any contractual liability
to the bank except with the written approval of the majority of all the directors of the bank, excluding the
director concerned: Provided, That such written approval shall not be required for loans, other credit
accommodations and advances granted to officers under a fringe benefit plan approved by the Bangko
Sentral. The required approval shall be entered upon the records of the bank and a copy of such entry
shall be transmitted forthwith to the appropriate supervising and examining department of the Bangko
Sentral.
Dealings of a bank with any of its directors, officers or stockholders and their related interests shall be
upon terms not less favorable to the bank than those offered to others.
After due notice to the board of directors of the bank, the office of any bank director or officer who
violates the provisions of this Section may be declared vacant and the director or officer shall be subject
to the penal provisions of the New Central Bank Act.
The Monetary Board may regulate the amount of loans, credit accommodations and guarantees that may
be extended, directly or indirectly, by a bank to its directors, officers, stockholders and their related
interests, as well as investments of such bank in enterprises owned or controlled by said directors,
officers, stockholders and their related interests. However, the outstanding loans, credit accommodations
and guarantees which a bank may extend to each of its stockholders, directors, or officers and their
related interests, shall be limited to an amount equivalent to their respective unencumbered deposits and
book value of their paid-in capital contribution in the bank: Provided, however, That loans, credit
accommodations and guarantees secured by assets considered as non-risk by the Monetary Board shall
be excluded from such limit: Provided, further, That loans, credit accommodations and advances to
officers in the form of fringe benefits granted in accordance with rules as may be prescribed by the
Monetary Board shall not be subject to the individual limit.
The Monetary Board shall define the term "related interests."
The limit on loans, credit accommodations and guarantees prescribed herein shall not apply to loans,
credit accommodations and guarantees extended by a cooperative bank to its cooperative
shareholders.28
Furthermore, the authority to determine whether a bank is conducting business in an unsafe or unsound
manner is also vested in the Monetary Board. The General Banking Law of 2000 provides:
SECTION 56. Conducting Business in an Unsafe or Unsound Manner. — In determining whether a
particular act or omission, which is not otherwise prohibited by any law, rule or regulation affecting banks,
quasi-banks or trust entities, may be deemed as conducting business in an unsafe or unsound manner for
purposes of this Section, the Monetary Board shall consider any of the following circumstances:
56.1. The act or omission has resulted or may result in material loss or damage, or abnormal risk or
danger to the safety, stability, liquidity or solvency of the institution;
56.2. The act or omission has resulted or may result in material loss or damage or abnormal risk to the
institution's depositors, creditors, investors, stockholders or to the Bangko Sentral or to the public in
general;
56.3. The act or omission has caused any undue injury, or has given any unwarranted benefits, advantage
or preference to the bank or any party in the discharge by the director or officer of his duties and
responsibilities through manifest partiality, evident bad faith or gross inexcusable negligence; or
56.4. The act or omission involves entering into any contract or transaction manifestly and grossly
disadvantageous to the bank, quasi-bank or trust entity, whether or not the director or officer profited or
will profit thereby.
Whenever a bank, quasi-bank or trust entity persists in conducting its business in an unsafe or unsound
manner, the Monetary Board may, without prejudice to the administrative sanctions provided in Section
37 of the New Central Bank Act, take action under Section 30 of the same Act and/or immediately exclude
the erring bank from clearing, the provisions of law to the contrary notwithstanding.
Finally, the New Central Bank Act grants the Monetary Board the power to impose administrative
sanctions on the erring bank:
Section 37. Administrative Sanctions on Banks and Quasi-banks. - Without prejudice to the criminal
sanctions against the culpable persons provided in Sections 34, 35, and 36 of this Act, the Monetary
Board may, at its discretion, impose upon any bank or quasi-bank, their directors and/or officers, for any
willful violation of its charter or by-laws, willful delay in the submission of reports or publications thereof
as required by law, rules and regulations; any refusal to permit examination into the affairs of the
institution; any willful making of a false or misleading statement to the Board or the appropriate
supervising and examining department or its examiners; any willful failure or refusal to comply with, or
violation of, any banking law or any order, instruction or regulation issued by the Monetary Board, or any
order, instruction or ruling by the Governor; or any commission of irregularities, and/or conducting
business in an unsafe or unsound manner as may be determined by the Monetary Board, the following
administrative sanctions, whenever applicable:
(a) fines in amounts as may be determined by the Monetary Board to be appropriate, but in no case to
exceed Thirty thousand pesos (P30,000) a day for each violation, taking into consideration the attendant
circumstances, such as the nature and gravity of the violation or irregularity and the size of the bank or
quasi-bank;
(b) suspension of rediscounting privileges or access to Bangko Sentral credit facilities;
(c) suspension of lending or foreign exchange operations or authority to accept new deposits or make
new investments;
(d) suspension of interbank clearing privileges; and/or
(e) revocation of quasi-banking license.
Resignation or termination from office shall not exempt such director or officer from administrative or
criminal sanctions.
The Monetary Board may, whenever warranted by circumstances, preventively suspend any director or
officer of a bank or quasi-bank pending an investigation: Provided, That should the case be not finally
decided by the Bangko Sentral within a period of one hundred twenty (120) days after the date of
suspension, said director or officer shall be reinstated in his position: Provided, further, That when the
delay in the disposition of the case is due to the fault, negligence or petition of the director or officer, the
period of delay shall not be counted in computing the period of suspension herein provided.
The above administrative sanctions need not be applied in the order of their severity.
Whether or not there is an administrative proceeding, if the institution and/or the directors and/or officers
concerned continue with or otherwise persist in the commission of the indicated practice or violation, the
Monetary Board may issue an order requiring the institution and/or the directors and/or officers
concerned to cease and desist from the indicated practice or violation, and may further order that
immediate action be taken to correct the conditions resulting from such practice or violation. The cease
and desist order shall be immediately effective upon service on the respondents.
The respondents shall be afforded an opportunity to defend their action in a hearing before the Monetary
Board or any committee chaired by any Monetary Board member created for the purpose, upon request
made by the respondents within five (5) days from their receipt of the order. If no such hearing is
requested within said period, the order shall be final. If a hearing is conducted, all issues shall be
determined on the basis of records, after which the Monetary Board may either reconsider or make final
its order.
The Governor is hereby authorized, at his discretion, to impose upon banking institutions, for any failure
to comply with the requirements of law, Monetary Board regulations and policies, and/or instructions
issued by the Monetary Board or by the Governor, fines not in excess of Ten thousand pesos (P10,000) a
day for each violation, the imposition of which shall be final and executory until reversed, modified or
lifted by the Monetary Board on appeal.29
Koruga also accused Arcenas, et al. of violation of the Corporation Code’s provisions on self-dealing and
conflict of interest. She invoked Section 31 of the Corporation Code, which defines the liability of
directors, trustees, or officers of a corporation for, among others, acquiring any personal or pecuniary
interest in conflict with their duty as directors or trustees, and Section 32, which prescribes the conditions
under which a contract of the corporation with one or more of its directors or trustees – the so-called
"self-dealing directors"30 – would be valid. She also alleged that Banco Filipino’s directors violated
Sections 33 and 34 in approving the loans of corporations with interlocking ownerships, i.e., owned,
directed, or managed by close associates of Albert C. Aguirre.
Sections 31 to 34 of the Corporation Code provide:
Section 31. Liability of directors, trustees or officers. - Directors or trustees who wilfully and knowingly
vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad
faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict
with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting
therefrom suffered by the corporation, its stockholders or members and other persons.
When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest
adverse to the corporation in respect of any matter which has been reposed in him in confidence, as to
which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for the
corporation and must account for the profits which otherwise would have accrued to the corporation.
Section 32. Dealings of directors, trustees or officers with the corporation. - A contract of the corporation
with one or more of its directors or trustees or officers is voidable, at the option of such corporation,
unless all the following conditions are present:
1. That the presence of such director or trustee in the board meeting in which the contract was approved
was not necessary to constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary for the approval of the contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in case of an officer, the contract has been previously authorized by the board of directors.
Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a
contract with a director or trustee, such contract may be ratified by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock or of at least two-thirds (2/3) of the
members in a meeting called for the purpose: Provided, That full disclosure of the adverse interest of the
directors or trustees involved is made at such meeting: Provided, however, That the contract is fair and
reasonable under the circumstances.
Section 33. Contracts between corporations with interlocking directors. - Except in cases of fraud, and
provided the contract is fair and reasonable under the circumstances, a contract between two or more
corporations having interlocking directors shall not be invalidated on that ground alone: Provided, That if
the interest of the interlocking director in one corporation is substantial and his interest in the other
corporation or corporations is merely nominal, he shall be subject to the provisions of the preceding
section insofar as the latter corporation or corporations are concerned.
Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be considered
substantial for purposes of interlocking directors.
Section 34. Disloyalty of a director. - Where a director, by virtue of his office, acquires for himself a
business opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of
such corporation, he must account to the latter for all such profits by refunding the same, unless his act
has been ratified by a vote of the stockholders owning or representing at least two-thirds (2/3) of the
outstanding capital stock. This provision shall be applicable, notwithstanding the fact that the director
risked his own funds in the venture.
Koruga’s invocation of the provisions of the Corporation Code is misplaced. In an earlier case with similar
antecedents, we ruled that:
The Corporation Code, however, is a general law applying to all types of corporations, while the New
Central Bank Act regulates specifically banks and other financial institutions, including the dissolution and
liquidation thereof. As between a general and special law, the latter shall prevail – generalia specialibus
non derogant.31
Consequently, it is not the Interim Rules of Procedure on Intra-Corporate Controversies,32 or Rule 59 of
the Rules of Civil Procedure on Receivership, that would apply to this case. Instead, Sections 29 and 30 of
the New Central Bank Act should be followed, viz.:
Section 29. Appointment of Conservator. - Whenever, on the basis of a report submitted by the
appropriate supervising or examining department, the Monetary Board finds that a bank or a quasi-bank
is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate
to protect the interest of depositors and creditors, the Monetary Board may appoint a conservator with
such powers as the Monetary Board shall deem necessary to take charge of the assets, liabilities, and the
management thereof, reorganize the management, collect all monies and debts due said institution, and
exercise all powers necessary to restore its viability. The conservator shall report and be responsible to
the Monetary Board and shall have the power to overrule or revoke the actions of the previous
management and board of directors of the bank or quasi-bank.
xxxx
The Monetary Board shall terminate the conservatorship when it is satisfied that the institution can
continue to operate on its own and the conservatorship is no longer necessary. The conservatorship shall
likewise be terminated should the Monetary Board, on the basis of the report of the conservator or of its
own findings, determine that the continuance in business of the institution would involve probable loss to
its depositors or creditors, in which case the provisions of Section 30 shall apply.
Section 30. Proceedings in Receivership and Liquidation. - Whenever, upon report of the head of the
supervising or examining department, the Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That
this shall not include inability to pay caused by extraordinary demands induced by financial panic in the
banking community;
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has become final, involving acts
or transactions which amount to fraud or a dissipation of the assets of the institution; in which cases, the
Monetary Board may summarily and without need for prior hearing forbid the institution from doing
business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the
banking institution.
xxxx
The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be final
and executory, and may not be restrained or set aside by the court except on petition for certiorari on the
ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to
amount to lack or excess of jurisdiction. The petition for certiorari may only be filed by the stockholders of
record representing the majority of the capital stock within ten (10) days from receipt by the board of
directors of the institution of the order directing receivership, liquidation or conservatorship.
The designation of a conservator under Section 29 of this Act or the appointment of a receiver under this
section shall be vested exclusively with the Monetary Board. Furthermore, the designation of a
conservator is not a precondition to the designation of a receiver.33
On the strength of these provisions, it is the Monetary Board that exercises exclusive jurisdiction over
proceedings for receivership of banks.
Crystal clear in Section 30 is the provision that says the "appointment of a receiver under this section
shall be vested exclusively with the Monetary Board." The term "exclusively" connotes that only the
Monetary Board can resolve the issue of whether a bank is to be placed under receivership and, upon an
affirmative finding, it also has authority to appoint a receiver. This is further affirmed by the fact that the
law allows the Monetary Board to take action "summarily and without need for prior hearing."
And, as a clincher, the law explicitly provides that "actions of the Monetary Board taken under this section
or under Section 29 of this Act shall be final and executory, and may not be restrained or set aside by the
court except on a petition for certiorari on the ground that the action taken was in excess of jurisdiction or
with such grave abuse of discretion as to amount to lack or excess of jurisdiction."1avvphi1
From the foregoing disquisition, there is no doubt that the RTC has no jurisdiction to hear and decide a
suit that seeks to place Banco Filipino under receivership.
Koruga herself recognizes the BSP’s power over the allegedly unlawful acts of Banco Filipino’s directors.
The records of this case bear out that Koruga, through her legal counsel, wrote the Monetary Board34 on
April 21, 2003 to bring to its attention the acts she had enumerated in her complaint before the RTC. The
letter reads in part:
Banco Filipino and the current members of its Board of Directors should be placed under investigation for
violations of banking laws, the commission of irregularities, and for conducting business in an unsafe or
unsound manner. They should likewise be placed under preventive suspension by virtue of the powers
granted to the Monetary Board under Section 37 of the Central Bank Act. These blatant violations of
banking laws should not go by without penalty. They have put Banco Filipino, its depositors and
stockholders, and the entire banking system (sic) in jeopardy.
xxxx
We urge you to look into the matter in your capacity as regulators. Our clients, a minority stockholders,
(sic) and many depositors of Banco Filipino are prejudiced by a failure to regulate, and taxpayers are
prejudiced by accommodations granted by the BSP to Banco Filipino35
In a letter dated May 6, 2003, BSP Supervision and Examination Department III Director Candon B.
Guerrero referred Koruga’s letter to Arcenas for comment.36 On June 6, 2003, Banco Filipino’s then
Executive Vice President and Corporate Secretary Francisco A. Rivera submitted the bank’s comments
essentially arguing that Koruga’s accusations lacked legal and factual bases.37
On the other hand, the BSP, in its Answer before the RTC, said that it had been looking into Banco
Filipino’s activities. An October 2002 Report of Examination (ROE) prepared by the Supervision and
Examination Department (SED) noted certain dacion payments, out-of-the-ordinary expenses, among
other dealings. On July 24, 2003, the Monetary Board passed Resolution No. 1034 furnishing Banco
Filipino a copy of the ROE with instructions for the bank to file its comment or explanation within 30 to 90
days under threat of being fined or of being subjected to other remedial actions. The ROE, the BSP said,
covers substantially the same matters raised in Koruga’s complaint. At the time of the filing of Koruga’s
complaint on August 20, 2003, the period for Banco Filipino to submit its explanation had not yet
expired.38
Thus, the court’s jurisdiction could only have been invoked after the Monetary Board had taken action on
the matter and only on the ground that the action taken was in excess of jurisdiction or with such grave
abuse of discretion as to amount to lack or excess of jurisdiction.
Finally, there is one other reason why Koruga’s complaint before the RTC cannot prosper. Given her own
admission – and the same is likewise supported by evidence – that she is merely a minority stockholder of
Banco Filipino, she would not have the standing to question the Monetary Board’s action. Section 30 of
the New Central Bank Act provides:
The petition for certiorari may only be filed by the stockholders of record representing the majority of the
capital stock within ten (10) days from receipt by the board of directors of the institution of the order
directing receivership, liquidation or conservatorship.
All the foregoing discussion yields the inevitable conclusion that the CA erred in upholding the jurisdiction
of, and remanding the case to, the RTC. Given that the RTC does not have jurisdiction over the subject
matter of the case, its refusal to dismiss the case on that ground amounted to grave abuse of discretion.
WHEREFORE, the foregoing premises considered, the Petition in G.R. No. 168332 is DISMISSED, while the
Petition in G.R. No. 169053 is GRANTED. The Decision of the Court of Appeals dated July 20, 2005 in CA-
G.R. SP No. 88422 is hereby SET ASIDE. The Temporary Restraining Order issued by this Court on March
13, 2006 is made PERMANENT. Consequently, Civil Case No. 03-985, pending before the Regional Trial
Court of Makati City, is DISMISSED.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
ANTONIO T. RENATO C. CORONA**
CARPIO* Associate Justice
Associate Justice
DIOSDADO M. PERALTA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify
that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
* Additional member in lieu of Associate Justice Conchita Carpio Morales per Special Order No. 646 dated May 15, 2009.

** Additional member in lieu of Associate Justice Minita V. Chico-Nazario per Special Order No. 631 dated April 29, 2009.
 1 Rollo (G.R. No. 168332), pp. 48-49.
2 Now a Justice of the Court of Appeals.
3 Rollo (G.R. No. 168332), pp. 7-9.
4 CA rollo, p. 48.
5 Id. at 52-60.
6 Id. at 50.
7 Id. at 2-47.
8 Id. at 95-97.
9 Rollo (G.R. No. 168332), p. 196.
10 Id. at 197-198.
11 Id. at 49.
12 Id. at 40.
13 Penned by Associate Justice Eugenio S. Labitoria, with Associate Justices Eliezer R. delos Santos and
Arturo D. Brion (now a member of this Court), concurring; id. at 259-277.
14 Rollo (G.R. No. 169053), pp. 58-76.
15 Id. at 8-9.
16 Id. at 17-18.
17 Rollo (G.R. No. 168332), p. 44.
18 Id. at 286-288.
19 Id. at 290-292.
20 Rollo (G.R. No. 169053), p. 75.
21 Republic Act (R.A.) No. 8791.
22 R.A. No. 8791, Sec. 3 (3.1).
23 Central Bank of the Philippines v. Court of Appeals, G.R. No. 88353, May 8, 1992, 208 SCRA 652, 684-
685.
24 R.A. No. 7653.
25 R.A. No. 8791, Sec. 4. (Emphasis supplied.)
26 Memorandum, rollo (G.R. No. 169053), p. 717.
27 Miranda v. Philippine Deposit Insurance Corporation, G.R. No. 169334, September 8, 2006, 501 SCRA
288, 298.
28 Emphasis supplied.
29 Emphasis supplied.
30 See Prime White Cement Corporation v. Honorable Intermediate Appellate Court, et al., G.R. No.
68555, March 19, 1993, 220 SCRA 103.
31 In Re: Petition for Assistance in the Liquidation of the Rural Bank of Bokod (Benguet), Inc., PDIC v.
Bureau of Internal Revenue, G.R. No. 158261, December 18, 2006, 511 SCRA 123, 141, citing Laureano v.
Court of Appeals, 381 Phil. 403, 411-412 (2000).
32 A.M. No. 01-2-04-SC dated April 1, 2001.
33 Emphasis supplied.
34 Rollo (G.R. No. 169053), pp. 266-272
35 Id. at 271-272. (Citations omitted.)
36 Id. at p.457
37 Id. at pp. 459-462.
38 CA rollo, p. 460.

Pasted from <http://www.lawphil.net/judjuris/juri2009/jun2009/gr_168332_2009.html>

Solidbank vs. Tan (2007)

Sunday, June 06, 2010
1:12 AM

PHILIPPINE JURISPRUDENCE – FULL TEXT

The Lawphil Project - Arellano Law Foundation
G.R. No. 167346 April 2, 2007
SOLIDBANK CORP./METRO BANK & TRUST CO. VS. SPS. PETER & SUSAN TAN

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 167346 April 2, 2007
SOLIDBANK CORPORATION/ METROPOLITAN BANK AND TRUST COMPANY,* Petitioner,
vs.
SPOUSES PETER and SUSAN TAN, Respondents.
DECISION
CORONA, J.:
Assailed in this petition for review by certiorari under Rule 45 of the Rules of Court are the decision1 and
resolution2 of the Court of Appeals (CA) dated November 26, 2004 and March 1, 2005, respectively, in
CA-G.R. CV No. 58618,3 affirming the decision of the Regional Trial Court (RTC) of Manila, Branch 31.4
On December 2, 1991, respondents’ representative, Remigia Frias, deposited with petitioner ten checks
worth P455,962. Grace Neri, petitioner’s teller no. 8 in its Juan Luna, Manila Branch, received two deposit
slips for the checks, an original and a duplicate. Neri verified the checks and their amounts in the deposit
slips then returned the duplicate copy to Frias and kept the original copy for petitioner.
In accordance with the usual practice between petitioner and respondents, the latter’s passbook was left
with petitioner for the recording of the deposits on the bank’s ledger. Later, respondents retrieved the
passbook and discovered that one of the checks, Metropolitan Bank and Trust Company (Metrobank)
check no. 403954, payable to cash in the sum of P250,000 was not posted therein.
Immediately, respondents notified petitioner of the problem. Petitioner showed respondent Peter Tan a
duplicate
copy of a deposit slip indicating the list of checks deposited by Frias. But it did not include the missing
check. The deposit slip bore the stamp mark "teller no. 7" instead of "teller no. 8" who previously received
the checks.
Still later, respondent Peter Tan learned from Metrobank (where he maintained an account) that
Metrobank check no. 403954 had cleared after it was inexplicably deposited by a certain Dolores Lagsac
in Premier Bank in San Pedro, Laguna. Respondents demanded that petitioner pay the amount of the
check but it refused, hence, they filed a case for collection of a sum of money in the RTC of Manila,
Branch 31.
In its answer, petitioner averred that the deposit slips Frias used when she deposited the checks were
spurious. Petitioner accused respondents of engaging in a scheme to illegally exact money from it. It
added that, contrary to the claim of respondents, it was "teller no. 7" who received the deposit slips and,
although respondents insisted that Frias deposited ten checks, only nine checks were actually received by
said teller. By way of counterclaim, it sought payment of P1,000,000 as actual and moral damages
andP500,000 as exemplary damages.
After trial, the RTC found petitioner liable to respondents:
Upon examination of the oral, as well as of the documentary evidence which the parties presented at the
trial in support of their respective contentions, and after taking into consideration all the circumstances of
the case, this Court believes that the loss of Metrobank Check No. 403954 in the sum of P250,000.00 was
due to the fault of [petitioner]…[It] retained the original copy of the [deposit slip marked by "Teller No.
7"]. There is a presumption in law that evidence willfully suppressed would be adverse if produced.
Art. 1173 of the Civil Code states that "the fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and corresponds with the circumstances of
the person of the time and of the place"; and that "if the law or contract does not state the diligence
which is to be observed in the performance, the same as expected of a good father of a family shall be
required."
…For failure to comply with its obligation, [petitioner] is presumed to have been at fault or to have acted
negligently unless they prove that they observe extraordinary diligence as prescribed in Arts. 1733 and
1735 of the Civil Code (Art. 1756)…
xxx xxx xxx
WHEREFORE, premises considered, judgment is hereby rendered in favor of [respondents], ordering
[petitioner] to pay the sum of P250,000, with legal interest from the time the complaint [for collection of a
sum of money] was filed until satisfied; P25,000.00 moral damages; P25,000.00 exemplary damages plus
20% of the amount due [respondents] as and for attorney’s fees. With costs.
SO ORDERED.5
Petitioner appealed to the CA which affirmed in toto the RTC’s assailed decision:
Serious doubt [was] engendered by the fact that [petitioner] did not present the original of the deposit
slip marked with "Teller No. 7" and on which the entry as to Metrobank Check No. 403954 did not appear.
Even the most cursory look at the handwriting thereon reveal[ed] a very marked difference with that in
the other deposit slips filled up [by Frias] on December 2, 1991. Said circumstances spawn[ed] the belief
thus, the said deposit slip was prepared by [petitioner] itself to cover up for the lost check.6
Petitioner filed a motion for reconsideration but the CA dismissed it. Hence, this appeal.1a\^/phi1.net
Before us, petitioner faults the CA for upholding the RTC decision. Petitioner argues that: (1) the findings
of the RTC and the CA were not supported by the evidence and records of the case; (2) the award of
damages in favor of respondents was unwarranted and (3) the application by the RTC, as affirmed by the
CA, of the provisions of the Civil Code on common carriers to the instant case was erroneous.7
The petition must fail.
On the first issue, petitioner contends that the lower courts erred in finding it negligent for the loss of the
subject check. According to petitioner, the fact that the check was deposited in Premier Bank affirmed its
claim that it did not receive the check.
At the outset, the Court stresses that it accords respect to the factual findings of the trial court and,
unless it overlooked substantial matters that would alter the outcome of the case, this Court will not
disturb such findings.8 We meticulously reviewed the records of the case and found no reason to deviate
from the rule. Moreover, since the CA affirmed these findings on appeal, they are final and conclusive on
us.9 We therefore sustain the RTC’s and CA’s findings that petitioner was indeed negligent and
responsible for respondents’ lost check.
On the issue of damages, petitioner argues that the moral and exemplary damages awarded by the lower
courts had no legal basis. For the award of moral damages to stand, petitioner avers that respondents
should have proven the existence of bad faith by clear and convincing evidence. According to petitioner,
simple negligence cannot be a basis for its award. It insists that the award of exemplary damages is
justified only when the act complained of was done in a wanton, fraudulent and oppressive manner.10
We disagree.
While petitioner may argue that simple negligence does not warrant the award of moral damages, it
nonetheless cannot insist that that was all it was guilty of. It refused to produce the original copy of the
deposit slip which could have proven its claim that it did not receive respondents’ missing check. Thus, in
suppressing the best evidence that could have bolstered its claim and confirmed its innocence, the
presumption now arises that it withheld the same for fraudulent purposes.11
Moreover, in presenting a false deposit slip in its attempt to feign innocence, petitioner’s bad faith was
apparent and unmistakable. Bad faith imports a dishonest purpose or some moral obliquity or conscious
doing of a wrong that partakes of the nature of fraud.12
As to the award of exemplary damages, the law allows it by way of example for the public good. The
business of banking is impressed with public interest and great reliance is made on the bank’s sworn
profession of diligence and meticulousness in giving irreproachable service.13 For petitioner’s failure to
carry out its responsibility and to account for respondents’ lost check, we hold that the lower courts did
not err in awarding exemplary damages to the latter.
On the last issue, we hold that the trial court did not commit any error.1awphi1.nét A cursory reading of
its decision reveals that it anchored its conclusion that petitioner was negligent on Article 1173 of the
Civil Code.14
In citing the different provisions of the Civil Code on common carriers,15 the trial court merely made
reference to the kind of diligence that petitioner should have performed under the circumstances. In
other words, like a common carrier whose business is also imbued with public interest, petitioner should
have exercised extraordinary diligence to negate its liability to respondents.
Assuming arguendo that the trial court indeed used the provisions on common carriers to pin down
liability on petitioner, still we see no reason to strike down the RTC and CA rulings on this ground alone.
In one case,16 the Court did not hesitate to apply the doctrine of last clear chance (commonly used in
transportation laws involving common carriers) to a banking transaction where it adjudged the bank
responsible for the encashment of a forged check. There, we enunciated that the degree of diligence
required of banks is more than that of a good father of a family in keeping with their responsibility to
exercise the necessary care and prudence in handling their clients’ money.
We find no compelling reason to disallow the application of the provisions on common carriers to this case
if only to emphasize the fact that banking institutions (like petitioner) have the duty to exercise the
highest degree of diligence when transacting with the public. By the nature of their business, they are
required to observe the highest standards of integrity and performance, and utmost assiduousness as
well.17
WHEREFORE, the assailed decision and resolution of the Court of Appeals dated November 26, 2004 and
March 1, 2005, respectively, in CA-G.R. CV No. 58618 are herebyAFFIRMED. Accordingly, the petition
is DENIED.
Costs against petitioner.
SO ORDERED.
RENATO C. CORONA
 Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson
ANGELINA SANDOVAL- ADOLFO S. AZCUNA
GUTIERREZ Asscociate Justice
Associate Justice
CANCIO C. GARCIA
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above decision
had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s
Division.
REYNATO S. PUNO
Chief Justice
Footnotes
* On June 8, 2005, the Court granted the motion of private respondents to implead Metropolitan Bank and
Trust Company as petitioner following the latter’s acquisition of Solidbank. Under Rule 3, Section 19 of
the Rules of Court, the person or entity which acquired the interest of a party to a case may be
substituted in the action or joined with the original party.
1 Penned by Associate Justice Arcangelita M. Romilla-Lontok and concurred in by Associate Justices
Rodrigo V. Cosico and Danilo B. Pine (retired) of the Twelfth Division of the Court of Appeals; rollo, pp. 9-
20.
2 Id., pp. 22-23.
3 Entitled Peter and Susan Tan v. Solidbank Corporation.
4 Decided by Judge Zenaida R. Daguna, rollo, pp. 74-80.
5 Rollo, pp. 79-80.
6 Rollo, p. 17.
7 Rollo, pp. 150-159.
8 Lipat v. Pacific Banking Corporation, 450 Phil. 410 (2003).
9 Bordalba v. Court of Appeals, 425 Phil. 407 (2002).
10 Petitioner’s Memorandum, rollo, p. 157.
11 Philippine Banking Corporation v. Court of Appeals, G.R. No. 127469, 15 January 2004, 419 SCRA 487.
12 Petitioner’s Memorandum, rollo, p. 157.
13 See Prudential Bank v. Court of Appeals, 384 Phil. 817 (2000); Bank of the Philippine Islands v. Casa
Montessori International, G.R. No. 149454, 28 May 2004, 430 SCRA 261.
14 Supra, at 5.
15 Id., Articles 1733, 1735 and 1756 of the Civil Code.
16 Canlas v. Asian Savings Bank et al., 383 Phil. 315 (2000); see also Bank of the Philippine Islands v.
Court of Appeals, G.R. No. 102383, 26 November 1992, 216 SCRA 51.
17 Simex International (Manila) v. Court of Appeals, G.R. No. 88013, 19 March 1990, 183 SCRA 360.
The Lawphil Project - Arellano Law Foundation

Pasted from <http://www.lawphil.net/judjuris/juri2007/apr2007/gr_167346_2007.html>

BSP Circulars…
Sunday, June 06, 2010
1:15 AM

Date Issued: 06.21.2005

Number: 0488
CIRCULAR NO. 488
Series of 2005
Pursuant to Monetary Board Resolution No. 772 dated 09 June 2005, the Manual of
Regulations for Banks (MORB) is hereby amended, as follows:
Section 1. Subsec. X169.3 Outsourcing of other banking functions of the MORB is
hereby amended to read, as follows:
“Subject to prior approval of the Monetary Board, banks may outsource the
following functions, services or activities:
1. data imaging, storage, retrieval and other related systems;
2. clearing and processing of checks not included in the Philippine Clearing House
System;
3. printing of bank deposit statements;
4. credit card services;
5. credit investigation and collection;
6. processing of export, import and other trading transactions;
7. property appraisal;
8. property management services;
9. internal audit, subject to the following conditions:
a) the board of directors and senior management of the regulated entity remain
responsible for maintaining an effective system of internal control and for
providing active oversight of the outsourced internal audit activities/functions;
b) the external service provider shall be an independent external auditor
included in the list of BSP selected external auditors or a parent company which
owns or controls more than fifty percent (50%) of the subscribed capital stock of
the outsourcing entity: provided, that item “b.” of the general requirements under
Section 2 of Circular no.410, series of 2003 shall apply to the parent company
while items “b.”, “d.”, “e.”, and “f.” shall apply to the independent external
auditor.
c) the contract/service agreement with the external service provider shall not be
entered into for a period longer than five (5) years;
d) There shall be a contingency plan to mitigate any significant disruption,
discontinuity or gap in audit coverage, particularly for high-risk areas;
e) The written engagement contract or service agreement with the external
service provider shall, as a minimum:
i. Define the rights, expectations and responsibilities of both parties;
ii. Set the scope and frequency of, and the fees to be paid for, the work to
be performed by the external service provider;
iii. State that the outsourced internal audit services are subject to
regulatory review and that BSP examiners shall be granted full and timely
access to internal audit reports and related working papers;
iv. State that the external service provider will not perform management
functions, make management decisions, or act or appear to act in a capacity
equivalent to that of a member of management or an employee of the
institution, and will comply with professional and regulatory independence
guidelines;
v. Specify that the external service provider must maintain the audit
reports and related working papers/files for at least five (5) years;
vi. State that internal audit reports are the property of the institution, that
the institution will be provided with copies of related working papers/files it
deems necessary, and any information pertaining to the institution must be
kept confidential; and
vii. Establish a protocol for changing the terms of the service contract and
stipulations for default and termination of the contract;
10. marketing loans, deposits and other bank products and services, provided it
does not involve the actual opening of deposit accounts;
11. general bookkeeping and accounting services, provided that these activities
do not include servicing bank deposits or other inherent banking functions;
12. offsite records storage services;
13. front/back office functions, i.e., trade support services and downstream
processing activities, by parent to a subsidiary or vice-versa, subject to the
following conditions:
 a) The bank intending to outsource the aforementioned functions shall
certify that the front office functions to be done by its parent/subsidiary
(service provider) shall be limited to trade support services;
b) The bank shall remain a parent/subsidiary of its subsidiary/ parent
(service provider) and such service provider shall service only entities
belonging to its business group;
c) The bank shall certify that no inherent banking functions involving
deposit transactions shall be outsourced to its parent/subsidiary (service
provider);
d) The bank shall submit a Service Level Agreement duly signed by the
concerned parties and any amendments thereto, detailing the functions to be
outsourced, the respective responsibilities of the bank and its parent/
subsidiary (service provider), and a confidentiality clause; and
e) Any breach in any of the above conditions shall subject the outsourcing
of the aforementioned banking functions to all the requirements of this
Section; and
14. such other activities as may be determined by the Monetary Board.
Without need of prior Monetary Board approval, banks may outsource the
following functions, services or activities:
1. printing of bank loan statements and other non-deposit records, bank forms
and promotional materials;
2. transfer agent services for debt and equity securities;
3. messenger, courier and postal services;
4. security guard services;
5. vehicle service contracts;
6. janitorial services;
7. public relations services, procurement services, and temporary staffing,
provided that these activities do not include servicing bank deposits or other
inherent banking functions;
8. sorting and bagging of notes and coins;
9. maintenance of computer hardware, e.g., disk drives, printers, monitors, UPS,
network cabling systems;
10. payroll of bank employees;
11. telephone operator/receptionist services;
12. sale/disposal of acquired assets (ROPOA);
13. personnel training and development;
14. building, ground and other facilities maintenance; and
15. such other activities as may be determined by the Monetary Board.”
Section 2. The provisions on outsourcing of Section X169 and Subsecs. X169.1 to
X169.5 of the Manual of Regulations for Banks (MORB) in so far as they are
applicable to quasi-banks and other non-bank financial institutions are hereby
incorporated in the Manual of Regulations for Non-Bank Financial Institutions
(MORNBFI).
This Circular shall take effect fifteen (15) days following its publication either in
the Official Gazette or in a newspaper of general circulation.

FOR THE MONETARY BOARD:

AMANDO M. TETANGCO, JR
Officer-in-Charge

Pasted from <http://www.bsp.gov.ph/regulations/regulations.asp?type=1&id=74>

Date Issued: 09.16.2005

Number: 0493

CIRCULAR NO. 493

Series of 2005
Pursuant to Monetary Board Resolution No. 1191 dated 08 September 2005, the
Manual of Regulations for Banks (MORB) is hereby amended, as follows:
Section 1. Subsec. X169.3 Outsourcing of other banking functions of the MORB is
hereby amended to read, as follows:
“Subject to prior approval of the Monetary Board, banks may outsource the
following functions, services or activities:
x x x
14. back-up and data recovery operations; and
15. such other activities as may be determined by the Monetary Board.
The bank concerned must submit the same documentary requirements listed in
Subsec. X169.2b hereof, except where they exclusively pertain to information
technology operations.
Without need of prior Monetary Board approval, banks may outsource the
following functions, services or activities:
x x x
15. legal services from local legal counsel;
16. compliance risk assessment and testing;
17. such other activities as may be determined by the Monetary Board.”
Section 2. The foregoing amendments shall likewise apply to corresponding
provisions in the Manual of Regulations for Non-Bank Financial Institutions
(MORNBFI).
This Circular shall take effect fifteen (15) days following its publication either in
the Official Gazette or in a newspaper of general circulation.

FOR THE MONETARY BOARD

DIWA C. GUINIGUNDO
Officer-in-Charge

Pasted from <http://www.bsp.gov.ph/regulations/regulations.asp?type=1&id=68>

Date Issued: 09.08.2006

Number: 0543

CIRCULAR NO. 543

Series of 2006
Subject: Outsourcing of Other Banking Functions
Pursuant to Monetary Board Resolution No. 1034 dated 17 August 2006, the
Manual of Regulations for Banks (MORB) is hereby amended as follows:
Section 1. Subsect. X169.3 Outsourcing of other banking functions of the MORB is
hereby amended to read, as follows:
"Subject to prior approval of the Monetary Board, banks may outsource the
following functions, services or activities:
x x x
15. Call center operations for credit card and bank services provided
that such bank services do not involve inherent banking functions; and
16. Such other activities as may be determined by the Monetary Board."
Section 2. The foregoing amendments shall likewise apply to corresponding
provisions in the Manual of Regulations for Non-Bank Financial Institutions
(MORNBFI).
This Circular shall take effect fifteen (15) days after publication in the Official
Gazette or in a newspaper of general circulation.
FOR THE MONETARY BOARD
AMANDO M. TETANGCO, JR.
Governor

Pasted from <http://www.bsp.gov.ph/regulations/regulations.asp?type=1&id=1029>

Date Issued: 09.15.2006

Number: 0545

CIRCULAR NO. 545

Series of 2006
Subject: Guidelines on Liquidity Risk Management
The Monetary Board in its Resolution No. 1082 dated 31 August 2006 approved the
adoption of the attached guidelines on liquidity risk management to ensure that
financial institutions have the sufficient knowledge and skills necessary to
understand and effectively manage liquidity risk.
The guidelines set forth the expectations of the Bangko Sentral ng Pilipinas (BSP)
with respect to the management of liquidity risk and are intended to provide more
consistency in how the risk-focused supervision function is applied to this risk.
Financial institutions are expected to have an integrated approach to risk
management to identify, measure, monitor and control risks. Liquidity risk should
be reviewed together with other risks to determine overall risk profile.
These guidelines are intended for general application; specific application will
depend on the size and sophistication of a particular financial institution and the
nature and complexity of its activities.
This Circular shall take effect fifteen (15) days after its publication either in the
Official Gazette or in a newspaper of general circulation.
FOR THE MONETARY BOARD:

ARMANDO L. SURATOS
Officer-In-Charge

Pasted from <http://www.bsp.gov.ph/regulations/regulations.asp?type=1&id=1089>

Date Issued: 01.30.2009

OFFICE OF THE GOVERNOR
CIRCULAR NO. 642
Series of 2009
Subject: Amendment of Subsection X169.3 of the Manual of Regulations for Banks
and Appendix 0-37 of the Manual of Regulations for Non-Bank Financial
Institutions - Outsourcing of Other Banking Functions
Pursuant to Monetary Board Resolution No. 05 dated 02 January 2009, item b.13 of
Subsection X169.3 of the Manual of Regulations for Banks (MORB) and item d.2
(m) of Appendix 0-37 of the Manual of Regulations for Non-Bank Financial
Institutions (MORNBFI) are hereby amended, as follows:
A. On the MORB -
13. Human-resource related services (such as personnel training and
development, background investigation and salary benchmarking
service).
B. On the MORNBFI -
m. Human-resource related services (such as personnel training and
development, background investigation and salary benchmarking
service).
This Circular shall take effect fifteen (15) days after publication in the Official
Gazette or in a newspaper of general circulation.
FOR THE MONETARY BOARD
AMANDO M. TETANGCO, JR
Governor

Pasted from <http://www.bsp.gov.ph/regulations/regulations.asp?type=2&id=2326>

Date Issued: 08.06.2002

Number: 0341
CIRCULAR NO. 341
Series of 2002
Pursuant to Monetary Board Resolution No. 1055 dated 25 July 2002, the following
guidelines shall be observed in implementing Section 56 of the General Banking
Law of 2000 or Republic Act No. 8791:
Section 1. Whether a particular activity may be considered as conducting business
in an unsafe or unsound manner, all relevant facts must be considered. An
analysis of the impact thereof on the banks/quasi-banks/trust entities’ operations
and financial conditions must be undertaken, including evaluation of capital
position, asset condition, management, earnings posture and liquidity position.
In determining whether a particular act or omission, which is not otherwise
prohibited by any law, rule or regulation affecting banks, quasi-banks or trust
entities, may be deemed as conducting business in an unsafe or unsound manner,
the Monetary Board, upon report of the head of the supervising or examining
department based on findings in an examination or a complaint, shall consider any
of the following circumstances:
a. The act or omission has resulted or may result in material loss or damage, or
abnormal risk or danger to the safety, stability, liquidity or solvency of the
institution;
b. The act or omission has resulted or may result in material loss or damage or
abnormal risk to the institution’s depositors, creditors, investors, stockholders or
to the Bangko Sentral or to the public in general;
c. The act or omission has caused any undue injury, or has given unwarranted
benefits, advantage or preference to the bank or any party in the discharge by the
director or officer of his duties and responsibilities through manifest partiality,
evident bad faith or gross inexcusable negligence; or
d. The act or omission involves entering into any contract or transaction
manifestly and grossly disadvantageous to the bank, quasi-bank or trust entity,
whether or not the director or officer profited or will profit thereby.
Attached for guidance is a list of activities which may be considered unsafe and
unsound. (Annex A) The Monetary Board may consider any other acts/omissions as
unsafe and unsound practices.
Section 2. The Monetary Board may, at its discretion and based on the seriousness
and materiality of the acts or omissions, impose any or all of the following
sanctions provided under Section 37 of Republic Act No. 7653 and Section 56 of
Republic Act No. 8791, whenever a bank, quasi-bank or trust entity conducts
business in an unsafe and unsound manner:
a. Issue an order requiring the institution to cease and desist from conducting
business in an unsafe and unsound manner and may further order that immediate
action be taken to correct the conditions resulting from such unsafe or unsound
practice;
b. Fines in amounts as may be determined by the Monetary Board to be
appropriate, but in no case to exceed Thirty Thousand pesos (P30,000.00) a day
on a per transaction basis taking into consideration the attendant circumstances,
such the gravity of the act or omission and the size of the bank, quasi-bank or
trust entity, to be imposed on the bank, quasi-banks or trust entities, their
directors and/or responsible officers;
c. Suspension of interbank clearing privileges/immediate exclusion from clearing;
d. Suspension of rediscounting privileges or access to Bangko Sentral credit
facilities;
e. Suspension of lending or foreign exchange operations or authority to accept
new deposits or make new investments;
f. Suspension of responsible directors and/or officers;
g. Revocation of quasi-banking license; and/or
h. Receivership and liquidation under Section 30 of RA 7653.
All other provisions of Sections 30 and 37 of R.A. 7653 whenever appropriate shall
also be applicable on the conduct of business in an unsafe or unsound manner.
The imposition of the above sanctions is without prejudice to the filing of
appropriate criminal charges against culpable persons as provided in Sections 34,
35 and 36 of R.A. 7653.
This Circular shall take effect immediately.

FOR THE MONETARY BOARD:

RAFAEL B. BUENAVENTURA
Governor

Pasted from <http://www.bsp.gov.ph/regulations/regulations.asp?type=1&id=402>

Date Issued: 01.16.2009

Number: 640
CIRCULAR NO. 640
Pursuant to Monetary Board Resolution No. 1723 dated 23 December 2008, Annex
A (List of Activities Which May Be Considered Unsafe and Unsound Banking
Practices) of Circular No. 341 dated 6 August 2002 is hereby amended as follows:
Section 1. The opening paragraph and Items c and g of Annex A of Circular No. 341
are hereby amended to read as follows:
“The activities enumerated herein are considered only as guidelines and are not
irrebutably presumed to be unsafe or unsound. Conversely, not all practices which
might under the circumstances be termed unsafe or unsound are mentioned here.
The Monetary Board may NOW AND THEN consider any other acts/omissions as
unsafe or unsound practices.”
“c. Operating in a way that produces a deficit in net operating income
WITHOUT ADEQUATE MEASURES TO ENSURE A SURPLUS IN NET OPERATING
INCOME IN THE FUTURE.”
“x x x
“g. Excessive reliance on large, high-COST or volatile deposits/ borrowings TO
FUND AGGRESSIVE GROWTH THAT MAY BE UNSUSTAINABLE.
FOR THIS PURPOSE, A BANK IS CONSIDERED OFFERING HIGH-COST
DEPOSITS/BORROWINGS IF THE EFFECTIVE INTEREST RATE PAID ON SAID
DEPOSITS/ BORROWINGS AND/OR NON-CASH INCENTIVES IS 50% OVER THE
PREVAILING COMPARABLE MARKET MEDIAN RATE FOR SIMILAR BANK
CATEGORIES, MATURITIES AND CURRENCY DENOMINATION AND
ACCOMPANIED BY OTHER CIRCUMSTANCE/S SUCH AS:
“1. UNDUE RELIANCE ON SOLICITATION AND ACCEPTANCE OF BROKERED
DEPOSITS;
“2. BANK INCURS LARGE SUM OF DEPOSIT GENERATION EXPENSES IN THE
FORM OF COMMISSIONS, REFERRAL AND SOLICITATION FEES AND RELATED
EXPENSES AND/OR PAYMENT OF ADVANCE INTEREST ON DEPOSITS;
“3. DEFERRAL OF THE ABOVE DEPOSIT GENERATION EXPENSES INCURRED TO
DELAY RECORDING OF EXPENSES AND/OR INACCURATE AMORTIZATION OF
ADVANCE INTEREST PAID ON DEPOSITS;
“4. DEPOSIT PACKAGES OFFERED INCLUDE NON-CASH INCENTIVES
DISPROPORTIONATE TO THE AMOUNT OF DEPOSITS SOUGHT WHICH GIVE
UNDUE OR UNWARRANTED ADVANTAGE OR PREFERENCE FOR THE BANK; AND
“5. BANK MARKETS, SOLICITS AND ACCEPTS DEPOSITS OUTSIDE THE BANK
PREMISES INCLUDING BRANCHES, UNLESS OTHERWISE AUTHORIZED BY THE
BSP UNDER SECTIONS X213 (SERVICING DEPOSITS OUTSIDE BANK PREMISES)
OR X621 (ELECTRONIC BANKING SERVICES) OF THE MANUAL OF REGULATIONS
FOR BANKS.”
Section 2. Item m of Annex A of Circular No. 341 is hereby amended and sub-items
12 to 15 are hereby added to Item m, to read as follows:
“m. Engaging in hazardous lending and lax collection policies and practices, as
evidenced by ANY OF THE FOLLOWING CIRCUMSTANCES:
“x x x
“12. HIGH INCIDENCE OF SPURIOUS AND FRAUDULENT LOANS DUE TO
PATENTLY INADEQUATE RISK MANAGEMENT SYSTEMS AND PROCEDURES
RESULTING IN SIGNIFICANT IMPAIRMENT OF CAPITAL;
“13. BANK’S NICHE MOSTLY CONSISTS OF BORROWERS WHO HAVE IMPAIRED
OR LIMITED CREDIT HISTORY, OR MAJORITY OF THE LOANS ARE EITHER
 CLEAN/UNSECURED OR BACKED WITH MINIMUM COLLATERAL VALUES EXCEPT
THOSE UNDERWRITTEN USING MICROFINANCE TECHNOLOGY CONSISTENT
WITH CIRCULAR NO. 272 DATED 30 JANUARY 2001 AND OTHER ACCEPTABLE
CASHFLOW-BASED LENDING SYSTEMS; AND THE BANK DOES NOT HAVE A
ROBUST RISK MANAGEMENT SYSTEM IN PLACE LEAVING THE BANK
VULNERABLE TO LOSSES;
“14. LOAN RATES ARE EXCESSIVELY HIGHER THAN MARKET RATES TO
COMPENSATE THE ADDED OR HIGHER RISKS INVOLVED. EXCESSIVELY HIGHER
RATES ARE THOSE CHARACTERIZED BY EFFECTIVE INTEREST RATES THAT ARE
50% OVER THE PREVAILING COMPARABLE MARKET MEDIAN RATE FOR SIMILAR
LOAN TYPES, MATURITIES AND COLLATERALS;
“15. ASSIGNMENT OF LOANS ON WITHOUT RECOURSE BASIS WITH REAL
ESTATE PROPERTIES AS PAYMENT, RESULTING IN TOTAL INVESTMENT IN REAL
ESTATE IN EXCESS OF THE PRESCRIBED CEILING.
Section 3. Item s and u of Annex A of Circular No. 341 are hereby amended to read
as follows:
“s. Failure to heed warnings and admonitions of the supervisory AND
REGULATORY authorities.
“x x x
“u. Any OTHER action likely to cause insolvency or substantial dissipation of
assets or earnings of the institution or likely to seriously weaken its condition or
otherwise seriously prejudice the interest of its depositors/investors/clients.”
This Circular shall take immediately.
FOR THE MONETARY BOARD

AMANDO M. TETANGCO
Governor

Pasted from <http://www.bsp.gov.ph/regulations/regulations.asp?type=1&id=2321>

Date Issued: 03.09.2009

Number: 650

CIRCULAR NO. 650

Series of 2009
Subject : Authority of Thrift Banks to Issue Foreign Letters of Credit (LCs) and
Pay/Accept/Negotiate Import/Export Drafts/Bills of Exchange
Pursuant to Monetary Board Resolution No. 283 dated 19 February 2009, the
Manual of Regulations for Banks (MORB) is hereby amended, as follows:
Section 1. Subsec. 2101.7 on authority of thrift banks to issue foreign letters of
credit (LCs) and pay/accept/negotiate import/export drafts/bills of exchange is
hereby added and shall read, as follows:
“Subsec. X2101.7 Authority of thrift banks to issue foreign letters of
credit (LCs) and pay/accept/negotiate import/export drafts/bills of exchange.
With prior Monetary Board approval, thrift banks may be authorized to issue
foreign letters of credit (LCs) and pay/accept/negotiate import/export
drafts/bills of exchange, subject to compliance with the following conditions
(at the time of application unless otherwise indicated):
a) Minimum capital requirement of P= 1.0 billion;
b) Ten percent (10%) risk-based capital adequacy ratio (CAR);
c) CAMELS composite rating not lower than “3”, with Management component
score not lower than “3” in the latest examination of the bank;
d) Risk management system appropriate to its operations, characterized by
clear delineation of responsibility for risk management, adequate risk
measurement system, appropriately structured risk limits, effective internal
control system and complete, timely and efficient risk reporting system;
e) Articles of incorporation which shall include among its powers or purposes,
the issuance of foreign LCs and payment/acceptance/negotiation of
import/export drafts/bills of exchange (which may be submitted any time
 prior to engaging in said activities);
f) Correspondent banking relationship or arrangement with reputable foreign
banks (which should be in place prior to engaging in said activities);
g) Appointment of the officer with actual experience of at least two (2) years
as in-charge or at least as assistant in-charge of import and export financing
operations in a universal/ commercial bank who will be in-charge of the said
operations (prior to engaging in said activities);
h) Appointment of bank personnel with actual experience and/or training of at
least six (6) months in import and export financing operations in a
universal/commercial bank who will handle the said operations (prior to
engaging in said activities);
i) No net weekly regular and liquidity reserve deficiencies during the twelve
(12) week period immediately preceding the date of application;
j) No deficiency in asset and liquid asset cover for FCDU liabilities for three
(3) months immediately preceding the date of application;
k) No deficiency in liquidity floor requirement for government funds held
during the twelve (12) week period immediately preceding the date of
application;
l) No float items outstanding for more than sixty (60) calendar days in the
“Due From/To Head Office/Branches/Offices” and “Due from BSP” accounts
exceeding 1% of the total resources as of end of month preceding the date of
application;
m) No unbooked valuation reserves;
n) Compliant with ceilings on loans, other credit accommodations and
guarantees to directors, officers, stockholders, and their related interests
(DOSRI) for the quarter immediately preceding the date of application;
o) Compliant with the single borrower’s loan limit (SBL);
p) Compliant with the limit on real estate and improvements, including bank
equipment;
q) No uncorrected findings of unsafe and unsound banking practices;
r) Generally compliant with banking laws, rules and regulations, orders or
instructions of the Monetary Board and/or BSP Management; and
s) No past due obligations with the BSP or with any financial institution.

Section 2. Subsec. 2101.8 on application for authority to issue foreign letters of

credit and pay/accept/negotiate import/export drafts/bills of exchange is hereby
added, and shall read as follows:
“Subsec. 2101.8 Application for authority to issue foreign letters of
credit (LCs) and pay/accept/negotiate import/export drafts/bills of exchange.
An application for authority to issue foreign LCs and pay/accept/negotiate
import/export drafts/bills of exchange shall be signed by the president of the
bank or officer of equivalent rank and shall be accompanied by a certified
true copy of the resolution of the bank’s board of directors authorizing the
application.”

This Circular shall take effect fifteen (15) days following its publication either in
the Official Gazette or in a newspaper of general circulation.

FOR THE MONETARY BOARD:

AMANDO M. TETANGCO, JR.

Governor

Pasted from <http://www.bsp.gov.ph/regulations/regulations.asp?type=1&id=2347>

REPUBLIC ACT NO. 3591

Sunday, June 06, 2010
3:18 AM
REPUBLIC ACT NO. 3591 – AN ACT ESTABLISHING THE PHILIPPINE DEPOSIT INSURANCE
CORPORATION, DEFINING ITS POWERS AND DUTIES AND FOR OTHER PURPOSES
Section 1. There is hereby created a Philippine Deposit Insurance Corporation hereinafter referred
to as the “Corporation” which shall insure, as herein provided, the deposits of all banks which are entitled
to the benefits of insurance under this Act, and which shall have the powers hereinafter granted.
Sec. 2. The powers and functions of the Corporation shall be vested in a board of directors consisting of
three (3) members one of whom shall be the governor of the Central Bank of the Philippines and two of
whom shall be citizens of the Republic of the Philippines to be appointed by the President of the Philippines
with the advice and consent of the Commission on Appointments. One of the appointive members shall be
the Chairman of the Board of Directors of the Corporation who shall be appointed on a full time basis for a
term of six (6) years at an annual salary of twenty-four thousand pesos (P24,000.00). The other appointive
member, who shall be appointed for a term of four (4) years and the Governor of the Central Bank shall
each receive a per diem of not exceeding fifty pesos (P50.00) for each day of meeting actually attended by
them but in no case shall each of them receive more than five hundred pesos (P500.00) a month. In the
event of a vacancy in the Office of the Governor of the Central Bank of the Philippines, and pending the
appointment of his successor or during the absence of the Governor, the Acting Governor of the Central
Bank of the Philippines shall act as member of the Board of Director. In the event of a vacancy in the Office
of the Chairman of the Board of Directors and pending the appointment of his successor, the Governor of
the Central Bank of the Philippines shall act as Chairman. The members of the Board of Directors shall be
ineligible during the time they are in office and for a period of two years thereafter to hold any office,
position or employment in any insured bank, except that this restriction shall not apply to any member
who has served the full term for which he was appointed. No member of the Board of Directors shall be an
officer or director of any insured bank; and before entering upon his duties as member of the Board of
Directors he shall certify under oath that he has complied with this requirement and such certification shall
be filed with the Secretary of the Board of Directors. Any vacancy in the Board created by the death,
resignation, or removal of an appointive member shall be filled by the appointment of new member to
complete the unexpired period of the term of the member concerned.
The Board of Directors shall have the authority:
1. To prepare and issue rules and regulations as it considers necessary for the effective discharge of its
responsibilities;
2. To direct the management, operations and administration of the Corporation;
3. To appoint, fix the remunerations and remove all officers and employees of the Corporation, subject to
the Civil Service Law; and
4. To authorize such expenditures by the Corporation as are in the interest of the effective administration
and operation of the Corporation.
Sec. 3. As used in this Act -
(a) The term “Board of Directors” means the Board of Directors of the Corporation.
(b) The term “Bank” and “Banking Institution” shall be synonymous and interchangeable and shall include
banks, commercial banks, savings banks, mortgage banks, rural banks, development banks, cooperative
banks, trust companies, branches and agencies in the Philippines of foreign banks and all other companies,
corporations, partnership performing banking functions in the Philippines.
(c) The term “receiver” includes a receiver, liquidating agent, conservator, commission, person, or other
agency charged by law with the duty of winding up the affairs of a bank.
(d) The term “insured bank” means any bank the deposit of which are insured in accordance with the
provision of this Act;
(e) The term “non-insured bank” means any bank the deposit of which are not insured.
The term “deposit” means the unpaid balance of money or its equivalent received by a bank in the usual
course of business and for which it has given or is obliged to give credit to a commercial, checking,
savings, time or thrift account or which is evidenced by its certificate of deposit, and trust funds held by
such bank whether retained or deposited in any department of such bank or deposited in another bank,
together with such other obligations of a bank as the Board of Directors shall find and shall prescribe by
regulations to be deposit liabilities of the Bank: Provided, That any obligation of a bank which is payable at
the office of the bank located outside of the Philippines shall not be a deposit for any of the purposes of
this Act or included as part of the total deposits or of the insured deposit: Provided, further, That any
insured bank which is incorporated under the laws of the Philippines which maintains a branch outside the
Philippines may elect to include for insurance its deposit obligation payable only at such branch.
(g) The term “insured deposit” means the net amount due to any depositor for deposits in an insured bank
(after deducting offsets) less any part thereof which is in excess of P10,000. Such net amount shall be
determined according to such regulations as the Board of Directors may prescribe and in determining the
amount due to any depositor there shall be added together all deposits in the bank maintained in the
same capacity and the same right for his benefit or in his own name or in the names of others.
(h) The term “transfer deposit” means a deposit in an insured bank made available to a depositor by the
Corporation as payment of insured deposit of such depositor in a closed bank and assumed by another
insured bank.
(i) The term “trust funds” means funds held by an insured bank in a fiduciary capacity and includes
without being limited to, funds held as trustee, executor, administrator, guardian, or agent.
Sec. 4. Any bank or banking institution which is engaged in the business of receiving deposits as herein
defined on the effective date of this Act, or which thereafter may engage in the business of receiving
deposits, may insure its deposit liabilities with the Corporation. Before approving the application of such
bank to become an insured bank, the Board of Directors shall give consideration to the factors enumerated
in Section 5 and shall determine upon the basis of a thorough examination of such bank, that its assets in
excess of its capital requirements are adequate to enable it to meet all its liabilities to depositors and
other creditors as shown by the books of the bank.
Sec. 5. The factors to be considered by the Board of Directors under the preceding section shall be the
following: the financial history and condition of the Bank, the adequacy of its capital structure, its future
earning prospects, the general character of its management, the convenience and needs of the community
to be served by the Bank and whether or not its corporate powers are consistent with the purposes of this
Act.
Sec. 6. (a) The assessment rate shall be determined by the Board of Directors: Provided, That the
assessment rate shall not exceed one-twelfth of one per centum per annum. The semiannual assessment
for each insured bank shall be in the amount of the product of one-half (1/2) the assessment rate
multiplied by the assessment base. The assessment base shall be the amount of the liability of the bank
for deposits, according to the definition of the term “deposit” in and pursuant to subsection (f) of Section 3
without any deduction for indebtedness of depositors: Provided, further, That the bank -
(1) may deduct (i) from the deposit balance due to an insured bank the deposit balance due from such
insured bank (other than trust funds deposited by it in such bank) which is subject to an immediate
withdrawal; and (ii) cash items as determined by either of the following methods, at the option of the bank:
(aa) by multiplying by 2 the total of the cash items forwarded for collection on the assessment base days
(being the days on which the average deposits are computed) and cash items held for clearings at the
close of business on said days, which are in the process of collection and which the bank has paid in the
regular course of business or credited to deposit accounts; or (bb) by deducting the total of cash items
forwarded for collection on the assessment base days and cash items held for clearing at the close of
business on said days, which are in the process of collection and which the bank has paid in the regular
course of business or credited to deposit accounts, plus such uncollected items paid or credited on
preceding days which are in the process of collection: Provided, That the Board of Directors may define the
terms “cash items”, “process of collection”, and “uncollected items” and shall fix the maximum period for
which any such item may be deducted; and
(2) may exclude from its assessment base (i) drafts drawn by it on deposit accounts in other banks which
are issued in the regular course of business; and the amount of devices or authorizations issued by it for
cash letters received, directing that its deposit account in the sending bank be charged with the amount
thereof; and (ii) cash funds which are received and held solely for the purpose of securing a liability to the
bank but not in an amount in excess of such liability, and which are not subject to withdrawal by the
obligor and are carried in a special non-interest bearing account designated to properly show their
purpose.
Each insured bank, as a condition to the right to make any such deduction or exclusion in determining its
assessment base, shall maintain such records as will readily permit verification of the correctness thereof.
The semiannual assessment base for one semiannual period shall be the average of the assessment base
of the bank as of the close of business on March thirty-one and June thirty, and the semiannual assessment
base for the other semiannual period shall be the average of the assessment base of the bank as of the
close of business on September thirty and December thirty-one: Provided, That when any of said days is a
nonbusiness day or a legal holiday, either National or Provincial, the preceding business day shall be used.
The certified statements required to be filed with the Corporation under subsections (b) and (c) of this
section shall be in such form and set forth such supporting information as the Board of Directors shall
prescribe. The assessment payments required from insured banks under subsections (b) and (c) of this
section shall be made in such manner and at such time or times as the Board of Directors shall prescribe,
provided the time or times so prescribed shall not be later than sixty days after filing the certified
statement setting forth the amount of assessment.
(b) On or before the 15th of July of each year, each insured bank shall file with the Corporation a certified
statement showing for the six months ending on the preceding June thirty the amount of the assessment
base and the amount of the semiannual assessment due to the Corporation for the period ending on the
following December thirty-one, determined in accordance with subsection (a) of this section, which shall
contain or be verified by a written declaration that it is made under the penalties of perjury. Each insured
bank shall pay to the Corporation the amount of the semiannual assessment it is required to certify. On or
before the 15th day of January of each year, each insured bank shall file with the Corporation a similar
certified statement for the six months ending on the preceding December thirty-one and shall pay to the
Corporation the amount of the semiannual assessment for the period ending on the following June thirty
which it is required to certify.
(c) Each bank which becomes an insured bank shall not be required to file any certified statement or pay
any assessment for the semiannual period in which it becomes an insured bank. On the expiration of such
period, each such bank shall comply with the provisions of subsection (b) of this section except that the
semiannual assessment base for its first certified statement shall be the assessment base of the bank as of
the close of business on the preceding June thirty or December thirty-one, whichever is applicable,
determined in accordance with subsection (a) of this section. If such bank has assumed the liabilities for
deposits of another bank or banks, it shall include such liabilities in its assessment base. The first certified
statement shall show as the amount of the first semiannual assessment due to the Corporation, an amount
equal to the product of one-half of the annual assessment rate multiplied by such assessment base.
(d) As of December thirty-one nineteen hundred sixty-four, and as of December thirty-one of each calendar
year thereafter, the Corporation shall transfer 40 per centum of its net assessment income to its capital
account and the balance of the net assessment income shall be credited pro rata to the insured banks
based upon the assessment of each bank becoming due during said calendar year. Each year such credit
shall be applied by the Corporation toward the payment of the total assessment becoming due for the
semiannual assessment period beginning the next ensuing July 1 and any excess credit shall be applied
upon the assessment next becoming due. The term “net assessment income” as used therein means the
total assessments which becomes due during the calendar year less (1) the operating costs and expenses
of the Corporation for the calendar year; (2) additions to reserve to provide for insurance losses during the
calendar year, except that any adjustments to reserve which result in a reduction of such reserve shall be
added; and (3) the insurance losses sustained in said calendar year plus losses from any preceding years
in excess of such reserves. If the above deductions exceed in amount the total assessments which become
due during the calendar year, the amount of such excess shall be restored by deduction from total
assessments becoming due in subsequent years.
(e) The Corporation (1) may refund to an insured bank any payment of assessment in excess of the
amount due to the Corporation or (2) may credit such excess toward the payment of the assessment next
becoming due from such bank and upon succeeding assessments until the credit is exhausted.
Any insured bank which fails to file any certified statement required to be filed by it in connection with
determining the amount of any assessment payable by the bank to the Corporation may be compelled to
file such statement by mandatory injunction or other appropriate remedy in a suit brought for such
purpose by the Corporation against the bank and any officer or officers thereof in any court of the
Philippines of competent jurisdiction in which such bank is located.
(g) The Corporation, in a suit brought in any court of competent jurisdiction, shall be entitled to recover
from any insured bank the amount of any unpaid assessment lawfully payable by such insured bank to the
Corporation, whether or not such bank shall have filed any such certified statement and whether or not
suit shall have been brought to compel the bank to file any such statement. No action or proceeding shall
be brought for recovery of any assessment due to the Corporation or for the recovering of any amount
paid to the Corporation in excess of the amount due to it, unless such action or proceeding shall have been
brought within five years after the right accrued for which the claim is made, except where the insured
bank has made or filed with the Corporation a false or fraudulent certified statement with the intent of
evade, in a whole or in part, the payment of assessment, in which case the claim shall not have been
deemed to have accrued until the discovery by the Corporation that the certified statement is false
fraudulent.
(h) Should any insured bank fail or refuse to pay any assessment required to be paid by such bank under
any provision of this Act, and should the bank not correct such failure or refusal within thirty days after
written notice has been given by the Corporation to an officer of the bank, citing this subsection, and
stating that the bank has failed or refused to pay as required by law the insured status of such bank shall
be terminated by the Board of Directors. The remedies provided in this subsection and in the two
preceding subsections shall not be construed as limiting any other remedies against an insured bank but
shall be in addition thereto.
(i) Trust funds held by an insured bank in a fiduciary capacity whether held in trust or deposited in any
other department or in another bank shall be insured like other forms of deposits, in an amount not to
exceed P10,000 for each trust estate, and when deposited by the fiduciary bank in another insured bank
such trust funds shall be similarly insured to the fiduciary bank according to the trust estates represented.
Notwithstanding any other provision of this Act, such insurance shall be separate from the additional to
that covering other deposits of the owners of such trust funds or the beneficiaries of such trust estates:
Provided, That where the fiduciary bank deposits any of such trust funds in other insured banks, the
amount so held by other insured banks on deposit shall not for the purpose of any certified statement
required under subsections (b) and (c) of this section be considered to be a deposit liability of the fiduciary
bank, but shall be considered to be a deposit liability of the bank in which such funds are so deposited by
such fiduciary bank. The Board of Directors shall have the power by regulation to prescribe the manner of
reporting and of depositing such trust funds.
Sec. 7. (a) Any insured bank may, upon not less than ninety days, written notice to the Corporation, and
to the Development Bank of the Philippines if it owns or holds as pledges any preferred stock, capital
notes, or debentures of such bank, terminate its status as an insured bank. Whenever the Board of
Directors shall find that an insured bank or its directors or trustees have continued unsafe or unsound
practices in conducting the business of the bank or which have knowingly or negligently permitted any of
its officers or agents to violate any provisions of any law or regulation to which the insured bank is subject,
the Board of Directors shall first give to the Central Bank of the Philippines a statement with respect to
such practices or violations for the purpose of securing the correction thereof and shall give a copy thereof
to the bank. Unless such correction shall be made within one hundred twenty days or such shorter period
of time as the Central Bank of the Philippines shall require, the Board of Directors, if it shall determine to
proceed further, shall give to the bank not less than thirty days’ written notice of intention to determine
the status of the bank as an insured bank, and shall fix a time and place for a hearing before the Board of
Directors or before a person designated by it to conduct such hearing, at which evidence may be
produced, and upon such evidence the Board of Directors shall make written findings which shall be
conclusive. Unless the bank shall appear at the hearing by a duly authorized representative, it shall be
deemed to have consented to the termination of its status as an insured bank. If the Board of Directors
shall find that any unsafe or unsound practice or violation specified in such notice has been established
and has not been corrected within the time above prescribed in which to make such correction, the Board
of Directors may order that the insured status of the bank be terminated on a date subsequent to such
finding and to the expiration of the same specified in such notice of intention. The Corporation may publish
notice of such termination and the bank shall give notice of such termination to each of the depositors at
his last address of record on the books of the bank, in such a manner and at such at time as the Board of
Directors may find to be necessary and may order for the protection of the depositors. After the
termination of the insured status of any bank under the provisions of this subsection, the insured deposits
of each depositor in the bank on the date of such termination, less all subsequent withdrawals from any
deposits of such depositor, shall continue for a period of two years to be insured, and the bank shall
continue to pay to the Corporation assessments as in the case of an insured bank during such period. No
additions to any such deposits and no new deposits in such bank made after the date of such termination
shall be insured by the Corporation, and the bank shall not advertise or hold itself out as having insured
deposits unless in the same connection it shall also state equal prominence that such additions to deposits
and new deposits made after such date are not so insured. Such bank shall, in all other respects, be
subject to the duties and obligations of an insured bank for the period of two years from the date of such
termination, and in the event that such bank shall be closed on account of insolvency within such period of
two years, the Corporation shall have the same powers and rights with respect to such bank as in case of
an insured bank.
(b) Notwithstanding any other provision of law, whenever the Board of Directors shall determine that an
insured banking institution is not engaged in the business of receiving deposits, the Corporation shall
notify the banking institution that its insured status will terminate at the expiration of the first full
semiannual assessment period following such notice. A finding by the Board of Directors that a banking
institution is not engaged in the business of receiving deposits shall be conclusive. The Board of Directors
shall prescribe the notice to be given by the banking institution of such termination and the Corporation
may publish notice thereof. Upon the termination of the insured status of any such banking institution, its
deposits shall thereupon cease to be insured and the banking institution shall thereafter be relieved of all
future obligations to the Corporation, including the obligation to pay future assessments.
(c) Whenever the liabilities of an insured bank for deposits shall have been assumed by another insured
bank or banks, the insured status of the bank whose liabilities are so assumed shall terminate on the date
of receipt by the Corporation of satisfactory evidence of such assumption with like effect as if its insured
status had been terminated on said date by the Board of Directors after proceedings under subsection (a)
of this section: Provided, That if the bank whose liabilities are so assumed gives to its depositors notice of
such assumption within thirty days after such assumption takes effect, by publication or by any reasonable
means, in accordance with regulations to be prescribed by the Board of Directors, the insurance of its
deposits shall terminate at the end of six months from the date such assumption takes effect. Such bank
shall be subject to the duties and obligations of an insured bank for the period its deposits are insured:
Provided, further, That if the deposits are assumed by a newly insured bank, the bank whose deposits are
assumed shall not be required to pay any assessment upon the deposits which have been so assumed
after the semiannual period in which the assumption takes effect.
Sec. 8. The Corporation as a corporate body shall have the power -
First. - To adopt and use a corporate seal.
Second. - To have succession until dissolved by an Act of Congress.
Third. - To make contracts.
Fourth. - To sue and be sued, complain and defend, in any court of law in the Philippines. All suits of a civil
nature to which the corporation shall be a part shall be deemed to arise under the laws of the Philippines.
No attachment or execution shall be issued against the Corporation or its property before final judgment in
any suit, action, or proceeding in any court. The Board of Directors shall designate an agent upon whom
service of process may be made in any province or city or jurisdiction in which any insured bank is located.
Fifth. - To appoint by its Board of Directors such officers and employees as are not otherwise provided for
in this Act to define their duties, fix their compensation, require bonds of them and fix penalty thereof and
to dismiss such officers and employees for cause.
Sixth. - To prescribe, by its Board of Directors, by-laws not inconsistent with law, regulating the manner in
which its general business may be conducted, and the privileges granted to it by law may be exercised
and enjoyed.
Seventh. - To exercise by its Board of Directors, or duly authorized officers or agents, all powers
specifically granted by the provisions of this Act, and such incidental powers as shall be necessary to carry
on the powers so granted.
Eighth. - To make examination of and to require information and reports from banks, as provided in this
Act.
Ninth. - To act as receiver.
Tenth. - To prescribe by its Board of Directors such rules and regulations as it may deem necessary to
carry out the provisions of this Act.
Sec. 9. (a) The Board of Directors shall administer the affairs of the Corporation fairly and impartially and
without discrimination. the Corporation shall be entitled to the free use of Philippine mails in the same
manner as the other offices of the national government.
(b) The Board of Directors shall appoint examiners who shall have power, on behalf of the Corporation to
examine any insured bank or any bank making application to become an insured bank, whenever in the
judgment of the Board of Directors an examination of the bank is necessary. Each such examiner shall
have power to make a thorough examination of all the affairs of the bank and in doing so he shall have
power to administer oaths and to examine and take and preserve the testimony of any of the officers and
agents thereof, and shall make a full and detailed report of the condition of the bank to the Corporation.
The Board of Directors in like manner shall appoint claim agents who shall have power to investigate and
examine all claims for insured deposits and transferred deposits. Each claim agent shall have power to
administer oaths and to examine under oath and take and preserve the testimony of any person relating
to such claims.
(c) Each insured bank shall make to the Corporation reports of condition in such form and at such times as
the Board of Directors may require such reports to be published in such manner, not inconsistent with any
applicable law, as it may direct. Every such bank which fails to make or publish any such report within
such time, not less than five days, as the Board of Directors may require, shall be subject to a penalty of
not more than P100 for each day of such failure recoverable by the Corporation of its use.
(d) The Corporation shall have access to reports of examination made by, and reports of condition made to
the Superintendent of Banks or the Governor of the Central Bank of the Philippines, and the
Superintendent of Banks or the Governor of the Central Bank of the Philippines shall also have access to
reports of examination made on behalf of, and reports of condition made to the Corporation.
(e) The members of the Board of Directors and the officers and employees of the Corporation are
prohibited from revealing any information relating to the condition or business of any insured bank and
any member of the Board of Directors, officer or employee of the Corporation violating this provision shall
be held liable for any loss or injury suffered by the Corporation.
Sec. 10. (a) A permanent insurance fund in the amount of P5,000,000 to be appropriated from the
General Fund is hereby created to be used by the Corporation to carry out the purposes of this Act:
Provided, That the maximum amount of the insured deposit of any depositor shall be P10,000.
(b) For the purposes of this Act an insured bank shall be deemed to have been closed on account of
insolvency in any case in which it has been closed for the purpose of liquidation without adequate
provision being made for payment of its depositors.
(c) Whenever an insured bank shall have been closed on account of insolvency, payment of the insured
deposits in such bank shall be made by the Corporation as soon as possible either (1) by cash or (2) by
making available to each depositor a transferred deposit in another insured bank in an amount equal to
the insured deposit of such depositor: Provided, That the Corporation, in its discretion, may require proof
of claims to be filed before paying the insured deposit, and that in any case where the Corporation is not
satisfied as to the validity of a claim for an insured deposit, it may require the final determination of a
court of competent jurisdiction before paying such claim.
(d) The Corporation, upon the payment of any depositor as provided for in subsection (c) of this section
shall be subrogated to all rights of the depositor against the closed bank to the extent of such payment.
Such subrogation shall include the right on the part of the Corporation to receive the same dividends from
the proceeds of the assets of such closed bank and recoveries on account of stockholders’ liability as
would have been payable to the depositor on a claim for the insured deposit, but such depositor shall
retain his claim for any uninsured portion of his deposit.
Sec. 11. (a) Payment of an insured deposit to any person by the Corporation shall discharge the
Corporation, and payment of a transferred deposit to any person by the new bank or by an insured bank in
which a transferred deposit has been made available shall discharge the Corporation and such new bank
or other insured bank, to the same extent that payment to such person by the closed bank would have
discharged it from liability for the insured deposit.
(b) Except as otherwise prescribed by the Board of Directors, neither the Corporation nor such other
insured bank shall be required to recognize as the owner of any portion of a deposit appearing on the
records of the closed bank under a name other than that of the claimant, any person whose name or
interest as such owner is not disclosed on the records of such closed bank as part owner of said deposit, if
such recognition would increase the aggregate amount of the insured deposits in such closed bank.
(c) The Corporation may withhold payment of such portion of the insured deposit of any depositor in a
closed bank as may be required to provide for the payment of any liability of such depositor as a
stockholder of the closed bank, or of any liability of such depositor to the closed bank or its receiver, which
is not offset against the claim due from such bank, pending the determination and payment of such
liability by such depositor or any other person liable therefor.
(d) If, after the Corporation shall have given at least three months notice to the depositor by mailing a
copy thereof to his last-known address appearing on the records of the closed bank, any depositor in the
closed bank shall fail to claim his insured deposit from the Corporation within eighteen months after the
Monetary Board of the Central Bank of the Philippines or the proper court shall have ordered the
conversion of the assets of such closed bank into money, all rights of the depositor against the Corporation
with respect to the insured deposit shall be barred, and all rights of the depositor against the closed bank
and its shareholders or the receivership estate to which the Corporation may have become subrogated,
shall thereupon revert to the depositor.
Sec. 12. (a) Money of the Corporation not otherwise employed shall be invested in obligations of the
Republic of the Philippines or in obligations guaranteed as to principal and interest by the Republic of the
Philippines: Provided, That the Corporation shall not sell or purchase any such obligations for its own
account and in its own right and interest, at any one time aggregating in excess of P100,000, without the
approval of the Insurance Commissioner: And Provided, further, That the Insurance Commissioner may
waive the requirement of his approval with respect to any transaction or classes of transactions subject to
the provisions of this subsection for the period of time and under such conditions as he may determine.
(b) The banking or checking accounts of the Corporation shall be kept with the Central Bank of the
Philippines, with the Philippine National Bank, or with any other bank designated as depositary or fiscal
agent of the Philippine Government.
(c) When the Corporation has determined that an insured bank is in danger of closing, in order to prevent
such closing, the Corporation, in the discretion of its Board of Directors is authorized to make loans to, or
purchase the assets of, or make deposits in, such insured bank, upon such terms and conditions as the
Board of Directors may prescribe, when in the opinion of the Board of Directors the continued operation of
such bank is essential to provide adequate banking service in the community. Such loans and deposits
may be in subordination to the rights of depositors and other creditors.
Sec. 13. The corporation is authorized to borrow from the Central Bank of the Philippines and the Central
Bank is authorized and directed to loan the Corporation on such terms as may be fixed by the Corporation
and the Central Bank, such funds as in the judgment of the Board of Directors of the Corporation are from
time to time required for insurance purposes not exceeding in the aggregate of one hundred million pesos
outstanding at any one time: Provided, That the rate of interest to be charged in connection with any loan
made pursuant to this section shall not be less than the current average rate on outstanding marketable
and nonmarketable obligations of the Republic of the Philippines as of the last day of the month preceding
the making of such loan. Any such loan shall be used by the Corporation solely in carrying out its functions
with respect to such insurance.
Sec. 14. All notes, debentures, bonds, or such obligations issued by the Corporation shall be exempt from
taxation.
Sec. 15. (a) The Corporation shall annually make a report of its operations to the Congress as soon as
practicable after the 1st day of January in each year.
(b) The financial transactions of the Corporation shall be audited by the General Auditing Office in
accordance with the principles and procedures applicable to commercial corporate transactions and under
such rules and regulations as may be prescribed by the Auditor General. The audit shall be conducted at
the place or places where accounts of the Corporation are normally kept. The representatives of the
General Auditing Office shall have access to all books, accounts, records, reports, files, and all other
papers, things, or property belonging to or in use by the Corporation pertaining to its financial transactions
and necessary to facilitate the audit, and they shall be afforded full facilities for verifying transactions with
the balances or securities held by depositaries, fiscal agents, and custodians. All such books, accounts,
records, reports, files, papers, and property of the Corporation shall remain in possession and custody of
the Corporation.
(c) A report of the Audit for each fiscal year ending on June 30 shall be made by the Auditor General to the
Congress not later than January 15 following the close of such fiscal year. On or before December 15
following such fiscal year the Auditor General shall furnish the Corporation a short form report showing the
financial position of the Corporation at the close of fiscal year. The report to the Congress shall set forth
the scope of the audit and shall include a statement of assets and liabilities and surplus or deficit; a
statement of surplus or deficit analysis; a statement of income and expenses; a statement of sources and
application of funds and such comments and information as may be deemed necessary to inform Congress
of the financial operations and condition of the Corporation, together with such recommendations with
respect thereto as the Auditor General may deem advisable. The report shall also show specifically any
program, expenditure, or other financial transactions or undertaking observed in the course of the audit,
which in the opinion of the Auditor General, has been carried on or made without authority of law. A copy
of each report shall be furnished to the President of the Philippines, to the Governor of the Central Bank of
the Philippines, and to the Corporation at the time submitted to the Congress.
Sec. 16. (a) Every insured bank shall display at each place of business maintained by it a sign or signs,
and shall include a statement to the effect that its deposits are insured by the Corporation in all of its
advertisements: Provided, That the Board of Directors may exempt from this requirement advertisements
which do not relate to deposits or when it is impractical to include such statement therein. The Board of
Directors shall prescribe by regulation the forms of such signs and the manner of display and the
substance of such statements and the manner of use. For each day an insured bank continues to violate
any provisions of this subsection or any lawful provisions of said regulations, it shall be subject to a penalty
of not more than P100, which the Corporation may recover for its use.
(b) No insured bank shall pay any dividend on its capital stock or interest on its capital notes or debentures
(if such interest is required to be paid only out of net profits) or distribute any of its capital assets while it
remains in default in the payment of any assessment due to the Corporation; and any director or officer of
any insured bank who participates in the declaration or payment of any such dividend or interest or in any
such distribution shall, upon conviction, be fined not more than P1,000 or imprisoned not more than one
year, or both: Provided, That if such default is due to a dispute between the insured bank and the
Corporation over the amount of such assessment, this subsection shall not apply, if such bank shall deposit
security satisfactory to the Corporation of payment upon final determination of the issue.
(c) Without prior written consent by the Corporation, no insured bank shall (1) merge or consolidate with
any noninsured bank or institution or convert into a noninsured bank or institution or (2) assume liability to
pay any deposits made in, or similar liabilities of, any noninsured bank or institution or (3) transfer assets
to any noninsured bank or institution in consideration of the assumption of liabilities for any portion of the
deposits made in such insured bank.
(d) The Corporation may require any insured bank to provide protection and indemnity against burglary,
defalcation, and other similar insurable losses. Whenever any insured bank refuses to comply with any
such requirement the Corporation may contract for such protection and indemnity and add the cost
thereof to the assessment otherwise payable by such bank.
(e) Any insured bank which wilfully fails or refuses to file any certified statement or pay any assessment
required under this Act shall be subject to a penalty of not more than P100 for each day that such
violations continue, which penalty the Corporation may recover for its use: Provided, That this subsection
shall not be applicable under the circumstances stated in the provisions of subsection (b) of this section.
Sec. 17. Except with the written consent of the Corporation, no person shall serve as a director, officer, or
employee of an insured bank who has been convicted, or who is hereafter convicted, of any criminal
offense involving dishonesty or a breach of trust. For each willful violation of this prohibition, the bank
involved shall be subject to a penalty of not more than P100 for each day this prohibition is violated, which
the Corporation may recover for its use.
Sec. 18. If any provision or section of this Act or the application thereof to any person or circumstances is
held invalid, the other provisions or sections of this Act, in the application of such provision or section to
other persons or circumstances shall not be affected thereby.
Sec. 19. All Acts or parts of Acts and executive orders, administrative orders, or parts thereof which are
inconsistent with the provisions of this Act are hereby repealed.
Sec. 20. This Act shall take effect upon approval. The Philippine Deposit Insurance Corporation shall
commence business upon organization of the Board of Directors and certification by the Treasurer of the
Philippines that the Permanent Insurance Fund has been appropriated.
Approved: June 22, 1963

Pasted from <http://www.bcphilippineslawyers.com/republic-act-no-3591/>

REPUBLIC ACT NO. 6037

Sunday, June 06, 2010
3:20 AM

REPUBLIC ACT NO. 6037 - AN ACT TO AMEND CERTAIN SECTIONS OF REPUBLIC ACT NUMBERED
THREE THOUSAND FIVE HUNDRED NINETY ONE ENTITLED "AN ACT ESTABLISHING THE
PHILIPPINE DEPOSIT INSURANCE CORPORATION, DEFINING ITS POWERS AND DUTIES AND FOR
OTHER PURPOSES"

SECTION 1. Section 2 of Republic Act Numbered Three thousand five hundred ninety one is
hereby amended to read as follows:

"Sec. 2. The powers and functions of the Corporation shall be vested in a Board of Directors
consisting of three (3) members one of whom shall be the Governor of the Central Bank of the
Philippines and two of whom shall be citizens of the Republic of the Philippines to be
appointed by the President of the Philippines with the consent of the Commission on
Appointments. One of the appointive members shall be the Chairman of the Board of Directors
of the Corporation who shall be appointed on full time basis for a term of six (6) years at an
annual compensation which shall be fixed by the President of the Philippines. The other
appointive member, who shall be appointed for a term of four (4) years and the Governor of
the Central Bank shall each receive a per diem of not exceeding fifty pesos (P50.00) for each
day of meeting actually attended by them but in no case shall each of them receive more than
five hundred pesos (P500.00) a month.n the event of vacancy in the office of the Governor of
the Central Bank of the Philippines, and pending the appointment of his successor or during
the absence of the Governor, the Acting Governor of the Central Bank of the Philippines shall
act as member of the Board of Directors.n the event of a vacancy in the Office of the Chairman
of the Board of Directors and pending the appointment of his successor, the Governor of the
Central Bank of the Philippines shall act as Chairman. The members of the Board of Directors
shall be ineligible during the time they are in office and for a period of two years thereafter to
hold any office, position or employment in any insured bank, except that this restriction shall
not apply to any member who has served the full term for which he was appointed. No
member of the Board of Directors shall be an officer or director of any insured bank; and
before entering upon his duties as member of the Board of Directors, he shall certify under
oath that he has complied with this requirement and such certification shall be filed with the
Secretary of the Board of Directors. Any vacancy in the Board created by the death,
resignation, or removal of an appointive member shall be filled by the appointment of new
member to complete the unexpired period of the term of the member concerned.

"The Board of Directors shall have the authority:

"1. To prepare and issue rules and regulations as it considers necessary for the effective
discharge of its responsibilities.

"2. To direct the management, operations and administration of the Corporation;

"3. To appoint, fix the remuneration and remove any officer or employee of the Corporation
for cause: provided, however, that officers exercising discretionary powers shall not be
subject to the Civil Service Law; and

"4. To authorize such expenditures by the Corporation as are in the interest of the effective
administration and operation of the Corporation."

SECTION 3. Section 4 of the same Act is hereby amended as follows:

"Sec. 4. The deposit liabilities of any bank or banking institution, which is engaged in the
business of receiving deposits as herein defined on the effective date of this Act, or which
thereafter may engage in the business of receiving deposits, shall be insured with the
corporation."

SECTION 4. Section 5 of the same Act is hereby repealed.

SECTION 5. Section 8 of the same Act is hereby amended to read as follows:

"Sec. 8. The Corporation as a corporate body shall have the powers:

"First — To adopt and use a corporate seal;

"Second — To have succession until dissolved by an Act of Congress;

"Third — To make contracts;

"Fourth — To sue and be sued, complain and defend, in any court of law in the Philippines. All
suits of a civil nature to which the Corporation shall be a part shall be deemed to arise under
the laws of the Philippines. No attachment or execution shall be issued against the
Corporation or its property before final judgment in any suit, action or proceeding in any
court. The Board of Directors shall designate an agent upon whom service of process may be
made in any province or city or jurisdiction in which the insured bank is located;

"Fifth — To appoint by its Board of Directors such officers and employees as are not otherwise
provided for in this Act, to define their duties, fix their compensation, require bonds of them
and fix penalty thereof and to dismiss such officers and employees for cause;

"Sixth — To prescribe, by its Board of Directors, by-laws not inconsistent with law, regulating
the manner in which its general business may be conducted, and the privileges granted to it
by law may be exercised and enjoyed;

"Seventh — To exercise, by its Board of Directors, or duly authorized officers or agents, all
powers specifically granted by the provisions of this Act, and such incidental powers as shall
be necessary to carry on the powers so granted;

"Eight — To make examinations of and to require information and reports from banks, as
provided in this Act: provided, that any examination shall be made simultaneously with the
examination by the Departments of the Central Bank conducting examinations on banks;

"Ninth — To act as receiver; and

"Tenth — To prescribe by its Board of Directors such rules and regulations as it may deem
necessary to carry out the provisions of this Act."

SECTION 6. Section 12 of the same Act is hereby amended to read as follows:

"Sec. 12. (a) Money of the Corporation not otherwise employed shall be invested in
obligations of the Republic of the Philippines or in obligations guaranteed as to principal and
interest by the Republic of the Philippines.
"(b) The banking or checking accounts of the Corporation shall be kept with the Central Bank
of the Philippines, with the Philippine National Bank, or with any other bank designated as
depository or fiscal agent of the Philippine Government.

"(c) When the Corporation has determined that an insured bank is in danger of closing, in
order to prevent such closing, the Corporation, in the discretion of its Board of Directors is
authorized to make loans to, or purchase the assets of, or make deposits in, such insured
bank, upon such terms and conditions as the Board of Directors may prescribe, when in the
opinion of the Board of Directors the continued operation of such bank is essential to provided
adequate banking service in the community, Such loans and deposits may be in subordination
to the rights of depositors and other creditors."

SECTION 7. Section 13 of the same Act is hereby amended to read as follows:

"Sec. 13. The Corporation is authorized to borrow from the Central Bank of the Philippines
and the Central Bank is authorized and directed to loan the Corporation on such terms as may
be fixed by the Corporation and the Central Bank, such funds as in the judgment of the Board
of Directors of the Corporation are from time to time required for insurance purposes including
those provided for in section 12 (c) not exceeding in the aggregate of one hundred million
pesos at any one time: provided, that the rate of interest to be charged in connection with any
loan made pursuant to this Section shall not be less than the current average rate on
outstanding marketable and non-marketable obligations of the Republic of the Philippines as
of the last day of the month preceding the making of such loan. Any such loan shall be used by
the Corporation solely in carrying out its functions with respect to such insurance."

SECTION 8. Section 14 of the same Act is hereby amended to read as follows:

"Sec. 14. With the approval of the President of the Philippines, to issue bonds, debentures,
and other obligations whenever its capital or funds are not sufficient to meet its obligations to
depositors whose deposits are insured: provided, that the board of directors shall determine
the interest rates, maturity and other requirements of said obligations: provided, further, that
the corporation shall provide for appropriate reserves for the redemption or retirement of said
obligations.

"All notes, debentures, bonds or such obligations issued by the Corporation shall be exempt
from taxation."

SECTION 9. Section 16 (a) of the same Act is hereby amended to read as follows:

"Sec. 16. (a) Every insured bank shall display at each place of business maintained by it a
sign or signs, and shall include a statement to the effect that its deposits are insured by the
Corporation in all of its advertisements: provided, that the Board of Directors may exempt
from this requirement advertisements which do not relate to deposits or when it is impractical
to include such statement therein. The Board of Directors shall prescribe by regulation the
forms of such signs and the manner of display and the substance of such statements and the
manner of use. For each day an insured bank continues to violate any provisions of this
subsection or any lawful provisions of said regulations, it shall be subject to a penalty of not
more than P100.00 which the Corporation may recover for its use: provided, however, that the
penalty of imprisonment for not more than one (1) year or a fine of not exceeding two
thousand pesos (P2,000.00) or both, in the discretion of the court shall be imposed upon:

"1. The directors and officers of any Bank, Corporation, partnership or any other company
performing banking functions in the Philippines not insured under the provisions of this Act
which shall in any manner, advertise, or hold itself out as having insured status for the
purpose of making it appear that its deposits are insured with the corporation.

"2. The directors and officers of a bank whose insured status had already been terminated, if
such bank shall continue to advertise in any manner or hold itself out as having insured
deposits, unless in the same connection, it shall also state with the same prominence that
additional and/or new deposits made after the effective date of termination of its insured
status are no longer insured.
"3. Any person, who knowing the purpose for which the official sign, advertising statement
and/or emblem, as duly prescribed by the board of directors of the corporation is to be used,
reproduces or supplies such official sign, advertising statement and/or emblem or a colorable
imitation thereof, for the use of a bank not insured under the provisions of this act, to enable
such bank to fraudulently use the same in connection with the advertising of its services.

"(b) No insured bank shall pay any dividends on its capital stock or interest on its capital
notes or debentures (if such interest is required to be paid only out of net profits) or distribute
any of its capital assets while it remains in default in the payment of any assessment due to
the Corporation; and any director or officer of any insured bank who participates in the
declaration or payment of any such dividend or interest or in any such distribution shall, upon
conviction, be fined not more than P1,000 or imprisoned not more than one year, or both:
provided, that if such default is due to a dispute between the insured bank and the
Corporation over the amount of such assessment, this subsection shall not apply, if such bank
shall deposit security satisfactory to the Corporation for payment upon final determination of
the issue.

"(c) Without prior written consent by the Corporation, no insured bank shall (1) merge or
consolidate with any non-insured bank or institution or convert into a non-insured bank or
institution or (2) assume liability to pay any deposits made in, or similar liabilities of, any non-
insured bank or institution or (3) transfer assets to any non-insured bank or institution in
consideration of the assumption of liabilities for any portion of the deposits made in such
insured bank.

"(d) The Corporation may require any insured bank to provide protection and indemnity
against burglary, defalcation, and other similar insurable losses. Whenever any insured bank
refuses to comply with any such requirement the Corporation may contact for such protection
and indemnity and add the cost thereof to the assessment otherwise payable by such bank.

"(e) Any insured bank which willfully fails or refuses to file any certified statement or pay
any assessment required under this Act shall be subject to a penalty of not more than P100 for
each day that such violations continue, which penalty the Corporation may recover for its use:
provided, that this subsection shall not be applicable under the circumstances stated in the
provisions of subsection (b) of this section."

SECTION 10. This Act shall take effect upon its approval.

Approved: August 4, 1969

Pasted from <http://www.chanrobles.com/republicacts/republicactno6037.html>

PD 120
Sunday, June 06, 2010
3:21 AM

The Lawphil Project - Arellano Law Foundation

PRESIDENTIAL DECREES No. 120 January 29, 1973

MALACAÑANG
Manila
PRESIDENTIAL DECREE No. 120 January 29, 1973
AMENDING REPUBLIC ACT NUMBERED THREE THOUSAND FIVE HUNDRED NINETY-ONE, AS
AMENDED, ENTITLED "AN ACT ESTABLISHING THE PHILIPPINE DEPOSIT INSURANCE
CORPORATION, DEFINING ITS POWERS AND DUTIES AND FOR OTHER PURPOSES"
WHEREAS, there were pending before Congress prior to the promulgation of Proclamation No. 1081, dated
September 21, 1972, certain urgent measures proposing amendments to Republic Act No. 3591, as
amended;
WHEREAS, the deposit insurance scheme has been adopted to generate more faith and confidence in the
banking system and the Philippine Deposit Insurance Corporation, as an insurer of bank depositors, is
entrusted not only with the vital role of protecting depositors from loss resulting from bank closures but
also in helping develop a sound and stable banking system;
WHEREAS, the recommendations contained in the report on the Philippine financial system which have
been accepted, with certain modifications by the monetary authorities, included among others, certain
proposals geared toward ensuring the effectiveness of the Corporation in performing its assigned tasks;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested
in me by the Constitution as Commander-in-Chief of all the Armed Forces of the Philippines, and pursuant
to Proclamation No. 1081, dated September 21, 1972, and General Order No. 1, dated September 22,
1972, as amended, and in order to effect the desired changes and reforms in the social, economic, and
political structure of our society, do hereby order and decree the amendment of Republic Act No. 3591, as
amended, as follows:
Section 1. Section two of Republic Act Numbered Three thousand five hundred ninety-one, as amended,
is hereby amended to read as follows:
"Sec. 2. The powers and functions of the Corporation shall be vested in a Board of Directors consisting of
three (3) members one of whom shall be the Governor of the Central Bank of the Philippines and two of
whom shall be citizens of the Republic of the Philippines to be appointed by the President of the Philippines
with the consent of the Commission on Appointments. One of the appointive members shall be the
Chairman of the Board of Directors of the Corporation who shall be appointed on a full time basis for a
term of six (6) years at an annual compensation which shall be fixed by the President of the Philippines.
The other appointive member, who shall be appointed for a term of four (4) years and the Governor of the
Central Bank shall each receive a per diem of not exceeding fifty pesos (P50.00) for each day of meeting
actually attended by them but in no case shall each of them receive more than five hundred pesos
(P500.00) a month. In the event of vacancy in the office of the Governor of the Central Bank of the
Philippines, and pending the appointment of his successor or during the absence of the Governor the
Acting Governor of the Central Bank of the Philippines shall act as member of the Board of Directors. In the
event of a vacancy in the Office of the Chairman of the Board of Directors and pending the appointment of
his successor, the Governor of the Central Bank of the Philippines shall act as Chairman. The members of
the Board of Directors shall be ineligible during the time they are in office and for a period of two years
thereafter to hold office, position or employment in any insured bank, except that this restriction shall not
apply to any member who has served the full term for which he was appointed. No member of the Board of
Directors shall be an officer or director of any insured bank; and before entering upon his duties as
member of the Board of Directors, he shall certify under oath that he has complied with this requirement
and such certification shall be filed with the Secretary of the Board of Directors. Any vacancy in the Board
created by the death, resignation, or removal of an appointive member shall be filled by the appointment
of a new member to complete the unexpired period of the term of the member concerned.
"The Board of Directors shall have the authority:
"1. To prepare and issue rules and regulations as it considers necessary for the effective discharge of its
responsibilities;
"2. To direct the management, operations and administration of the Corporation;
"3. To appoint, fix the remuneration and remove any officer or employee of the Corporation for cause:
Provided, however, That officers exercising discretionary powers shall not be subject to the Civil Service
Law; and
"4. To authorize such expenditures by the Corporation as are in the interest of the effective administration
and operation of the Corporation: Provided, however, That not later than one year after the appropriation
and release of the additional fifteen million pesos for the permanent insurance fund as provided in Section
ten (a-1) of this Act, the annual operating expenses of the Corporation may amount to not more than the
equivalent of the annual gross income from the investment of the permanent insurance fund and not more
than fifteen per cent of the first ten million pesos of all other income, such as assessments and earnings
from the investment of funds of the Corporation other than the permanent insurance fund: Provided,
further, That if all other income exceeds ten million pesos, the prescribed ceiling for the annual operating
expenses may be increased by not more than ten per cent of the excess: Provided, finally, That in the
computation of income, recoveries and accrued income shall be excluded."
Section 2. Section ten (a) of the same Act is hereby amended by adding another paragraph after section
ten (a) which reads as follows:
"Sec. 10(a-1). The permanent insurance fund hereinabove created is hereby increased to twenty million
pesos for this purpose, the amount of fifteen million pesos is hereby appropriated from the General Fund."
Section 3. Section twelve, subsection (c) of the same Act is hereby amended to read as follows:
"Sec. 12(c). When the Corporation has determined that an insured bank is in danger of closing, in order to
prevent such closing, the Corporation, in the discretion of its Board of Directors, is authorized to make
loans to, or purchase the assets of, or make deposits in, such insured bank, upon such terms and
conditions as the Board of Directors may prescribe, when in the opinion of the Board of Directors, the
continued operation of such bank is essential to provide adequate banking service in the community:
Provided, however, That funds available for this purpose shall be limited only to the permanent insurance
fund referred to in Section ten (a) of this Act, additional appropriations thereto, and money borrowed from
the Central Bank in accordance with the provisions of Section thirteen of this Act: Provided, further, That
funds of the Corporation accumulated from assessments paid by insured banks shall not be available for
this purpose nor for the repayment of loans obtained from the Central Bank for the funding of assistance to
insured banks as provided in this section. Such loans and deposits may be in subordination to the rights of
depositors and other creditors."
Section 4. This Decree shall take effect immediately.
Done in the City of Manila, this 29th day of January, in the year of Our Lord, nineteen hundred and
seventy-three.

Pasted from <http://www.lawphil.net/statutes/presdecs/pd1973/pd_120_1973.html>

PD 1094
Sunday, June 06, 2010
3:22 AM

PRESIDENTIAL DECREE NO. 1094 - AMENDING CERTAIN PROVISIONS OF R.A. 3591 AS AMENDED
ENTITLED "AN ACT ESTABLISHING THE PHILIPPINE DEPOSIT INSURANCE CORPORATION,
DEFINING ITS POWERS AND DUTIES AND FOR OTHER PURPOSES"

I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me

by the Constitution, hereby decree the following amendment to R.A. 3591 as amended:

Section 1. Section 2 of R.A. 3591 as amended is hereby further amended to read as follows:

"Sec. 2 . The powers and functions of the Corporation shall be vested in a Board of Directors
consisting of three (3) members one of whom shall be the Governor of the Central Bank of the
Republic of the Philippines to be appointed by the President of the Philippines with the
consent of the Commission on Appointments. One of the appointive members shall be the
Chairman of the Board of Directors of the Corporation who shall be appointed on a full time
basis for a term of six (6) years at an annual compensation [which shall] AS MAY be fixed
FROM TIME TO TIME by the President of the Philippines BUT WHICH SHALL UNTIL AMENDED BY
LAW BE FIFTY THOUSAND (P50,000.00) PESOS PER ANNUM. The other appointive member, who
shall be appointed for a term of four (4) years and the Governor of the Central Bank shall each
receive a per diem of not exceeding [fifty pesos (P50.00)] TWO HUNDRED FIFTY PESOS
(P250.00) FOR each day of meeting actually attended by them but in no case shall each of
them receive more, than [five hundred (P500.00] ONE THOUSAND PESOS (P1,000.00) a month.
In the event of vacancy in the office of the Governor of the Central Bank of the Philippines,
and pending the appointment of his successor or during the absence of the Governor, the
Acting Governor of the Central Bank of the Philippines shall act as member of the Board of
Directors. In the event of a vacancy in the Office of the Chairman of the Board of Directors and
pending the appointment of his successor, the Governor of the Central Bank of the Philippines
shall act as Chairman. The members of the Board of Directors shall be ineligible during the
time they are in office and for a period of two years thereafter to hold office or employment in
any insured bank, except that this restriction shall not apply to any member who has served
the full term for which he was appointed. No member of the Board of Directors shall be an
officer or director of any insured bank, and before entering upon his duties as member of the
Board of Directors he shall certify under oath that he has complied with this requirement and
such certification shall be filed with the Secretary of the Board of Directors. Any vacancy in
the Board created by the death, resignation, or removal of an appointive member shall be
filled by the appointment of a new member to complete the unexpired period of the term of
the member concerned.
Section 2. All laws, decrees, orders, rules and regulations inconsistent herewith are hereby
repealed or amended accordingly.

Section 3. This decree shall take effect immediately.

DONE in the City of Manila, this 18th of February, in the year of Our Lord, nineteen hundred
and seventy-seven.

Pasted from <http://www.chanrobles.com/presidentialdecrees/presidentialdecreeno1094.html>

PD 1451
Sunday, June 06, 2010
3:23 AM

PRESIDENTIAL DECREE No. 1451 June 11, 1978

MALACAÑANG
Manila
PRESIDENTIAL DECREE No. 1451
AMENDING REPUBLIC ACT NUMBERED THREE THOUSAND FIVE HUNDRED NINETY-ONE, AS
AMENDED, ENTITLED "AN ACT ESTABLISHING THE PHILIPPINE DEPOSIT INSURANCE
CORPORATION, DEFINING ITS POWERS AND DUTIES AND FOR OTHER PURPOSES"
WHEREAS, the deposit insurance scheme has been adopted to generate public faith and
confidence in the banking system and the Philippine Deposit Insurance Corporation has been
established to serve as the implementing agency of the Government;
WHEREAS, the Government is currently engaged in the institution of vital reforms in the
banking system to enable it to play a more effective role in the socio-economic development of
the country;
WHEREAS, as a means of encouraging the accumulation of more deposits in order to
contribute to the socio-economic progress of the country, it is imperative that protection of
deposits in banks be enhanced;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the
powers in me vested by the Constitution, do hereby order and decree the amendment of
Republic Act No. 3591, as amended, as follows:
Section 1. Section three (g) of Republic Act Numbered Three Thousand Five Hundred Ninety-
One, as amended, is hereby amended to read as follows:
"Sec. 3. (g) The term "insured deposit" means the net amount due to any depositor for
deposits in an insured bank (after deducting offsets) less any part thereof which is in excess
of (P15,000.00. Such net amount shall be determined according to such regulations as the
Board of Directors may prescribe and in determining the amount due to any depositor there
shall be added together all deposits in the bank maintained in the same capacity and the same
right for his benefit either in his own name or in the name of others."
Section 2. Section six (i) of the same Act is hereby amended to read as follows:
"Sec. 6. (i) Trust funds held by an insured bank in a fiduciary capacity whether held in trust or
deposited in any other department or in another bank shall be insured like other forms of
deposits, in an amount not to exceed (P15,000.00 for each trust estate, and when deposited
by the fiduciary bank in another bank such trust funds shall be similarly insured to the
fiduciary bank according to the trust estates represented. Notwithstanding any other
provision of this Act, such insurance shall be separate from and additional to that covering
other deposits of the owners of such trust funds or the beneficiaries of such trust estates:
Provided, That where the fiduciary bank deposits any of such trust funds in other insured
banks, the amount so held by other insured banks on deposit shall not for the purpose of any
certified statement required under subsections (b) and (c) of this section be considered to be
a deposit liability of the fiduciary bank, but shall be considered to be a deposit liability of the
bank in which such funds are so deposited by such fiduciary bank. The Board of Directors shall
have the power by regulation to prescribe the manner of reporting and of depositing such
trust funds."
Section 3. Section ten (a) and (a-1) of the same Act is hereby amended by deleting and adding
the following provisions to read as follows:
"Sec. 10(a) A permanent insurance fund in the amount of P5,000,000 to be appropriated from
the General Fund, is hereby created to be used by the Corporation to carry out the purposes of
this Act.
(a-1) The permanent insurance fund hereinabove created is hereby increased to twenty million
pesos and for this purpose, the amount of fifteen million pesos is hereby appropriated from
the General Fund: Provided, That the maximum amount of the insured deposit of any depositor
is hereby increased to P15,000.00."
Section 4. This Decree shall take effect immediately.
Done in the City of Manila, this 11th day of June, in the year of Our Lord, nineteen hundred and
seventy-eight.

Pasted from <http://www.lawphil.net/statutes/presdecs/pd1978/pd_1451_1978.html>

PD 1935
Sunday, June 06, 2010
3:24 AM

PRESIDENTIAL DECREE NO. 1935 - AMENDING CERTAIN SectionS OF PRESIDENTIAL DECREE

NOS. 1183 AND 1867

WHEREAS, the objectives of government in imposing a travel tax to discourage unnecessary

foreign travel and encourage domestic tourism has not been fully achieved, and;

WHEREAS, there is an apparent need to pursue this objective further particularly in the light of
the present economic situation;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the

powers vested in me by the Constitution, do hereby order and decree the further amendment
of certain sections of Presidential Decree No. 1183, as amended, as follows:

Section 1. Section 1 of Presidential Decree No. 1183; as amended, is hereby amended to

read as follows:

"Sec. 1. There is hereby imposed, in lieu of the travel taxes levied under Section three of
Republic Act No. 1478, as amended, and Section six of Republic Act No. 6141, a travel tax from
(a) all citizens of the Philippines; (b) permanent resident aliens; and (c) non-immigrant aliens
who have stayed in the Philippines for more than one (1) year who are leaving the country,
irrespective of the place of issuance of ticket and the form and place of payment. A travel tax
of the equivalent in pesos of Two Hundred Dollars (US$200.00) shall be imposed on
passengers travelling under first class passage and the peso equivalent of One Hundred
Twenty Dollars (US$120.00) for those travelling under economy class passage; Provided,
however, that a reduced rate of the peso equivalent of One Hundred Twenty-five Dollars
(US$125.00) for first class passage and the peso equivalent of Seventy-Five Dollars (US$75.00)
for economy class passage shall be imposed on those enumerated under Section 2-A of this
Decree."

Section 2. Section 2 of the Presidential Decree No. 1867 is hereby amended to read as
follows:

"Sec. 2. Proceeds to be realized from the additional tax shall accrue entirely to the General
Fund of the National Government; Provided, however, that the Philippine Tourism Authority
shall be allowed to maintain its projected receipts for 1984 out of total travel tax collections."
Section 3. Section 2 of Presidential Decree No. 1183 as amended, is hereby further amended
to read as follows:

"Sec. 2. The following shall be exempt from the payment of the travel tax imposed under
Section 1 of this Decree by securing a Travel Tax Exemption Certificate from the Philippine
Tourism Authority:

"(a) Foreign diplomatic and consular officials and members of their staff who are duly
accredited to the Republic of the Philippines including the immediate members of their
families and household domestics whose entry as such has been authorized by the Philippine
Government;

"(b) Officials, consultants, experts and employees of the United Nations Organization and of
its agencies, and those exempted under existing laws, treaties and international agreements;

"(c) Personnel of multi-national companies with regional headquarters at, but not engaged in
business in the Philippines and their dependents if joining them during the period of their
assignment in the Philippines as certified to by the Ministry of Trade and Industry;

"(d) Crew members of ships andrplanes plying international routes who are leaving the
country to join their vessels orrplanes or to assume their position therein;

"(e) Filipino citizens who are permanent residents of foreign countries who have stayed in
the Philippines for a period of not more than one (1) year;

"(f) Bona fide students who studies abroad have been approved by the NEDA Scholarship
Committee and foreign students whose studies in the country is financed by their government
or by an international organization;

"(g) Infants who are two years old or less;

"(h) United States military personnel and other United States nationals, including their
dependents in proper cases as indicated hereinbelow, who are travelling on United States
Government-owned or chartered transport facilities or with fares expended out of United
States Government funds, to wit:

"1) United States military personnel and their dependents;

"2) Filipinos in the United States Military Service and their dependents;

"3) Filipino employees of the United States Government travelling on United States
Government business;

"4) U.S. State Department visitor grantees travelling on United States Government business
and

"5) Destitute American repatriates

"i) Persons whose travel is provided or funded by foreign governments with which the
Philippine Government maintains diplomatic relations;

"j) Those authorized by the President of the Philippines for reasons of national interest."

Section 4. Section 2-A of the same decree is hereby further amended to read as follows:

"Sec. 2-A. Unless otherwise exempted under Section 2 of the same Act, a reduced rate of the
peso equivalent of One Hundred Twenty-Five Dollars (US$125.00) for first class passage and
the peso equivalent of Seventy-Five Dollars (US$75.00) for economy class passage shall be
imposed on the following:

"a) Individuals who are twelve years old or below but over two years of age;
"b) Those travelling under steerage class;

"c) Recipients of awards and grants from foreign governments, institutions and
organizations as certified to by the NEDA;

"d) Those authorized by the President of the Philippines for reasons of national interest."

Section 5. Section 2-B, as inserted by Batas Pambansa Blg. 38, is hereby amended to read as
follows:

"Sec. 2-B. Contract workers, their spouses, and dependents 21 years of age or below, with
approved employment contracts and duly certified by the Ministry of Labor and Employment
shall be subject to a rate of the peso equivalent of Sixty Dollars (US$60.00) for first class
passage and the peso equivalent of Thirty-Five Dollars (US$35.00) for economy class passage."

Section 6. All Laws, decrees, orders and regulations or parts thereof, which are inconsistent
herewith, are hereby repealed or modified accordingly.

Section 7. This Decree shall take effect on August 15, 1984.

Done in the City of Manila, this 11th of June in the Year of Our Lord, Nineteen Hundred Eighty-
Four.

Pasted from <http://www.chanrobles.com/presidentialdecrees/presidentialdecreeno1935.html>

RA 7400
Sunday, June 06, 2010
3:25 AM

An Act Further Amending Republic Act Numbered Three Thousand Five Hundred Ninety-One, As Amended,
Otherwise Known as the Charter of the Philippine Deposit Insurance Corporation, and for Other Purposes.
SECTION 1. Section 2 of Republic Act No. 3591, as amended, is hereby further amended to read as follows:
"Sec. 2. The powers and functions of the Corporation shall be vested in and exercised by a Board of
Directors which shall be composed of five (5) members as follows:
"(a) The Secretary of Finance who shall be the ex officio Chairman of the Board without
compensation.
"(b) The Governor of the Central Bank, who shall be the ex officio member of the Board without
compensation.
"(c) The President of the Corporation, who shall be appointed by the President of the Philippines from
either the Government or private sector to serve on a full-time basis for a term of six (6) years. The
President shall also serve vice chairman of the Board.
"(d) Two (2) members from the private sector, to be appointed for a term of six (6) years without
reappointment from the President of the Philippines: Provided, That of those first appointed, the first
appointee shall serve a period of two (2) years.
"No person shall be appointed as member of the Board unless he be of good moral character and of
unquestionable integrity and responsibility, and who is of recognized competence in economics, banking
and finance, law, management administration or insurance, and shall be at least thirty-five (35) years of
age. For the duration of their tenure or term in office and for a period of one year thereafter, the
appointive members of the Board shall be disqualified from holding any office, position or employment in
any insured bank.
"Whenever the Chairman of the Board is unable to attend a meeting of the Board, or in the event of a
vacancy in the office of the Secretary of Finance, the President of the Corporation shall act as the
chairman.
"The presence of three (3) members shall constitute a quorum, and all decisions shall require a vote of a
majority of the members present, there being a quorum.
"The members of the Board of Directors from the private sector, except the President shall receive a per
diem for every board meeting attended, the amount of which shall be Five hundred pesos (P500.00) per
meeting but not to exceed the sum of Two thousand pesos (P2,000.00) for every single month.
 "The Board of Directors shall have the authority:
"1.To prepare and issue rules and regulations as it considers necessary for the effective discharge of
its responsibilities;
"2.To direct the management, operations and administration of the Corporation;
"3.To appoint, establish the rank, fix the remuneration and remove any officer or employee of the
Corporation for cause; subject to the Civil Service and pertinent compensation laws; and
"4.To authorize such expenditures by the corporation as are in the interest of the effective
administration and operation of the Corporation."
Sec. 2. Section 2-A of the same Act is hereby amended to read as follows:
"Sec. 2-A. The President of the Corporation shall be the Chief Executive thereof and his salary shall be
fixed by the President of the Philippines at a sum commensurate to the importance and responsibility
attached to the position. The sum total of the salary of the President and the allowances and other
emoluments which the Board of Directors may grant him shall be ceiling for fixing the salary allowances
and other emoluments of all other personnel in the Corporation.
"The powers and duties of the president of the Corporation are:
"(a) To prepare the agenda for the meeting of the Board and to submit for the consideration of the
Board the policies and measures which he believes to be necessary to carry out the purposes and
provisions of this Act;
"(b) To execute and administer the policies and measures approved by the Board;
"(c) To direct and supervise the operations and internal administration of the Corporation in
accordance with the policies established by the Board. The President may delegate certain of his
administrative responsibilities to other officers of the Corporation, subject to the rules and regulations of
the Board;
"(d) To represent the Corporation, upon prior authority of the Board, in all dealings with other offices,
agencies and instrumentalities of the Government and with all other persons or entities, public or private,
whether domestic, foreign or international;
"(e) To authorize, with his signature, upon prior authority of the Board, contracts entered into by the
Corporation, notes and securities issued by the Corporation, and the annual reports, balance sheets,
profits and loss statements, correspondence and other documents of the Corporation. The signature of the
President may be in facsimile wherever appropriate;
"(f) To represent the corporation, either personally or through counsel, in all legal proceedings or
actions;
"(g) To delegate, with the prior approval of the Board of Directors, his power to represent the
Corporation, as provided in subsections (d) and (f) of this Section, to other officers of the Corporation; and
"(h) To exercise such other powers as may be vested in him by the Board.
"The President shall be assisted by a Vice-President and other officials whose appointment and removal
for cause shall be approved and whose salary shall be fixed by the Board of Directors upon
recommendation of the President of the Corporation. During the absence or temporary incapacity of the
President, or in case of vacancy or permanent incapacity and pending the appointment of a new President
of the Corporation by the President of the Philippines, the Vice-President shall act as President and
discharge the duties and responsibilities thereof."
Sec. 3. Section 3, subsections (b), (c), (f) and (g) is hereby amended to read as follows:
"(b) The term ‘Bank’ and ‘Banking Institution’ shall be synonymous and interchangeable and shall
include banks, commercial banks, savings bank, mortgage banks, rural banks, development banks,
cooperative banks, stock savings and loan associations and branches and agencies in the Philippines of
foreign banks and all other corporations authorized to perform banking functions in the Philippines."
"(c) The term ‘receiver’ includes a receiver, commission, person or other agency charged by law with
the duty to take charge of the assets and liabilities of a bank which has been forbidden from doing
business in the Philippines, as well as the duty to gather, preserve and administer such assets and
liabilities for the benefit of the depositors and creditors of said bank, and to continue into liquidation
whenever authorized under this Act other laws, and to dispose of the assets and to wind up the affairs of
such bank."
"(f) The term ‘deposit’ means the unpaid balance of money or its equivalent received by a bank in the
usual course of business and for which it has given or its obliged to give credit to a commercial, checking,
savings, time or thrift account or which is evidenced by passbook check, and/or certificate of deposit,
printed or issued in accordance with Central Bank Rules and Regulations and other applicable laws,
together with such other obligations of a bank, which, consistent with banking usage and practices, the
Board of Directors shall determine and prescribe by regulations to be deposit liabilities of the Bank:
Provided, That any obligation of a bank which is payable at the office of the bank located outside of the
Philippines shall no be a deposit for any of the purposes of this Act or included as part of the total deposits
or in insured deposit: Provided, further, That, subject to the approval of the Board of Directors, any insured
bank which is incorporated under the laws of the Philippines which maintains a branch outside the
Philippines may elect to include for insurance its deposit obligations payable only at such branch."
"(g) The term ‘insured deposit’ means the net amount due to any depositor for deposits in an insured
bank (after deducting offsets) less any part thereof which is in excess of One hundred thousand pesos
(P1,000.00). Such net amount shall be determined according to such regulations as the Board of Directors
may prescribe and in determining such amount due to any depositor, there shall be added together all
deposits in the bank maintained in the same capacity and the same right for his benefit either in his own
name or in the name of others: Provided, That the provisions of any law to the contrary notwithstanding no
owner/holder of any negotiable certificate of deposit shall be recognized as a depositor entitled to the
rights provided in this Act unless his name is registered as owner/holder thereof in the books of the issuing
banks."
Sec. 4. Section 6, Subsections (a) and (h), of the same Act is hereby amended to read as follows:
"(a) The assessment rate shall be determined by the Board of Directors: Provided, That the assessment
rate shall not exceed one fifth (1/5) of one per centum (1%) per annum. The semi-annual assessment for
each insured bank shall be in the amount of the product of one half (½) the assessment rate multiplied by
the assessment based but in no case shall it be less than the amount of Two hundred fifty (P250.00). The
assessment base shall be the amount of the liability of the bank for deposits, according to the definition of
the term ‘deposit’ in and pursuant to subsection (f) of Section 3 without any deduction for indebtedness of
depositors.
"The semi-annual assessment base for one semi-annual period shall be the average of the assessment
base of the bank as of the close of business on March thirty-one and June thirty and the semi-annual
assessment base for the other-semi-annual period shall be the average of the assessment base of the
bank as for the close of business on September thirty and December thirty-one: Provided, That when any
of said days in a non-business day or legal holiday, either national or provincial, the preceding business
day shall be used. The certified statements required to be filed with the Corporation under subsections (b)
and (c) of this Section shall be in such form and set forth such supporting information as the Board of
Directors shall prescribed. The assessment payments required from the insured banks under subsections
(b) and (c) of this Section shall be made in such manner and at such time or times as the Board of Director
shall prescribe, provided the time or times so prescribed shall not be later than sixty (60) days after filing
the certified statement setting forth the amount of assessment."
"(h) Should any insured bank fail or refused to pay any assessment required to be paid by such bank
under any provision of this Act, and should the bank not correct such failure or refusal within thirty (30)
days after written notice has been given by the Corporation to an officer of the bank citing this subsection,
and stating that the bank has failed or refused to pay as required by the law the insured status of such
bank shall be determined by the Board of Directors: Provided, that, after the lapse of thirty (30) days from
the date when the written notice has been sent by registered mail, whether or not such notice has been
actually received by the bank, the Corporation shall terminate the insured status of the bank. The bank
shall give written notice of such termination to each of the depositors at his last address of record on the
books of the bank and the Corporation shall publish the notice of the termination of insured status of the
bank. After the termination of the insured status, the insured deposit of each depositor in the bank on the
date of such termination, less all subsequent withdrawals from the deposits of such depositor, shall
continue to be insured for a period of ninety (90) days. No additions to any such deposits and no new
deposits in such bank, after the date of such termination shall be insured by the Corporation, and the bank
shall not advertise or hold itself out as having insured deposits unless the same connection shall also state
with equal prominence that such additions to deposits and new deposits made be closed on account of
insolvency within the period of ninety (90) days, the Corporation shall have the same powers and rights
with respect to such bank as in the case of an insured bank."
Sec. 5. Section 7 of the same Act is hereby amended to read as follows:
"Sec. 7 (a). Whenever upon examination by the Corporation into the condition of any insured bank, it
shall be disclosed that an insured bank or its directors or agents have committed, are committing or about
to commit unsafe or unsound practices in conducting the business of the bank, or have violated, are
violating or about to violate any provisions of any law or regulation to which the insured bank is subject,
the Board of Directors shall submit the report of the examination to the monetary board to secure
corrective action thereon. If no such corrective action is taken by the Monetary Board within sixty (60)
days from the submission of the report, the Board of Directors shall, motu proprio, institute corrective
action which it deems necessary. The Board of Directors may issue a cease and desist order and require
the bank or its directors or agents concerned to correct the practices or violations within sixty (60) days.
However, If the practice or violation is likely to cause insolvency or substantial dissipation of assets or
earnings of the bank, or is likely to seriously weaken the condition of the bank or otherwise seriously
prejudice the interests of its depositors and the Corporation, the period to take corrective action shall not
be more than fifteen (15) days. The order may also include the imposition of fines provided in Section 16
(f) hereof. The Board of Directors shall duly inform the Monetary Board of the Central Bank of the
Philippines of action it has taken with respect to such practices or violations. If the bank violates the cease
and desist order or fails to correct the practices or violations as required within the period prescribed
herein, the corporation shall terminate the insured status of the bank the consequences of the termination
of insured status of the bank on the Corporation, the bank and the depositor and their deposits shall be
governed by Section 6 (h) hereof.
"(b) The actions and proceedings provided in the proceeding subsection may be undertaken by the
Corporation if, in its opinion, an insured bank or its directors or agents have violated, are violating or about
to violate any provisions of this Act or any order, rule or instruction issued by the Corporation or any
written condition imposed by the Corporation in connection with any transaction with or grant by the
Corporation."
Sec. 6. Section 8 is hereby amended by adding a new paragraph to be designated as paragraph twelfth.
Paragraph eighth is likewise amended. Paragraphs eighth and twelfth shall read as follows:
"Eight — To conduct independent examinations of and to required information and reports from bank, as
provided in this Act, whenever deemed necessary by the Board of Directors: Provided, That to the extent
practicable, said examinations shall maximize the efficient use of available relevant reports, information
and findings, specifically from the Central Bank. The Board of Directors shall prescribe such regulations as
may be necessary to ensure the special nature and reasonable exercise of this power."
"Twelfth — To compromise, condone or release, in whole or in part, any of claim or settled liability to the
Corporation, regardless of the amount involved, under such terms and conditions as may be imposed by
the Board of Directors to protect the interest of Corporation."
Sec. 7. Section 9, subsection (b) and (d) of the same Act is hereby amended to read as follows:
"(b) The Board of Directors shall appoint examiners who shall have power, on behalf of the Corporation
to examine any insured bank. Each such examiner shall have the power to make a through examination of
all the affairs of the bank and in doing so, he shall have the power to administer oaths, to examine and
take and preserve the testimony of any the officers and agents thereof, and to compel the presentation of
books, documents, papers or records necessary in his judgment to ascertain the facts relative to the
condition of the bank: and shall make a full and detailed report of the condition of the bank to the
Corporation. The Board of Directors in like manner shall appoint claim agents who shall have the power to
investigate and examine all claims for insured deposits and transferred deposits. Each claim agent shall
have the power to administer oaths and examine under oath and take and preserve testimony of any
person relating to such claim."
"(d) The Corporation shall have access to reports of examination made by, and reports of condition
made to the Central Bank of the Philippines or its appropriate supervising departments, and the Central
Bank of the Philippines shall also have access to reports of examination made by, and reports of condition
made to the Corporation: Provided, That the provisions of any law to the contrary notwithstanding, the
Corporation shall likewise have access to reports, findings and any other information derived from any
special or general examination of inquiry conducted by the Central Bank in respect to bank fraud or
serious irregularity in an insured bank: Provided, that, the Corporation shall use such reports and findings
under similar terms and conditions prescribed by applicable laws on the Central Bank."
Sec. 8. Section 9, subsection (e) of the same Act is hereby amended to read as follows:
"(e) Personnel of the Corporation are hereby prohibited from:
"(1) being an officer, director, consultant, employee or stockholder, directly or indirectly, of any bank
or banking institution except as otherwise provided in this Act;
"(2) receiving any gift or thing of value from any officer, director or employee thereof:
"(3) revealing in any manner, except under order of the court or authorized herein in such condition
or business of any such institution. The prohibition shall not be held to apply to the giving of information to
the Board of Directors or to any person authorized by neither of them in writing to receive such
information.
"Notwithstanding the provisions of this Section and Section 2, members of the Board of Directors and
other personnel of the Corporation may become directors and officers of any bank and banking institution
and of any entity related to such institution in connection with financial assistance extended by the
Corporation to such institution and when in the opinion of the Board it is appropriate to make such a
designation to protect the interest of the Corporation.
"Borrowing from any bank or banking institution by examiners and other personnel of the examination
departments of the corporation shall be prohibited only with respect to the particular institution in which
they are assigned, or are conducting an examination. Personnel of other departments, offices or units of
the Corporation shall likewise be prohibited from borrowing from any bank or banking institution during the
period of time that a transaction of such institution with the corporation is being evaluated, processed or
acted upon by such personnel: Provided, however, that the Board may, at its discretion, indicate the
position levels or functional groups to which the prohibition is applicable.
 "Borrowing by all full-time personnel of the corporation from any bank or banking institution shall be
secured and disclosed to the Board, and shall be subject to such further rules and regulations as the Board
may prescribe."
Sec. 9. The same Act is hereby amended by adding new sections after Section 9 thereof, to read as
follows:
"Sec. 9-A. The provisions of other laws, general or special, to the contrary notwithstanding, whenever it
shall be appropriate for the Monetary Board of the Central Bank of the Philippines to appoint a receiver of
any banking institution pursuant to existing laws, the Monetary Board shall give price notice and appoint
the Corporation as receiver.
"In addition to the powers of a receiver pursuant to existing laws, the Corporation is empowered to bring
suits to enforce liabilities to or recoveries of the bank. Further, the Corporation may, upon its own
responsibility, in the discretion of its Board of Directors and upon justifiable reasons, appoint and hire
persons or entities of recognized competence in banking or finance as its deputies and assistants.
"The Corporation, its directors, officers and employees shall not be subject to any action, claim or
demand for or in connection with any act done or omitted to be done by them in good faith in the exercise
of their functions or in connection with the exercise of the powers under this Section and Sections 9-b, 9-c
and 12(c) of this Act.
"Sec. 9-B. Before any distribution of the assets of the closed bank in accordance with the preferences
established by law, the Corporation shall periodically charge against said assets such reasonable
receivership expenses and subject to approval by the proper court, such reasonable liquidation expenses,
it has incurred as part of the costs of receivership/liquidation proceedings and collect payment therefor
from available assets.
"Sec. 9-C. Cases not provided in Section 9-A above including the filing of cases to modify, set aside or
restrain any action of the Corporation therein shall be governed by Section 29 of R. A. 265, as amended."
Sec. 10. Section 10, subsections (a-1,) (c) and (d) is hereby amended to read as follows:
"(a-1) The permanent insurance fund hereinabove created is hereby increased to Three billion pesos
(P3,000,000,000.00) and for this purpose, such sum as may be necessary is hereby appropriated from the
General Fund: Provided, That the maximum amount of the insured deposit of any depositor is hereby
increased to One hundred thousand pesos (P100,000.00)."
"(c) Whenever an insured bank shall have been closed on account of insolvency payment of the insured
deposits in such shall be made by the Corporation as soon as possible either (1) by cash or (2) by making
available to each depositor a transferred deposit in another insured bank in an amount equal to the
insured deposit of such depositor: Provided, however, That the corporation, in its discretion may required
proof of claims to be filed before paying the insured deposits, and that it any case where the Corporation is
not satisfied as to the viability of a claim for an insured deposit, it may require the final determination of a
court of competent jurisdiction before paying such claim: Provided, further, That failure to settle the claim
within six (6) months from the date of filing of the claim for insured deposit shall, upon conviction, subject
the directors, officers or employees of the corporation responsible for the delay, to imprisonment from six
(6) months to one (1) year: Provided, however, That the period shall not apply if the validity of the claim
requires the resolution of issues of facts and or law by another office, body or agency including the case
mentioned in the first proviso or by the Corporation together with such other office, body or agency.
"(d) The Corporation, upon payment of any depositor as provided for in subsection (c) of this Section,
shall be subrogated to all rights of the depositor against the closed bank to the extent of such payment.
Such subrogation shall include the right on the part of the Corporation to receive the same dividends and
payments from the proceeds of the assets of such closed bank and recoveries on account of stockholders
liability as would have been payable to the depositor on a claim for the insured deposits but, such
depositor shall retain his claim for any uninsured portion of his deposit. All payments by the corporation of
insured deposits in closed banks partake of the nature of public funds, and as such, must be considered a
preferred credit similar to taxes due to the National Government in the order of preference under Article
2244 of the New Civil Code: Provided, further, That this preference shall be likewise effective upon
liquidation proceedings already commenced and pending as of the approval of this Act, where no
distribution of assets has been made."
Sec. 11. Section 11, subsection (d) of the same Act is hereby amended to read as follows:
"(d) If, after the Corporation have given at least three (3) months notice to the depositor by mailing a
copy thereof to his last known address appearing on the records of the closed bank, the depositor in the
closed bank shall fail to file a claim for his insured deposit from the Corporation within eighteen (18)
months after the Monetary Board of the Central Bank of the Philippines shall have ordered the closure of
said bank, pursuant to Section 29 of R.A. 265 as amended, all rights of the depositor against the
Corporation with respect to the insured deposit shall be barred, and all rights of the depositor against the
closed bank and its shareholders or the receivership estate to which the Corporation may have become
subrogated shall thereupon revert to the depositor: Provided, That the claimant shall enforce his duly-filed
claim against the Corporation within one (1) year after the eighteen-month period heretofore mentioned.
Thereafter, the Corporation shall be discharged from any liability on the insured deposit without prejudice
to the rights of the claimants against the closed bank and its shareholders or the receivership estate:
Provided, further, That when practicable, the Board of Directors may adopt other adequate means of
notice to the depositor."
Sec. 12. Section 12, subsection (c) of the same Act is hereby amended to read as follows:
"(c) When the Corporation has determined that an insured bank is in danger of closing, in order to
prevent such closing, the Corporation, in the discretion of its Board of Directors, is authorized to make
loans to, or purchase the assets of, or assume liabilities of, or make deposits in, such insured bank, upon
such terms and conditions as the Board of Directors may prescribe, when in the opinion of the Board of
Directors, the continued operation of such bank in essential to provide adequate banking service in the
community or maintain financial stability in the economy.
"The authority of the Corporation under the foregoing paragraph to extend financial assistance to,
assume liabilities of, purchase the assets of an insured bank may also be exercised in the case of a closed
insured bank if the Corporation finds that the resumption of operations of such bank is vital to the interest
of the community or, a severe financial climate exists which threatens the stability of a number of banks
possessing significant resources: Provided, That the reopening and resumption of operations of the closed
bank shall be subject to the prior approval of the Monetary Board.
"The Corporation may provide any Corporation acquiring control of, merging or consolidating with or
acquiring the assets of an insured bank in danger of closing in order to prevent such closing or of a closed
insured bank in order to restore to normal operations, with such financial assistance as it could provide an
insured bank under this subsection: Provided, That, within sixty (60) days from a date of assistance the
Corporation shall submit a report thereof to the Monetary Board.
"In all case, however, the Corporation, prior to the exercise of this power, shall determine that actual
payoff and liquidation thereof will be more expensive than the exercise of this power. Finally, the
Corporation may not use its authority under this subsection to purchase the voting or common stock of an
insured bank but it can enter into and enforce agreements that it determines to be necessary to protect its
financial interests."
Sec. 13. Section 13 of the same Act is hereby amended to read as follows:
"The Corporation is authorized to borrow from the Central Bank of the Philippines and the Central Bank
is authorized to lend the Corporation on such terms as may be agreed upon by the Corporation and the
Central Bank, such funds as in the judgment of the Board of Directors of the Corporation are from time to
time required for insurance purposes including those provided for in Section 12(c) of this Act: Provided,
That any such loan as may be granted by the Central Bank shall be consistent with monetary policy; and
Provided, further, That the rate of interest thereon shall be fixed by the Monetary Board but shall not
exceed the treasury bill rate.
"When in the judgment to the board of Directors the funds of the Corporation are not sufficient to
provide for an emergency or urgent need to attain the purposes of this Act, the Corporation is likewise
authorized to borrow money, obtain loans or arrange credit lines or other credit accommodations from any
bank designated as depository or fiscal agent of the Philippine Government: Provided, That such loan shall
be of short term duration."
Sec. 14. Section 16, subsections (a), (d), (e) and (f) of the same Act is hereby amended to read as follows:
"(a) Every insured bank shall display at each place of business maintained by it a sign or signs, and shall
include a statement to the effect that its deposits are insured by the Corporation in all its advertisements:
Provided, That the Board of Directors may exempt from this requirement advertisements which do not
relate to deposits or when it is impractical to include such statement therein. The Board of Directors shall
prescribe by regulations the forms of such signs and the manner of use. For each day an insured bank
continues to violate any provisions of this subsection or any lawful provisions of said regulations, it shall be
subject to a penalty of not more than One thousand pesos (P1,000) which the Corporation may recover for
its use: Provided, however, That the penalty of imprisonment for not more than one (1) year or a fine of
not exceeding Twenty thousand pesos (P20,000.00) or both, in the discretion of the insured under the
provisions of this Act which shall in any manner, advertise or hold itself out as having insured status for the
purpose of making it appear that its deposits are insured with the Corporation."
"(d) The Corporation may require an insured bank to provide protection and indemnity against burglary,
defalcation, losses arising from discharge of duties by, or particular acts of defaults of its directors,
officers, or employees, and other similar insurable losses. The Board of Directors in consultation with the
Central Bank, shall determine the bonding requirement as it referred to directors, officers and employers
of the insured bank as well as the form and amount of the bond. Whenever any insured bank refuses to
comply with any such requirement the Corporation may contract for such protection and add the cost
thereof to the assessment otherwise payable by such bank."
 "(e) Any assessment payable by an insured bank under this Act shall be subject to payment of interest
computed from the date such assessment became due and payable and at the legal rate for loans as
prescribed by law or appropriate authority and in case of willful failure or refusal to pay such assessment
and interest thereon, there shall be added a penalty equivalent to twice the amount of interest payable as
computed herein for each day such violations continue, which the interest and penalty the Corporation
may recover for its use: Provided, That the penalty shall not be applicable under the circumstances stated
in the provisions of subsection (b) of this Section."
"(f) The Board of Directors is hereby authorized at its discretion to impose upon insured banks, their
directors, and/or officers, for any willful delay in the submission of reports as required by law, rules and
regulations; any refusal to permit examination in the affairs of the institution; any willful making of a false
statement to the Corporation; any willful failure or refusal to comply with, or violation of any provision of
this Act, or any order, instruction, or regulations issued by the Corporation or any commission of
irregularities, and/or conducting business in an unsafe or unsound manner as may be determined by the
Board of Directors, a fine not exceeding One thousand pesos (P1,000.00) a day for each type of violation,
the imposition of which shall be final and executory until reversed, modified or lifted by the Board of
Directors."
Sec. 15. Transitory Provisions. — (a) Authority to Reorganize. — In view of the new powers and functions
herein provided, a reorganization of the Corporation is hereby authorized including adopting a new staffing
pattern for effective and efficient exercise and performance of such powers and function.
The formulation of the program of reorganization shall be completed as soon as possible and the
implementation of such program within eighteen (18) months after approval of this Act.
(b) Implementing Details. — Organization and Staffing of the Corporation. — Upon effectivity of this Act,
the Secretary of Finance, the incumbent President of the Corporation and the Governor of the Central Bank
shall constitute the Chairman and members of the Board provided hereof. The President is hereby
authorized subject to the approval of the Board of Directors as appropriate, to issue such orders, rules and
regulations as may be necessary to implement the reorganization authorized under the preceding section
which will involve the determination and adoption of (1) a new internal structure of the Corporation as
reorganized down to the divisional, section or lowest reorganization levels; (2) a new staffing pattern
including appropriate salary rates.
The provisions of any law to the contrary notwithstanding, in the implementation of the reorganization
herein, and in appointments to appropriate positions in the new staffing pattern of the Corporation, no
preferential or priority rights shall be given to or enjoyed by any officer or personnel of the Corporation for
appointment to any position in the new staffing pattern not shall any officer or personnel be considered as
having prior or vested rights with respect to retention in the Corporation or in any position as may have
been created in its new staffing pattern, even if he should be the incumbent of a similar position therein.
Pending the completion of the personnel actions above provided and the issuance of the appropriate
implementing orders, all incumbent shall continue to exercise their mutual functions, duties and
responsibilities.
Sec. 16. Any amount appropriated under the General Appropriations Act or any other appropriation or
supplemental appropriation act shall be regularly released in accordance with the allotment system
established under existing law.
Sec. 17. All acts or parts of act, presidential decrees, executive orders, administrative orders or parts
thereof which are inconsistent with the provisions of this Act are hereby repealed.
Sec. 18. This Act shall take effect upon its approval.
Approved: April 13, 1992

Pasted from <http://www.law.nfo.ph/republic-act-no-7400/>

RA 9302
Sunday, June 06, 2010
3:26 AM

Republic Act No. 9302

AN ACT AMENDING REPUBLIC ACT NUMBERED THREE THOUSAND FIVE HUNDRED NINETY-ONE,
AS AMENDED, OTHERWISE KNOWN AS THE "CHARTER OF THE PHILIPPINE DEPOSIT INSURANCE
CORPORATION" AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:
SECTION 1. Section 1 of Republic Act No. 3591, as amended, is hereby amended by adding a new
paragraph to read as follows:
"The Corporation shall, as a basic policy, promote and safeguard the interests of the depositing public by
way of providing permanent and continuing insurance coverage on all insured deposits."
SECTION 2. Section 2 of the same Act is hereby further amended to read as follows:
"SEC. 2. The powers and functions of the Corporation shall be vested in, and exercised by a Board of
Directors which shall be composed of five (5) members as follows:
"(a) The Secretary of Finance who shall be ex-officio Chairman of the Board without compensation.
"(b) The Governor of the Bangko Sentral ng Pilipinas, who shall be ex-officio member of the Board without
compensation.
"(c) The President of the Corporation, who shall be appointed by the President of the Philippines from
either the Government or private sector to serve on full-time basis for a term of six (6) years. The
President of the Corporation shall also serve as Vice Chairman of the Board.
"(d) Two (2) members from the private sector, to be appointed for a term of six (6) years without
reappointment by the President of the Philippines: Provided, That of those first appointed, the first
appointee shall serve for a period of two (2) years.
"No person shall be appointed as member of the Board unless he be of good moral character and of
unquestionable integrity and responsibility, and who is of recognized competence in economics, banking
and finance, law, management administration or insurance, and shall be at least thirty-five (35) years of
age. For the duration of their tenure or term in office and for a period of one year thereafter, the
appointive members of the Board shall be disqualified from holding any office, position, or employment in
any insured bank.
"The Secretary of Finance and the Governor of the Bangko Sentral may each designate a representative,
whose position shall not be lower than an undersecretary or deputy governor respectively, to attend such
meetings and to vote on behalf of their respective principals. Whenever the Chairman of the Board is
unable to attend a meeting of the Board, or in the event of a vacancy in the office of the Secretary of
Finance, the President of the Corporation shall act as Chairman.
"The presence of three (3) members shall constitute a quorum. All decisions of the Board of Directors
shall require the concurrence of at least three (3) members.
"The Secretary of Finance shall fix the rate of per diem for every Board meeting attended by the
members of the Board of Directors from the private sector. The President of the Philippines may fix such
emoluments that may be received by the Board of Directors comparable to the emoluments of members
of the Board of Directors of other government financial institutions.
"The Board of Directors shall have the authority:
"1. To prepare and issue rules and regulations as it considers necessary for the effective discharge of its
responsibilities;
"2. To direct the management, operation and administration of the Corporation;
"3. To establish a human resource management system which shall govern the selection, hiring,
appointment, transfer, promotion, or dismissal of all personnel. Such system shall aim to establish
professionalism and excellence at all levels of the Corporation in accordance with sound principles of
management.
"A compensation structure, based on job evaluation studies and wage surveys and subject to the Board's
approval, shall be instituted as an integral component of the Corporation's human resource development
program: Provided, That all positions in the Corporation shall be governed by a compensation, position
classification system and qualification standards approved by the Board based on a comprehensive job
analysis and audit of actual duties and responsibilities. The compensation plan shall be comparable with
the prevailing compensation plans of other government financial institutions and shall be subject to
review by the Board no more than once every two (2) years without prejudice to yearly merit reviews or
increases based on productivity and profitability. The Corporation shall therefore be exempt from existing
laws, rules and regulations on compensation, position classification and qualification standards It shall
however endeavor to make its system conform as closely as possible with the principles under Republic
Act No. 6758, as amended.
"4. To appoint, establish the rank, fix the remuneration, approve local and foreign training of, and remove
any officer or employee of the Corporation, for cause, subject to pertinent civil service laws: Provided,
That the Board of Directors may delegate this authority to the President subject to specific guidelines;
"5. To adopt an annual budget for, and authorize such expenditures by the Corporation as are in the
interest of the effective administration and operation of the Corporation; and
"6. To approve the methodology for determining the level and amount of provisioning for insurance and
financial assistance losses, which shall establish reasonable levels of deposit insurance reserves."
SECTION 3. Section 2-A of the same Act is hereby re-numbered as Section 3.
SECTION 4. Section 3 of the same Act is hereby re-numbered as Section 4 and subsection (g) thereof is
further amended to read as follows:
"(g) The term "insured deposit" means the amount due to any depositor for deposits in an insured bank
net of any obligation of the depositor to the insured bank as of the date of closure, but not to exceed Two
hundred fifty thousand pesos (P250,000.00). Such net amount shall be determined according to such
regulations as the Board of Directors may prescribe. In determining such amount due to any depositor,
there shall be added together all deposits in the bank maintained in the same right and capacity for his
benefit either in his own name or in the name of others. A joint account regardless of whether the
conjunction "and," "or," "and/or" is used, shall be insured separately from any individually-owned deposit
account: Provided, That (1) If the account is held jointly by two or more natural persons, or by two or
more juridical persons or entities, the maximum insured deposit shall be divided into as many equal
shares as there are individuals, juridical persons or entities, unless a different sharing is stipulated in the
document of deposit; and (2) If the account is held by a juridical person or entity jointly with one or more
natural persons, the maximum insured deposit shall be presumed to belong entirely to such juridical
person or entity: Provided, further, That the aggregate of the interests of each co-owner over several joint
accounts, whether owned by the same or different combinations of individuals, juridical persons or
entities, shall likewise be subject to the maximum insured deposit of Two hundred fifty thousand pesos
(P250,000.00): Provided, furthermore, That the provisions of any law to the contrary notwithstanding, no
owner/holder of any negotiable certificate of deposit shall be recognized as a depositor entitled to the
rights provided in this Act unless his name is registered as owner/holder thereof in the books of the
issuing bank."
SECTION 5. Section 4 of the same Act is re-numbered as Section 5.
SECTION 6. Section 6, subsections (a), (d) and (h) of the same Act are hereby further amended, to read
as follows:
"SEC. 6. (a) The assessment rate shall be determined by the Board of Directors: Provided, That the
assessment rate shall not exceed one-fifth (1/5) of one per centum (1%) per annum. The semi-annual
assessment for each insured bank shall be in the amount of the product of one-half (1/2) the assessment
rate multiplied by the assessment base but in no case shall it be less than Five thousand pesos
(P5,000.00). The assessment base shall be the amount of the liability of the bank for deposits as defined
under subsection (f) of Section 4 without any deduction for indebtedness of depositors.
"The semi-annual assessment base for one semi-annual period shall be the average of the assessment
base of the bank as of the close of business on March thirty-one and June thirty and the semi-annual
assessment base for the other semi-annual period shall be the average of the assessment base of the
bank as of the close of business on September thirty and December thirty-one: Provided, That when any
of said days is a non-business day or legal holiday, either national or provincial, the preceding business
day shall be used. The certified statements required to be filed with the Corporation under subsections (b)
and (c) of this Section shall be in such form and set forth such supporting information as the Board of
Directors shall prescribe. The assessment payments required from the insured banks under subsections
(b) and (c) of this Section shall be made in such manner and at such time or times as the Board of
Directors shall prescribe, provided the time or times so prescribed shall not be later than sixty (60) days
after filing the certified statement setting forth the amount of assessment."
"(d) All assessment collections and income from operations after expenses and charges shall be added to
the Deposit Insurance Fund under Section 13 hereof. Such expenses and charges are: (1) the operating
costs and expenses of the Corporation for the calendar year; (2) additions to reserve to provide for
insurance and financial assistance losses, net of recoverable amounts from applicable assets and
collaterals, during the calendar year; and (3) the net insurance and financial assistance losses sustained
in said calendar year."
"(h) The Corporation shall not terminate the insured status of any bank which continues to operate or
receive deposits. Should any insured bank fail or refuse to pay any assessment required to be paid by
such bank under any provision of this Act, and should the bank not correct such failure or refusal within
thirty (30) days after written notice has been given by the Corporation to an officer of the bank citing this
subsection, and stating that the bank has failed or refused to pay as required by the law, the Corporation
may, at its discretion, file a case for collection before the appropriate court without prejudice to the
imposition of administrative sanctions allowed under the provisions of this Law on the bank officials
responsible for the non payment of assessment fees."
SECTION 7. Section 7, subsection (a) of the same Act is hereby further amended to read as follows:
"SEC. 7. (a) Whenever upon examination by the Corporation into the condition of any insured bank, it
shall be disclosed that an insured bank or its directors or agents have committed, are committing or
about to commit unsafe or unsound practices in conducting the business of the bank, or have violated,
are violating or about to violate any provisions of any law or regulation to which the insured bank is
subject, the Board of Directors shall submit the report of the examination to the Monetary Board to secure
corrective action thereon. If no such corrective action is taken by the Monetary Board within forty-five
(45) days from the submission of the report, the Board of Directors shall, motu proprio, institute
corrective action which it deems necessary. The Board of Directors may thereafter issue a cease and
desist order, and require the bank or its directors or agents concerned to correct the practices or
violations within forty-five (45) days. However, if the practice or violation is likely to cause insolvency or
substantial dissipation of assets or earnings of the bank, or is likely to seriously weaken the condition of
the bank or otherwise seriously prejudice the interests of its depositors and the Corporation, the period to
take corrective action shall not be more than fifteen (15) days. The order may also include the imposition
of fines provided in Section 21 (f) hereof. The Board of Directors shall duly inform the Monetary Board of
the Bangko Sentral ng Pilipinas of action it has taken under this subsection with respect to such practices
or violations."
SECTION 8. Section 8, paragraph Eighth of the same Act is hereby amended to read as follows:
"Eighth - To conduct examination of banks with prior approval of the Monetary Board: Provided, That no
examination can be conducted within twelve (12) months from the last examination date: Provided,
further, That, to avoid overlapping of efforts, the examination shall maximize the efficient use of relevant
reports, information and findings of the Bangko Sentral which it shall make available to the Corporation:
Provided, finally, That the Board of Directors shall, in close coordination with the Monetary Board,
prescribe such guidelines as may be necessary to ensure that there are no duplications of functions."
SECTION 9. Section 9 of the same Act is hereby further amended by adding a new subsection (b-1) after
subsection (b), adding a new subsection (d-1) after subsection (d), amending subsection (e), and adding
new subsections (f), (g), and (h), to read as follows:
"(b-1) The investigators appointed by the Board of Directors shall have the power on behalf of the
Corporation to conduct investigations on frauds, irregularities and anomalies committed in banks, based
on reports of examination conducted by the Corporation and Bangko Sentral ng Pilipinas or complaints
from depositors or from other government agency. Each such investigator shall have the power to
administer oaths, and to examine and take and preserve the testimony of any person relating to the
subject of investigation."
"(d-1) Each insured bank shall keep and maintain a true and accurate record or statement of its daily
deposit transactions consistent with the standards set by the Bangko Sentral ng Pilipinas and the
Corporation. Compliance with such standards shall be duly certified by the president of the bank or the
compliance officer: Provided, That refusal or willful failure to issue the required certification shall
constitute a violation of this Section and shall subject such officers of the bank to the sanctions provided
for under Section 21 (f) of this Act."
"(e) Personnel of the Corporation are hereby prohibited from:
"(1) being an officer, director, consultant, employee or stockholder, directly or indirectly, of any bank or
banking institution except as otherwise provided in this Act;
"(2) receiving any gift or thing of value from any officer, director or employee thereof;
"(3) revealing in any manner, except as provided in this Act or under order of the court, information
relating to the condition or business of any such institution. This prohibition shall not apply to the giving
of information to the Board of Directors, the President of the Corporation, Congress, any agency of
government authorized by law, or to any person authorized by either of them in writing to receive such
information.
"(f) The Corporation shall underwrite or advance litigation costs and expenses, including legal fees and
other expenses of external counsel, or provide legal assistance to, directors, officers, employees or
agents of the Corporation in connection with any civil, criminal, administrative or any other action or
proceeding, to which such director, officer, employee or agent is made a party by reason of, or in
connection with, the exercise of authority or performance of functions and duties under this Act: Provided,
That such legal protection shall not apply to any civil, criminal, administrative or any action or proceeding
that may be initiated by the Corporation, in whatever capacity, against such director, officer, employee or
agent: Provided, further, That directors, officers, employees or agents who shall resign, retire, transfer to
another agency or be separated from the service, shall continue to be provided with such legal protection
in connection with any act done or omitted to be done by them in good faith during their tenure or
employment with the Corporation: Provided, finally, That in the event of a settlement or compromise,
indemnification shall be provided only in connection with such matters covered by the settlement as to
which the Corporation is advised by counsel that the persons to be indemnified did not commit any
negligence or misconduct.
"(g) The costs and expenses incurred in defending the aforementioned action, suit or proceeding may be
paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director, officer, employee or agent to repay the amount
advanced should it ultimately be determined by the Board of Directors that he is not entitled to be
indemnified as provided in this subsection.
"(h) Legal assistance shall include the grant or advance of reasonable legal fees as determined by the
Board of Directors to enable the concerned director, officer, employee or agent to engage counsel of his
choice, subject to approval by the Board of Directors."
"Notwithstanding the provisions of this Section and Section 2, members of the Board of Directors and
personnel of the Corporation may become directors and officers of any bank and banking institution and
of any entity related to such institution in connection with financial assistance extended by the
Corporation to such institution and when, in the opinion of the Board, it is appropriate to make such
designation to protect the interest of the Corporation.
"Borrowing from any bank or banking institution by examiners and other personnel of the examination
departments of the Corporation shall be prohibited only with respect to the particular institution in which
they are assigned, or are conducting an examination. Personnel of other departments, offices or units of
the Corporation shall likewise be prohibited from borrowing from any bank or banking institution during
the period of time that a transaction of such institution with the Corporation is being evaluated, processed
or acted upon by such personnel: Provided, however, That the Board may, at its discretion, indicate the
position levels or functional groups to which the prohibition is applicable.
"Borrowing by all full-time personnel of the Corporation from any bank or banking institution shall be
secured and disclosed to the Board, and shall be subject to such further rules and regulations as the
Board may prescribe."
SECTION 10. Section 9-A of the same Act is hereby numbered as Section 10, and further amended to
read as follows:
"SEC. 10. (a) The provisions of other laws, general or special, to the contrary notwithstanding, whenever it
shall be appropriate for the Monetary Board of the Bangko Sentral ng Pilipinas to appoint a receiver of
any banking institution pursuant to existing laws, the Monetary Board shall give prior notice and appoint
the Corporation as receiver.
"(b) The Corporation as receiver shall control, manage and administer the affairs of the closed bank.
Effective immediately upon takeover as receiver of such bank, the powers, functions and duties, as well
as all allowances, remunerations and perquisites of the directors, officers, and stockholders of such bank
are suspended, and the relevant provisions of the Articles of Incorporation and By-laws of the closed bank
are likewise deemed suspended.
"The assets of the closed bank under receivership shall be deemed in custodia legis in the hands of the
receiver. From the time the closed bank is placed under such receivership, its assets shall not be subject
to attachment, garnishment, execution, levy or any other court processes. Therefore, a judge, officer of
the court or any person who shall issue, order, process or cause the issuance or implementation of the
writ of garnishment, levy, attachment or execution shall be liable under Section 21 hereof.
"(c) In addition to the powers of a receiver pursuant to existing laws, the Corporation is empowered to:
"(1) bring suits to enforce liabilities to or recoveries of the closed bank;
"(2) appoint and hire persons or entities of recognized competence in banking or finance as its deputies
and assistants, to perform such powers and functions of the Corporation as receiver or liquidator of the
closed bank;
"(3) suspend or terminate the employment of officers and employees of the closed bank: Provided, That
payment of separation pay or benefits shall be made only after the closed bank has been placed under
liquidation pursuant to the order of the Monetary Board under Section 30 of R.A. 7653, and that such
payment shall be made from available funds of the bank after deducting reasonable expenses for
receivership and liquidation;
"(4) pay accrued utilities, rentals and salaries of personnel of the closed bank, for a period not exceeding
three (3) months, from available funds of the closed bank;
"(5) collect loans and other claims of the closed bank, and for the purpose, modify, compromise or
restructure the terms and conditions of such loans or claims as may be deemed advantageous to the
interest of the creditors and claimants of the closed bank;
"(6) hire or retain private counsels as may be necessary;
"(7) borrow or obtain a loan, or mortgage, pledge or encumber any asset of the closed bank, when
necessary to preserve or prevent dissipation of the assets, or to redeem foreclosed assets of the closed
bank, or to minimize losses to the depositors and creditors;
"(8) if the stipulated interest on deposits is unusually high compared with the prevailing applicable
interest rate, the Corporation as receiver may exercise such powers which may include a reduction of the
interest rate to a reasonable rate: Provided, That any modification or reduction shall apply only to unpaid
interest; and
"(9) exercise such other powers as are inherent and necessary for the effective discharge of the duties of
the Corporation as receiver."
"The Board of Directors shall adopt such policies and guidelines as may be necessary for the performance
of the above powers by personnel, deputies and agents of the Corporation."
SECTION 11. A new section is hereby inserted as Section 11 of the same Act to read as follows:
"SEC. 11 In all cases or actions filed by the Corporation as receiver for the recovery of, or involving any
asset of the closed bank, payment of all docket and other court fees shall be deferred until the action is
terminated with finality. Any such fees shall constitute as a first lien on any judgment in favor of the
closed bank or in case of unfavorable judgment, such fees shall be paid as administrative expenses
during the distribution of the assets of the closed bank."
SECTION 12. Section 9-B of the same Act is hereby renumbered as Section 12 and further amended to
read as follows:
"SEC 12. Before any distribution of the assets of the closed bank in accordance with the preferences
established by law, the Corporation shall periodically charge against said assets reasonable receivership
expenses and subject to approval by the proper court, reasonable liquidation expenses, it has incurred as
part of the cost of receivership/liquidation proceedings and collect payment therefore from available
assets.
"After the payment of all liabilities and claims against the closed bank, the Corporation shall pay any
surplus dividends at the legal rate of interest from date of takeover to date of distribution, to creditors
and claimants of the closed bank in accordance with legal priority before distribution to the shareholders
of the closed bank."
SECTION 13. Section 9-C of the same Act is hereby repealed.
SECTION 14. Section 10 of the same Act is re-numbered as Section 13 and further amended to read as
follows:
"SEC. 13. To carry out the purposes of this Act, the permanent insurance fund shall be Three billion pesos
(P3,000,000,000.00).
"The Deposit Insurance Fund shall be the capital account of the Corporation and shall principally consist
of the following: (i) the Permanent Insurance Fund; (ii) assessment collections, subject to the charges
enumerated in Section 6 (d); (iii) reserves for insurance and financial assistance losses; and (iv) retained
earnings: Provided: That the reserves for insurance and financial assistance losses and retained earnings
shall be maintained at a reasonable level to ensure capital adequacy: Provided, further, That the
Corporation may, within two (2) years from the passage of this Act, and every five (5) years thereafter,
conduct a study on the need to adjust the amount of the Permanent Insurance Fund, insurance cover,
assessment rate and assessment base, and thereafter make the necessary recommendation to Congress.
For this purpose, the Corporation may hire the services of actuarial consultants to determine, among
others, the affordability of assessment rates, analysis and evaluation of insurance risk, and advisability of
imposing varying assessment rates or insurance cover of different bank categories."
SECTION 15. Section 10 (b) of the same Act is hereby repealed.
SECTION 16. Section 10 (c) of the same Act is hereby renumbered as Section 14 and further amended to
read as follows:
"SEC. 14. Whenever an insured bank shall have been closed by the Monetary Board pursuant to Section
30 of R.A. 7653, payment of the insured deposits on such closed bank shall be made by the Corporation
as soon as possible either (1) by cash or (2) by making available to each depositor a transferred deposit
in another insured bank in an amount equal to insured deposit of such depositor: Provided, however, That
the Corporation, in its discretion, may require proof of claims to be filed before paying the insured
deposits, and that in any case where the Corporation is not satisfied as to the viability of a claim for an
insured deposit, it may require final determination of a court of competent jurisdiction before paying such
claim: Provided, further, That failure to settle the claim, within six (6) months from the date of filing of
claim for insured deposit, where such failure was due to grave abuse of discretion, gross negligence, bad
faith, or malice, shall, upon conviction, subject the directors, officers or employees of the Corporation
responsible for the delay, to imprisonment from six (6) months to one (1) year: Provided, furthermore,
That the period shall not apply if the validity of the claim requires the resolution of issues of facts and or
law by another office, body or agency including the case mentioned in the first proviso or by Corporation
together with such other office, body or agency."
SECTION 17. Section 10 (d) of the same Act is hereby renumbered as Section 15.
SECTION 18. Section 11 of the same Act is hereby re-numbered as Section 16 and further amended by
inserting a new paragraph as Section 16 (a), and the existing paragraphs are hereby re-numbered
accordingly:
"SEC. 16 (a) The Corporation shall commence the determination of insured deposits due the depositors of
a closed bank upon its actual takeover of the closed bank. The Corporation shall give notice to the
depositors of the closed bank of the insured deposits due them by whatever means deemed appropriate
by the Board of Directors: Provided, That the Corporation shall publish the notice once a week for at least
three (3) consecutive weeks in a newspaper of general circulation or, when appropriate, in a newspaper
circulated in the community or communities where the closed bank or its branches are located.
"(b) Payment of an insured deposit to any person by the Corporation shall discharge the Corporation, and
payment of a transferred deposit to any person by the new bank or by an insured bank in which a
transferred deposit has been made available shall discharge the Corporation and such new bank or other
insured bank, to the same extent that payment to such person by the closed bank would have discharged
it from liability for the insured deposit.
"(c) Except as otherwise prescribed by the Board of Directors, neither the Corporation or such other
insured bank shall be required to recognize as the owner of any portion of a deposit appearing on the
records of the closed bank under a name other than that of the claimant, any person whose name or
interest as such owner is not disclosed on the records of such closed bank as part owner of said deposit, if
such recognition would increase the aggregate amount of the insured deposits in such closed bank.
"(d) The Corporation may withhold payment of such portion of the insured deposit of any depositor in a
closed bank as may be required to provide for the payment of any liability of such depositor as a
stockholder of the closed bank, or of any liability of such depositor to the closed bank or its receiver,
which is not offset against a claim due from such bank, pending the determination and payment of such
liability by such depositor or any other liable therefor.
"(e) Unless otherwise waived by the Corporation, if the depositor in the closed bank shall fail to claim his
insured deposits with the Corporation within two (2) years from actual takeover of the closed bank by the
receiver, or does not enforce his claim filed with the corporation within two (2) years after the two-year
period to file a claim as mentioned hereinabove, all rights of the depositor against the Corporation with
respect to the insured deposit shall be barred; however, all rights of the depositor against the closed bank
and its shareholders or the receivership estate to which the Corporation may have become subrogated,
shall thereupon revert to the depositor. Thereafter, the Corporation shall be discharged from any liability
on the insured deposit."
SECTION 19. Section 12 of the same Act is re-numbered as Section 17 and the last paragraph (c) hereof
is hereby further amended to read as follows:
"(c) When the Corporation has determined that an insured bank is in danger of closing, in order to
prevent such closing, the Corporation, in the discretion of its Board of Directors, is authorized to make
loans to, or purchase the assets of, or assume liabilities of, or make deposits in, such insured bank, upon
such terms and condition as the Board of Directors may prescribe, when in the opinion of the Board of
Directors, the continued operation of such bank is essential to provide adequate banking service in the
community or maintain financial stability in the economy.
"The authority of the Corporation under the foregoing paragraph to extend financial assistance to,
assume liabilities of, purchase the assets of an insured bank may also be exercised in the case of a closed
insured bank if the Corporation finds that the resumption of operations of such bank is vital to the
interests of the community, or a severe financial climate exists which threatens the stability of a number
of banks possessing significant resources: Provided, That the reopening and resumption of operations of
the closed bank shall be subject to the prior approval of the Monetary Board.
"The Corporation may provide any corporation acquiring control of, merging or consolidating with or
acquiring the assets of an insured bank in danger of closing in order to prevent such closing or of a closed
insured bank in order to restore to normal operations, with such financial assistance as it could provide an
insured bank under this subsection: Provided, That, within sixty (60) days from date of assistance the
Corporation shall submit a report thereof to the Monetary Board.
"The Corporation, prior to the exercise of the powers under this Section, shall determine that actual
payoff and liquidation thereof will be more expensive than the exercise of this power: Provided, That
when the Monetary Board has determined that there are systemic consequences of a probable failure or
closure of an insured bank, the Corporation may grant financial assistance to such insured bank in such
amount as may be necessary to prevent its failure or closure and/or restore the insured bank to viable
operations, under such terms and conditions as may be deemed necessary by the Board of Directors,
subject to concurrence by the Monetary Board and without additional cost to the Deposit Insurance Fund.
"A systemic risk refers to the possibility that failure of one bank to settle net transactions with other
banks will trigger a chain reaction, depriving other banks of funds leading to a general shutdown of
normal clearing and settlement activity. Systemic risk also means the likelihood of a sudden, unexpected
collapse of confidence in a significant portion of the banking or financial system with potentially large real
economic effects. Finally, the Corporation may not use its authority under this subsection to purchase the
voting or common stock of an insured bank but it can enter into and enforce agreements that it
determines to be necessary to protect its financial interests: Provided, That the financial assistance may
take the form of equity or quasi-equity of the insured bank as may be deemed necessary by the Board of
Directors with concurrence by the Monetary Board: Provided, further, That the Corporation shall dispose
of such equity as soon as practicable."
SECTION 20. Section 13 of the same Act is re-numbered as Section 18, and is hereby amended to read
as follows:
"SEC. 18. The Corporation is authorized to borrow from the Bangko Sentral ng Pilipinas and the Bangko
Sentral is authorized to lend the Corporation on such terms as may be agreed upon by the Corporation
and the Bangko Sentral, such funds as in the judgment of the Board of Directors of the Corporation are
from time to time required for insurance purposes and financial assistance provided for in Section 17(c) of
this Act: Provided, That any such loan as may be granted by the Bangko Sentral shall be consistent with
monetary policy: Provided, further, That the rate of interest thereon shall be fixed by the Monetary Board
but shall not exceed the treasury bill rate.
"When in the judgment of the Board of Directors the funds of the Corporation are not sufficient to provide
for an emergency or urgent need to attain the purposes of this Act, the Corporation is likewise authorized
to borrow money, obtain loans or arrange credit lines or other credit accommodations from any bank
designated as depository or fiscal agent of the Philippine Government: Provided, That such loan shall be
of short-term duration."
SECTION 21. Section 14 of the same Act is re-numbered as Section 19 and is hereby amended to read as
follows:
"SEC. 19. With the approval of the President of the Philippines, the Corporation is authorized to issue
bonds, debentures, and other obligations as may be necessary for purposes of settlement of insured
deposits in closed banks as well as for financial assistance as provided herein: Provided, That the Board of
Directors shall determine the interest rates, maturity and other requirements of said obligations:
Provided, further, That the Corporation shall provide for appropriate reserves for the redemption or
retirement of said obligation.
SECTION 22. Section 15 of the same Act is re-numbered as Section 20 and is hereby amended to read as
follows:
"SEC. 20. (a) The Corporation shall annually make a report of its operations to the Congress as soon as
practicable after the 1st day of January in each year.
"(b) The financial transactions of the Corporation shall be audited by the Commission on Audit in
accordance with the principles and procedures applicable to commercial corporate transactions and
under such rules and regulations as may be prescribed by the Commission on Audit. The audit shall be
conducted at the place or places where accounts of the Corporation are normally kept. Except as to
matters relating to the function of the Corporation as receiver which shall be subject to visitorial audit
only, the representatives of the Commission on Audit shall have access to all books, accounts, records,
reports, files and all other papers, things, or property belonging to or in use by the Corporation pertaining
to its financial transactions and necessary to facilitate the audit, and they shall be afforded full facilities
for verifying transactions with the balances or securities held by depositories, fiscal agents, and
custodians. All such books, accounts, records, reports, files, papers, and property of the Corporation shall
remain in possession and custody of the Corporation."
SECTION 23. Section 16 of the same Act is re-numbered as Section 21, and paragraphs (a), (b), (f) and
(g) are hereby further amended to read as follows:
"SEC. 21. (a) Every insured bank shall display at each place of business maintained by it a sign or signs,
and shall include a statement in all its advertisements to the effect that its deposits are insured by the
Corporation: Provided, That the Board of Directors may exempt from this requirement advertisements
which do not relate to deposits or when it is impractical to include such statement therein. The Board of
Directors shall prescribe by regulations the forms of such signs and the manner of use.
"(b) No insured bank shall pay any dividend on its capital stock or interest on its capital notes or
debentures (if such interest is required to be paid only out of net profits) or distribute any of its capital
assets while it remains in default in the payment of any assessment due to the Corporation: Provided,
That if such default is due to a dispute between the insured bank and the Corporation over the amount of
such assessment, this subsection shall not apply if such bank shall deposit security satisfactory to the
Corporation for payment upon final determination of the issue."
"(f) The penalty of prision mayor or a fine of not less than Fifty thousand pesos (P50,000.00) but not more
than Two million pesos (P2,000,000.00), or both, at the discretion of the court, shall be imposed upon any
director, officer, employee or agent of a bank:
"1) for any willful refusal to submit reports as required by law, rules and regulations;
"2) any unjustified refusal to permit examination and audit of the deposit records or the affairs of the
institution;
"3) any willful making of a false statement or entry in any bank report or document required by the
Corporation;
"4) submission of false material information in connection with or in relation to any financial assistance of
the Corporation extended to the bank;
"5) splitting of deposits or creation of fictitious loans or deposit accounts.
"Splitting of deposits occurs whenever a deposit account with an outstanding balance of more than the
statutory maximum amount of insured deposit maintained under the name of natural or juridical persons
is broken down and transferred into two or more accounts in the name/s of natural or juridical persons or
entities who have no beneficial ownership on transferred deposits in their names within thirty (30) days
immediately preceding or during a bank-declared bank holiday, or immediately preceding a closure order
issued by the Monetary Board of the Bangko Sentral ng Pilipinas for the purpose of availing of the
maximum deposit insurance coverage;
"6) refusal to allow the Corporation to take over a closed bank placed under its receivership or
obstructing such action of the Corporation;
"7) refusal to turn over or destroying or tampering bank records;
"8) fraudulent disposal, transfer or concealment of any asset, property or liability of the closed bank
under the receivership of the Corporation;
"9) violation of, or causing any person to violate, the exemption from garnishment, levy, attachment or
execution provided under this Act and the New Central Bank Act;
"10) any willful failure or refusal to comply with, or violation of any provision of this Act, or commission of
any other irregularities, and/or conducting business in an unsafe or unsound manner as may be
determined by the Board of Directors.
"(g) The Board of Directors is hereby authorized to impose administrative fines for any act or omission
enumerated in the preceding subsection, and for violation of any order, instruction, rule or regulation
issued by the Corporation, against a bank and/or any of its directors, officers or agents responsible for
such act, omission, or violation, in amounts as it may be determined to be appropriate, but in no case to
exceed three times the amount of the damages or costs caused by the transaction for each day that the
violation subsists, taking into consideration the attendant circumstances, such as the nature and gravity
of the violation or irregularity and the size of the bank."
SECTION 24. A new Section 22 is hereby inserted, to read as follows:
"SEC. 22. No court, except the Court of Appeals, shall issue any temporary restraining order, preliminary
injunction or preliminary mandatory injunction against the Corporation for any action under this Act.
"This prohibition shall apply in all cases, disputes or controversies instituted by a private party, the
insured bank, or any shareholder of the insured bank.
"The Supreme Court may issue a restraining order or injunction when the matter is of extreme urgency
involving a constitutional issue, such that unless a temporary restraining order is issued, grave injustice
and irreparable injury will arise. The party applying for the issuance of a restraining order or injunction
shall file a bond in an amount to be fixed by the Supreme Court, which bond shall accrue in favor of the
Corporation if the court should finally decide that the applicant was not entitled to the relief sought.
"Any restraining order or injunction issued in violation of this Section is void and of no force and effect
and any judge who has issued the same shall suffer the penalty of suspension of at least sixty (60) days
without pay."
SEC. 23 The Corporation may be reorganized by the Board of Directors by adopting if it so desires, an
entirely new staffing pattern or organizational structure to suit the operations of the Corporation under
this Act. No preferential or priority right shall be given to or enjoyed by any personnel for appointment to
any position in the new staffing pattern nor shall any personnel be considered as having prior or vested
rights with respect to retention in the Corporation or in any other position which may be created in the
new staffing pattern, even if he should be the incumbent of a similar position prior to reorganization. The
reorganization shall be completed within six (6) months after the effectivity of this Act. Personnel who are
not retained are deemed separated from the service.
SEC. 24. The Board of Directors is hereby authorized to provide separation incentives, and all those who
shall retire or be separated from the service on account of reorganization under the preceding section
shall be entitled to such incentives which shall be in addition to all gratuities and benefits to which they
may be entitled under existing laws.
SECTION 25. The words "Central Bank" and the "Central Bank of the Philippines" wherever they appear
in Republic Act No. 3591, as amended, is hereby replaced with Bangko Sentral and/or Bangko Sentral ng
Pilipinas, respectively.
SECTION 26. Separability Clause. - If any provision or section of this Act or the application thereof to any
person or circumstances is held invalid, the other provisions or sections of this Act, in the application of
such provision or section to other persons or circumstances, shall not be affected thereby.
SECTION 27. Repealing Clause. - All acts or parts of acts and executive orders, administrative orders, or
parts thereof which are inconsistent with the provisions of this Act are hereby repealed.
SECTION 28. Effectivity Clause. - This Act shall take effect fifteen (15) days following the completion of
its publication in the Official Gazette or in two (2) newspapers of general circulation.
Approved,

FRANKLIN DRILON JOSE DE VENECIA JR.

President of the Senate Speaker of the House of Representatives
 This Act which is a consolidation of Senate Bill No. 2730 and House Bill No. 6003 was finally passed by the
Senate and the House of Representatives on June 11, 2004.

OSCAR G. YABES ROBERTO P. NAZARENO

Secretary of Senate Secretary General
House of Represenatives
Approved: July 27 2004
GLORIA MACAPAGAL-ARROYO
President of the Philippines

Pasted from <http://www.lawphil.net/statutes/repacts/ra2004/ra_9302_2004.html>

RA 9576
Sunday, June 06, 2010
3:27 AM

Republic Act No. 9576 April 29, 2009

AN ACT INCREASING THE MAXIMUM DEPOSIT INSURANCE COVERAGE, AND IN CONNECTION
THEREWITH, TO STRENGTHEN THE REGULATORY AND ADMINISTRATIVE AUTHORITY, AND
FINANCIAL CAPABILITY OF THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC),
AMENDING FOR THIS PURPOSE REPUBLIC ACT NUMBERED THREE THOUSAND FIVE HUNDRED
NINETY-ONE, AS AMENDED, OTHERWISE KNOWN AS THE PDIC CHARTER, AND FOR OTHER
PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled::
Section 1. Statement of State Policy and Objectives. - It is hereby declared to be the policy of the
State to strengthen the mandatory deposit insurance coverage system to generate, preserve, maintain
faith and confidence in the country's banking system, and protect it from illegal schemes and
machinations.
Towards this end, the government must extend all means and mechanisms necessary for the Philippine
Deposit Insurance Corporation to effectively fulfill its vital task of promoting and safeguarding the
interests of the depositing public by way of providing permanent and continuing insurance coverage on
all insured deposits, and in helping develop a sound and stable banking system at all times.
Section 2. Section 4 (f) of Republic Act No. 3591, as amended, is hereby amended by adding an
additional paragraph, to read as follows:
"(f) The term "deposit" means the unpaid balance of money or its equivalent received by a bank in the
usual course of business and for which it has given or is obliged to give credit to a commercial, checking,
savings, time or thrift account, or issued in accordance with Bangko Sentral rules and regulations and
other applicable laws, together with such other obligations of a bank, which, consistent with banking
usage and practices, the Board of Directors shall determine and prescribe by regulations to be deposit
liabilities of the bank: Provided, That any obligation of a bank which is payable at the office of the bank
located outside of the Philippines shall not be a deposit for any of the purposes of this Act or included as
part of the total deposits or of insured deposits: Provided, further, That, subject to the approval of the
Board of Directors, any insured bank which is incorporated under the laws of the Philippines which
maintains a branch outside the Philippines may elect to include for insurance its deposit obligations
payable only at such branch.
The corporation shall not pay deposit insurance for the following accounts or transactions, whether
denominated, documented, recorded or booked as deposit by the bank:
"(1) Investment products such as bonds and securities, trust accounts, and other similar instruments;
"(2) Deposit accounts or transactions which are unfunded, or that are fictitious or fraudulent;
"(3) Deposits accounts or transactions constituting, and/or emanating from, unsage and unsound banking
practice/s, as determined by the Corporation, in consultation with the BSP, after due notice and hearing,
and publication of a cease and desist order issued by the Corporation against such deposit accounts or
transactions; and
"(4) Deposits that are determined to be the proceeds of an unlawful activity as defined under republic act
9160, as amended.
"The actions of the Corporation taken under this section shall be final and executory, and may not be
restrained or set aside by the court, except on appropriate petition for certiorari on the ground that the
action was taken in excess of jurisdiction or with such grave abuse of discretion as to amount to a lack or
excess of jurisdiction. The petition for certiorari may only be filed within thirty (30) days from notice of
denial of claim for deposit insurance."
Section. 3. Section 4(g) of the same Act is hereby amended to read as follows:
"(g) The term "insured deposit" means the amount due to any bona fide depositor for legitimate deposits
in an insured bank net of any obligation of the depositor to the insured bank as of date of closure, but not
to exceed Five hundred thousand pesos (P500,000.00). Such net amount shall be determined according
to such regulations as the Board of Directors may prescribe, In determining such amount due to any
depositor, there shall be added together all deposits in the bank maintained in the same right and
capacity for his benefits either in his own name or in the name of others. A joint account regardless of
whether the conjunction 'and,' 'or,' 'and/or' is used, shall be insured separately from any individually-
owned deposit account: Provided, That (1) If the account is held jointly by two or more natural persons, or
by two or more juridical persons or entities, the maximum insured deposit shall be divided into as many
equal shares as there are individuals, juridical persons or entities, unless a different sharing is stipulated
in the document of deposit, and (2) If the account is held by a juridical person or entity jointly with one or
more natural persons, the maximum insured deposits shall be presumed to belong entirely to such
juridical person or entity:Provided, further, That the aggregate of the interest of each co-owner over
several joint accounts, whether owned by the same or different combinations of individuals, juridical
persons or entities, shall likewise be subject to the maximum insured deposit of Five hundred thousand
pesos (P500,000.00): Provided,Furthermore, The the provisions of any law to the contrary
notwithstanding, no owner/holder of any negotiable certificate of deposit shall be recognized as a
depositor entitled to the rights provided in this Act unless his name is registered as owner/holder thereof
in the books of the issuing bank: Provided, Finally, That, in case of a condition that threatens the
monetary and financial stability of the banking system that may have systemic consequences, as defined
in section 17 hereof, as determined by the monetary board, the maximum deposit insurance cover may
be adjusted in such amount, for such a period, and/or for such deposit products, as may be determined
by a unanimous vote of the Board of Directors in a meeting called for the purpose and chaired by the
Secretary of Finance, subject to the approval of the President of the Philippines."
Section 4. The maximum deposit insurance coverage of Five hundred thousand pesos (P500,000.00)
provided in Section 4(g) of Republic Act 3591, as amended herein, shall be paid by the
Corporation: Provided, That for the first three (3) years from the effectivity of this Act, the first Two
hundred fifty thousand pesos (P250,000.00) of the deposited insurance coverage shall be for the account
of the Corporation, and those in excess of Two hundred fifty thousand pesos (P250,000.00) but not more
than Five hundred thousand pesos (P500,000.00) shall be for the account of the National Government.
The Congress shall annually appropriate the necessary funding to reimburse the Corporation for any
payment to insured depositors paid in excess of Two hundred fifty thousand pesos (P250,000.00).
Section 5. Section 8, paragraph Eighth of the same Act is hereby amended to read as follows:
"Eighth - To conduct examination of banks with prior approval of the Monetary Board: Provided, That no
examination can be conducted within twelve (12) months from the last examination
date: Provided, however, That the Corporation may, in coordination with the Bangko Sentral, conduct a
special examination as the Board of Directors, by an affirmative vote of a majority of all of its members, if
there is a threatened or impending closure of a bank: Provided, further, That notwithstanding the
provisions of Republic Act No. 1405, as amended, Republic Act No. 6426, as amended, Republic Act No.
8791, and other laws, the Corporation and/or Bangko Sentral may inquire into or examine deposit
accounts and all information related thereto in case there is a finding of unsafe or unsound banking
practice: Provided, finally, That to avoid overlapping of efforts, the examination shall maximize the
efficient use of the relevant reports, information, and findings of the Bangko Sentral, which it shall make
available to the Corporation."
Section 6. A new Section 9 (h) of the same Act is hereby added to read as follows:
"(h) Unless the actions of the Corporation or any of its officers and employees are found to be in willful
violation of this Act, performed in bad faith, with malice and/or gross negligence, the Corporation, its
directors, officers, employees and agents are held free and harmless to the fullest extent permitted by
law from any liability, and they shall be indemnified for any and all liabilities, losses, claims, demands,
damages, deficiencies, costs and expenses of whatsoever kind and nature that may arise in connection
with the performance of their functions, without prejudice to any criminal liability under existing laws."
Section 7. Section 9 (h) of the same Act is accordingly renumbered as Section 9 (i).
Section 8. An additional paragraph to Section 17 of the same Act is hereby added after subparagraph (b)
to read as follows:
"(c) It is hereby declared to be the policy of the State that the Deposit Insurance Fund of the Corporation
shall be preserved and maintained at all times. Accordingly, all tax obligations of the Corporation for a
period of five (5) years reckoned from the date of effectivity of this Act shall be chargeable to the Tax
Expenditure Fund (TEF) in the annual General Appropriation Act pursuant to the provisions of Executive
Order No. 93, series of 1986: Provided, That, on the 6th year and thereafter, the Corporation shall be
exempt from income tax, final withholding tax, value-added tax on assessments collected from member
banks and local taxes."
Section 9. Section 17 (c) of the same Act shall be accordingly renumbered as Section 17 (d).
Section 10. Section 19 is hereby amended to read as follows.
"SEC. 19. With the approval of the President of the Philippines, the Corporation is authorized to issue
bonds, debentures, and other obligations, both local or foreign, as may be necessary for purposes of
providing liquidity for settlement of insured deposits in closed banks as well as for financial assistance as
provided herein: Provided, That the Board of Directors shall determine the interest rates, maturity and
other requirements of said obligations: Provided, further, That the Corporation shall provide for
appropriate reserves for the redemption or retirement of said obligation.
All notes, debentures, bonds, or such obligations issued by the Corporation shall be exempt from taxation
both as to principal and interest, and shall be fully guaranteed by the Government of the Republic of the
Philippines. Such guarantee, which in no case shall exceed two times the Deposit Insurance Fund as of
date of the debt issuance, shall be expressed on the face thereof.
The Board of Directors shall have the power to prescribe rules and regulations for the issuance,
reissuance, servicing, placement and redemption of the bonds herein authorized to be issued as well as
the registration of such bonds at the request of the holders thereof."
Section 11. Section 21, paragraph (f)(5) is hereby amended to read as follows.
"5) splitting of deposits or creation of fictitious loans or deposits accounts.
"Splitting of deposits occurs whenever a deposit account with an outstanding balance of more that the
statutory maximum amount of insured deposit maintained under the name of natural or juridical persons
is broken down and transferred into two (2) or more accounts in the name/s of natural or juridical persons
or entities who have no beneficial ownership on transferred deposits in their names within one hundred
twenty (120) days immediately preceding or during a bank-declared bank holiday, or immediately
preceding a closure order issued by the Monetary Board of the Bangko Sentral ng Pilipinas for the
purpose of availing of the maximum deposit insurance coverage."
Section 12. An additional paragraph shall be inserted under Section 2, to read as follows:
"SEC. 2. xxx The Board of Directors shall have the authority:
"xxx
"7. To review the organizational set-up of the Corporation and adopt a new or revised organizational
structure as it may deem necessary for the Corporation to undertake its mandate and functions."
Section 13. Joint Congressional Oversight Committee. - There is hereby created a joint
congressional oversight committee to oversee the implementation of this Act. The committee shall be
composed of the chairpersons of the Senate Committee on Banks, Financial Institutions and Currencies
and the Committee on Finance and five (5) senators to be appointed by the President of the Senate, and
the chairpersons of the House Committee on Banks and Financial Intermediaries and the Committee on
Appropriations and five (5) members to be appointed by the Speaker of the House of Representatives.
Section 14. Separability Clause. - If any provision or section of this Act or the application thereof to
any person or circumstances is held invalid, the other provisions or sections of this Act, in the application
of such provision or section to other persons or circumstances, shall not be affected thereby.
Section 15. Repealing Clause. - All acts or parts of acts and executive orders, administrative orders, or
parts thereof, which are inconsistent with the provisions of this Act are hereby repealed.
Section 16. Effectivity Clause. - This Act shall take effect fifteen (15) days following the completion of
its publication in the Official Gazette or in two (2) newspapers of general circulation.
Approved,

(Sgd.) PROSPERO C. NOGRALES (Sgd.) JUAN PONCE ENRILE

Speaker of the House of President of the Senate
Representatives
This Act which is a consolidation of Senate Bill No. 2964 and House Bill No. 5911 was finally passed by the
Senate and the House of Representatives on March 5, 2009 and March 4, 2009, respectively.

(Sgd.) MARILYN B. BARUA- (Sgd.) EMMA LIRIO-REYES

YAP Secretary of Senate
Secretary General
House of Represenatives
Approved: April 29, 2009
(Sgd.) GLORIA MACAPAGAL-ARROYO
President of the Philippines
 Pasted from <http://www.lawphil.net/statutes/repacts/ra2009/ra_9576_2009.html>

PD 1792
Sunday, June 06, 2010
3:28 AM

PRESIDENTIAL DECREE No. 1792 January 16, 1981

MALACAÑANG
Manila
PRESIDENTIAL DECREE No. 1792
AMENDING REPUBLIC ACT NO. 1405
WHEREAS, under existing legal framework, the Central Bank has the authority to examine all records of
banks in the discharge of its responsibilities under the Central Bank Charter;
WHEREAS, the prohibition against inquiry into bank deposits adversely delimits the examining authority of
the Central Bank.
WHEREAS, limited examination powers operate against effective supervision of banks and endangers the
safety of deposits which may affect the public's faith in the banking system.
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers in me
vested by the Constitution, do hereby decree and make the following part of the law of the land;
Section 1. Section 2 of Republic Act No. 1405 is hereby amended to read as follows:
Section 2. All deposits of whatever nature with banks or banking institutions in the Philippines including
investments in bonds issued by the Government of the Philippines, its political subdivisions and its
instrumentalities, are hereby considered as of an absolutely confidential nature and may not be examined,
inquired or looked into by any person, government official, bureau or office, except when the examination
is made in the course of a special or general examination of a bank and is specifically authorized by the
Monetary Board after being satisfied that there is reasonable ground to believe that a bank fraud or
serious irregularity has been or is being committed and that it is necessary to look into the deposit to
establish such fraud or irregularity, or when the examination is made by an independent auditor hired by
the bank to conduct its regular audit provided that the examination is for audit purposes only and the
results thereof shall be for the exclusive use of the bank, or upon written permission of the depositor, or in
cases of impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of
public officials, or in cases where the money deposited or invested is the subject matter of the litigation.
Section 2. Section 3 of the same Act is hereby amended to read as follows:
Section 3. It shall be unlawful for any official or employee of a bank to disclose to any person other than
those mentioned in Section Two hereof, or for an independent auditor hired by a bank to conduct its
regular audit to disclose to any person other than a bank director, official or employee authorized by the
bank, any information concerning said deposits.
Section 3. This Decree shall take effect immediately.
Done in the City of Manila, this 16th day of January, in the year of Our Lord, nineteen hundred and eighty-
one.

Pasted from <http://www.lawphil.net/statutes/presdecs/pd1981/pd_1792_1981.html>

RA 6832
Sunday, June 06, 2010
3:29 AM

Republic Act No. 6832 January 5, 1990

AN ACT CREATING A COMMISSION TO CONDUCT A THOROUGH FACT-FINDING INVESTIGATION
OF THE FAILED COUP D′ÉTAT OF DECEMBER 1989, RECOMMEND MEASURES TO PREVENT THE
OCCURRENCE OF SIMILAR ATTEMPTS AT A VIOLENT SEIZURE OF POWER, AND FOR OTHER
PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled::
Section 1. Creation, Objectives and Powers. – There is hereby created an independent Commission
which shall investigate all the facts and circumstances of the failed coup d′État of December 1989, and
recommend measures to prevent similar attempts at a violent seizure of power.
To attain these objectives, the Commission shall:
(a) Conduct a thorough fact-finding investigation of the said coup d′État and the involvement therein of
military personnel and civilian personalities including public officials and employees, evaluate all the facts
and circumstances of the same, and submit its findings and recommendation to the President, the
Congress, and other appropriate authorities not later that one (1) year from the effectivity of this Act;
(b) Receive, review and evaluate the evidence adduced and to this end, summon witnesses, administer
oaths, take testimony or receive evidence relevant to the investigation, and to issue subpoena ad
testificandum or subpoena duces tecum to produce documents, books, records and other papers;
(c) Turn over to the appropriate prosecutorial authorities all evidence involving any person when in the
course of its investigation, the Commission finds that there is reasonable ground to believe that he
appears to be liable for any criminal offense in connection with said coup d′État.
(d) Ask the Monetary Board to disclose information on and/or to grant authority to examine any bank
deposits, trust or investment funds, or banking transactions in the name of and/or utilized by a person,
natural or juridical, under investigation by the Commission, in any bank or banking institution in the
Philippines, when the Commission has reasonable ground to believe that actions have been used in
support or furtherance of the objectives of said coup d′État; and
(e) Exercise such other acts incident to or are appropriate and necessary in connection with the objectives
of this Act.
Section 2. Bar Against Court Injunction; Exception, Supreme Court. – No court, except the
Supreme Court, shall issue any restraining order or preliminary injunction on any matter involving the
official acts of the Commission pursuant to this Act and of the Monetary Board under paragraph (d) of
Section 1 hereof.
Section 3. Composition, Qualification and Salary. – The Commission shall be composed of a
Chairman and four (4) members who shall be appointed by the President. The Chairman and members
shall be citizens of the Philippines, at least thirty-five (35) years of age, and have an established reputation
for integrity, honesty, probity and professional competence. They shall receive the same salary as the
Chairman and members, respectively, of the Constitutional Commission.
Section 4. Tenure and Turn Over of Records. – The Commission is hereby given one (1) year from the
effectivity of this Act to attain the objectives set forth herein. Two (2) months after the lapse of said period,
the Commission shall be functus officio, and shall turn over all its records, assets and properties to the
Department of Justice.
Section 5. Orderly Conduct of Proceedings. – The Commission shall adopt rules and procedures for
orderly conduct of its investigation, proceeding and hearing, including the presentation of evidence. The
rules of evidence under the Revised Rules of Court shall have suppletory application.
Section 6. Conduct of Hearings. – Proceedings and hearings of the Commission, sitting en banc, shall
be open to the public. The Commission may, motu proprio or upon request of the person testifying, hold an
executive or closed-door hearing where matters of national security or public safety are involved or the
personal safety of the witness warrants the holding of such executive or closed-door hearing. The
Commission shall prescribe the rules to govern such executive or closed-door hearings.
Any person called to testify before the Commission shall have the right to counsel at any stage of the
proceedings.
Section 7. Right Against Self-Incrimination; Protection of Witness. – No person shall be excused
from attending and testifying or from producing documents, books, records, correspondence, or other
evidence in obedience to a subpoena issued by the Commission on the ground that his testimony or other
evidence required of him may tend to incriminate him or subject him to penalty or forfeiture. After having
invoked his right against self-incrimination, his testimony or any evidence produced by him shall not be
used against him in any proceedings, except for perjury committed in so testifying.
The Commission shall protect any person called to testify by providing the necessary and reasonable
security arrangements with the assistance and cooperation of the Armed Forces of the Philippines and
other appropriate government agencies.
Section 8. Immunity from Criminal Prosecution. – The Commission is authorized to grant immunity
from criminal prosecution to any person who provides information or testifies in any investigation
conducted by it where, upon its evaluation, such information or testimony is necessary and vital to the
investigation. The immunity thereby granted shall continue to protect the witness who repeats such
testimony before the appropriate court when required to do so by the latter. Should he refuse to repeat
such testimony, the immunity granted him shall cease.
Section 9. Direct or Indirect Contempt. – The Commission may hold any person in direct or indirect
contempt, and impose appropriate penalties therefor.
A person guilty of misbehavior in the presence of or so near the Commission as to obstruct or interrupt the
proceedings before the same, including disrespect towards its officials, offensive personalities towards
other, or refusal to be sworn or to answer as a witness or to subscribe to an affidavit or deposition when
lawfully required to do so, may be summarily adjudged in direct contempt by the Commission and
punished with a fine not exceeding Five thousand pesos (P5,000.00) or imprisonment not exceeding thirty
(30) days or both. The judgment of the Commission on direct contempt shall be final and not appealable.
Indirect contempt shall be dealt by the Commission in the manner prescribed under Rule 71 of the Revised
Rules of Court.
Section 10. Personnel of the Commission. – The Chairman shall have the power to engage the
services of such persons or personnel including a Commission Counsel, Deputy Commission Counsel(s) or
such other officials as may be required for the effective performance of its functions and responsibilities, to
fix their duties and compensation, to organize the structure and staffing pattern of the Commission; and to
authorize the payment of honoraria and/or allowance for deputized officers and officials subject to the
pertinent accounting and auditing rules and procedures. The persons, appointed, designated, deputized or
contracted by the Commission shall be subject to the Civil Service Law, rules and regulations.
Section 11. Promulgation of Rules and Regulations; Publication of Rules and Reports. – The
Commission shall have the power to promulgate its rules and regulations, enter into contracts, and
perform any and all other acts necessary or incidental to the attainment of the objectives of this Act.
Commission rules and regulations shall be published in at least two (2) national newspapers of general
circulation and shall take effect two (2) days after its publication. The final report to the President and to
Congress shall be published.
Section 12. Role of Other Government Agencies. – The Commission may call upon any government
investigative and prosecutorial agency, including the National Bureau of Investigation and the Philippine
Constabulary/Integrated National Police, to make available their offices, personnel and facilities to attain
the objectives of this Act.
Section 13. Appropriations. – The sum of Ten million pesos (P10,000,000.00) is hereby provided to the
Commission, chargeable against the Contingent Fund. The said amount shall automatically be released to
the Commission for disbursement by it in accordance with the auditing rules and regulations.
Section 14. Transfer of Records and Facilities to the Commission. – The records, facilities,
equipment, property, rights and such other things incidental to the creation of the Presidential Commission
under Administrative Order No. 146, Series of 1989, are hereby transferred to the Commission created by
this Act: Provided, That employees of the Presidential Commission, particularly the rank and file, shall be
absorbed by the Commission to the extent that it is administratively feasible.
Section 15. Applicable Law in Case of Conflict. – The provisions of this Act shall prevail over other
laws, acts, executive orders, administrative orders, issuances, rules and regulations or parts thereof, of the
Revised Rules of Court as regards the subject matter of this Act.
Section 16. Separability Clause. – If any provision of this Act is declared unconstitutional, the same
shall not affect the validity and effectivity of the other provisions hereof.
Section 17. Effectivity. – This Act shall take effect two (2) days following its publication in at least two
(2) national newspapers of general circulation.
Approved: January 5, 1990.

Pasted from <http://www.lawphil.net/statutes/repacts/ra1990/ra_6832_1990.html>

RA 7653
Sunday, June 06, 2010
3:29 AM

REPUBLIC ACT No. 7653

THE NEW CENTRAL BANK ACT
CHAPTER I — ESTABLISHMENT AND ORGANIZATION OF THE BANGKO SENTRAL NG PILIPINAS
ARTICLE I
CREATION, RESPONSIBILITIES AND CORPORATE POWERS OF THE BANGKO SENTRAL
Section 1. Declaration of Policy. - The State shall maintain a central monetary authority that shall
function and operate as an independent and accountable body corporate in the discharge of its mandated
responsibilities concerning money, banking and credit. In line with this policy, and considering its unique
functions and responsibilities, the central monetary authority established under this Act, while being a
government-owned corporation, shall enjoy fiscal and administrative autonomy.
 Section 2. Creation of the Bangko Sentral. - There is hereby established an independent central
monetary authority, which shall be a body corporate known as the Bangko Sentral ng Pilipinas, hereafter
referred to as the Bangko Sentral.
The capital of the Bangko Sentral shall be Fifty billion pesos (P50,000,000,000), to be fully
subscribed by the Government of the Republic, hereafter referred to as the Government, Ten billion pesos
(P10,000,000,000) of which shall be fully paid for by the Government upon the effectivity of this Act and
the balance to be paid for within a period of two (2) years from the effectivity of this Act in such manner
and form as the Government, through the Secretary of Finance and the Secretary of Budget and
Management, may thereafter determine.
Section 3. Responsibility and Primary Objective. - The Bangko Sentral shall provide policy
directions in the areas of money, banking, and credit. It shall have supervision over the operations of
banks and exercise such regulatory powers as provided in this Act and other pertinent laws over the
operations of finance companies and non-bank financial institutions performing quasi-banking functions,
hereafter referred to as quasi-banks, and institutions performing similar functions.
The primary objective of the Bangko Sentral is to maintain price stability conducive to a balanced
and sustainable growth of the economy. It shall also promote and maintain monetary stability and the
convertibility of the peso.
Section 4. Place of Business. - The Bangko Sentral shall have its principal place of business in
Metro Manila, but may maintain branches, agencies and correspondents in such other places as the proper
conduct of its business may require.
Section 5. Corporate Powers. - The Bangko Sentral is hereby authorized to adopt, alter, and use a
corporate seal which shall be judicially noticed; to enter into contracts; to lease or own real and personal
property, and to sell or otherwise dispose of the same; to sue and be sued; and otherwise to do and
perform any and all things that may be necessary or proper to carry out the purposes of this Act.
The Bangko Sentral may acquire and hold such assets and incur such liabilities in connection with
its operations authorized by the provisions of this Act, or as are essential to the proper conduct of such
operations.
The Bangko Sentral may compromise, condone or release, in whole or in part, any claim of or
settled liability to the Bangko Sentral, regardless of the amount involved, under such terms and conditions
as may be prescribed by the Monetary Board to protect the interests of the Bangko Sentral.
ARTICLE II
THE MONETARY BOARD
Section 6. Composition of the Monetary Board. - The powers and functions of the Bangko Sentral
shall be exercised by the Bangko Sentral Monetary Board, hereafter referred to as the Monetary Board,
composed of seven (7) members appointed by the President of the Philippines for a term of six (6) years.
The seven (7) members are:
(a) the Governor of the Bangko Sentral, who shall be the Chairman of the Monetary Board. The Governor
of the Bangko Sentral shall be head of a department and his appointment shall be subject to confirmation
by the Commission on Appointments. Whenever the Governor is unable to attend a meeting of the Board,
he shall designate a Deputy Governor to act as his alternate: Provided, That in such event, the Monetary
Board shall designate one of its members as acting Chairman;
(b) a member of the Cabinet to be designated by the President of the Philippines. Whenever the
designated Cabinet Member is unable to attend a meeting of the Board, he shall designate an
Undersecretary in his Department to attend as his alternate; and
(c) five (5) members who shall come from the private sector, all of whom shall serve full-time: Provided,
however, That of the members first appointed under the provisions of this subsection, three (3) shall have
a term of six (6) years, and the other two (2), three (3) years.
No member of the Monetary Board may be reappointed more than once.
Section 7. Vacancies. - Any vacancy in the Monetary Board created by the death, resignation, or
removal of any member shall be filled by the appointment of a new member to complete the unexpired
period of the term of the member concerned.
Section 8. Qualifications. - The members of the Monetary Board must be natural-born citizens of
the Philippines, at least thirty-five (35) years of age, with the exception of the Governor who should at
least be forty (40) years of age, of good moral character, of unquestionable integrity, of known probity and
patriotism, and with recognized competence in social and economic disciplines.
Section 9. Disqualifications. - In addition to the disqualifications imposed by Republic Act No.
6713, a member of the Monetary Board is disqualified from being a director, officer, employee, consultant,
lawyer, agent or stockholder of any bank, quasi-bank or any other institution which is subject to
supervision or examination by the Bangko Sentral, in which case such member shall resign from, and
divest himself of any and all interests in such institution before assumption of office as member of the
Monetary Board.
 The members of the Monetary Board coming from the private sector shall not hold any other public
office or public employment during their tenure.
No person shall be a member of the Monetary Board if he has been connected directly with any
multilateral banking or financial institution or has a substantial interest in any private bank in the
Philippines, within one (1) year prior to his appointment; likewise, no member of the Monetary Board shall
be employed in any such institution within two (2) years after the expiration of his term except when he
serves as an official representative of the Philippine Government to such institution.
Section 10. Removal. - The President may remove any member of the Monetary Board for any of
the following reasons:
(a) If the member is subsequently disqualified under the provisions of Section 8 of this Act; or
(b) If he is physically or mentally incapacitated that he cannot properly discharge his duties and
responsibilities and such incapacity has lasted for more than six (6) months; or
(c) If the member is guilty of acts or operations which are of fraudulent or illegal character or which are
manifestly opposed to the aims and interests of the Bangko Sentral; or
(d) If the member no longer possesses the qualifications specified in Section 8 of this Act.
Section 11. Meetings. - The Monetary Board shall meet at least once a week. The Board may be
called to a meeting by the Governor of the Bangko Sentral or by two (2) other members of the Board.
The presence of four (4) members shall constitute a quorum: Provided, That in all cases the
Governor or his duly designated alternate shall be among the four (4).
Unless otherwise provided in this Act, all decisions of the Monetary Board shall require the
concurrence of at least four (4) members.
The Bangko Sentral shall maintain and preserve a complete record of the proceedings and
deliberations of the Monetary Board, including the tapes and transcripts of the stenographic notes, either
in their original form or in microfilm.
Section 12. Attendance of the Deputy Governors. - The Deputy Governors may attend the
meetings of the Monetary Board with the right to be heard.
Section 13. Salary. - The salary of the Governor and the members of the Monetary Board from the
private sector shall be fixed by the President of the Philippines at a sum commensurate to the importance
and responsibility attached to the position.
Section 14. Withdrawal of Persons Having a Personal Interest. - In addition to the requirements of
Republic Act No. 6713, any member of the Monetary Board with personal or pecuniary interest in any
matter in the agenda of the Monetary Board shall disclose his interest to the Board and shall retire from
the meeting when the matter is taken up. The decision taken on the matter shall be made public. The
minutes shall reflect the disclosure made and the retirement of the member concerned from the meeting.
Section 15. Exercise of Authority. - In the exercise of its authority, the Monetary Board shall:
(a) issue rules and regulations it considers necessary for the effective discharge of the responsibilities and
exercise of the powers vested upon the Monetary Board and the Bangko Sentral. The rules and regulations
issued shall be reported to the President and the Congress within fifteen (15) days from the date of their
issuance;
(b) direct the management, operations, and administration of the Bangko Sentral, reorganize its
personnel, and issue such rules and regulations as it may deem necessary or convenient for this purpose.
The legal units of the Bangko Sentral shall be under the exclusive supervision and control of the Monetary
Board;
(c) establish a human resource management system which shall govern the selection, hiring, appointment,
transfer, promotion, or dismissal of all personnel. Such system shall aim to establish professionalism and
excellence at all levels of the Bangko Sentral in accordance with sound principles of management.
A compensation structure, based on job evaluation studies and wage surveys and subject to the
Board's approval, shall be instituted as an integral component of the Bangko Sentral's human resource
development program: Provided, That the Monetary Board shall make its own system conform as closely
as possible with the principles provided for under Republic Act No. 6758: Provided, however, That
compensation and wage structure of employees whose positions fall under salary grade 19 and below
shall be in accordance with the rates prescribed under Republic Act No. 6758.
On the recommendation of the Governor, appoint, fix the remunerations and other emoluments,
and remove personnel of the Bangko Sentral, subject to pertinent civil service laws: Provided, That the
Monetary Board shall have exclusive and final authority to promote, transfer, assign, or reassign personnel
of the Bangko Sentral and these personnel actions are deemed made in the interest of the service and not
disciplinary: Provided, further, That the Monetary Board may delegate such authority to the Governor
under such guidelines as it may determine.
(d) adopt an annual budget for and authorize such expenditures by the Bangko Sentral as are in the
interest of the effective administration and operations of the Bangko Sentral in accordance with applicable
laws and regulations; and
(e) indemnify its members and other officials of the Bangko Sentral, including personnel of the
departments performing supervision and examination functions against all costs and expenses reasonably
incurred by such persons in connection with any civil or criminal action, suit or proceedings to which he
may be, or is, made a party by reason of the performance of his functions or duties, unless he is finally
adjudged in such action or proceeding to be liable for negligence or misconduct.
In the event of a settlement or compromise, indemnification shall be provided only in connection
with such matters covered by the settlement as to which the Bangko Sentral is advised by external
counsel that the person to be indemnified did not commit any negligence or misconduct.
The costs and expenses incurred in defending the aforementioned action, suit or proceeding may
be paid by the Bangko Sentral in advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the member, officer, or employee to repay the amount
advanced should it ultimately be determined by the Monetary Board that he is not entitled to be
indemnified as provided in this subsection.
Section 16. Responsibility. - Members of the Monetary Board, officials, examiners, and employees
of the Bangko Sentral who willfully violate this Act or who are guilty of negligence, abuses or acts of
malfeasance or misfeasance or fail to exercise extraordinary diligence in the performance of his duties
shall be held liable for any loss or injury suffered by the Bangko Sentral or other banking institutions as a
result of such violation, negligence, abuse, malfeasance, misfeasance or failure to exercise extraordinary
diligence.
Similar responsibility shall apply to members, officers, and employees of the Bangko Sentral for:
(1) the disclosure of any information of a confidential nature, or any information on the discussions or
resolutions of the Monetary Board, or about the confidential operations of the Bangko Sentral, unless the
disclosure is in connection with the performance of official functions with the Bangko Sentral, or is with
prior authorization of the Monetary Board or the Governor; or (2) the use of such information for personal
gain or to the detriment of the Government, the Bangko Sentral or third parties: Provided, however, That
any data or information required to be submitted to the President and/or the Congress, or to be published
under the provisions of this Act shall not be considered confidential.
ARTICLE III
THE GOVERNOR AND DEPUTY GOVERNORS OF THE BANGKO SENTRAL
Section 17. Powers and Duties of the Governor. - The Governor shall be the chief executive officer
of the Bangko Sentral. His powers and duties shall be to:
(a) prepare the agenda for the meetings of the Monetary Board and to submit for the consideration of the
Board the policies and measures which he believes to be necessary to carry out the purposes and
provisions of this Act;
(b) execute and administer the policies and measures approved by the Monetary Board;
(c) direct and supervise the operations and internal administration of the Bangko Sentral. The Governor
may delegate certain of his administrative responsibilities to other officers or may assign specific tasks or
responsibilities to any full-time member of the Monetary Board without additional remuneration or
allowance whenever he may deem fit or subject to such rules and regulations as the Monetary Board may
prescribe;
(d) appoint and fix the remunerations and other emoluments of personnel below the rank of a department
head in accordance with the position and compensation plans approved by the Monetary Board, as well as
to impose disciplinary measures upon personnel of the Bangko Sentral, subject to the provisions of Section
15(c) of this Act: Provided, That removal of personnel shall be with the approval of the Monetary Board;
(e) render opinions, decisions, or rulings, which shall be final and executory until reversed or modified by
the Monetary Board, on matters regarding application or enforcement of laws pertaining to institutions
supervised by the Bangko Sentral and laws pertaining to quasi-banks, as well as regulations, policies or
instructions issued by the Monetary Board, and the implementation thereof; and
(f) exercise such other powers as may be vested in him by the Monetary Board.
Section 18. Representation of the Monetary Board and the Bangko Sentral. - The Governor of the
Bangko Sentral shall be the principal representative of the Monetary Board and of the Bangko Sentral and,
in such capacity and in accordance with the instructions of the Monetary Board, he shall be empowered to:
(a) represent the Monetary Board and the Bangko Sentral in all dealings with other offices, agencies and
instrumentalities of the Government and all other persons or entities, public or private, whether domestic,
foreign or international;
(b) sign contracts entered into by the Bangko Sentral, notes and securities issued by the Bangko Sentral,
all reports, balance sheets, profit and loss statements, correspondence and other documents of the
Bangko Sentral.
The signature of the Governor may be in facsimile whenever appropriate;
(c) represent the Bangko Sentral, either personally or through counsel, including private counsel, as may
be authorized by the Monetary Board, in any legal proceedings, action or specialized legal studies; and
(d) delegate his power to represent the Bangko Sentral, as provided in subsections (a), (b) and (c) of this
section, to other officers upon his own responsibility: Provided, however, That in order to preserve the
integrity and the prestige of his office, the Governor of the Bangko Sentral may choose not to participate
in preliminary discussions with any multilateral banking or financial institution on any negotiations for the
Government within or outside the Philippines. During the negotiations, he may instead be represented by
a permanent negotiator.
Section 19. Authority of the Governor in Emergencies. - In case of emergencies where time is
sufficient to call a meeting of the Monetary Board, the Governor of the Bangko Sentral, with the
concurrence of two (2) other members of the Monetary Board, may decide any matter or take any action
within the authority of the Board.
The Governor shall submit a report to the President and Congress within seventy-two (72) hours
after the action has been taken.
At the soonest possible time, the Governor shall call a meeting of the Monetary Board to submit his
action for ratification.
Section 20. Outside Interests of the Governor and the Full-time Members of the Board. - The
Governor of the Bangko Sentral and the full-time members of the Board shall limit their professional
activities to those pertaining directly to their positions with the Bangko Sentral. Accordingly, they may not
accept any other employment, whether public or private, remunerated or ad honorem, with the exception
of positions in eleemosynary, civic, cultural or religious organizations or whenever, by designation of the
President, the Governor or the full-time member is tasked to represent the interest of the Government or
other government agencies in matters connected with or affecting the economy or the financial system of
the country.
Section 21. Deputy Governors. - The Governor of the Bangko Sentral, with the approval of the
Monetary Board, shall appoint not more than three (3) Deputy Governors who shall perform duties as may
be assigned to them by the Governor and the Board.
In the absence of the Governor, a Deputy Governor designated by the Governor shall act as chief
executive of the Bangko Sentral and shall exercise the powers and perform the duties of the Governor.
Whenever the Government is unable to attend meetings of government boards or councils in which he is
an ex officio member pursuant to provisions of special laws, a Deputy Governor as may be designated by
the Governor shall be vested with authority to participate and exercise the right to vote in such meetings.
ARTICLE IV
OPERATIONS OF THE BANGKO SENTRAL
Section 22. Research and Statistics. - The Bangko Sentral shall prepare data and conduct
economic research for the guidance of the Monetary Board in the formulation and implementation of its
policies. Such data shall include, among others, forecasts of the balance of payments of the Philippines,
statistics on the monthly movement of the monetary aggregates and of prices and other statistical series
and economic studies useful for the formulation and analysis of monetary, banking, credit and exchange
policies.
Section 23. Authority to Obtain Data and Information. - The Bangko Sentral shall have the
authority to request from government offices and instrumentalities, or government-owned or controlled
corporations, any data which it may require for the proper discharge of its functions and responsibilities.
The Bangko Sentral through the Governor or in his absence, a duly authorized representative shall have
the power to issue a subpoena for the production of the books and records for the aforesaid purpose.
Those who refuse the subpoena without justifiable cause, or who refuse to supply the bank with data
requested or required, shall be subject to punishment for contempt in accordance with the provisions of
the Rules of Court.
Data on individual firms, other than banks, gathered by the Department of Economic Research and
other departments or units of the Bangko Sentral shall not be made available to any person or entity
outside of the Bangko Sentral whether public or private except under order of the court or under such
conditions as may be prescribed by the Monetary Board: Provided, however, That the collective data on
firms may be released to interested persons or entities: Provided, finally, That in the case of data on
banks, the provisions of Section 27 of this Act shall apply.
Section 24. Training of Technical Personnel. - The Bangko Sentral shall promote and sponsor the
training of technical personnel in the field of money and banking. Toward this end, the Bangko Sentral is
hereby authorized to defray the costs of study, at home or abroad, of qualified employees of the Bangko
Sentral, of promising university graduates or of any other qualified persons who shall be determined by
proper competitive examinations. The Monetary Board shall prescribe rules and regulations to govern the
training program of the Bangko Sentral.
Section 25. Supervision and Examination. - The Bangko Sentral shall have supervision over, and
conduct periodic or special examinations of, banking institutions and quasi-banks, including their
subsidiaries and affiliates engaged in allied activities.
 For purposes of this section, a subsidiary means a corporation more than fifty percent (50%) of the
voting stock of which is owned by a bank or quasi-bank and an affiliate means a corporation the voting
stock of which, to the extent of fifty percent (50%) or less, is owned by a bank or quasi-bank or which is
related or linked to such institution or intermediary through common stockholders or such other factors as
may be determined by the Monetary Board.
The department heads and the examiners of the supervising and/or examining departments are
hereby authorized to administer oaths to any director, officer, or employee of any institution under their
respective supervision or subject to their examination and to compel the presentation of all books,
documents, papers or records necessary in their judgment to ascertain the facts relative to the true
condition of any institution as well as the books and records of persons and entities relative to or in
connection with the operations, activities or transactions of the institution under examination, subject to
the provision of existing laws protecting or safeguarding the secrecy or confidentiality of bank deposits as
well as investments of private persons, natural or juridical, in debt instruments issued by the Government.
No restraining order or injunction shall be issued by the court enjoining the Bangko Sentral from
examining any institution subject to supervision or examination by the Bangko Sentral, unless there is
convincing proof that the action of the Bangko Sentral is plainly arbitrary and made in bad faith and the
petitioner or plaintiff files with the clerk or judge of the court in which the action is pending a bond
executed in favor of the Bangko Sentral, in an amount to be fixed by the court. The provisions of Rule 58
of the New Rules of Court insofar as they are applicable and not inconsistent with the provisions of this
section shall govern the issuance and dissolution of the restraining order or injunction contemplated in this
section.
Section 26. Bank Deposits and Investments. - Any director, officer or stockholder who, together
with his related interest, contracts a loan or any form of financial accommodation from: (1) his bank; or (2)
from a bank (a) which is a subsidiary of a bank holding company of which both his bank and the lending
bank are subsidiaries or (b) in which a controlling proportion of the shares is owned by the same interest
that owns a controlling proportion of the shares of his bank, in excess of five percent (5%) of the capital
and surplus of the bank, or in the maximum amount permitted by law, whichever is lower, shall be
required by the lending bank to waive the secrecy of his deposits of whatever nature in all banks in the
Philippines. Any information obtained from an examination of his deposits shall be held strictly confidential
and may be used by the examiners only in connection with their supervisory and examination
responsibility or by the Bangko Sentral in an appropriate legal action it has initiated involving the deposit
account.
Section 27. Prohibitions. - In addition to the prohibitions found in Republic Act Nos. 3019 and
6713, personnel of the Bangko Sentral are hereby prohibited from:
(a) being an officer, director, lawyer or agent, employee, consultant or stockholder, directly or indirectly,
of any institution subject to supervision or examination by the Bangko Sentral, except non-stock savings
and loan associations and provident funds organized exclusively for employees of the Bangko Sentral, and
except as otherwise provided in this Act;
(b) directly or indirectly requesting or receiving any gift, present or pecuniary or material benefit for
himself or another, from any institution subject to supervision or examination by the Bangko Sentral;
(c) revealing in any manner, except under orders of the court, the Congress or any government office or
agency authorized by law, or under such conditions as may be prescribed by the Monetary Board,
information relating to the condition or business of any institution. This prohibition shall not be held to
apply to the giving of information to the Monetary Board or the Governor of the Bangko Sentral, or to any
person authorized by either of them, in writing, to receive such information; and
(d) borrowing from any institution subject to supervision or examination by the Bangko Sentral shall be
prohibited unless said borrowings are adequately secured, fully disclosed to the Monetary Board, and shall
be subject to such further rules and regulations as the Monetary Board may prescribe: Provided, however,
That personnel of the supervising and examining departments are prohibited from borrowing from a bank
under their supervision or examination.
Section 28. Examination and Fees. - The supervising and examining department head, personally
or by deputy, shall examine the books of every banking institution once in every twelve (12) months, and
at such other times as the Monetary Board by an affirmative vote of five (5) members, may deem
expedient and to make a report on the same to the Monetary Board: Provided, That there shall be an
interval of at least twelve (12) months between annual examinations.
The bank concerned shall afford to the head of the appropriate supervising and examining
departments and to his authorized deputies full opportunity to examine its books, cash and available
assets and general condition at any time during banking hours when requested to do so by the Bangko
Sentral: Provided, however, That none of the reports and other papers relative to such examinations shall
be open to inspection by the public except insofar as such publicity is incidental to the proceedings
hereinafter authorized or is necessary for the prosecution of violations in connection with the business of
such institutions.
Banking and quasi-banking institutions which are subject to examination by the Bangko Sentral
shall pay to the Bangko Sentral, within the first thirty (30) days of each year, an annual fee in an amount
equal to a percentage as may be prescribed by the Monetary Board of its average total assets during the
preceding year as shown on its end-of-month balance sheets, after deducting cash on hand and amounts
due from banks, including the Bangko Sentral and banks abroad.
Section 29. Appointment of Conservator. - Whenever, on the basis of a report submitted by the
appropriate supervising or examining department, the Monetary Board finds that a bank or a quasi-bank is
in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to
protect the interest of depositors and creditors, the Monetary Board may appoint a conservator with such
powers as the Monetary Board shall deem necessary to take charge of the assets, liabilities, and the
management thereof, reorganize the management, collect all monies and debts due said institution, and
exercise all powers necessary to restore its viability. The conservator shall report and be responsible to
the Monetary Board and shall have the power to overrule or revoke the actions of the previous
management and board of directors of the bank or quasi-bank.
The conservator should be competent and knowledgeable in bank operations and management.
The conservatorship shall not exceed one (1) year.
The conservator shall receive remuneration to be fixed by the Monetary Board in an amount not to
exceed two-thirds (2/3) of the salary of the president of the institution in one (1) year, payable in twelve
(12) equal monthly payments: Provided, That, if at any time within one-year period, the conservatorship is
terminated on the ground that the institution can operate on its own, the conservator shall receive the
balance of the remuneration which he would have received up to the end of the year; but if the
conservatorship is terminated on other grounds, the conservator shall not be entitled to such remaining
balance. The Monetary Board may appoint a conservator connected with the Bangko Sentral, in which
case he shall not be entitled to receive any remuneration or emolument from the Bangko Sentral during
the conservatorship. The expenses attendant to the conservatorship shall be borne by the bank or quasi-
bank concerned.
The Monetary Board shall terminate the conservatorship when it is satisfied that the institution can
continue to operate on its own and the conservatorship is no longer necessary. The conservatorship shall
likewise be terminated should the Monetary Board, on the basis of the report of the conservator or of its
own findings, determine that the continuance in business of the institution would involve probable loss to
its depositors or creditors, in which case the provisions of Section 30 shall apply.
Section 30. Proceedings in Receivership and Liquidation. - Whenever, upon report of the head of
the supervising or examining department, the Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That
this shall not include inability to pay caused by extraordinary demands induced by financial panic in the
banking community;
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has become final, involving acts or
transactions which amount to fraud or a dissipation of the assets of the institution; in which cases, the
Monetary Board may summarily and without need for prior hearing forbid the institution from doing
business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the
banking institution.
For a quasi-bank, any person of recognized competence in banking or finance may be designed as
receiver.
The receiver shall immediately gather and take charge of all the assets and liabilities of the
institution, administer the same for the benefit of its creditors, and exercise the general powers of a
receiver under the Revised Rules of Court but shall not, with the exception of administrative expenditures,
pay or commit any act that will involve the transfer or disposition of any asset of the institution: Provided,
That the receiver may deposit or place the funds of the institution in non-speculative investments. The
receiver shall determine as soon as possible, but not later than ninety (90) days from take over, whether
the institution may be rehabilitated or otherwise placed in such a condition so that it may be permitted to
resume business with safety to its depositors and creditors and the general public: Provided, That any
determination for the resumption of business of the institution shall be subject to prior approval of the
Monetary Board.
If the receiver determines that the institution cannot be rehabilitated or permitted to resume
business in accordance with the next preceding paragraph, the Monetary Board shall notify in writing the
board of directors of its findings and direct the receiver to proceed with the liquidation of the institution.
The receiver shall:
(1) file ex parte with the proper regional trial court, and without requirement of prior notice or any other
action, a petition for assistance in the liquidation of the institution pursuant to a liquidation plan adopted
by the Philippine Deposit Insurance Corporation for general application to all closed banks. In case of
quasi-banks, the liquidation plan shall be adopted by the Monetary Board. Upon acquiring jurisdiction, the
court shall, upon motion by the receiver after due notice, adjudicate disputed claims against the
institution, assist the enforcement of individual liabilities of the stockholders, directors and officers, and
decide on other issues as may be material to implement the liquidation plan adopted. The receiver shall
pay the cost of the proceedings from the assets of the institution.
(2) convert the assets of the institutions to money, dispose of the same to creditors and other parties, for
the purpose of paying the debts of such institution in accordance with the rules on concurrence and
preference of credit under the Civil Code of the Philippines and he may, in the name of the institution, and
with the assistance of counsel as he may retain, institute such actions as may be necessary to collect and
recover accounts and assets of, or defend any action against, the institution. The assets of an institution
under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver and shall,
from the moment the institution was placed under such receivership or liquidation, be exempt from any
order of garnishment, levy, attachment, or execution.
The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be
final and executory, and may not be restrained or set aside by the court except on petition for certiorari on
the ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to
amount to lack or excess of jurisdiction. The petition for certiorari may only be filed by the stockholders of
record representing the majority of the capital stock within ten (10) days from receipt by the board of
directors of the institution of the order directing receivership, liquidation or conservatorship.
The designation of a conservator under Section 29 of this Act or the appointment of a receiver
under this section shall be vested exclusively with the Monetary Board. Furthermore, the designation of a
conservator is not a precondition to the designation of a receiver.
Section 31. Distribution of Assets. - In case of liquidation of a bank or quasi-bank, after payment
of the cost of proceedings, including reasonable expenses and fees of the receiver to be allowed by the
court, the receiver shall pay the debts of such institution, under order of the court, in accordance with the
rules on concurrence and preference of credit as provided in the Civil Code.
Section 32. Disposition of Revenues and Earnings. - All revenues and earnings realized by the
receiver in winding up the affairs and administering the assets of any bank or quasi-bank within the
purview of this Act shall be used to pay the costs, fees and expenses mentioned in the preceding section,
salaries of such personnel whose employment is rendered necessary in the discharge of the liquidation
together with other additional expenses caused thereby. The balance of revenues and earnings, after the
payment of all said expenses, shall form part of the assets available for payment to creditors.
Section 33. Disposition of Banking Franchise. - The Bangko Sentral may, if public interest so
requires, award to an institution, upon such terms and conditions as the Monetary Board may approve, the
banking franchise of a bank under liquidation to operate in the area where said bank or its branches were
previously operating: Provided, That whatever proceeds may be realized from such award shall be subject
to the appropriate exclusive disposition of the Monetary Board.
Section 34. Refusal to Make Reports or Permit Examination. - Any officer, owner, agent, manager,
director or officer-in-charge of any institution subject to the supervision or examination by the Bangko
Sentral within the purview of this Act who, being required in writing by the Monetary Board or by the head
of the supervising and examining department willfully refuses to file the required report or permit any
lawful examination into the affairs of such institution shall be punished by a fine of not less than Fifty
thousand pesos (P50,000) nor more than One hundred thousand pesos (P100,000) or by imprisonment of
not less than one (1) year nor more than five (5) years, or both, in the discretion of the court.
Section 35. False Statement. - The willful making of a false or misleading statement on a material
fact to the Monetary Board or to the examiners of the Bangko Sentral shall be punished by a fine of not
less than One hundred thousand pesos (P100,000) nor more than Two hundred thousand pesos
(P200,000), or by imprisonment of not more than (5) years, or both, at the discretion of the court.
Section 36. Proceedings Upon Violation of This Act and Other Banking Laws, Rules, Regulations,
Orders or Instructions. - Whenever a bank or quasi-bank, or whenever any person or entity willfully
violates this Act or other pertinent banking laws being enforced or implemented by the Bangko Sentral or
any order, instruction, rule or regulation issued by the Monetary Board, the person or persons responsible
for such violation shall unless otherwise provided in this Act be punished by a fine of not less than Fifty
thousand pesos (P50,000) nor more than Two hundred thousand pesos (P200,000) or by imprisonment of
not less than two (2) years nor more than ten (10) years, or both, at the discretion of the court.
Whenever a bank or quasi-bank persists in carrying on its business in an unlawful or unsafe
manner, the Board may, without prejudice to the penalties provided in the preceding paragraph of this
section and the administrative sanctions provided in Section 37 of this Act, take action under Section 30 of
this Act.
Section 37. Administrative Sanctions on Banks and Quasi-banks. - Without prejudice to the
criminal sanctions against the culpable persons provided in Sections 34, 35, and 36 of this Act, the
Monetary Board may, at its discretion, impose upon any bank or quasi-bank, their directors and/or officers,
for any willful violation of its charter or by-laws, willful delay in the submission of reports or publications
thereof as required by law, rules and regulations; any refusal to permit examination into the affairs of the
institution; any willful making of a false or misleading statement to the Board or the appropriate
supervising and examining department or its examiners; any willful failure or refusal to comply with, or
violation of, any banking law or any order, instruction or regulation issued by the Monetary Board, or any
order, instruction or ruling by the Governor; or any commission of irregularities, and/or conducting
business in an unsafe or unsound manner as may be determined by the Monetary Board, the following
administrative sanctions, whenever applicable:
(a) fines in amounts as may be determined by the Monetary Board to be appropriate, but in no case to
exceed Thirty thousand pesos (P30,000) a day for each violation, taking into consideration the attendant
circumstances, such as the nature and gravity of the violation or irregularity and the size of the bank or
quasi-bank;
(b) suspension of rediscounting privileges or access to Bangko Sentral credit facilities;
(c) suspension of lending or foreign exchange operations or authority to accept new deposits or make new
investments;
(d) suspension of interbank clearing privileges; and/or
(e) revocation of quasi-banking license.
Resignation or termination from office shall not exempt such director or officer from administrative
or criminal sanctions.
The Monetary Board may, whenever warranted by circumstances, preventively suspend any
director or officer of a bank or quasi-bank pending an investigation: Provided, That should the case be not
finally decided by the Bangko Sentral within a period of one hundred twenty (120) days after the date of
suspension, said director or officer shall be reinstated in his position: Provided, further, That when the
delay in the disposition of the case is due to the fault, negligence or petition of the director or officer, the
period of delay shall not be counted in computing the period of suspension herein provided.
The above administrative sanctions need not be applied in the order of their severity.
Whether or not there is an administrative proceeding, if the institution and/or the directors and/or
officers concerned continue with or otherwise persist in the commission of the indicated practice or
violation, the Monetary Board may issue an order requiring the institution and/or the directors and/or
officers concerned to cease and desist from the indicated practice or violation, and may further order that
immediate action be taken to correct the conditions resulting from such practice or violation. The cease
and desist order shall be immediately effective upon service on the respondents.
The respondents shall be afforded an opportunity to defend their action in a hearing before the
Monetary Board or any committee chaired by any Monetary Board member created for the purpose, upon
request made by the respondents within five (5) days from their receipt of the order. If no such hearing is
requested within said period, the order shall be final. If a hearing is conducted, all issues shall be
determined on the basis of records, after which the Monetary Board may either reconsider or make final
its order.
The Governor is hereby authorized, at his discretion, to impose upon banking institutions, for any
failure to comply with the requirements of law, Monetary Board regulations and policies, and/or
instructions issued by the Monetary Board or by the Governor, fines not in excess of Ten thousand pesos
(P10,000) a day for each violation, the imposition of which shall be final and executory until reversed,
modified or lifted by the Monetary Board on appeal.
Section 38. Operating Departments of the Bangko Sentral. - The Monetary Board shall, in
accordance with its authority under this Act, determine and provide for such operating departments and
other offices, including a public information office, of the Bangko Sentral as it deems convenient for the
proper and efficient conduct of the operations and the accomplishment of the objectives of the Bangko
Sentral. The functions and duties of such operating departments and other offices shall be determined by
the Monetary Board.
ARTICLE V
REPORTS AND PUBLICATIONS
Section 39. Reports and Publications. - The Bangko Sentral shall publish a general balance sheet
showing the volume and composition of its assets and liabilities as of the last working day of the month
within sixty (60) days after the end of each month except for the month of December, which shall be
submitted within ninety (90) days after the end hereof.
 The Monetary Board shall publish and submit the following reports to the President and to the
Congress:
(a) not later than ninety (90) days after the end of each quarter, an analysis of economic and financial
developments, including the condition of net international reserves and monetary aggregates;
(b) within ninety (90) days after the end of the year, the preceding year's budget and profit and loss
statement of the Bangko Sentral showing in reasonable detail the result of its operations;
(c) one hundred twenty (120) days after the end of each semester, a review of the state of the financial
system; and
(d) as soon as practicable, abnormal movements in monetary aggregates and the general price level, and,
not later than seventy-two (72) hours after they are taken, remedial measures in response to such
abnormal movements.
Section 40. Annual Report. - Before the end of March of each year, the Bangko Sentral shall
publish and submit to the President and the Congress an annual report on the condition of the Bangko
Sentral including a review of the policies and measures adopted by the Monetary Board during the past
year and an analysis of the economic and financial circumstances which gave rise to said policies and
measures.
The annual report shall also include a statement of the financial condition of the Bangko Sentral
and a statistical appendix which shall present, as a minimum, the following data:
(a) the monthly movement of monetary aggregates and their components;
(b) the monthly movement of purchases and sales of foreign exchange and of the international reserves of
the Bangko Sentral;
(c) the balance of payments of the Philippines;
(d) monthly indices of consumer prices and of import and export prices;
(e) the monthly movement, in summary form, of exports and imports, by volume and value;
(f) the monthly movement of the accounts of the Bangko Sentral and of other banks;
(g) the principal data on government receipts and expenditures and on the status of the public debt, both
domestic and foreign; and
(h) the texts of the major legal and administrative measures adopted by the Government and the
Monetary Board during the year which relate to the functions or operations of the Bangko Sentral or of the
financial system.
The Bangko Sentral shall publish another version of the annual report in terms understandable to
the layman.
Failure to comply with the reportorial requirements pursuant to this article without justifiable
reason as may be determined by the Monetary Board shall cause the withholding of the salary of the
personnel concerned until the requirements are complied with.
Section 41. Signatures on Statements. - The balance sheets and other financial statements of the
Bangko Sentral shall be signed by the officers responsible for their preparation, by the Governor, and by
the auditor of the Bangko Sentral.
ARTICLE VI
PROFITS, LOSSES, AND SPECIAL ACCOUNTS
Section 42. Fiscal Year. - The fiscal year of the Bangko Sentral shall begin on January first and end
on December thirty-first of each year.
Section 43. Computation of Profits and Losses. - Within the first thirty (30) days following the end
of each year, the Bangko Sentral shall determine its net profits or losses. In the calculation of net profits,
the Bangko Sentral shall make adequate allowance or establish adequate reserves for bad and doubtful
accounts.
Section 44. Distribution of Net Profits. - Within the first sixty (60) days following the end of each
fiscal year, the Monetary Board shall determine and carry out the distribution of the net profits, in
accordance with the following rule:
Fifty percent (50%) of the net profits shall be carried to surplus and the remaining fifty percent
(50%) shall revert back to the National Treasury, except as otherwise provided in the transitory provisions
of this Act.
Section 45. Revaluation Profits and Losses. - Profits or losses arising from any revaluation of the
Bangko Sentral's net assets or liabilities in gold or foreign currencies with respect to the Philippine peso
shall not be included in the computation of the annual profits and losses of the Bangko Sentral. Any profits
or losses arising in this manner shall be offset by any amounts which, as a consequence of such
revaluations, are owed by the Philippines to any international or regional intergovernmental financial
institution of which the Philippines is a member or are owed by these institutions to the Philippines. Any
remaining profit or loss shall be carried in a special frozen account which shall be named "Revaluation of
International Reserve" and the net balance of which shall appear either among the liabilities or among the
assets of the Bangko Sentral, depending on whether the revaluations have produced net profits or net
losses.
The Revaluation of International Reserve account shall be neither credited nor debited for any
purposes other than those specifically authorized in this section.
Section 46. Suspense Accounts. - Sections 43 and 43-A of Republic Act No. 265, as amended,
creating the Monetary Adjustment Account (MAA) and the Exchange Stabilization Adjustment Account
(ESAA), respectively, are hereby repealed. Amounts outstanding as of the effective date of this Act based
on these accounts shall continue to be for the account of the Central Bank and shall be governed by the
transitory provisions of this Act.
The Revaluation of International Reserve (RIR) account as of the effective date of this Act of the
Central Bank shall continue to be for the account of the same entity and shall be governed by the
provisions of Section 44 of Republic Act No. 265, as amended, until otherwise provided for in accordance
with the transitory provisions of this Act.
ARTICLE VII
THE AUDITOR
Section 47. Appointment and Personnel. - The Chairman of the Commission on Audit shall act as
the ex officio auditor of the Bangko Sentral and, as such, he is empowered and authorized to appoint a
representative who shall be the auditor of the Bangko Sentral and, in accordance with law, fix his salary,
and to appoint and fix salaries and number of personnel to assist said representative in his work. The
salaries and other emoluments shall be paid by the Commission. The auditor of the Bangko Sentral and
personnel under him may be removed only by the Chairman of the Commission.
The representative of the Chairman of the Commission must be a certified public accountant with
at least ten (10) years experience as such. No relative of any member of the Monetary Board or the
Chairman of the Commission within the sixth degree of consanguinity or affinity shall be appointed such
representative.
CHAPTER II — THE BANGKO SENTRAL AND THE MEANS OF PAYMENT
ARTICLE I
THE UNIT OF MONETARY VALUE
Section 48. The Peso. - The unit of monetary value in the Philippines is the "peso," which is
represented by the sign "P."
The peso is divided into one hundred (100) equal parts called "centavos," which are represented
by the sign "c."
ARTICLE II
ISSUE OF MEANS OF PAYMENT
A. CURRENCY
Section 49. Definition of Currency. - The word "currency" is hereby defined, for purposes of this
Act, as meaning all Philippine notes and coins issued or circulating in accordance with the provisions of
this Act.
Section 50. Exclusive Issue Power. - The Bangko Sentral shall have the sole power and authority
to issue currency, within the territory of the Philippines. No other person or entity, public or private, may
put into circulation notes, coins or any other object or document which, in the opinion of the Monetary
Board, might circulate as currency, nor reproduce or imitate the facsimiles of Bangko Sentral notes
without prior authority from the Bangko Sentral.
The Monetary Board may issue such regulations as it may deem advisable in order to prevent the
circulation of foreign currency or of currency substitutes as well as to prevent the reproduction of
facsimiles of Bangko Sentral notes.
The Bangko Sentral shall have the authority to investigate, make arrests, conduct searches and
seizures in accordance with law, for the purpose of maintaining the integrity of the currency.
Violation of this provision or any regulation issued by the Bangko Sentral pursuant thereto shall
constitute an offense punishable by imprisonment of not less than five (5) years but not more than ten
(10) years. In case the Revised Penal Code provides for a greater penalty, then that penalty shall be
imposed.
Section 51. Liability for Notes and Coins. - Notes and coins issued by the Bangko Sentral shall be
liabilities of the Bangko Sentral and may be issued only against, and in amounts not exceeding, the assets
of the Bangko Sentral. Said notes and coins shall be a first and paramount lien on all assets of the Bangko
Sentral.
The Bangko Sentral's holdings of its own notes and coins shall not be considered as part of its
currency issue and, accordingly, shall not form part of the assets or liabilities of the Bangko Sentral.
Section 52. Legal Tender Power. - All notes and coins issued by the Bangko Sentral shall be fully
guaranteed by the Government of the Republic of the Philippines and shall be legal tender in the
Philippines for all debts, both public and private: Provided, however, That, unless otherwise fixed by the
Monetary Board, coins shall be legal tender in amounts not exceeding Fifty pesos (P50.00) for
denominations of Twenty-five centavos and above, and in amounts not exceeding Twenty pesos (P20.00)
for denominations of Ten centavos or less.
Section 53. Characteristics of the Currency. - The Monetary Board, with the approval of the
President of the Philippines, shall prescribe the denominations, dimensions, designs, inscriptions and other
characteristics of notes issued by the Bangko Sentral: Provided, however, That said notes shall state that
they are liabilities of the Bangko Sentral and are fully guaranteed by the Government of the Republic of
the Philippines. Said notes shall bear the signatures, in facsimile, of the President of the Philippines and of
the Governor of the Bangko Sentral.
Similarly, the Monetary Board, with the approval of the President of the Philippines, shall prescribe
the weight, fineness, designs, denominations and other characteristics of the coins issued by the Bangko
Sentral. In the minting of coins, the Monetary Board shall give full consideration to the availability of
suitable metals and to their relative prices and cost of minting.
Section 54. Printing of Notes and Mining of Coins. - The Monetary Board shall prescribe the
amounts of notes and coins to be printed and minted, respectively, and the conditions to which the
printing of notes and the minting of coins shall be subject. The Monetary Board shall have the authority to
contract institutions, mints or firms for such operations.
All expenses incurred in the printing of notes and the minting of coins shall be for the account of
the Bangko Sentral.
Section 55. Interconvertibility of Currency. - The Bangko Sentral shall exchange, on demand and
without charge, Philippine currency of any denomination for Philippine notes and coins of any other
denomination requested. If for any reason the Bangko Sentral is temporarily unable to provide notes or
coins of the denominations requested, it shall meet its obligations by delivering notes and coins of the
denominations which most nearly approximate those requested.
Section 56. Replacement of Currency Unfit for Circulation. - The Bangko Sentral shall withdraw
from circulation and shall demonetize all notes and coins which for any reason whatsoever are unfit for
circulation and shall replace them by adequate notes and coins: Provided, however, That the Bangko
Sentral shall not replace notes and coins the identification of which is impossible, coins which show signs
of filing, clipping or perforation, and notes which have lost more than two-fifths (2/5) of their surface or all
of the signatures inscribed thereon. Notes and coins in such mutilated conditions shall be withdrawn from
circulation and demonetized without compensation to the bearer.
Section 57. Retirement of Old Notes and Coins. - The Bangko Sentral may call in for replacement
notes of any series or denomination which are more than five (5) years old and coins which are more than
(10) years old.
Notes and coins called in for replacement in accordance with this provision shall remain legal
tender for a period of one (1) year from the date of call. After this period, they shall cease to be legal
tender but during the following year, or for such longer period as the Monetary Board may determine, they
may be exchanged at par and without charge in the Bangko Sentral and by agents duly authorized by the
Bangko Sentral for this purpose. After the expiration of this latter period, the notes and coins which have
not been exchanged shall cease to be a liability of the Bangko Sentral and shall be demonetized. The
Bangko Sentral shall also demonetize all notes and coins which have been called in and replaced.
B. DEMAND DEPOSITS
Section 58. Definition. - For purposes of this Act, the term "demand deposits" means all those
liabilities of the Bangko Sentral and of other banks which are denominated in Philippine currency and are
subject to payment in legal tender upon demand by the presentation of checks.
Section 59. Issue of Demand Deposits. - Only banks duly authorized to do so may accept funds or
create liabilities payable in pesos upon demand by the presentation of checks, and such operations shall
be subject to the control of the Monetary Board in accordance with the powers granted it with respect
thereto under this Act.
Section 60. Legal Character. - Checks representing demand deposits do not have legal tender
power and their acceptance in the payment of debts, both public and private, is at the option of the
creditor: Provided, however, That a check which has been cleared and credited to the account of the
creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited
to his account.
CHAPTER III — GUIDING PRINCIPLES OF MONETARY ADMINISTRATION BY THE BANGKO
SENTRAL
ARTICLE I
DOMESTIC MONETARY STABILIZATION
Section 61. Guiding Principle. - The Monetary Board shall endeavor to control any expansion or
contraction in monetary aggregates which is prejudicial to the attainment or maintenance of price
stability.
 Section 62. Power to Define Terms. - For purposes of this article and of this Act, the Monetary
Board shall formulate definitions of monetary aggregates, credit and prices and shall make public such
definitions and any changes thereof.
Section 63. Action When Abnormal Movements Occur in the Monetary Aggregates, Credit, or
Price Level.- Whenever abnormal movements in the monetary aggregates, in credit, or in prices endanger
the stability of the Philippine economy or important sectors thereof, the Monetary Board shall:
(a) take such remedial measures as are appropriate and within the powers granted to the Monetary Board
and the Bangko Sentral under the provisions of this Act; and
(b) submit to the President of the Philippines and the Congress, and make public, a detailed report which
shall include, as a minimum, a description and analysis of:
(1) the causes of the rise or fall of the monetary aggregates, of credit or of prices;
(2) the extent to which the changes in the monetary aggregates, in credit, or in prices have been reflected
in changes in the level of domestic output, employment, wages and economic activity in general, and the
nature and significance of any such changes; and
(3) the measures which the Monetary Board has taken and the other monetary, fiscal or administrative
measures which it recommends to be adopted.
Whenever the monetary aggregates, or the level of credit, increases or decreases by more than
fifteen percent (15%), or the cost of living index increases by more than ten percent (10%), in relation to
the level existing at the end of the corresponding month of the preceding year, or even though any of
these quantitative guidelines have not been reached when in its judgment the circumstances so warrant,
the Monetary Board shall submit the reports mentioned in this section, and shall state therein whether, in
the opinion of the Board, said changes in the monetary aggregates, credit or cost of living represent a
threat to the stability of the Philippine economy or of important sectors thereof.
The Monetary Board shall continue to submit periodic reports to the President of the Philippines
and to Congress until it considers that the monetary, credit or price disturbances have disappeared or
have been adequately controlled.
ARTICLE II
INTERNATIONAL MONETARY STABILIZATION
Section 64. International Monetary Stabilization. - The Bangko Sentral shall exercise its powers
under this Act to preserve the international value of the peso and to maintain its convertibility into other
freely convertible currencies primarily for, although not necessarily limited to, current payments for
foreign trade and invisibles.
Section 65. International Reserves. - In order to maintain the international stability and
convertibility of the Philippine peso, the Bangko Sentral shall maintain international reserves adequate to
meet any foreseeable net demands on the Bangko Sentral for foreign currencies.
In judging the adequacy of the international reserves, the Monetary Board shall be guided by the
prospective receipts and payments of foreign exchange by the Philippines. The Board shall give special
attention to the volume and maturity of the Bangko Sentral's own liabilities in foreign currencies, to the
volume and maturity of the foreign exchange assets and liabilities of other banks operating in the
Philippines and, insofar as they are known or can be estimated, the volume and maturity of the foreign
exchange assets and liabilities of all other persons and entities in the Philippines.
Section 66. Composition of the International Reserves. - The international reserves of the Bangko
Sentral may include but shall not be limited to the following assets:
(a) gold; and
(b) assets in foreign currencies in the form of: documents and instruments customarily employed for the
international transfer of funds; demand and time deposits in central banks, treasuries and commercial
banks abroad; foreign government securities; and foreign notes and coins.
The Monetary Board shall endeavor to hold the foreign exchange resources of the Bangko Sentral
in freely convertible currencies; moreover, the Board shall give particular consideration to the prospects of
continued strength and convertibility of the currencies in which the reserve is maintained, as well as to the
anticipated demands for such currencies. The Monetary Board shall issue regulations determining the
other qualifications which foreign exchange assets must meet in order to be included in the international
reserves of the Bangko Sentral.
The Bangko Sentral shall be free to convert any of the assets in its international reserves into other
assets as described in subsections (a) and (b) of this section.
Section 67. Action When the International Stability of the Peso Is Threatened. - Whenever the
international reserve of the Bangko Sentral falls to a level which the Monetary Board considers inadequate
to meet prospective net demands on the Bangko Sentral for foreign currencies, or whenever the
international reserve appears to be in imminent danger of falling to such a level, or whenever the
international reserve is falling as a result of payments or remittances abroad which, in the opinion of the
Monetary Board, are contrary to the national welfare, the Monetary Board shall:
(a) take such remedial measures as are appropriate and within the powers granted to the Monetary Board
and the Bangko Sentral under the provisions of this Act; and
(b) submit to the President of the Philippines and to Congress a detailed report which shall include, as a
minimum, a description and analysis of:
(1) the nature and causes of the existing or imminent decline;
(2) the remedial measures already taken or to be taken by the Monetary Board;
(3) the monetary, fiscal or administrative measures further proposed; and
(4) the character and extent of the cooperation required from other government agencies for the
successful execution of the policies of the Monetary Board.
If the resultant actions fail to check the deterioration of the reserve position of the Bangko Sentral,
or if the deterioration cannot be checked except by chronic restrictions on exchange and trade
transactions or by sacrifice of the domestic objectives of a balanced and sustainable growth of the
economy, the Monetary Board shall propose to the President, with appropriate notice of the Congress,
such additional action as it deems necessary to restore equilibrium in the international balance of
payments of the Philippines.
The Monetary Board shall submit periodic reports to the President and to Congress until the threat
to the international monetary stability of the Philippines has disappeared.
CHAPTER IV — INSTRUMENTS OF BANGKO SENTRAL ACTION
ARTICLE I
GENERAL CRITERION
Section 68. Means of Action. - In order to achieve the primary objective of price stability, the
Monetary Board shall rely on its moral influence and the powers granted to it under this Act for the
management of monetary aggregates.
ARTICLE II
OPERATIONS IN GOLD AND FOREIGN EXCHANGE
Section 69. Purchases and Sales of Gold. - The Bangko Sentral may buy and sell gold in any form,
subject to such regulations as the Monetary Board may issue.
The purchases and sales of gold authorized by this section shall be made in the national currency
at the prevailing international market price as determined by the Monetary Board.
Section 70. Purchases and Sales of Foreign Exchange. - The Bangko Sentral may buy and sell
foreign notes and coins, and documents and instruments of types customarily employed for the
international transfer of funds. The Bangko Sentral may engage in future exchange operations.
The Bangko Sentral may engage in foreign exchange transactions with the following entities or
persons only:
(a) banking institutions operating in the Philippines;
(b) the Government, its political subdivisions and instrumentalities;
(c) foreign or international financial institutions;
(d) foreign governments and their instrumentalities; and
(e) other entities or persons which the Monetary Board is hereby empowered to authorize as foreign
exchange dealers, subject to such rules and regulations as the Monetary Board shall prescribe.
In order to maintain the convertibility of the peso, the Bangko Sentral may, at the request of any
banking institution operating in the Philippines, buy any quantity of foreign exchange offered, and sell any
quantity of foreign exchange demanded, by such institution, provided that the foreign currencies so
offered or demanded are freely convertible into gold or United States dollars. This requirement shall not
apply to demands for foreign notes and coins.
The Bangko Sentral shall effect its exchange transactions between foreign currencies and the
Philippine peso at the rates determined in accordance with the provisions of Section 74 of this Act.
Section 71. Foreign Asset Position of the Bangko Sentral. - The Bangko Sentral shall endeavor to
maintain at all times a net positive foreign asset position so that its gross foreign exchange assets will
always exceed its gross foreign liabilities. In the event that the equivalent amount in pesos of the foreign
exchange liabilities of the Bangko Sentral exceed twice the equivalent amount in pesos of the foreign
exchange assets of the bank, the Bangko Sentral shall, within sixty (60) days from the date the limit is
exceeded, submit a report to the Congress stating the origin of these liabilities, and the manner in which
they will be paid.
Section 72. Emergency Restrictions on Exchange Operations. - In order to achieve the primary
objective of the Bangko Sentral as set forth in Section 3 of this Act, or protect the international reserves of
the Bangko Sentral in the imminence of, or during an exchange crisis, or in time of national emergency
and to give the Monetary Board and the Government time in which to take constructive measures to
forestall, combat, or overcome such a crisis or emergency, the Monetary Board, with the concurrence of at
least five (5) of its members and with the approval of the President of the Philippines, may temporarily
suspend or restrict sales of exchange by the Bangko Sentral, and may subject all transactions in gold and
foreign exchange to license by the Bangko Sentral, and may require that any foreign exchange thereafter
obtained by any person residing or entity operating in the Philippines be delivered to the Bangko Sentral
or to any bank or agent designated by the Bangko Sentral for the purpose, at the effective exchange rate
or rates: Provided, however, That foreign currency deposits made under Republic Act No. 6426 shall be
exempt from these requirements.
Section 73. Acquisition of Inconvertible Currencies. - The Bangko Sentral shall avoid the
acquisition and holding of currencies which are not freely convertible, and may acquire such currencies in
an amount exceeding the minimum balance necessary to cover current demands for said currencies only
when, and to the extent that, such acquisition is considered by the Monetary Board to be in the national
interest. The Monetary Board shall determine the procedures which shall apply to the acquisition and
disposition by the Bangko Sentral of foreign exchange which is not freely utilizable in the international
market.
Section 74. Exchange Rates. - The Monetary Board shall determine the exchange rate policy of
the country.
The Monetary Board shall determine the rates at which the Bangko Sentral shall buy and sell spot
exchange, and shall establish deviation limits from the effective exchange rate or rates as it may deem
proper. The Bangko Sentral shall not collect any additional commissions or charges of any sort, other than
actual telegraphic or cable costs incurred by it.
The Monetary Board shall similarly determine the rates for other types of foreign exchange
transactions by the Bangko Sentral, including purchases and sales of foreign notes and coins, but the
margins between the effective exchange rates and the rates thus established may not exceed the
corresponding margins for spot exchange transactions by more than the additional costs or expenses
involved in each type of transactions.
Section 75. Operations with Foreign Entities. - The Monetary Board may authorize the Bangko
Sentral to grant loans to and receive loans from foreign banks and other foreign or international entities,
both public and private, and may engage in such other operations with these entities as are in the national
interest and are appropriate to its character as a central bank. The Bangko Sentral may also act as agent
or correspondent for such entities.
Upon authority of the Monetary Board, the Bangko Sentral may pledge any gold or other assets
which it possesses as security against loans which it receives from foreign or international entities.
ARTICLE III
REGULATION OF FOREIGN EXCHANGE OPERATIONS OF THE BANKS
Section 76. Foreign Exchange Holdings of the Banks. - In order that the Bangko Sentral may at all
times have foreign exchange resources sufficient to enable it to maintain the international stability and
convertibility of the peso, or in order to promote the domestic investment of bank resources, the Monetary
Board may require the banks to sell to the Bangko Sentral or to other banks all or part of their surplus
holdings of foreign exchange. Such transfers may be required for all foreign currencies or for only certain
of such currencies, according to the decision of the Monetary Board. The transfers shall be made at the
rates established under the provisions of Section 74 of this Act.
The Monetary Board may, whenever warranted, determine the net assets and net liabilities of
banks and shall, in making such a determination, take into account the bank's networth, outstanding
liabilities, actual and contingent, or such other financial or performance ratios as may be appropriate
under the circumstances. Any such determination of net assets and net liabilities shall be applied in all
banks uniformly and without discrimination.
Section 77. Requirement of Balanced Currency Position. - The Monetary Board may require the
banks to maintain a balanced position between their assets and liabilities in Philippine pesos or in any
other currency or currencies in which they operate. The banks shall be granted a reasonable period of
time in which to adjust their currency positions to any such requirement.
The powers granted under this section shall be exercised only when special circumstances make
such action necessary, in the opinion of the Monetary Board, and shall be applied to all banks alike and
without discrimination.
Section 78. Regulation of Non-spot Exchange Transactions. - In order to restrain the banks from
taking speculative positions with respect to future fluctuations in foreign exchange rates, the Monetary
Board may issue such regulations governing bank purchases and sales of non-spot exchange as it may
consider necessary for said purpose.
Section 79. Other Exchange Profits and Losses. - The banks shall bear the risks of non-compliance
with the terms of the foreign exchange documents and instruments which they buy and sell, and shall also
bear any other typically commercial or banking risks, including exchange risks not assumed by the Bangko
Sentral under the provisions of the preceding section.
Section 80. Information on Exchange Operations. - The banks shall report to the Bangko Sentral
the volume and composition of their purchases and sales of gold and foreign exchange each day, and
must furnish such additional information as the Bangko Sentral may request with reference to the
movements in their accounts in foreign currencies.
The Monetary Board may also require other persons and entities to report to it currently all
transactions or operations in gold, in any shape or form, and in foreign exchange whether entered into or
undertaken by them directly or through agents, or to submit such data as may be required on operations
or activities giving rise to or in connection with or relating to a gold or foreign exchange transaction. The
Monetary Board shall prescribe the forms on which such declarations must be made. The accuracy of the
declarations may be verified by the Bangko Sentral by whatever inspection it may deem necessary.
ARTICLE IV
LOANS TO BANKING AND OTHER FINANCIAL INSTITUTIONS
A. CREDIT POLICY
Section 81. Guiding Principles. - The rediscounts, discounts, loans and advances which the
Bangko Sentral is authorized to extend to banking institutions under the provisions of the present article of
this Act shall be used to influence the volume of credit consistent with the objective of price stability.
B. NORMAL CREDIT OPERATIONS
Section 82. Authorized Types of Operations. - Subject to the principle stated in the preceding
section of this Act, the Bangko Sentral may normally and regularly carry on the following credit operations
with banking institutions operating in the Philippines:
(a) Commercial credits. - The Bangko Sentral may rediscount, discount, buy and sell bills, acceptances,
promissory notes and other credit instruments with maturities of not more than one hundred eighty (180)
days from the date of their rediscount, discount or acquisition by the Bangko Sentral and resulting from
transactions related to:
(1) the importation, exportation, purchase or sale of readily saleable goods and products, or their
transportation within the Philippines; or
(2) the storing of non-perishable goods and products which are duly insured and deposited, under
conditions assuring their preservation, in authorized bonded warehouses or in other places approved by
the Monetary Board.
(b) Production credits. - The Bangko Sentral may rediscount, discount, buy and sell bills, acceptances,
promissory notes and other credit instruments having maturities of not more than three hundred sixty
(360) days from the date of their rediscount, discount or acquisition by the Bangko Sentral and resulting
from transactions related to the production or processing of agricultural, animal, mineral, or industrial
products. Documents or instruments acquired in accordance with this subsection shall be secured by a
pledge of the respective crops or products: Provided, however, That the crops or products need not be
pledged to secure the documents if the original loan granted by the Bangko Sentral is secured by a lien or
mortgage on real estate property seventy percent (70%) of the appraised value of which equals or
exceeds the amount of the loan granted.
(c) Other credits. - Special credit instruments not otherwise rediscountable under the immediately
preceding subsections (a) and (b) may be eligible for rediscounting in accordance with rules and
regulations which the Bangko Sentral shall prescribe. Whenever necessary, the Bangko Sentral shall
provide funds from non-inflationary sources: Provided, however, That the Monetary Board shall prescribe
additional safeguards for disbursing these funds.
(d) Advances. - The Bangko Sentral may grant advances against the following kinds of collaterals for fixed
periods which, with the exception of advances against collateral named in clause (4) of the present
subsection, shall not exceed one hundred eighty (180) days:
(1) gold coins or bullion;
(2) securities representing obligations of the Bangko Sentral or of other domestic institutions of recognized
solvency;
(3) the credit instruments to which reference is made in subsection (a) of this section;
(4) the credit instruments to which reference is made in subsection (b) of this section, for periods which
shall not exceed three hundred sixty (360) days;
(5) utilized portions of advances in current amount covered by regular overdraft agreements related to
operations included under subsections (a) and (b) of this section, and certified as to amount and liquidity
by the institution soliciting the advance;
(6) negotiable treasury bills, certificates of indebtedness, notes and other negotiable obligations of the
Government maturing within three (3) years from the date of the advance; and
(7) negotiable bonds issued by the Government of the Philippines, by Philippine provincial, city or
municipal governments, or by any Philippine Government instrumentality, and having maturities of not
more than ten (10) years from the date of advance.
The rediscounts, discounts, loans and advances made in accordance with the provisions of this section
may not be renewed or extended unless extraordinary circumstances fully justify such renewal or
extension.
 Advances made against the collateral named in clauses (6) and (7) of subsection (d) of this section
may not exceed eighty percent (80%) of the current market value of the collateral.
C. SPECIAL CREDIT OPERATION
Section 83. Loans for Liquidity Purposes. - The Bangko Sentral may extend loans and advances to
banking institutions for a period of not more than seven (7) days without any collateral for the purpose of
providing liquidity to the banking system in times of need.
D. EMERGENCY CREDIT OPERATION
Section 84. Emergency Loans and Advances. - In periods of national and/or local emergency or of
imminent financial panic which directly threaten monetary and banking stability, the Monetary Board may,
by a vote of at least five (5) of its members, authorize the Bangko Sentral to grant extraordinary loans or
advances to banking institutions secured by assets as defined hereunder: Provided, That while such loans
or advances are outstanding, the debtor institution shall not, except upon prior authorization by the
Monetary Board, expand the total volume of its loans or investments.
The Monetary Board may, at its discretion, likewise authorize the Bangko Sentral to grant
emergency loans or advances to banking institutions, even during normal periods, for the purpose of
assisting a bank in a precarious financial condition or under serious financial pressures brought by
unforeseen events, or events which, though foreseeable, could not be prevented by the bank concerned:
Provided, however, That the Monetary Board has ascertained that the bank is not insolvent and has the
assets defined hereunder to secure the advances: Provided, further, That a concurrent vote of at least five
(5) members of the Monetary Board is obtained.
The amount of any emergency loan or advance shall not exceed the sum of fifty percent (50%) of
total deposits and deposit substitutes of the banking institution and shall be disbursed in two (2) or more
tranches. The amount of the first tranche shall be limited to twenty-five percent (25%) of the total deposit
and deposit substitutes of the institution and shall be secured by government securities to the extent of
their applicable loan values and other unencumbered first class collaterals which the Monetary Board may
approve: Provided, That if as determined by the Monetary Board, the circumstances surrounding the
emergency warrant a loan or advance greater than the amount provided hereinabove, the amount of the
first tranche may exceed twenty-five percent (25%) of the bank's total deposit and deposit substitutes if
the same is adequately secured by applicable loan values of government securities and unencumbered
first class collaterals approved by the Monetary Board, and the principal stockholders of the institution
furnish an acceptable undertaking to indemnify and hold harmless from suit a conservator whose
appointment the Monetary Board may find necessary at any time.
Prior to the release of the first tranche, the banking institution shall submit to the Bangko Sentral a
resolution of its board of directors authorizing the Bangko Sentral to evaluate other assets of the banking
institution certified by its external auditor to be good and available for collateral purposes should the
release of the subsequent tranche be thereafter applied for.
The Monetary Board may, by a vote of at least five (5) of its members, authorize the release of a
subsequent tranche on condition that the principal stockholders of the institution:
(a) furnish an acceptable undertaking to indemnify and hold harmless from suit a conservator whose
appointment the Monetary Board may find necessary at any time; and
(b) provide acceptable security which, in the judgment of the Monetary Board, would be adequate to
supplement, where necessary, the assets tendered by the banking institution to collateralize the
subsequent tranche.
In connection with the exercise of these powers, the prohibitions in Section 128 of this Act shall not
apply insofar as it refers to acceptance as collateral of shares and their acquisition as a result of
foreclosure proceedings, including the exercise of voting rights pertaining to said shares: Provided,
however, That should the Bangko Sentral acquire any of the shares it has accepted as collateral as a result
of foreclosure proceedings, the Bangko Sentral shall dispose of said shares by public bidding within one (1)
year from the date of consolidation of title by the Bangko Sentral.
Whenever a financial institution incurs an overdraft in its account with the Bangko Sentral, the
same shall be eliminated within the period prescribed in Section 102 of this Act.
E. CREDIT TERMS
Section 85. Interest and Rediscount. - The Bangko Sentral shall collect interest and other
appropriate charges on all loans and advances it extends, the closure, receivership or liquidations of the
debtor-institution notwithstanding. This provision shall apply prospectively.
The Monetary Board shall fix the interest and rediscount rates to be charged by the Bangko Sentral
on its credit operations in accordance with the character and term of the operation, but after due
consideration has been given to the credit needs of the market, the composition of the Bangko Sentral's
portfolio, and the general requirements of the national monetary policy. Interest and rediscount rates shall
be applied to all banks of the same category uniformly and without discrimination.
 Section 86. Endorsement. - The documents rediscounted, discounted, bought or accepted as
collateral by the Bangko Sentral in the course of the credit operations authorized in this article shall bear
the endorsement of the institution from which they are received.
Section 87. Repayment of Credits. - Documents rediscounted, discounted or accepted as
collateral by the Bangko Sentral must be withdrawn by the borrowing institution on the dates of their
maturities, or upon liquidation of the obligations which they represent or to which they relate whenever
said obligations have been liquidated prior to their dates of maturity.
Banks shall have the right at any time to withdraw any documents which they have presented to
the Bangko Sentral as collateral, upon payment in full of the corresponding debt to the Bangko Sentral,
including interest charges.
Section 88. Other requirements. - The Monetary Board may prescribe, within the general powers
granted to it under this Act, additional conditions which borrowing institutions must satisfy in order to
have access to the credit of the Bangko Sentral. These conditions may refer to the rates of interest
charged by the banks, to the purposes for which their loans in general are destined, and to any other
clearly definable aspect of the credit policy of the bank.
Section 89. Provisional Advances to the National Government. - The Bangko Sentral may make
direct provisional advances with or without interest to the National Government to finance expenditures
authorized in its annual appropriation: Provided, That said advances shall be repaid before the end of
three (3) months extendible by another three (3) months as the Monetary Board may allow following the
date the National Government received such provisional advances and shall not, in their aggregate,
exceed twenty percent (20%) of the average annual income of the borrower for the last three (3)
preceding fiscal years.
ARTICLE V
OPEN MARKET OPERATIONS FOR THE ACCOUNT OF THE BANGKO SENTRAL
Section 90. Principles of Open Market Operations. - The open market purchases and sales of
securities by the Bangko Sentral shall be made exclusively in accordance with its primary objective of
achieving price stability.
Section 91. Purchases and Sales of Government Securities. - In order to achieve the objectives of
the national monetary policy, the Bangko Sentral may, in accordance with the principle stated in Section
90 of this Act and with such rules and regulations as may be prescribed by the Monetary Board, buy and
sell in the open market for its own account:
(a) evidences of indebtedness issued directly by the Government of the Philippines or by its political
subdivisions; and
(b) evidences of indebtedness issued by government instrumentalities and fully guaranteed by the
Government.
The evidences of indebtedness acquired under the provisions of this section must be freely
negotiable and regularly serviced and must be available to the general public through banking institutions
and local government treasuries in denominations of a thousand pesos or more.
Section 92. Issue and Negotiation of Bangko Sentral Obligations. - In order to provide the Bangko
Sentral with effective instruments for open market operations, the Bangko Sentral may, subject to such
rules and regulations as the Monetary Board may prescribe and in accordance with the principles stated in
Section 90 of this Act, issue, place, buy and sell freely negotiable evidences of indebtedness of the Bangko
Sentral: Provided, That issuance of such certificates of indebtedness shall be made only in cases of
extraordinary movement in price levels. Said evidences of indebtedness may be issued directly against
the international reserve of the Bangko Sentral or against the securities which it has acquired under the
provisions of Section 91 of this Act, or may be issued without relation to specific types of assets of the
Bangko Sentral.
The Monetary Board shall determine the interest rates, maturities and other characteristics of said
obligations of the Bangko Sentral, and may, if it deems it advisable, denominate the obligations in gold or
foreign currencies.
Subject to the principles stated in Section 90 of this Act, the evidences of indebtedness of the
Bangko Sentral to which this section refers may be acquired by the Bangko Sentral before their maturity,
either through purchases in the open market or through redemptions at par and by lot if the Bangko
Sentral has reserved the right to make such redemptions. The evidences of indebtedness acquired or
redeemed by the Bangko Sentral shall not be included among its assets, and shall be immediately retired
and cancelled.
ARTICLE VI
COMPOSITION OF BANGKO SENTRAL'S PORTFOLIO
Section 93. Review of the Bangko Sentral's Portfolio. - At least once every month the Monetary
Board shall review the portfolio of the Bangko Sentral in relation to its future credit policy.
 In reviewing the Bangko Sentral's portfolio, the Monetary Board shall especially consider whether a
sufficiently large part of the portfolio consists of assets with early maturities, in order that a contraction in
Bangko Sentral credit may be effected promptly whenever the national monetary policy so requires.
ARTICLE VII
BANK RESERVES
Section 94. Reserve Requirements. - In order to control the volume of money created by the
credit operations of the banking system, all banks operating in the Philippines shall be required to
maintain reserves against their deposit liabilities: Provided, That the Monetary Board may, at its discretion,
also require all banks and/or quasi-banks to maintain reserves against funds held in trust and liabilities for
deposit substitutes as defined in this Act. The required reserves of each bank shall be proportional to the
volume of its deposit liabilities and shall ordinarily take the form of a deposit in the Bangko Sentral.
Reserve requirements shall be applied to all banks of the same category uniformly and without
discrimination.
Reserves against deposit substitutes, if imposed, shall be determined in the same manner as
provided for reserve requirements against regular bank deposits, with respect to the imposition, increase,
and computation of reserves.
The Monetary Board may exempt from reserve requirements deposits and deposit substitutes with
remaining maturities of two (2) years or more, as well as interbank borrowings.
Since the requirement to maintain bank reserves is imposed primarily to control the volume of
money, the Bangko Sentral shall not pay interest on the reserves maintained with it unless the Monetary
Board decides otherwise as warranted by circumstances.
Section 95. Definition of Deposit Substitutes. - The term "deposit substitutes" is defined as an
alternative form of obtaining funds from the public, other than deposits, through the issuance,
endorsement, or acceptance of debt instruments for the borrower's own account, for the purpose of
relending or purchasing of receivables and other obligations. These instruments may include, but need not
be limited to, bankers acceptances, promissory notes, participations, certificates of assignment and similar
instruments with recourse, and repurchase agreements. The Monetary Board shall determine what specific
instruments shall be considered as deposit substitutes for the purposes of Section 94 of this Act: Provided,
however, That deposit substitutes of commercial, industrial and other non-financial companies for the
limited purpose of financing their own needs or the needs of their agents or dealers shall not be covered
by the provisions of Section 94 of this Act.
Section 96. Required Reserves Against Peso Deposits. - The Monetary Board may fix and, when it
deems necessary, alter the minimum reserve ratios to peso deposits, as well as to deposit substitutes,
which each bank and/or quasi-bank may maintain, and such ratio shall be applied uniformly to all banks of
the same category as well as to quasi-banks.
Section 97. Required Reserves Against Foreign Currency Deposits. - The Monetary Board is
similarly authorized to prescribe and modify the minimum reserve ratios applicable to deposits
denominated in foreign currencies.
Section 98. Reserves Against Unused Balances of Overdraft Lines. - In order to facilitate Bangko
Sentral control over the volume of bank credit, the Monetary Board may establish minimum reserve
requirements for unused balances of overdraft lines.
The powers of the Monetary Board to prescribe and modify reserve requirements against unused
balances of overdraft lines shall be the same as its powers with respect to reserve requirements against
demand deposits.
Section 99. Increase in Reserve Requirements. - Whenever in the opinion of the Monetary Board it
becomes necessary to increase reserve requirements against existing liabilities, the increase shall be
made in a gradual manner and shall not exceed four percentage points in any thirty-day period. Banks and
other affected financial institutions shall be notified reasonably in advance of the date on which such
increase is to become effective.
Section 100. Computation on Reserves. - The reserve position of each bank or quasi-bank shall be
calculated daily on the basis of the amount, at the close of business for the day, of the institution's
reserves and the amount of its liability accounts against which reserves are required to be maintained:
Provided, That with reference to holidays or non-banking days, the reserve position as calculated at the
close of the business day immediately preceding such holidays and non-banking days shall apply on such
days.
For the purpose of computing the reserve position of each bank or quasi-bank, its principal office in
the Philippines and all its branches and agencies located therein shall be considered as a single unit.
Section 101. Reserve Deficiencies. - Whenever the reserve position of any bank or quasi-bank,
computed in the manner specified in the preceding section of this Act, is below the required minimum, the
bank or quasi-bank shall pay the Bangko Sentral one-tenth of one percent (1/10 of 1%) per day on the
amount of the deficiency or the prevailing ninety-one-day treasury bill rate plus three percentage points,
whichever is higher: Provided, however, That banks and quasi-banks shall ordinarily be permitted to offset
any reserve deficiency occurring on one or more days of the week with any excess reserves which they
may hold on other days of the same week and shall be required to pay the penalty only on the average
daily deficiency during the week. In cases of abuse, the Monetary Board may deny any bank or quasi-bank
the privilege of offsetting reserve deficiencies in the aforesaid manner.
If a bank or quasi-bank chronically has a reserve deficiency, the Monetary Board may limit or
prohibit the making of new loans or investments by the institution and may require that part or all of the
net profits of the institution be assigned to surplus.
The Monetary Board may modify or set aside the reserve deficiency penalties provided in this
section, for part or the entire period of a strike or lockout affecting a bank or a quasi-bank as defined in
the Labor Code, or of a national emergency affecting operations of banks or quasi-banks. The Monetary
Board may also modify or set aside reserved deficiency penalties for rehabilitation program of a bank.
Section 102. Interbank Settlement. - The Bangko Sentral shall establish facilities for interbank
clearing under such rules and regulations as the Monetary Board may prescribe: Provided, That the
Bangko Sentral may charge administrative and other fees for the maintenance of such facilities.
The deposit reserves maintained by the banks in the Bangko Sentral in accordance with the
provisions of Section 94 of this Act shall serve as basis for the clearing of checks and the settlement of
interbank balances, subject to such rules and regulations as the Monetary Board may issue with respect to
such operations: Provided, That any bank which incurs on overdrawing in its deposit account with the
Bangko Sentral shall fully cover said overdraft, including interest thereon at a rate equivalent to one-tenth
of one percent (1/10 of 1%) per day or the prevailing ninety-one-day treasury bill rate plus three
percentage points, whichever is higher, not later than the next clearing day: Provided, further, That
settlement of clearing balances shall not be effected for any account which continues to be overdrawn for
five (5) consecutive banking days until such time as the overdrawing is fully covered or otherwise
converted into an emergency loan or advance pursuant to the provisions of Section 84 of this Act:
Provided, finally, That the appropriate clearing office shall be officially notified of banks with overdrawn
balances. Banks with existing overdrafts with the Bangko Sentral as of the effectivity of this Act shall,
within such period as may be prescribed by the Monetary Board, either convert the overdraft into an
emergency loan or advance with a plan of payment, or settle such overdrafts, and that, upon failure to so
comply herewith, the Bangko Sentral shall take such action against the bank as may be warranted under
this Act.
Section 103. Exemption from Attachment and Other Purposes. - Deposits maintained by banks
with the Bangko Sentral as part of their reserve requirements shall be exempt from attachment,
garnishments, or any other order or process of any court, government agency or any other administrative
body issued to satisfy the claim of a party other than the Government, or its political subdivisions or
instrumentalities.
ARTICLE VIII
SELECTIVE REGULATION OF BANK OPERATIONS
Section 104. Guiding Principle. - The Monetary Board shall use the powers granted to it under this
Act to ensure that the supply, availability and cost of money are in accord with the needs of the Philippine
economy and that bank credit is not granted for speculative purposes prejudicial to the national interests.
Regulations on bank operations shall be applied to all banks of the same category uniformly and without
discrimination.
Section 105. Margin Requirements Against Letters of Credit. - The Monetary Board may at any
time prescribe minimum cash margins for the opening of letters of credit, and may relate the size of the
required margin to the nature of the transaction to be financed.
Section 106. Required Security Against Bank Loans. - In order to promote liquidity and solvency
of the banking system, the Monetary Board may issue such regulations as it may deem necessary with
respect to the maximum permissible maturities of the loans and investments which the banks may make,
and the kind and amount of security to be required against the various types of credit operations of the
banks.
Section 107. Portfolio Ceilings. - Whenever the Monetary Board considers it advisable to prevent
or check an expansion of bank credit, the Board may place an upper limit on the amount of loans and
investments which the banks may hold, or may place a limit on the rate of increase of such assets within
specified periods of time. The Monetary Board may apply such limits to the loans and investments of each
bank or to specific categories thereof.
In no case shall the Monetary Board establish limits which are below the value of the loans or
investments of the banks on the date on which they are notified of such restrictions. The restrictions shall
be applied to all banks uniformly and without discrimination.
 Section 108. Minimum Capital Ratios. - The Monetary Board may prescribe minimum ratios which
the capital and surplus of the banks must bear to the volume of their assets, or to specific categories
thereof, and may alter said ratios whenever it deems necessary.
ARTICLE IX
COORDINATION OF CREDIT POLICIES BY GOVERNMENT INSTITUTIONS
Section 109. Coordination of Credit Policies. - Government-owned corporations which perform
banking or credit functions shall coordinate their general credit policies with those of the Monetary Board.
Toward this end, the Monetary Board may, whenever it deems it expedient, make suggestions or
recommendations to such corporations for the more effective coordination of their policies with those of
the Bangko Sentral.
CHAPTER V — FUNCTIONS AS BANKER AND FINANCIAL ADVISOR OF THE GOVERNMENT
ARTICLE I
FUNCTIONS AS BANKER OF THE GOVERNMENT
Section 110. Designation of Bangko Sentral as Banker of the Government. - The Bangko Sentral
shall act as a banker of the Government, its political subdivisions and instrumentalities.
Section 111. Representation with the International Monetary Fund. - The Bangko Sentral shall
represent the Government in all dealings, negotiations and transactions with the International Monetary
Fund and shall carry such accounts as may result from Philippine membership in, or operations with, said
Fund.
Section 112. Representation with Other Financial Institutions. - The Bangko Sentral may be
authorized by the Government to represent it in dealings, negotiations or transactions with the
International Bank for Reconstruction and Development and with other foreign or international financial
institutions or agencies. The President may, however, designate any of his other financial advisors to
jointly represent the Government in such dealings, negotiations or transactions.
Section 113. Official Deposits. - The Bangko Sentral shall be the official depository of the
Government, its political subdivisions and instrumentalities as well as of government-owned or controlled
corporations and, as a general policy, their cash balances should be deposited with the Bangko Sentral,
with only minimum working balances to be held by government-owned banks and such other banks
incorporated in the Philippines as the Monetary Board may designate, subject to such rules and
regulations as the Board may prescribe: Provided, That such banks may hold deposits of the political
subdivisions and instrumentalities of the Government beyond their minimum working balances whenever
such subdivisions or instrumentalities have outstanding loans with said banks.
The Bangko Sentral may pay interest on deposits of the Government or of its political subdivisions
and instrumentalities, as well as on deposits of banks with the Bangko Sentral.
Section 114. Fiscal Operations. - The Bangko Sentral shall open a general cash account for the
Treasurer of the Philippines, in which the liquid funds of the Government shall be deposited.
Transfers of funds from this account to other accounts shall be made only upon order of the
Treasurer of the Philippines.
Section 115. Other Banks as Agents of the Bangko Sentral. - In the performance of its functions
as fiscal agent, the Bangko Sentral may engage the services of other government-owned and controlled
banks and of other domestic banks for operations in localities at home or abroad in which the Bangko
Sentral does not have offices or agencies adequately equipped to perform said operations: Provided,
however, That for fiscal operations in foreign countries, the Bangko Sentral may engage the services of
foreign banking and financial institutions.
Section 116. Remuneration for Services. - The Bangko Sentral may charge equitable rates,
commissions or fees for services which it renders to the Government, its political subdivisions and
instrumentalities.
ARTICLE II
THE MARKETING AND STABILIZATION OF SECURITIES FOR THE ACCOUNT OF THE GOVERNMENT
A. THE ISSUE AND PLACING OF GOVERNMENT SECURITIES
Section 117. Issue of Government Obligations. - The issue of securities representing obligations
of the Government, its political subdivisions or instrumentalities, may be made through the Bangko
Sentral, which may act as agent of, and for the account of, the Government or its respective subdivisions
or instrumentality, as the case may be: Provided, however, That the Bangko Sentral shall not guarantee
the placement of said securities, and shall not subscribe to their issue except to replace its maturing
holdings of securities with the same type as the maturing securities.
Section 118. Methods of Placing Government Securities. - The Bangko Sentral may place the
securities to which the preceding section refers through direct sale to financial institutions and the public.
The Bangko Sentral shall not be a member of any stock exchange or syndicate, but may intervene
therein for the sole purpose of regulating their operations in the placing of government securities.
 The Government, or its political subdivisions or instrumentalities, shall reimburse the Bangko
Sentral for the expenses incurred in the placing of the aforesaid securities.
Section 119. Servicing and Redemption of the Public Debt. - The servicing and redemption of the
public debt shall also be effected through the Bangko Sentral.
B. BANGKO SENTRAL SUPPORT OF THE GOVERNMENT SECURITIES MARKET
Section 120. The Securities Stabilization Fund. - There shall be established a "Securities
Stabilization Fund" which shall be administered by the Bangko Sentral for the account of the Government.
The operations of the Securities Stabilization Fund shall consist of purchases and sales, in the open
market, of bonds and other evidences of indebtedness issued or fully guaranteed by the Government. The
purpose of these operations shall be to increase the liquidity and stabilize the value of said securities in
order thereby to promote investment in government obligations.
The Monetary Board shall use the resources of the Fund to prevent, or moderate, sharp
fluctuations in the quotations of said government obligations, but shall not endeavor to alter movements
of the market resulting from basic changes in the pattern or level of interest rates.
The Monetary Board shall issue such regulations as may be necessary to implement the provisions
of this section.
Section 121. Resources of the Securities Stabilization Fund. - Subject to Section 132 of this Act,
the resources of the Securities Stabilization Fund shall come from the balance of the fund as held by the
Central Bank under Republic Act No. 265 as of the effective date of this Act.
Section 122. Profits and Losses of the Fund. - The Securities Stabilization Fund shall retain net
profits which it may make on its operations, regardless of whether said profits arise from capital gains or
from interest earnings. The Fund shall correspondingly bear any net losses which it may incur.
ARTICLE III
FUNCTIONS AS FINANCIAL ADVISOR OF THE GOVERNMENT
Section 123. Financial Advice on Official Credit Operations. - Before undertaking any credit
operation abroad, the Government, through the Secretary of Finance, shall request the opinion, in writing,
of the Monetary Board on the monetary implications of the contemplated action. Such opinions must
similarly be requested by all political subdivisions and instrumentalities of the Government before any
credit operation abroad is undertaken by them.
The opinion of the Monetary Board shall be based on the gold and foreign exchange resources and
obligations of the nation and on the effects of the proposed operation on the balance of payments and on
monetary aggregates.
Whenever the Government, or any of its political subdivisions or instrumentalities, contemplates
borrowing within the Philippines, the prior opinion of the Monetary Board shall likewise be requested in
order that the Board may render an opinion on the probable effects of the proposed operation on
monetary aggregates, the price level, and the balance of payments.
Section 124. Representation on the National Economic and Development Authority. - In order to
assure effective coordination between the economic, financial and fiscal policies of the Government and
the monetary, credit and exchange policies of the Bangko Sentral, the Deputy Governor designated by the
Governor of the Bangko Sentral shall be an ex officio member of the National Economic and Development
Authority Board.
CHAPTER VI — PRIVILEGES AND PROHIBITIONS
ARTICLE I
PRIVILEGES
Section 125. Tax Exemptions. - The Bangko Sentral shall be exempt for a period of five (5) years
from the approval of this Act from all national, provincial, municipal and city taxes, fees, charges and
assessments.
The exemption authorized in the preceding paragraph of this section shall apply to all property of
the Bangko Sentral, to the resources, receipts, expenditures, profits and income of the Bangko Sentral, as
well as to all contracts, deeds, documents and transactions related to the conduct of the business of the
Bangko Sentral: Provided, however, That said exemptions shall apply only to such taxes, fees, charges and
assessments for which the Bangko Sentral itself would otherwise be liable, and shall not apply to taxes,
fees, charges, or assessments payable by persons or other entities doing business with the Bangko
Sentral: Provided, further, That foreign loans and other obligations of the Bangko Sentral shall be exempt,
both as to principal and interest, from any and all taxes if the payment of such taxes has been assumed
by the Bangko Sentral.
Section 126. Exemption from Customs Duties. - The provision of any general or special law to the
contrary notwithstanding, the importation and exportation by the Bangko Sentral of notes and coins, and
of gold and other metals to be used for purposes authorized under this Act, and the importation of all
equipment needed for bank note production, minting of coins, metal refining and other security printing
operations shall be fully exempt from all customs duties and consular fees and from all other taxes,
assessments and charges related to such importation or exportation.
Section 127. Applicability of the Civil Service Law. - Appointments in the Bangko Sentral, except
as to those which are policy-determining, primarily confidential or highly technical in nature, shall be made
only according to the Civil Service Law and regulations: Provided, That no qualification requirements for
positions in the Bangko Sentral shall be imposed other than those set by the Monetary Board: Provided,
further, That, the Monetary Board or Governor, in accordance with Sections 15(c) and 17(d) of this Act,
respectively, may without need of obtaining prior approval from any other government agency, appoint
personnel in the Bangko Sentral whose services are deemed necessary in order not to unduly disrupt the
operations of the Bangko Sentral.
Officers and employees of the Bangko Sentral, including all members of the Monetary Board, shall
not engage directly or indirectly in partisan activities or take part in any election except to vote.
ARTICLE II
PROHIBITIONS
Section 128. Prohibitions. - The Bangko Sentral shall not acquire shares of any kind or accept
them as collateral, and shall not participate in the ownership or management of any enterprise, either
directly or indirectly.
The Bangko Sentral shall not engage in development banking or financing: Provided, however,
That outstanding loans obtained or extended for development financing shall not be affected by the
prohibition of this section.
CHAPTER VII — TRANSITORY PROVISIONS
Section 129. Phase-out of Fiscal Agency Functions. - Unless circumstances warrant otherwise and
approved by the Congress Oversight Committee, the Bangko Sentral shall, within a period of three (3)
years but in no case longer than five (5) years from the approval of this Act, phase out all fiscal agency
functions provided for in Sections 117, 118, 119, and 120 as well as in other pertinent provisions of this
Act and transfer the same to the Department of Finance.
Section 130. Phase-out of Regulatory Powers Over the Operations of Finance Corporations and
Other Institutions Performing Similar Functions. - The Bangko Sentral shall, within a period of five (5) years
from the effectivity of this Act, phase out its regulatory powers over finance companies without quasi-
banking functions and other institutions performing similar functions as provided in existing laws, the
same to be assumed by the Securities and Exchange Commission.
Section 131. Implementing Details. - The Bangko Sentral shall be made operational by the
performance of the following acts:
(a) the President shall constitute the Monetary Board by appointing the members thereof within sixty (60)
days from the effectivity of this Act; and
(b) the transfer of such assets and liabilities from the Central Bank to the Bangko Sentral as provided in
Section 132 shall be completed within ninety (90) days from the constitution of the Monetary Board.
All incumbent personnel in the Central Bank as of the date of the approval of this Act shall
continue to exercise their duties and functions as personnel of the Bangko Sentral subject to the
provisions of Section 133: Provided, That such personnel in the Central Bank as may be necessary for the
purpose of implementing Section 132 may be assigned by the Bangko Sentral Monetary Board to the
Central Bank.
Section 132. Transfer of Assets and Liabilities. - Upon the effectivity of this Act, three (3)
members of the Monetary Board, which may include the Governor, in representation of the Bangko
Sentral, the Secretary of Finance and the Secretary of Budget and Management in representation of the
National Government, and the Chairmen of the Committees on Banks of the Senate and the House of
Representatives shall determine the assets and liabilities of the Central Bank which may be transferred to
or assumed by the Bangko Sentral. The Committee shall complete its work within ninety (90) days from
the constitution of the Monetary Board submitting a comprehensive report with all its findings and
justification.
The following guidelines shall be strictly observed in the determination of which assets and
liabilities shall be transferred to the Bangko Sentral:
(a) the Monetary Board and the Secretary of Finance shall have primary responsibility for working out
creative monetary and financial solutions to retire the Central Bank liabilities and losses at the least cost
to the Government;
(b) the Bangko Sentral shall remit seventy-five percent (75%) of its net profits to a special deposit account
(sinking fund) until such time as the net liabilities of the Central Bank shall have been liquidated through
generally accepted finance mechanisms such as, but not limited to, write-offs, set-offs, condonation,
collections, reappraisal, revaluation and bond issuance by the National Government, or to the National
Government as dividends;
(c) the assets and liabilities to be transferred shall be limited to an amount that will enable the Bangko
Sentral to perform its responsibilities adequately and operate on a viable basis: Provided, That the assets
shall exceed the liabilities as certified by the Commission on Audit (COA), by an initial amount of Ten
billion pesos (P10,000,000,000);
(d) liabilities to be assumed by the Bangko Sentral shall include liability for notes and coins in circulation
as of the effective date of this Act; and
(e) any asset or liability of the Central Bank not transferred to the Bangko Sentral shall be retained and
administered, disposed of and liquidated by the Central Bank itself which shall continue to exist as the CB
Board of Liquidators only for the purposes provided in this paragraph but not later than twenty-five (25)
years or until such time that liabilities have been liquidated: Provided, That the Bangko Sentral may
financially assist the Central Bank of Liquidators in the liquidation of CB liabilities: Provided, finally, That
upon disposition of said retained assets and liquidation of said retained liabilities, the Central Bank shall be
deemed abolished.
All actions taken by the Bangko Sentral Monetary Board under this section shall be reported to
Congress and the President within thirty (30) days.
Section 133. Mandate to Organize. - The Bangko Sentral shall be organized by the Monetary
Board without being subject to the provisions of Republic Act No. 7430, by adopting if it so desires, an
entirely new staffing pattern on organizational structure to suit the operations of the Bangko Sentral under
this Act. No preferential or priority right shall be given to or enjoyed by any personnel for appointment to
any position in the new staffing pattern, nor shall any personnel be considered as having prior or vested
rights with respect to retention in the Bangko Sentral or in any position which may be created in the new
staffing pattern, even if he should be the incumbent of a similar position prior to organization. The
formulation of the program of organization shall be completed within six (6) months after the effectivity of
this Act, and shall be fully implemented within a period of six (6) months thereafter. Personnel who may
not be retained are deemed separated from the service.
Section 134. Separation Benefits. - Pursuant to Section 15 of this Act, the Monetary Board is
authorized to provide separation incentives, and all those who shall retire or be separated from the service
on account of reorganization under the preceding section shall be entitled to such incentives, which shall
be in addition to all gratuities and benefits to which they may be entitled under existing laws.
Section 135. Repealing Clause. - Except as may be provided for in Section 46 and 132 of this Act,
Republic Act No. 265, as amended, the provisions of any other law, special charters, rule or regulation
issued pursuant to said Republic Act No. 265, as amended, or parts thereof, which may be inconsistent
with the provisions of this Act are hereby repealed. Presidential Decree No. 1792 is likewise repealed.
Section 136. Transfer of Powers. - All powers, duties and functions vested by law in the Central
Bank of the Philippines not inconsistent with the provisions of this Act shall be deemed transferred to the
Bangko Sentral ng Pilipinas. All references to the Central Bank of the Philippines in any law or special
charters shall be deemed to refer to the Bangko Sentral.
Section 137. Separability Clause. - If any provision or section of this Act or the application thereof
to any person or circumstance is held invalid, the other provisions or sections of this Act, and the
application of such provision or section to other persons or circumstances, shall not be affected thereby.
Section 138. Effectivity Clause. - This Act shall take effect fifteen (15) days following its
publication in the Official Gazette or in two (2) national newspapers of general circulation.
Approved: June 14, 1993
The Lawphil Project - Arellano Law Foundation

Pasted from <http://www.lawphil.net/statutes/repacts/ra1993/ra_7653_1993.html>

RA 6770
Sunday, June 06, 2010
3:30 AM

Republic Act No. 6770 November 17, 1989

AN ACT PROVIDING FOR THE FUNCTIONAL AND STRUCTURAL ORGANIZATION OF THE OFFICE OF
THE OMBUDSMAN, AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled::
Section 1. Title. — This Act shall be known as "The Ombudsman Act of 1989".
Section 2. Declaration of Policy. — The State shall maintain honesty and integrity in the public service
and take positive and effective measures against graft and corruption.
Public office is a public trust. Public officers and employees must at all times be accountable to the people,
serve them with utmost responsibility, integrity, loyalty, efficiency, act with patriotism and justice and lead
modest lives.
Section 3. Office of the Ombudsman. — The Office of the Ombudsman shall include the Office of the
Overall Deputy, the Office of the Deputy for Luzon, the Office of the Deputy for the Visayas, the Office of
the Deputy for Mindanao, the Office of the Deputy for the Armed Forces, and the Office of the Special
Prosecutor. The President may appoint other Deputies as the necessity for it may arise, as recommended
by the Ombudsman.
Section 4. Appointment. — The Ombudsman and his Deputies, including the Special Prosecutor, shall be
appointed by the President from a list of at least twenty-one (21) nominees prepared by the Judicial and
Bar Council, and from a list of three (3) nominees for each vacancy thereafter, which shall be filled within
three (3) months after it occurs, each of which list shall be published in a newspaper of general circulation.
In the organization of the Office of the Ombudsman for filling up of positions therein, regional, cultural or
ethnic considerations shall be taken into account to the end that the Office shall be as much as possible
representative of the regional, ethnic and cultural make-up of the Filipino nation.
Section 5. Qualifications. — The Ombudsman and his Deputies, including the Special Prosecutor, shall
be natural-born citizens of the Philippines, at least forty (40) years old, of recognized probity and
independence, members of the Philippine Bar, and must not have been candidates for any elective
national or local office in the immediately preceding election whether regular or special. The Ombudsman
must have, for ten (10) years or more, been a judge or engaged in the practice of law in the Philippines.
Section 6. Rank and Salary. — The Ombudsman and his Deputies shall have the same ranks, salaries
and privileges as the Chairman and members, respectively, of a Constitutional Commission. Their salaries
shall not be decreased during their term of office.
The members of the prosecution, investigation and legal staff of the Office of the Ombudsman shall
receive salaries which shall not be less than those given to comparable positions in any office in the
Government.
Section 7. Term of Office. — The Ombudsman and his Deputies, including the Special Prosecutor, shall
serve for a term of seven (7) years without reappointment.
Section 8. Removal; Filling of Vacancy. —
(1) In accordance with the provisions of Article XI of the Constitution, the Ombudsman may be removed
from office on impeachment for, and conviction of, culpable violation of the Constitution, treason, bribery,
graft and corruption, other high crimes, or betrayal of public trust.
(2) A Deputy or the Special Prosecutor, may be removed from office by the President for any of the
grounds provided for the removal of the Ombudsman, and after due process.
(3) In case of vacancy in the Office of the Ombudsman due to death, resignation, removal or permanent
disability of the incumbent Ombudsman, the Overall Deputy shall serve as Acting Ombudsman in a
concurrent capacity until a new Ombudsman shall have been appointed for a full term.n case the Overall
Deputy cannot assume the role of Acting Ombudsman, the President may designate any of the Deputies,
or the Special Prosecutor, as Acting Ombudsman.
(4) In case of temporary absence or disability of the Ombudsman, the Overall Deputy shall perform the
duties of the Ombudsman until the Ombudsman returns or is able to perform his duties.
Section 9. Prohibitions and Disqualifications. — The Ombudsman, his Deputies and the Special
Prosecutor shall not, during their tenure, hold any other office or employment. They shall not, during said
tenure, directly or indirectly practice any other profession, participate in any business, or be financially
interested in any contract with, or in any franchise, or special privilege granted by the Government or any
subdivision, agency or instrumentality thereof, including government-owned or controlled corporations or
their subsidiaries. They shall strictly avoid conflict of interest in the conduct of their office. They shall not
be qualified to run for any office in the election immediately following their cessation from office. They
shall not be allowed to appear or practice before the Ombudsman for two (2) years following their
cessation from office.
No spouse or relative by consanguinity or affinity within the fourth civil degree and no law, business or
professional partner or associate of the Ombudsman, his Deputies or Special Prosecutor within one (1)
year preceding the appointment may appear as counsel or agent on any matter pending before the Office
of the Ombudsman or transact business directly or indirectly therewith.
This disqualification shall apply during the tenure of the official concerned. This disqualification likewise
extends to the law, business or professional firm for the same period.
Section 10. Disclosure of Relationship. — It shall be the duty of the Ombudsman, his Deputies,
including the Special Prosecutor to make under oath, to the best of their knowledge and/or information, a
public disclosure of the identities of, and their relationship with the persons referred to in the preceding
section.
The disclosure shall be filed with the Office of the President and the Office of the Ombudsman before the
appointee assumes office and every year thereafter. The disclosures made pursuant to this section shall
form part of the public records and shall be available to any person or entity upon request.
Section 11. Structural Organization. — The authority and responsibility for the exercise of the
mandate of the Office of the Ombudsman and for the discharge of its powers and functions shall be vested
in the Ombudsman, who shall have supervision and control of the said office.
(1) The Office of the Ombudsman may organize such directorates for administration and allied services as
may be necessary for the effective discharge of its functions. Those appointed as directors or heads shall
have the rank and salary of line bureau directors.
(2) The Office of the Overall Deputy shall oversee and administer the operations of the different offices
under the Office of Ombudsman.t shall likewise perform such other functions and duties assigned to it by
the Ombudsman.
(3) The Office of the Special Prosecutor shall be composed of the Special Prosecutor and his prosecution
staff. The Office of the Special Prosecutor shall be an organic component of the Office of the Ombudsman
and shall be under the supervision and control of the Ombudsman.
(4) The Office of the Special Prosecutor shall, under the supervision and control and upon the authority of
the Ombudsman, have the following powers:
(a) To conduct preliminary investigation and prosecute criminal cases within the jurisdiction of the
Sandiganbayan;
(b) To enter into plea bargaining agreements; and
(c) To perform such other duties assigned to it by the Ombudsman.
The Special Prosecutor shall have the rank and salary of a Deputy Ombudsman.
(5) The position structure and staffing pattern of the Office of the Ombudsman, including the Office of the
Special Prosecutor, shall be approved and prescribed by the Ombudsman. The Ombudsman shall appoint
all officers and employees of the Office of the Ombudsman, including those of the Office of the Special
Prosecutor, in accordance with the Civil Service Law, rules and regulations.
Section 12. Official Stations. — The Ombudsman, the Overall Deputy, the Deputy for Luzon, and the
Deputy for the Armed Forces shall hold office in Metropolitan Manila; the Deputy for the Visayas, in Cebu
City; and the Deputy for Mindanao, in Davao City. The Ombudsman may transfer their stations within their
respective geographical regions, as public interest may require.
Section 13. Mandate. — The Ombudsman and his Deputies, as protectors of the people, shall act
promptly on complaints filed in any form or manner against officers or employees of the Government, or of
any subdivision, agency or instrumentality thereof, including government-owned or controlled
corporations, and enforce their administrative, civil and criminal liability in every case where the evidence
warrants in order to promote efficient service by the Government to the people.
Section 14. Restrictions. — No writ of injunction shall be issued by any court to delay an investigation
being conducted by the Ombudsman under this Act, unless there is a prima facie evidence that the subject
matter of the investigation is outside the jurisdiction of the Office of the Ombudsman.
No court shall hear any appeal or application for remedy against the decision or findings of the
Ombudsman, except the Supreme Court, on pure question of law.
Section 15. Powers, Functions and Duties. — The Office of the Ombudsman shall have the following
powers, functions and duties:
(1) Investigate and prosecute on its own or on complaint by any person, any act or omission of any public
officer or employee, office or agency, when such act or omission appears to be illegal, unjust, improper or
inefficient.t has primary jurisdiction over cases cognizable by the Sandiganbayan and, in the exercise of
this primary jurisdiction, it may take over, at any stage, from any investigatory agency of Government, the
investigation of such cases;
(2) Direct, upon complaint or at its own instance, any officer or employee of the Government, or of any
subdivision, agency or instrumentality thereof, as well as any government-owned or controlled
corporations with original charter, to perform and expedite any act or duty required by law, or to stop,
prevent, and correct any abuse or impropriety in the performance of duties;
(3) Direct the officer concerned to take appropriate action against a public officer or employee at fault or
who neglect to perform an act or discharge a duty required by law, and recommend his removal,
suspension, demotion, fine, censure, or prosecution, and ensure compliance therewith; or enforce its
disciplinary authority as provided in Section 21 of this Act: provided, that the refusal by any officer without
just cause to comply with an order of the Ombudsman to remove, suspend, demote, fine, censure, or
prosecute an officer or employee who is at fault or who neglects to perform an act or discharge a duty
required by law shall be a ground for disciplinary action against said officer;
(4) Direct the officer concerned, in any appropriate case, and subject to such limitations as it may provide
in its rules of procedure, to furnish it with copies of documents relating to contracts or transactions
entered into by his office involving the disbursement or use of public funds or properties, and report any
irregularity to the Commission on Audit for appropriate action;
(5) Request any government agency for assistance and information necessary in the discharge of its
responsibilities, and to examine, if necessary, pertinent records and documents;
(6) Publicize matters covered by its investigation of the matters mentioned in paragraphs (1), (2), (3) and
(4) hereof, when circumstances so warrant and with due prudence: provided, that the Ombudsman under
its rules and regulations may determine what cases may not be made public: provided, further, that any
publicity issued by the Ombudsman shall be balanced, fair and true;
(7) Determine the causes of inefficiency, red tape, mismanagement, fraud, and corruption in the
Government, and make recommendations for their elimination and the observance of high standards of
ethics and efficiency;
(8) Administer oaths, issue subpoena and subpoena duces tecum, and take testimony in any investigation
or inquiry, including the power to examine and have access to bank accounts and records;
(9) Punish for contempt in accordance with the Rules of Court and under the same procedure and with the
same penalties provided therein;
(10) Delegate to the Deputies, or its investigators or representatives such authority or duty as shall ensure
the effective exercise or performance of the powers, functions, and duties herein or hereinafter provided;
(11) Investigate and initiate the proper action for the recovery of ill-gotten and/or unexplained wealth
amassed after February 25, 1986 and the prosecution of the parties involved therein.
The Ombudsman shall give priority to complaints filed against high ranking government officials and/or
those occupying supervisory positions, complaints involving grave offenses as well as complaints involving
large sums of money and/or properties.
Section 16. Applicability. — The provisions of this Act shall apply to all kinds of malfeasance,
misfeasance, and non-feasance that have been committed by any officer or employee as mentioned in
Section 13 hereof, during his tenure of office.
Section 17. Immunities. — In all hearings, inquiries, and proceedings of the Ombudsman, including
preliminary investigations of offenses, nor person subpoenaed to testify as a witness shall be excused from
attending and testifying or from producing books, papers, correspondence, memoranda and/or other
records on the ground that the testimony or evidence, documentary or otherwise, required of him, may
tend to incriminate him or subject him to prosecution: provided, that no person shall be prosecuted
criminally for or on account of any matter concerning which he is compelled, after having claimed the
privilege against self-incrimination, to testify and produce evidence, documentary or otherwise.
Under such terms and conditions as it may determine, taking into account the pertinent provisions of the
Rules of Court, the Ombudsman may grant immunity from criminal prosecution to any person whose
testimony or whose possession and production of documents or other evidence may be necessary to
determine the truth in any hearing, inquiry or proceeding being conducted by the Ombudsman or under its
authority, in the performance or in the furtherance of its constitutional functions and statutory objectives.
The immunity granted under this and the immediately preceding paragraph shall not exempt the witness
from criminal prosecution for perjury or false testimony nor shall he be exempt from demotion or removal
from office.
Any refusal to appear or testify pursuant to the foregoing provisions shall be subject to punishment for
contempt and removal of the immunity from criminal prosecution.
Section 18. Rules of Procedure. —
(1) The Office of the Ombudsman shall promulgate its rules of procedure for the effective exercise or
performance of its powers, functions, and duties.
(2) The rules of procedure shall include a provision whereby the Rules of Court are made suppletory.
(3) The rules shall take effect after fifteen (15) days following the completion of their publication in the
Official Gazette or in three (3) newspapers of general circulation in the Philippines, one of which is printed
in the national language.
Section 19. Administrative Complaints. — The Ombudsman shall act on all complaints relating, but
not limited to acts or omissions which:
(1) Are contrary to law or regulation;
(2) Are unreasonable, unfair, oppressive or discriminatory;
(3) Are inconsistent with the general course of an agency's functions, though in accordance with law;
(4) Proceed from a mistake of law or an arbitrary ascertainment of facts;
(5) Are in the exercise of discretionary powers but for an improper purpose; or
(6) Are otherwise irregular, immoral or devoid of justification.
Section 20. Exceptions. — The Office of the Ombudsman may not conduct the necessary investigation
of any administrative act or omission complained of if it believes that:
(1) The complainant has an adequate remedy in another judicial or quasi-judicial body;
(2) The complaint pertains to a matter outside the jurisdiction of the Office of the Ombudsman;
(3) The complaint is trivial, frivolous, vexatious or made in bad faith;
(4) The complainant has no sufficient personal interest in the subject matter of the grievance; or
(5) The complaint was filed after one (1) year from the occurrence of the act or omission complained of.
Section 21. Official Subject to Disciplinary Authority; Exceptions. — The Office of the Ombudsman
shall have disciplinary authority over all elective and appointive officials of the Government and its
subdivisions, instrumentalities and agencies, including Members of the Cabinet, local government,
government-owned or controlled corporations and their subsidiaries, except over officials who may be
removed only by impeachment or over Members of Congress, and the Judiciary.
Section 22. Investigatory Power. — The Office of the Ombudsman shall have the power to investigate
any serious misconduct in office allegedly committed by officials removable by impeachment, for the
purpose of filing a verified complaint for impeachment, if warranted.
In all cases of conspiracy between an officer or employee of the government and a private person, the
Ombudsman and his Deputies shall have jurisdiction to include such private person in the investigation
and proceed against such private person as the evidence may warrant. The officer or employee and the
private person shall be tried jointly and shall be subject to the same penalties and liabilities.
Section 23. Formal Investigation. —
(1) Administrative investigations conducted by the Office of the Ombudsman shall be in accordance with
its rules of procedure and consistent with due process.
(2) At its option, the Office of the Ombudsman may refer certain complaints to the proper disciplinary
authority for the institution of appropriate administrative proceedings against erring public officers or
employees, which shall be determined within the period prescribed in the civil service law. Any delay
without just cause in acting on any referral made by the Office of the Ombudsman shall be a ground for
administrative action against the officers or employees to whom such referrals are addressed and shall
constitute a graft offense punishable by a fine of not exceeding Five thousand pesos (P5,000.00).
(3) In any investigation under this Act the Ombudsman may: (a) enter and inspect the premises of any
office, agency, commission or tribunal; (b) examine and have access to any book, record, file, document or
paper; and (c) hold private hearings with both the complaining individual and the official concerned.
Section 24. Preventives Suspension. — The Ombudsman or his Deputy may preventively suspend any
officer or employee under his authority pending an investigation, if in his judgment the evidence of guilt is
strong, and (a) the charge against such officer or employee involves dishonesty, oppression or grave
misconduct or neglect in the performance of duty; (b) the charges would warrant removal from the
service; or (c) the respondent's continued stay in office may prejudice the case filed against him.
The preventive suspension shall continue until the case is terminated by the Office of the Ombudsman but
not more than six (6) months, without pay, except when the delay in the disposition of the case by the
Office of the Ombudsman is due to the fault, negligence or petition of the respondent, in which case the
period of such delay shall not be counted in computing the period of suspension herein provided.
Section 25. Penalties. —
(1) In administrative proceedings under Presidential Decree No. 807, the penalties and rules provided
therein shall be applied.
(2) In other administrative proceedings, the penalty ranging from suspension without pay for one (1) year
to dismissal with forfeiture of benefits or a fine ranging from Five thousand pesos (P5,000.00) to twice the
amount malversed, illegally taken or lost, or both at the discretion of the Ombudsman, taking into
consideration circumstances that mitigate or aggravate the liability of the officer or employee found guilty
of the complaint or charges.
Section 26. Inquiries. —
(1) The Office of the Ombudsman shall inquire into acts or omissions of a public officer, employee, office or
agency which, from the reports or complaints it has received, the Ombudsman or his Deputies consider to
be:
(a) contrary to law or regulation;
(b) unreasonable, unfair, oppressive, irregular or inconsistent with the general course of the operations
and functions of a public officer, employee, office or agency;
(c) an error in the application or interpretation of law, rules or regulations, or a gross or palpable error in
the appreciation of facts;
(d) based on improper motives or corrupt considerations;
(e) unclear or inadequately explained when reasons should have been revealed; or
(f) inefficient performed or otherwise objectionable.
(2) The Officer of the Ombudsman shall receive complaints from any source in whatever form concerning
an official act or omission.t shall act on the complaint immediately and if it finds the same entirely
baseless, it shall dismiss the same and inform the complainant of such dismissal citing the reasons
therefor.f it finds a reasonable ground to investigate further, it shall first furnish the respondent public
officer or employee with a summary of the complaint and require him to submit a written answer within
seventy-two (72) hours from receipt thereof.f the answer is found satisfactory, it shall dismiss the case.
(3) When the complaint consists in delay or refusal to perform a duty required by law, or when urgent
action is necessary to protect or preserve the rights of the complainant, the Office of the Ombudsman shall
take steps or measures and issue such orders directing the officer, employee, office or agency concerned
to:
(a) expedite the performance of duty;
(b) cease or desist from the performance of a prejudicial act;
(c) correct the omission;
(d) explain fully the administrative act in question; or
(e) take any other steps as may be necessary under the circumstances to protect and preserve the rights
of the complainant.
(4) Any delay or refusal to comply with the referral or directive of the Ombudsman or any of his Deputies,
shall constitute a ground for administrative disciplinary action against the officer or employee to whom it
was addressed.
Section 27. Effectivity and Finality of Decisions. — (1) All provisionary orders of the Office of the
Ombudsman are immediately effective and executory.
A motion for reconsideration of any order, directive or decision of the Office of the Ombudsman must be
filed within five (5) days after receipt of written notice and shall be entertained only on any of the following
grounds:
(1) New evidence has been discovered which materially affects the order, directive or decision;
(2) Errors of law or irregularities have been committed prejudicial to the interest of the movant. The
motion for reconsideration shall be resolved within three (3) days from filing: provided, that only one
motion for reconsideration shall be entertained.
Findings of fact by the Officer of the Ombudsman when supported by substantial evidence are conclusive.
Any order, directive or decision imposing the penalty of public censure or reprimand, suspension of not
more than one (1) month's salary shall be final and unappealable.
In all administrative disciplinary cases, orders, directives, or decisions of the Office of the Ombudsman
may be appealed to the Supreme Court by filing a petition for certiorari within ten (10) days from receipt of
the written notice of the order, directive or decision or denial of the motion for reconsideration in
accordance with Rule 45 of the Rules of Court.
The above rules may be amended or modified by the Office of the Ombudsman as the interest of justice
may require.
Section 28. Investigation in Municipalities, Cities and Provinces. — The Office of the Ombudsman
may establish offices in municipalities, cities and provinces outside Metropolitan Manila, under the
immediate supervision of the Deputies for Luzon, Visayas and Mindanao, where necessary as determined
by the Ombudsman. The investigation of complaints may be assigned to the regional or sectoral deputy
concerned or to a special investigator who shall proceed in accordance with the rules or special
instructions or directives of the Office of the Ombudsman. Pending investigation the deputy or investigator
may issue orders and provisional remedies which are immediately executory subject to review by the
Ombudsman. Within three (3) days after concluding the investigation, the deputy or investigator shall
transmit, together with the entire records of the case, his report and conclusions to the Office of the
Ombudsman. Within five (5) days after receipt of said report, the Ombudsman shall render the appropriate
order, directive or decision.
Section 29. Change of Unjust Laws. — If the Ombudsman believes that a law or regulation is unfair or
unjust, he shall recommend to the President and to Congress the necessary changes therein or the repeal
thereof.
Section 30. Transmittal/Publication of Decision. — In every case where the Ombudsman has reached
a decision, conclusion or recommendation adverse to a public official or agency, he shall transmit his
decision, conclusion, recommendation or suggestion to the head of the department, agency or
instrumentality, or of the province, city or municipality concerned for such immediate action as may be
necessary. When transmitting his adverse decision, conclusion or recommendation, he shall, unless
excused by the agency or official affected, include the substance of any statement the public agency or
official may have made to him by way of explaining past difficulties with or present rejection of the
Ombudsman's proposals.
Section 31. Designation of Investigators and Prosecutors. — The Ombudsman may utilize the
personnel of his office and/or designate or deputize any fiscal, state prosecutor or lawyer in the
government service to act as special investigator or prosecutor to assist in the investigation and
prosecution of certain cases. Those designated or deputized to assist him herein provided shall be under
his supervision and control.
The Ombudsman and his investigators and prosecutors, whether regular members of his staff or
designated by him as herein provided, shall have authority to administer oaths, to issue subpoena and
subpoena duces tecum, to summon and compel witnesses to appear and testify under oath before them
and/or bring books, documents and other things under their control, and to secure the attendance or
presence of any absent or recalcitrant witness through application before the Sandiganbayan or before
any inferior or superior court having jurisdiction of the place where the witness or evidence is found.
Section 32. Rights and Duties of Witness. —
(1) A person required by the Ombudsman to provide the information shall be paid the same fees and travel
allowances as are extended to witnesses whose attendance has been required in the trial courts. Upon
request of the witness, the Ombudsman shall also furnish him such security for his person and his family
as may be warranted by the circumstances. For this purpose, the Ombudsman may, at its expense, call
upon any police or constabulary unit to provide the said security.
(2) A person who, with or without service or compulsory process, provides oral or documentary information
requested by the Ombudsman shall be accorded the same privileges and immunities as are extended to
witnesses in the courts, and shall likewise be entitled to the assistance of counsel while being questioned.
(3) If a person refuses to respond to the Ombudsman's or his Deputy's subpoena, or refuses to be
examined, or engages in obstructive conduct, the Ombudsman or his Deputy shall issue an order directing
the person to appear before him to show cause why he should not be punished for contempt. The
contempt proceedings shall be conducted pursuant to the provisions of the Rules of Court.
Section 33. Duty to Render Assistance to the Office of the Ombudsman. — Any officer or
employee of any department, bureau or office, subdivision, agency or instrumentality of the Government,
including government-owned or controlled corporations and local governments, when required by the
Ombudsman, his Deputy or the Special Prosecutor shall render assistance to the Office of the Ombudsman.
Section 34. Annual Report. — The Office of the Ombudsman shall render an annual report of its
activities and performance to the President and to Congress to be submitted within thirty (30) days from
the start of the regular session of Congress.
Section 35. Malicious Prosecution. — Any person who, actuated by malice or gross bad faith, files a
completely unwarranted or false complaint against any government official or employee shall be subject to
a penalty of one (1) month and one (1) day to six (6) months imprisonment and a fine not exceeding Five
thousand pesos (P5,000.00).
Section 36. Penalties for Obstruction. — Any person who willfully obstructs or hinders the proper
exercise of the functions of the Office of the Ombudsman or who willfully misleads or attempts to mislead
the Ombudsman, his Deputies and the Special Prosecutor in replying to their inquiries shall be punished by
a fine of not exceeding Five thousand pesos (P5,000.00).
Section 37. Franking Privilege. — All official mail matters and telegrams of the Ombudsman addressed
for delivery within the Philippines shall be received, transmitted, and delivered free of charge: provided,
that such mail matters when addressed to private persons or nongovernment offices shall not exceed one
hundred and twenty (120) grams. All mail matters and telegrams sent through government telegraph
facilities containing complaints to the Office of the Ombudsman shall be transmitted free of charge,
provided that the telegram shall contain not more than one hundred fifty (150) words.
Section 38. Fiscal Autonomy. — The Office of the Ombudsman shall enjoy fiscal autonomy.
Appropriations for the Office of the Ombudsman may not be reduced below the amount appropriated for
the previous years and, after approval, shall be automatically and regularly released.
Section 39. Appropriations. — The appropriation for the Office of the Special Prosecutor in the current
General Appropriations Act is hereby transferred to the Office of the Ombudsman. Thereafter, such sums
as may be necessary shall be included in the annual General Appropriations Act.
Section 40. Separability Clause. — If any provision of this Act is held unconstitutional, other provisions
not affected thereby shall remain valid and binding.
Section 41. Repealing Clause. — All laws, presidential decrees, letters of instructions, executive orders,
rules and regulations insofar as they are inconsistent with this Act, are hereby repealed or amended as the
case may be.
Section 42. Effectivity. — This Act shall take effect after fifteen (15) days following its publication in the
Official Gazette or in three (3) newspapers of general circulation in the Philippines.
Approved: November 17, 1989.

Pasted from <http://www.lawphil.net/statutes/repacts/ra1989/ra_6770_1989.html>

RA 9160
Sunday, June 06, 2010
3:31 AM
Congress of the Philippines
Twelfth Congress
REPUBLIC ACT NO. 9160 September 29, 2001
AN ACT DEFINING THE CRIME OF MONEY LAUNDERING, PROVIDING PENALTIES THEREFOR AND
FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:
Section 1. Short Title. – This Act shall be known as the "Anti-Money Laundering Act of 2001."
Section 2. Declaration of Policy. – It is hereby declared the policy of the State to protect and preserve the
integrity and confidentiality of bank accounts and to ensure that the Philippines shall not be used as a
money laundering site for the proceeds of any unlawful activity. Consistent with its foreign policy, the
State shall extend cooperation in transnational investigations and prosecutions of persons involved in
money laundering activities whenever committed.
Section 3. Definitions. For purposes of this Act, the following terms are hereby defined as follows:
(a) "Covered Institution" refers to:
(1) banks, non-banks, quasi-banks, trust entities, and all other institutions and their subsidiaries and
affiliates supervised or regulated by the Bangko Sentral ng Pilipinas (BSP);
(2) Insurance companies and all other institutions supervised or regulated by the Insurance Commission;
and
(3) (i) securities dealers, brokers, salesmen, investment houses and other similar entities managing
securities or rendering services as investment agent, advisor, or consultant, (ii) mutual funds, close and
investment companies, common trust funds, pre-need companies and other similar entities, (iii) foreign
exchange corporations, money changers, money payment, remittance, and transfer companies and other
similar entities, and (iv) other entities administering or otherwise dealing in currency, commodities or
financial derivatives based thereon, valuable objects, cash substitutes and other similar monetary
instruments or property supervised or regulated by Securities and Exchange Commission.
(b) "Covered transaction" is a single, series, or combination of transactions involving a total amount in
excess of Four million Philippine pesos (Php4,000,000.00) or an equivalent amount in foreign currency
based on the prevailing exchange rate within five (5) consecutive banking days except those between a
covered institution and a person who, at the time of the transaction was a properly identified client and the
amount is commensurate with the business or financial capacity of the client; or those with an underlying
legal or trade obligation, purpose, origin or economic justification.
It likewise refers to a single, series or combination or pattern of unusually large and complex transactions
in excess of Four million Philippine pesos (Php4,000,000.00) especially cash deposits and investments
having no credible purpose or origin, underlying trade obligation or contract.
(c) "Monetary Instrument" refers to:
(1) coins or currency of legal tender of the Philippines, or of any other country;
(2) drafts, checks and notes;
(3) securities or negotiable instruments, bonds, commercial papers, deposit certificates, trust certificates,
custodial receipts or deposit substitute instruments, trading orders, transaction tickets and confirmations
of sale or investments and money marked instruments; and
(4) other similar instruments where title thereto passes to another by endorsement, assignment or
delivery.
(d) "Offender" refers to any person who commits a money laundering offense.
(e) "Person" refers to any natural or juridical person.
(f) "Proceeds" refers to an amount derived or realized from an unlawful activity.
(g) "Supervising Authority" refers to the appropriate supervisory or regulatory agency, department or
office supervising or regulating the covered institutions enumerated in Section 3(a).
(h) "Transaction" refers to any act establishing any right or obligation or giving rise to any contractual or
legal relationship between the parties thereto. It also includes any movement of funds by any means with
a covered institution.
(l) "Unlawful activity" refers to any act or omission or series or combination thereof involving or having
relation to the following:
(1) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised Penal Code,
as amended;
(2) Sections 3, 4, 5, 7, 8 and 9 of Article Two of Republic Act No. 6425, as amended, otherwise known as
the Dangerous Drugs Act of 1972;
(3) Section 3 paragraphs B, C, E, G, H and I of Republic Act No. 3019, as amended; otherwise known as the
Anti-Graft and Corrupt Practices Act;
(4) Plunder under Republic Act No. 7080, as amended;
(5) Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the Revised Penal Code,
as amended;
(6) Jueteng and Masiao punished as illegal gambling under Presidential Decree No. 1602;
(7) Piracy on the high seas under the Revised Penal Code, as amended and Presidential Decree No. 532;
(8) Qualified theft under, Article 310 of the Revised Penal Code, as amended;
(9) Swindling under Article 315 of the Revised Penal Code, as amended;
(10) Smuggling under Republic Act Nos. 455 and 1937;
(11) Violations under Republic Act No. 8792, otherwise known as the Electronic Commerce Act of 2000;
(12) Hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as defined
under the Revised Penal Code, as amended, including those perpetrated by terrorists against non-
combatant persons and similar targets;
(13) Fraudulent practices and other violations under Republic Act No. 8799, otherwise known as the
Securities Regulation Code of 2000;
(14) Felonies or offenses of a similar nature that are punishable under the penal laws of other countries.
Section 4. Money Laundering Offense. – Money laundering is a crime whereby the proceeds of an unlawful
activity are transacted, thereby making them appear to have originated from legitimate sources. It is
committed by the following:
(a) Any person knowing that any monetary instrument or property represents, involves, or relates to the
proceeds of any unlawful activity, transacts or attempts to transact said monetary instrument or property.
(b) Any person knowing that any monetary instrument or property involves the proceeds of any unlawful
activity, performs or fails to perform any act as a result of which he facilitates the offense of money
laundering referred to in paragraph (a) above.
(c) Any person knowing that any monetary instrument or property is required under this Act to be
disclosed and filed with the Anti-Money Laundering Council (AMLC), fails to do so.
Section 5. Jurisdiction of Money Laundering Cases. – The regional trial courts shall have jurisdiction to try
all cases on money laundering. Those committed by public officers and private persons who are in
conspiracy with such public officers shall be under the jurisdiction of the Sandiganbayan.
Section 6. Prosecution of Money Laundering. –
(a) Any person may be charged with and convicted of both the offense of money laundering and the
unlawful activity as herein defined.
(b) Any proceeding relating to the unlawful activity shall be given precedence over the prosecution of any
offense or violation under this Act without prejudice to the freezing and other remedies provided.
Section 7. Creation of Anti-Money Laundering Council (AMLC). – The Anti-Money Laundering Council is
hereby created and shall be composed of the Governor of the Bangko Sentral ng Pilipinas as chairman, the
Commissioner of the Insurance Commission and the Chairman of the Securities and Exchange Commission
as members. The AMLC shall act unanimously in the discharge of its functions as defined hereunder:
(1) to require and receive covered transaction reports from covered institutions;
(2) to issue orders addressed to the appropriate Supervising Authority or the covered institution to
determine the true identity of the owner of any monetary instrument or property subject of a covered
transaction report or request for assistance from a foreign State, or believed by the Council, on the basis of
substantial evidence to be in whole or in part, whenever located, representing, involving, or related to,
directly or indirectly, in any manner or by any means, the proceeds of an unlawful activity;
(3) to institute civil forfeiture proceedings and all other remedial proceedings through the Office of the
Solicitor General;
(4) to cause the filing of complaints with the Department of Justice or the Ombudsman for the prosecution
of money laundering offenses;
(5) to initiate investigations of covered transactions, money laundering activities and other violations of
this Act;
(6) to freeze any monetary instrument or property alleged to be proceed of any unlawful activity;
(7) to implement such measures as may be necessary and justified under this Act to counteract money
laundering;
(8) to receive and take action in respect of, any request from foreign states for assistance in their own
anti-money laundering operations provided in this Act;
(9) to develop educational programs on the pernicious effects of money laundering, the methods and
techniques used in money laundering, the viable means of preventing money laundering and the effective
ways of prosecuting and punishing offenders; and
(10) to enlist the assistance of any branch, department, bureau, office, agency or instrumentality of the
government, including government-owned and –controlled corporations, in undertaking any and all anti-
money laundering operations, which may include the use of its personnel, facilities and resources for the
more resolute prevention, detection and investigation of money laundering offenses and prosecution of
offenders.
Section 8. Creation of a Secretariat. – The AMLC is hereby authorized to establish a secretariat to be
headed by an Executive Director who shall be appointed by the Council for a term of five (5) years. He
must be a member of the Philippine Bar, at least thirty-five (35) years of age and of good moral character,
unquestionable integrity and known probity. All members of the Secretariat must have served for at least
five (5) years either in the Insurance Commission, the Securities and Exchange Commission or the Bangko
Sentral ng Pilipinas (BSP) and shall hold full-time permanent positions within the BSP.
Section 9. Prevention of Money Laundering; Customer Identification Requirements and Record Keeping. –
(a) Customer Identification, - Covered institutions shall establish and record the true identity of its
clients based on official documents. They shall maintain a system of verifying the true identity of their
clients and, in case of corporate clients, require a system of verifying their legal existence and
organizational structure, as well as the authority and identification of all persons purporting to act on their
behalf.
The provisions of existing laws to the contrary notwithstanding, anonymous accounts, accounts under
fictitious names, and all other similar accounts shall be absolutely prohibited. Peso and foreign currency
non-checking numbered accounts shall be allowed. The BSP may conduct annual testing solely limited to
the determination of the existence and true identity of the owners of such accounts.
(b) Record Keeping – All records of all transactions of covered institutions shall be maintained and safely
stored for five (5) years from the date of transactions. With respect to closed accounts, the records on
customer identification, account files and business correspondence, shall be preserved and safety stored
for at least five (5) years from the dates when they were closed.
(c) Reporting of Covered Transactions. – Covered institutions shall report to the AMLC all covered
transactions within five (5) working days from occurrence thereof, unless the Supervising Authority
concerned prescribes a longer period not exceeding ten (10) working days.
When reporting covered transactions to the AMLC, covered institutions and their officers, employees,
representatives, agents, advisors, consultants or associates shall not be deemed to have violated Republic
Act No. 1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791 and other similar
laws, but are prohibited from communicating, directly or indirectly, in any manner or by any means, to any
person the fact that a covered transaction report was made, the contents thereof, or any other information
in relation thereto. In case of violation thereof, the concerned officer, employee, representative, agent,
advisor, consultant or associate of the covered institution, shall be criminally liable. However, no
administrative, criminal or civil proceedings, shall lie against any person for having made a covered
transaction report in the regular performance of his duties and in good faith, whether or not such reporting
results in any criminal prosecution under this Act or any other Philippine law.
When reporting covered transactions to the AMLC, covered institutions and their officers, employees,
representatives, agents, advisors, consultants or associates are prohibited from communicating, directly or
indirectly, in any manner or by any means, to any person, entity, the media, the fact that a covered
transaction report was made, the contents thereof, or any other information in relation thereto. Neither
may such reporting be published or aired in any manner or form by the mass media, electronic mail, or
other similar devices. In case of violation thereof, the concerned officer, employee, representative, agent,
advisor, consultant or associate of the covered institution, or media shall be held criminally liable.
Section 10. Authority to Freeze. – Upon determination that probable cause exists that any deposit or
similar account is in any way related to an unlawful activity, the AMLC may issue a freeze order, which
shall be effective immediately, on the account for a period not exceeding fifteen (15) days. Notice to the
depositor that his account has been frozen shall be issued simultaneously with the issuance of the freeze
order. The depositor shall have seventy-two (72) hours upon receipt of the notice to explain why the freeze
order should be lifted. The AMLC has seventy-two (72) hours to dispose of the depositor's explanation. If it
falls to act within seventy-two (72) hours from receipt of the depositor's explanation, the freeze order shall
automatically be dissolved. The fifteen (15)-day freeze order of the AMLC may be extended upon order of
the court, provided that the fifteen (15)-day period shall be tolled pending the court's decision to extend
the period.
No court shall issue a temporary restraining order or writ of injunction against any freeze order issued by
the AMLC except the Court of Appeals or the Supreme Court.
Section 11. Authority to inquire into Bank Deposits. – Notwithstanding the provisions of Republic Act No.
1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791, and other laws, the AMLC
may inquire into or examine any particular deposit or investment with any banking institution or non-bank
financial institution upon order of any competent court in cases of violation of this Act when it has been
established that there is probable cause that the deposits or investments involved are in any way related
to a money laundering offense: Provided, That this provision shall not apply to deposits and investments
made prior to the effectivity of this Act.
Section 12. Forfeiture Provisions. –
(a) Civil Forfeiture. – When there is a covered transaction report made, and the court has, in a petition
filed for the purpose ordered seizure of any monetary instrument or property, in whole or in part, directly
or indirectly, related to said report, the Revised Rules of Court on civil forfeiture shall apply.
(b) Claim on Forfeited Assets. – Where the court has issued an order of forfeiture of the monetary
instrument or property in a criminal prosecution for any money laundering offense defined under Section 4
of this Act, the offender or any other person claiming an interest therein may apply, by verified petition, for
a declaration that the same legitimately belongs to him and for segregation or exclusion of the monetary
instrument or property corresponding thereto. The verified petition shall be filed with the court which
rendered the judgment of conviction and order of forfeiture, within fifteen (15) days from the date of the
order or forfeiture, in default of which the said order shall become final and executory. This provision shall
apply in both civil and criminal forfeiture.
(c) Payment in Lieu of Forfeiture. – Where the court has issued an order of forfeiture of the monetary
instrument or property subject of a money laundering offense defined under Section 4, and said order
cannot be enforced because any particular monetary instrument or property cannot, with due diligence, be
located, or it has been substantially altered, destroyed, diminished in value or otherwise rendered
worthless by any act or omission, directly or indirectly, attributable to the offender, or it has been
concealed, removed, converted or otherwise transferred to prevent the same from being found or to avoid
forfeiture thereof, or it is located outside the Philippines or has been placed or brought outside the
jurisdiction of the court, or it has been commingled with other monetary instruments or property belonging
to either the offender himself or a third person or entity, thereby rendering the same difficult to identify or
be segregated for purposes of forfeiture, the court may, instead of enforcing the order of forfeiture of the
monetary instrument or property or part thereof or interest therein, accordingly order the convicted
offender to pay an amount equal to the value of said monetary instrument or property. This provision shall
apply in both civil and criminal forfeiture.
Section 13. Mutual Assistance among States. –
(a) Request for Assistance from a Foreign State. – Where a foreign State makes a request for
assistance in the investigation or prosecution of a money laundering offense, the AMLC may execute the
request or refuse to execute the same and inform the foreign State of any valid reason for not executing
the request or for delaying the execution thereof. The principles of mutuality and reciprocity shall, for this
purpose, be at all times recognized.
(b) Power of the AMLC to Act on a Request for Assistance from a Foreign State. – The AMLC may
execute a request for assistance from a foreign State by: (1) tracking down, freezing, restraining and
seizing assets alleged to be proceeds of any unlawful activity under the procedures laid down in this Act;
(2) giving information needed by the foreign State within the procedures laid down in this Act; and (3)
applying for an order of forfeiture of any monetary instrument or property in the court: Provided, That the
court shall not issue such an order unless the application is accompanied by an authenticated copy of the
order of a court in the requesting State ordering the forfeiture of said monetary instrument or properly of a
person who has been convicted of a money laundering offense in the requesting State, and a certification
of an affidavit of a competent officer of the requesting State stating that the conviction and the order of
forfeiture are final and then no further appeal lies in respect or either.
(c) Obtaining Assistance from Foreign States. – The AMLC may make a request to any foreign State
for assistance in (1) tracking down, freezing, restraining and seizing assets alleged to be proceeds of any
unlawful activity; (2) obtaining information that it needs relating to any covered transaction, money
laundering offense or any other matter directly or indirectly, related thereto; (3) to the extent allowed by
the law of the Foreign State, applying with the proper court therein for an order to enter any premises
belonging to or in the possession or control of, any or all of the persons named in said request, and/or
search any or all such persons named therein and/or remove any document, material or object named in
said request:Provided, That the documents accompanying the request in support of the application have
been duly authenticated in accordance with the applicable law or regulation of the foreign State; and (4)
applying for an order of forfeiture of any monetary instrument or property in the proper court in the foreign
State:Provided, That the request is accompanied by an authenticated copy of the order of the regional trial
court ordering the forfeiture of said monetary instrument or property of a convicted offender and an
affidavit of the clerk of court stating that the conviction and the order of forfeiture are final and that no
further appeal lies in respect of either.
(d) Limitations on Request for Mutual Assistance. – The AMLC may refuse to comply with any request
for assistance where the action sought by the request contravenes any provision of the Constitution or the
execution of a request is likely to prejudice the national interest of the Philippines unless there is a treaty
between the Philippines and the requesting State relating to the provision of assistance in relation to
money laundering offenses.
(e) Requirements for Requests for Mutual Assistance from Foreign State. – A request for mutual
assistance from a foreign State must (1) confirm that an investigation or prosecution is being conducted in
respect of a money launderer named therein or that he has been convicted of any money laundering
offense; (2) state the grounds on which any person is being investigated or prosecuted for money
laundering or the details of his conviction; (3) gives sufficient particulars as to the identity of said person;
(4) give particulars sufficient to identity any covered institution believed to have any information,
document, material or object which may be of assistance to the investigation or prosecution; (5) ask from
the covered institution concerned any information, document, material or object which may be of
assistance to the investigation or prosecution; (6) specify the manner in which and to whom said
information, document, material or object detained pursuant to said request, is to be produced; (7) give all
the particulars necessary for the issuance by the court in the requested State of the writs, orders or
processes needed by the requesting State; and (8) contain such other information as may assist in the
execution of the request.
(f) Authentication of Documents. – For purposes of this Section, a document is authenticated if the
same is signed or certified by a judge, magistrate or equivalent officer in or of, the requesting State, and
authenticated by the oath or affirmation of a witness or sealed with an official or public seal of a minister,
secretary of State, or officer in or of, the government of the requesting State, or of the person
administering the government or a department of the requesting territory, protectorate or colony. The
certificate of authentication may also be made by a secretary of the embassy or legation, consul general,
consul, vice consul, consular agent or any officer in the foreign service of the Philippines stationed in the
foreign State in which the record is kept, and authenticated by the seal of his office.
(g) Extradition. – The Philippines shall negotiate for the inclusion of money laundering offenses as herein
defined among extraditable offenses in all future treaties.
Section 14. Penal Provisions. –
(a) Penalties for the Crime of Money Laundering. The penalty of imprisonment ranging from seven
(7) to fourteen (14) years and a fine of not less than Three million Philippine pesos (Php 3,000,000.00) but
not more than twice the value of the monetary instrument or property involved in the offense, shall be
imposed upon a person convicted under Section 4(a) of this Act.
The penalty of imprisonment from four (4) to seven (7) years and a fine of not less than One million five
hundred thousand Philippine pesos (Php 1,500,000.00) but not more than Three million Philippine pesos
(Php 3,000,000.00), shall be imposed upon a person convicted under Section 4(b) of this Act.
The penalty of imprisonment from six (6) months to four (4) years or a fine of not less than One hundred
thousand Philippine pesos (Php 100,000.00) but not more than Five hundred thousand Philippine pesos
(Php 500,000.00), or both, shall be imposed on a person convicted under Section 4(c) of this Act.
(b) Penalties for Failure to Keep Records. The penalty of imprisonment from six (6) months to one (1)
year or a fine of not less than One hundred thousand Philippine pesos (Php 100,000.00) but not more than
Five hundred thousand Philippine pesos (Php 500,000.00), or both, shall be imposed on a person convicted
under Section 9(b) of this Act.
(c) Malicious Reporting. Any person who, with malice, or in bad faith, report or files a completely
unwarranted or false information relative to money laundering transaction against any person shall be
subject to a penalty of six (6) months to four (4) years imprisonment and a fine of not less than One
hundred thousand Philippine pesos (Php 100,000.00) but not more than Five hundred thousand Philippine
pesos (Php 500,000.00), at the discretion of the court: Provided, That the offender is not entitled to avail
the benefits of the Probation Law.
If the offender is a corporation, association, partnership or any juridical person, the penalty shall be
imposed upon the responsible officers, as the case may be, who participated in the commission of the
crime or who shall have knowingly permitted or failed to prevent its commission. If the offender is a
juridical person, the court may suspend or revoke its license. If the offender is an alien, he shall, in addition
to the penalties herein prescribed, be deported without further proceedings after serving the penalties
herein prescribed. If the offender is a public official or employee, he shall, in addition to the penalties
prescribed herein, suffer perpetual or temporary absolute disqualification from office, as the case may be;
Any public official or employee who is called upon to testify and refuses to do the same or purposely fails
to testify shall suffer the same penalties prescribed herein.
(d) Breach of Confidentiality. The punishment of imprisonment ranging from three (3) to eight (8) years
and a fine of not less than Five hundred thousand Philippine pesos (Php 500,000.00) but not more than
One million Philippine pesos (Php 1,000,000.00), shall be imposed on a person convicted for a violation
under Section 9(c).
Section 15. System of Incentives and Rewards. – A system of special incentives and rewards is hereby
established to be given to the appropriate government agency and its personnel that led and initiated an
investigation, prosecution and conviction of persons involved in the offense penalized in Section 4 of this
Act.
Section 16. Prohibitions Against Political Harassment. – This Act shall not be used for political prosecution
or harassment or as an instrument to hamper competition in trade and commerce.
No case for money laundering may be filed against and no assets shall be frozen, attached or forfeited to
the prejudice of a candidate for an electoral office during an election period.
Section 17. Restitution. – Restitution for any aggrieved party shall be governed by the provisions of the
New Civil Code.
Section 18. Implementing Rules and Regulations. – Within thirty (30) days from the effectivity of this Act,
the Bangko Sentral ng Pilipinas, the Insurance Commission and the Securities and Exchange Commission
shall promulgate the rules and regulations to implement effectivity the provisions of this Act. Said rules
and regulations shall be submitted to the Congressional Oversight Committee for approval.
Covered institutions shall formulate their respective money laundering prevention programs in accordance
with this Act including, but not limited to, information dissemination on money laundering activities and its
prevention, detection and reporting, and the training of responsible officers and personnel of covered
institutions.
Section 19. Congressional Oversight Committee. – There is hereby created a Congressional Oversight
Committee composed of seven (7) members from the Senate and seven (7) members from the House of
Representatives. The members from the Senate shall be appointed by the Senate President based on the
proportional representation of the parties or coalitions therein with at least two (2) Senators representing
the minority. The members from the House of Representatives shall be appointed by the Speaker also
based on proportional representation of the parties or coalitions therein with at least two (2) members
representing the minority.
The Oversight Committee shall have the power to promulgate its own rules, to oversee the implementation
of this Act, and to review or revise the implementing rules issued by the Anti-Money Laundering Council
within thirty (30) days from the promulgation of the said rules.
Section 20. Appropriations Clause. – The AMLC shall be provided with an initial appropriation of Twenty-
five million Philippine pesos (Php 25,000,000.00) to be drawn from the national government.
Appropriations for the succeeding years shall be included in the General Appropriations Act.
Section 21. Separability Clause. – If any provision or section of this Act or the application thereof to any
person or circumstance is held to be invalid, the other provisions or sections of this Act, and the
application of such provision or section to other persons or circumstances, shall not be affected thereby.
Section 22. Repealing Clause. – All laws, decrees, executive orders, rules and regulations or parts thereof,
including the relevant provisions of Republic Act No. 1405, as amended; Republic Act No. 6426, as
amended; Republic Act No. 8791, as amended and other similar laws, as are inconsistent with this Act, are
hereby repealed, amended or modified accordingly.
Section 23. Effectivity. – This Act shall take effect fifteen (15) days after its complete publication in the
Official Gazette or in at least two (2) national newspapers of general circulation.
The provisions of this Act shall not apply to deposits and investments made prior to its effectivity.
Approved,
(Sgd)
FRANKLIN M. DRILON
President of the Senate
(Sgd)
JOSE DE VENECIA, JR.
Speaker of the House of Representatives
This Act which is a consolidation of House Bill No. 3083 and Senate Bill No. 1745 was finally passed by the
House of Representatives and the Senate on September 29, 2001.
(Sgd)
OSCAR G. YARES
Secretary of the Senate
(Sgd)
ROBERTO P. NAZARENO
Secretary General
House of Representatives
Approved: September 29, 2001
(Sgd)
GLORIA MACAPAGAL-ARROYO
President of the Philippines
RULES AND REGULATION "REPUBLIC ACT NO. 9160" ANTI-MONEY LAUNDERING ACT OF 2001

Pasted from <http://www.lawphil.net/statutes/repacts/ra2001/ra_9160_2001.html>

RA 9194
Sunday, June 06, 2010
3:32 AM

Republic Act No. 9194 March 7, 2003

AN ACT AMENDING REPUBLIC ACT NO. 9160, OTHERWISE KNOWN AS THE "ANTI-MONEY
LAUNDERING ACT OF 2001"
Be it enacted by the Senate and House of Representative of the Philippines in Congress assembled:
SECTION 1. Section 3, paragraph (b) of Republic Act No. 9160 is hereby amended as follows:
"(b) 'Covered transaction' is a transaction in cash or other equivalent monetary instrument involving a
total amount in excess of Five hundred thousand pesos (PhP 500,000.00) within one (1) banking day.
SECTION 2. Section 3 of the same Act is further amended by inserting between paragraphs (b) and (c) a
new paragraph designated as (b-1) to read as follows:
"(b-1) 'Suspicious transaction' are transactions with covered institutions, regardless of the amounts
involved, where any of the following circumstances exist:
1. there is no underlying legal or trade obligation, purpose or economic justification;
2. the client is not properly identified;
3. the amount involved is not commensurate with the business or financial capacity of the client;
4. taking into account all known circumstances, it may be perceived that the client's transaction is
structured in order to avoid being the subject of reporting requirements under the Act;
5. any circumstances relating to the transaction which is observed to deviate from the profile of the client
and/or the client's past transactions with the covered institution;
6. the transactions is in a way related to an unlawful activity or offense under this Act that is about to be,
is being or has been committed; or
7. any transactions that is similar or analogous to any of the foregoing."
SECTION 3. Section 3(i) of the same Act is further amended to read as follows:
"(i) 'Unlawful activity' refers to any act or omission or series or combination thereof involving or having
direct relation to following:
"(1) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise known as the Revised Penal
Code, as amended;
"(2) Sections 4, 5, 6, 8, 9, 10, 12, 13, 14, 15, and 16 of Republic Act No. 9165, otherwise known as the
Comprehensive Dangerous Act of 2002;
"(3) Section 3 paragraphs B, C, E, G, H and I of republic Act No. 3019, as amended, otherwise known as
the Anti-Graft and Corrupt Practices Act;
"(4) Plunder under Republic Act No. 7080, as amended;
"(5) Robbery and extortion under Articles 294, 295, 296, 299, 300, 301 and 302 of the Revised Penal
Code, as amended;
"(6) Jueteng and Masiao punished as illegal gambling under Presidential Decree No. 1602;
"(7) Piracy on the high seas under the Revised Penal Code, as amended and Presidential under the
Revised Penal Code, as amended and Presidential Decree No. 532;
"(8) Qualified theft under Article 310 of the Revised penal Code, as amended;
"(9) Swindling under Article 315 of the Revised Penal Code, as amended;
"(10) Smuggling under Republic Act Nos. 455 and 1937;
"(11) Violations under Republic Act No. 8792, otherwise known as the Electrinic Commerce Act of 2000;
"(12) Hijacking and other violations under Republic Act No. 6235; destructive arson and murder, as
defined under the Revised Penal Code, as amended, including those perpetrated by terrorists against
non-combatant persons and similar targets;
"(13) Fraudulent practices and other violations under Republic Act No. 8799, otherwise known as the
Securities Regulation Code of 2000;
"(14) Felonies or offenses of a similar nature that are punishable under the penal laws of other countries."
SECTION 4. Section 4 of the same Act is hereby amended to read as follows:
"SEC. 4. Money Laundering Offense. -- Money laundering is a crime whereby the proceeds of an unlawful
activity as herein defined are transacted, theeby making them appear to have originated from legitimate
sources. It is committed by the following:
(a) Any person knowing that any monetary instrument or property represents, involves, or relates to, the
proceeds of any unlawful activity, transacts or attempts to transacts said monetary instrument or
property.
(b) Any person knowing that any monetary instrument or property involves the proceeds of any unlawful
activity, performs or fails to perform any act as a result of which he falicitates the offense of money
laundering referred to in paragraph (a) above.
(c) Any person knowing that any monetary instrument or property is required under this Act to be
disclosed and filed with the Anti-Money Laundering Council (AMLC), fails to do so."
SECTION 5. Section 7 of the same Act is hereby amended as follows:
"SEC.7. Creation of Anti-Money Laundering Council (AMLC). -- The Anti-Money Laundering Council is
hereby created and shall be composed of the Governor of the Bangko Sentral ng Pilipinas as chairman,
the Commissioner of the Insurance Commission and the Chairman of the Securities and Exchange
Commission as member. The AMLC shall shall act unanimously in the discharge of its functions as defined
hereunder:
"(1) to require and receive covered or suspicious transaction reports from covered institutions;
"(2) to issue orders addressed to the appropriate Supervising Authority or the covered institutions to
determine the true identity of the owner of any monetary instrument or preperty subject of a covered
transaction or suspicious transaction report or request for assistance from a foreign State, or believed by
the Council, on the basis fo substantial evidence, to be, in whole or in part, wherever located,
representing, involving, or related to directly or indirectly, in any manner or by any means, the proceeds
of an unlawful activitity.
"(3) to institute civil forfeiture proceedings and all other remedial proceedings through the Office of th
Solicitor General;
"(4) to cause the filing of complaints with the Department of Justice or the Ombudsman for the
prosecution of money laundering offenses;
"(5) to investigate suspicious transactions and covered transactions deemed suspicious after an
investigation by AMLC, money laundering activities and other violations of this Act;
"(6) to apply before the Court of Appeals, ex parte, for the freezing of any monetary instrument or
property alleged to be the proceeds of any unlawful activity as defined in Section 3(i) hereof;
"(7) to implement such measures as may be necessary and justified under this Act to counteract money
laundering;
"(8) to receive and take action in respect of, any request from foreign states for assistance in their own
anti-money laundering operations provided in this Act;
"(9) to develop educational programs on the pernicious effects of money laundering, the methods and
techniques used in the money laundering, the viable means of preventing money laundering and the
effective ways of prosecuting and punishing offenders;
"(10) to enlist the assistance of any branch, department, bureau, office, agency, or instrumentality of the
government, including government-owned and -controlled corporations, in undertaking any and all anti-
money laundering operations, which may include the use of its personnel, facilities and resources for the
more resolute prevention, detection, and investigation of money laundering offenses and prosecution of
offenders; and
"(11) to impose administrative sanctions for the violation of laws, rules, regulations, and orders and
resolutions issued pursuant thereto."
SECTION 6. Section 9(c) of the same Act is hereby amended to read as follows:
"(c) Reporting of Covered and Suspicious Transactions. -- Covered institutions shall report to the AMLC all
covered transactions and suspicious transactions within five(5) working days from occurrences thereof,
unless the Supervising Authority prescribes a longer period not exceeding ten (10) working days.
"Should a transaction be determined to be both a covered transaction and a suspicious transaction, the
covered institution shall be required to report the same as a suspicious transaction.
"When reporting covered or suspicious transactions to the AMLC, covered institutions and their officers
and employees shall not be deemed to have violated Republic Act No. 1405, as amended, Republic Act
No. 6426, as amended, Republic Act No. 8791 and other similar laws, but are prohibited from
communicating, directly or indirectly, in any manner or by an means, to any person, the fact that a
covered or suspicious transaction report was made, the contents thereof, or any other information in
relation thereto. In case of violation thereof, the concerned officer and employee of the covered
institution shall be criminally liable. However, no administrative, criminal or civil proceedings, shall lie
against any person for having made a covered or suspicious transaction report in the regular performance
of his duties in good faith, whether or not such reporting results in any criminal prosecution under this Act
of any other law.
"When reporting covered or suspicious transactions to the AMLC, covered instituting and their officers and
employees are prohibited from communicating directly or indirectly, in any manner or by any means, to
any person or entity, the media, the fact that a covered or suspicious transaction report was made, the
contents thereof, or any other information in relation thereto. Neither may such reporting be published or
aired in any manner or form by the mass media, electronic mail, or other similar devices. In case of
violation thereof, the concerned officer and employee of the covered institution and media shall be held
criminally liable.
SECTION 7. Section 10 of the same Act is hereby amended to read as follows:
"Sec 10. Freezing of Monetary Instrument or Property. -- The Court of Appeals, upon application ex
parteby the AMLC and after determination that probable cause exists that any monetary instrument or
property is in any way related to an unlawful activity as defined in Section 3(i) hereof, may issue a freeze
order which shall be effective immediately. The freeze order shall be for a period of twenty (20) days
unless extended by the court.
SECTION 8. Section 11 of the same Act is hereby amended to read as follows:
"Sec. 11. Authority to Inquire into Bank Deposits. -- Notwithstanding the provisions of Republic Act No.
1405, as amended, Republic Act No. 6426, as amended, Republic Act No. 8791, and other laws, the AMLC
may inquire into or examine any particular deposit or investment with any banking institution or non-bank
financial institution upon order of any competent court in cases of violation of this Act, when it has been
established that there is probable cause that the deposits or investments are related to an unlawful
activities as defined in Section 3(I) hereof or a money laundering offense under Section 4 hereof, except
that no court order shall be required in cases involving unlawful activities defined in Sections 3(I)1, (2)
and (12).
"To ensure compliance with this Act, the Bangko Sentral ng Pilipinas (BSP) may inquire into or examine
any deposit of investment with any banking institution or non-bank financial institution when the
examination is made in the course of a periodic or special examination, in accordance with the rules of
examination of the BSP.
SECTION 9. Section 14, paragraphs (c) and (d) of the same Act is hereby amended to read as follows:
"(c) Malicious Reporting. Any person who, with malice, or in bad faith, reports or files a completely
unwarranted or false information relative to money laundering transaction against any person shall be
subject to a penalty to six (6) months to four (4) years imprisonment and a fine of not less than One
hundred thousand Philippine pesos (Php100,000.00) but not more than Five hundred thousand Philippine
pesos (Php500,000.00), at the discretion of the court: Provided, That the offender is not entitled to avail
the benefits of the Probation Law.
"If the offender is a corporation, association, partnership or any juridical person, the penalty shall be
imposed upon the responsible officers, as the case may be, who participated in, or allowed by their gross
negligence, the commission of the crime. If the offender is a juridical person, the court may suspend or
revoke its license. If the offer is an alien, he shall, in addition to the penalties herein prescribed, be
deported without further proceedings after serving the penalties herein prescribed. If the offender is a
public official or employee, he shall, in addition to the penalties prescribed herein, suffer perpetual or
temporary absolute disqualification from office, as the case may be.
"Any public official or employee who is called upon to testify and refuses to do the same or purposely fails
to testify shall suffer the same penalties prescribed herein.
"(d) Breach of Confidentiality. The punishment of imprisonment ranging from three (3) to eight (8) years
and a fine of not less than Five hundred thousand Philippine pesos (Php500,000.00) but not more than
One million Philippine pesos (Php1,000,000.00) shall be imposed on a person convicted for a violation
under Section 9(c). In the case of a breach of confidentiality that is published or reported by media, the
responsible reporter, writer, president, publisher, manager and editor-in-chief shall be liable under this
Act.
SECTION 10. Section 15 of Republic Act No. 9160 is hereby deleted.
SECTION 11. Section 23 of the same Act is hereby amended to read as follows:
"SEC. 23. Effectivity. -- This Act shall take effect fifteen (15) days after its complete publication in
the Official Gazette or in at least two (2) national newspapers of general circulation.
SECTION 12. Transitory Provision. -- Existing freeze orders issued by the AMLC shall remain in force for a
period of thirty (30) days after the effectivity of this Act, unless extended by the Court of Appeals.
SECTION 13. Effectivity. -- This Act shall take effect fifteen (15) days after its complete publication in
the Official Gazette or in at least two (2) national newspapers of general circulation.
Approved,

FRANKLIN DRILON JOSE DE VENECIA JR.

President of the Senate Speaker of the House of Representatives
This Act which is a consolidation of House Bill No. 5655 and Senate Bill No. 2419 was finally passed by the
House of Representatives and the Senate on March 5, 2003.

OSCAR G. YABES ROBERTO P. NAZARENO

Secretary of Senate Secretary General
House of Represenatives
Approved: March 7, 2003
GLORIA MACAPAGAL-ARROYO
 President of the Philippines

Pasted from <http://www.lawphil.net/statutes/repacts/ra2003/ra_9194_2003.html>

RA 9372
Sunday, June 06, 2010
3:33 AM
Republic Act No. 9372 March 6, 2007
AN ACT TO SECURE THE STATE AND PROTECT OUR PEOPLE FROM TERRORISM
Be it enacted by the Senate and the House of Representatives of the Philippines in Congress assembled:
SECTION 1. Short Title. - This Act shall henceforth be known as the "Human Security Act of 2007."
SEC. 2. Declaration of Policy. - It is declared a policy of the State to protect life, liberty, and property
from acts of terrorism, to condemn terrorism as inimical and dangerous to the national security of the
country and to the welfare of the people, and to make terrorism a crime against the Filipino people,
against humanity, and against the law of nations.
In the implementation of the policy stated above, the State shall uphold the basic rights and fundamental
liberties of the people as enshrined in the Constitution.
The State recognizes that the fight against terrorism requires a comprehensive approach, comprising
political, economic, diplomatic, military, and legal means duly taking into account the root causes of
terrorism without acknowledging these as justifications for terrorist and/or criminal activities. Such
measures shall include conflict management and post-conflict peace-building, addressing the roots of
conflict by building state capacity and promoting equitable economic development.
Nothing in this Act shall be interpreted as a curtailment, restriction or diminution of constitutionally
recognized powers of the executive branch of the government. It is to be understood, however that the
exercise of the constitutionally recognized powers of the executive department of the government shall
not prejudice respect for human rights which shall be absolute and protected at all times.
SEC. 3. Terrorism.- Any person who commits an act punishable under any of the following provisions of
the Revised Penal Code:
a. Article 122 (Piracy in General and Mutiny in the High Seas or in the Philippine Waters);
b. Article 134 (Rebellion or Insurrection);
c. Article 134-a (Coup d' Etat), including acts committed by private persons;
d. Article 248 (Murder);
e. Article 267 (Kidnapping and Serious Illegal Detention);
f. Article 324 (Crimes Involving Destruction), or under
1. Presidential Decree No. 1613 (The Law on Arson);
2. Republic Act No. 6969 (Toxic Substances and Hazardous and Nuclear Waste Control Act of 1990);
3. Republic Act No. 5207, (Atomic Energy Regulatory and Liability Act of 1968);
4. Republic Act No. 6235 (Anti-Hijacking Law);
5. Presidential Decree No. 532 (Anti-Piracy and Anti-Highway Robbery Law of 1974); and,
6. Presidential Decree No. 1866, as amended (Decree Codifying the Laws on Illegal and Unlawful
Possession, Manufacture, Dealing in, Acquisition or Disposition of Firearms, Ammunitions or Explosives)
thereby sowing and creating a condition of widespread and extraordinary fear and panic among the
populace, in order to coerce the government to give in to an unlawful demand shall be guilty of the crime
of terrorism and shall suffer the penalty of forty (40) years of imprisonment, without the benefit of parole
as provided for under Act No. 4103, otherwise known as the Indeterminate Sentence Law, as amended.
SEC. 4. Conspiracy to Commit Terrorism. - Persons who conspire to commit the crime of terrorism
shall suffer the penalty of forty (40) years of imprisonment.
There is conspiracy when two or more persons come to an agreement concerning the commission of the
crime of terrorism as defined in Section 3 hereof and decide to commit the same.
SEC. 5. Accomplice. - Any person who, not being a principal under Article 17 of the Revised Penal Code
or a conspirator as defined in Section 4 hereof, cooperates in the execution of either the crime of
terrorism or conspiracy to commit terrorism by previous or simultaneous acts shall suffer the penalty of
from seventeen (17) years, four months one day to twenty (20) years of imprisonment.
SEC. 6. Accessory. - Any person who, having knowledge of the commission of the crime of terrorism or
conspiracy to commit terrorism, and without having participated therein, either as principal or accomplice
under Articles 17 and 18 of the Revised Penal Code, takes part subsequent to its commission in any of the
following manner: (a) by profiting himself or assisting the offender to profit by the effects of the crime; (b)
by concealing or destroying the body of the crime, or the effects, or instruments thereof, in order to
prevent its discovery; (c) by harboring, concealing, or assisting in the escape of the principal or
conspirator of the crime, shall suffer the penalty of ten (10) years and one day to twelve (12) years of
imprisonment.
Notwithstanding the above paragraph, the penalties prescribed for accessories shall not be imposed upon
those who are such with respect to their spouses, ascendants, descendants, legitimate, natural, and
adopted brothers and sisters, or relatives by affinity within the same degrees, with the single exception of
accessories falling within the provisions of subparagraph (a).
SEC. 7. Surveillance of Suspects and Interception and Recording of Communications. -The
provisions of Republic Act No. 4200 (Anti-Wire Tapping Law) to the contrary notwithstanding, a police or
law enforcement official and the members of his team may, upon a written order of the Court of Appeals,
listen to, intercept and record, with the use of any mode, form, kind or type of electronic or other
surveillance equipment or intercepting and tracking devices, or with the use of any other suitable ways
and means for that purpose, any communication, message, conversation, discussion, or spoken or written
words between members of a judicially declared and outlawed terrorist organization, association, or
group of persons or of any person charged with or suspected of the crime of terrorism or conspiracy to
commit terrorism.
Provided, That surveillance, interception and recording of communications between lawyers and clients,
doctors and patients, journalists and their sources and confidential business correspondence shall not be
authorized.
SEC. 8. Formal Application for Judicial Authorization. - The written order of the authorizing division
of the Court of Appeals to track down, tap, listen to, intercept, and record communications, messages,
conversations, discussions, or spoken or written words of any person suspected of the crime of terrorism
or the crime of conspiracy to commit terrorism shall only be granted by the authorizing division of the
Court of Appeals upon an ex parte written application of a police or of a law enforcement official who has
been duly authorized in writing by the Anti-Terrorism Council created in Section 53 of this Act to file such
ex parte application, and upon examination under oath or affirmation of the applicant and the witnesses
he may produce to establish: (a) that there is probable cause to believe based on personal knowledge of
facts or circumstances that the said crime of terrorism or conspiracy to commit terrorism has been
committed, or is being committed, or is about to be committed; (b) that there is probable cause to believe
based on personal knowledge of facts or circumstances that evidence, which is essential to the conviction
of any charged or suspected person for, or to the solution or prevention of, any such crimes, will be
obtained; and, (c) that there is no other effective means readily available for acquiring such evidence.
SEC. 9. Classification and Contents of the Order of the Court. - The written order granted by the
authorizing division of the Court of Appeals as well as its order, if any, to extend or renew the same, the
original application of the applicant, including his application to extend or renew, if any, and the written
authorizations of the Anti-Terrorism Council shall be deemed and are hereby declared as classified
information: Provided, That the person being surveilled or whose communications, letters, papers,
messages, conversations, discussions, spoken or written words and effects have been monitored, listened
to, bugged or recorded by law enforcement authorities has the right to be informed of the acts done by
the law enforcement authorities in the premises or to challenge, if he or she intends to do so, the legality
of the interference before the Court of Appeals which issued the written order. The written order of the
authorizing division of the Court of Appeals shall specify the following: (a) the identity, such as name and
address, if known, of the charged or suspected person whose communications, messages, conversations,
discussions, or spoken or written words are to be tracked down, tapped, listened to, intercepted, and
recorded and, in the case of radio, electronic, or telephonic (whether wireless or otherwise)
communications, messages, conversations, discussions, or spoken or written words, the electronic
transmission systems or the telephone numbers to be tracked down, tapped, listened to, intercepted, and
recorded and their locations or if the person suspected of the crime of terrorism or conspiracy to commit
terrorism is not fully known, such person shall be subject to continuous surveillance provided there is a
reasonable ground to do so; (b) the identity (name, address, and the police or law enforcement
organization) of the police or of the law enforcement official, including the individual identity (names,
addresses, and the police or law enforcement organization) of the members of his team, judicially
authorized to track down, tap, listen to, intercept, and record the communications, messages,
conversations, discussions, or spoken or written words; (c) the offense or offenses committed, or being
committed, or sought to be prevented; and, (d) the length of time within which the authorization shall be
used or carried out.
SEC. 10. Effective Period of Judicial Authorization. - Any authorization granted by the authorizing
division of the Court of Appeals, pursuant to Section 9(d) of this Act, shall only be effective for the length
of time specified in the written order of the authorizing division of the Court of Appeals, which shall not
exceed a period of thirty (30) days from the date of receipt of the written order of the authorizing division
of the Court of Appeals by the applicant police or law enforcement official.
The authorizing division of the Court of Appeals may extend or renew the said authorization for another
non-extendible period, which shall not exceed thirty (30) days from the expiration of the original period:
Provided, That the authorizing division of the Court of Appeals is satisfied that such extension or renewal
is in the public interest: and Provided, further, That the ex parte application for extension or renewal,
which must be filed by the original applicant, has been duly authorized in writing by the Anti-Terrorism
Council.
In case of death of the original applicant or in case he is physically disabled to file the application for
extension or renewal, the one next in rank to the original applicant among the members of the team
named in the original written order of the authorizing division of the Court of Appeals shall file the
application for extension or renewal: Provided, That, without prejudice to the liability of the police or law
enforcement personnel under Section 20 hereof, the applicant police or law enforcement official shall
have thirty (30) days after the termination of the period granted by the Court of Appeals as provided in
the preceding paragraphs within which to file the appropriate case before the Public Prosecutor's Office
for any violation of this Act.
If no case is filed within the thirty (30)-day period, the applicant police or law enforcement official shall
immediately notify the person subject of the surveillance, interception and recording of the termination of
the said surveillance, interception and recording. The penalty of ten (10) years and one day to twelve (12)
years of imprisonment shall be imposed upon the applicant police or law enforcement official who fails to
notify the person subject of the surveillance, monitoring, interception and recording as specified above.
SEC. 11. Custody of Intercepted and Recorded Communications. - All tapes, discs, and recordings
made pursuant to the authorization of the authorizing division of the Court of Appeals, including all
excerpts and summaries thereof as well as all written notes or memoranda made in connection therewith,
shall, within forty-eight (48) hours after the expiration of the period fixed in the written order of the
authorizing division of the Court of Appeals or within forty-eight (48) hours after the expiration of any
extension or renewal granted by the authorizing division of the Court of Appeals, be deposited with the
authorizing Division of the Court of Appeals in a sealed envelope or sealed package, as the case may be,
and shall be accompanied by a joint affidavit of the applicant police or law enforcement official and the
members of his team.
In case of death of the applicant or in case he is physically disabled to execute the required affidavit, the
one next in rank to the applicant among the members of the team named in the written order of the
authorizing division of the Court of Appeals shall execute with the members of the team that required
affidavit.
It shall be unlawful for any person, police officer or any custodian of the tapes, discs and recording, and
their excerpts and summaries, written notes or memoranda to copy in whatever form, to remove, delete,
expunge, incinerate, shred or destroy in any manner the items enumerated above in whole or in part
under any pretext whatsoever.
Any person who removes, deletes, expunges, incinerates, shreds or destroys the items enumerated
above shall suffer a penalty of not less than six years and one day to twelve (12) years of imprisonment.
SEC. 12. Contents of Joint Affidavit. - The joint affidavit of the police or of the law enforcement official
and the individual members of his team shall state: (a) the number of tapes, discs, and recordings that
have been made, as well as the number of excerpts and summaries thereof and the number of written
notes and memoranda, if any, made in connection therewith; (b) the dates and times covered by each of
such tapes, discs, and recordings; (c) the number of tapes, discs, and recordings, as well as the number
of excerpts and summaries thereof and the number of written notes and memoranda made in connection
therewith that have been included in the deposit; and (d) the date of the original written authorization
granted by the Anti-Terrorism Council to the applicant to file the ex parte application to conduct the
tracking down, tapping, intercepting, and recording, as well as the date of any extension or renewal of
the original written authority granted by the authorizing division of the Court of Appeals.
The joint affidavit shall also certify under oath that no duplicates or copies of the whole or any part of any
of such tapes, discs, and recordings, and that no duplicates or copies of the whole or any part of any of
such excerpts, summaries, written notes, and memoranda, have been made, or, if made, that all such
duplicates and copies are included in the sealed envelope or sealed package, as the case may be,
deposited with the authorizing division of the Court of Appeals.
It shall be unlawful for any person, police or law enforcement official to omit or exclude from the joint
affidavit any item or portion thereof mentioned in this Section.
Any person, police or law enforcement officer who violates any of the acts prescribed in the preceding
paragraph shall suffer the penalty of not less than ten (10) years and one day to twelve (12) years of
imprisonment.
SEC. 13. Disposition of Deposited Material. -The sealed envelope or sealed package and the
contents thereof, which are deposited with the authorizing division of the Court of Appeals, shall be
deemed and are hereby declared classified information, and the sealed envelope or sealed package shall
not be opened and its contents (including the tapes, discs, and recordings and all the excerpts and
summaries thereof and the notes and memoranda made in connection therewith) shall not be divulged,
revealed, read, replayed, or used as evidence unless authorized by written order of the authorizing
division of the Court of Appeals, which written order shall be granted only upon a written application of
the Department of Justice filed before the authorizing division of the Court of Appeals and only upon a
showing that the Department of Justice has been duly authorized in writing by the Anti-Terrorism Council
to file the application with proper written notice the person whose conversation, communication,
message discussion or spoken or written words have been the subject of surveillance, monitoring,
recording and interception to open, reveal, divulge, and use the contents of the sealed envelope or sealed
package as evidence.
Any person, law enforcement official or judicial authority who violates his duty to notify in writing the
persons subject of the surveillance as defined above shall suffer the penalty of six years and one day to
eight years of imprisonment.
SEC. 14. Application to Open Deposited Sealed Envelope or Sealed Package. - The written
application with notice to the party concerned to open the deposited sealed envelope or sealed package
shall clearly state the purpose or reason: (a) for opening the sealed envelope or sealed package; (b) for
revealing or disclosing its classified contents; (c) for replaying, divulging, and or reading any of the
listened to, intercepted, and recorded communications, messages, conversations, discussions, or spoken
or written words (including any of the excerpts and summaries thereof and any of the notes or
memoranda made in connection therewith); [ and, (d) for using any of said listened to, intercepted, and
recorded communications, messages, conversations, discussions, or spoken or written words (including
any of the excerpts and summaries thereof and any of the notes or memoranda made in connection
therewith) as evidence.
Any person, law enforcement official or judicial authority who violates his duty to notify as defined above
shall suffer the penalty of six years and one day to eight years of imprisonment.
SEC. 15. Evidentiary Value of Deposited Materials. - Any listened to, intercepted, and recorded
communications, messages, conversations, discussions, or spoken or written words, or any part or parts
thereof, or any information or fact contained therein, including their existence, content, substance,
purport, effect, or meaning, which have been secured in violation of the pertinent provisions of this Act,
shall absolutely not be admissible and usable as evidence against anybody in any judicial, quasi-judicial,
legislative, or administrative investigation, inquiry, proceeding, or hearing.
SEC. 16. Penalty for Unauthorized or Malicious Interceptions and/or Recordings. - Any police or
law enforcement personnel who, not being authorized to do so by the authorizing division of the Court of
Appeals, tracks down, taps, listens to, intercepts, and records in whatever manner or form any
communication, message, conversation, discussion, or spoken or written word of a person charged with
or suspected of the crime of terrorism or the crime of conspiracy to commit terrorism shall be guilty of an
offense and shall suffer the penalty of ten (10) years and one day to twelve (12) years of imprisonment.
In addition to the liability attaching to the offender for the commission of any other offense, the penalty of
ten (10) years and one day to twelve (12) years of imprisonment and the accessory penalty of perpetual
absolute disqualification from public office shall be imposed upon any police or law enforcement
personnel who maliciously obtained an authority from the Court of Appeals to track down, tap, listen to,
intercept, and record in whatever manner or form any communication, message, conversation,
discussion, or spoken or written words of a person charged with or suspected of the crime of terrorism or
conspiracy to commit terrorism: Provided, That notwithstanding Section 13 of this Act, the party
aggrieved by such authorization shall be allowed access to the sealed envelope or sealed package and
the contents thereof as evidence for the prosecution of any police or law enforcement personnel who
maliciously procured said authorization.
SEC. 17. Proscription of Terrorist Organizations, Association, or Group of Persons. - Any
organization, association, or group of persons organized for the purpose of engaging in terrorism, or
which, although not organized for that purpose, actually uses the acts to terrorize mentioned in this Act or
to sow and create a condition of widespread and extraordinary fear and panic among the populace in
order to coerce the government to give in to an unlawful demand shall, upon application of the
Department of Justice before a competent Regional Trial Court, with due notice and opportunity to be
heard given to the organization, association, or group of persons concerned, be declared as a terrorist
and outlawed organization, association, or group of persons by the said Regional Trial Court.
SEC. 18. Period of Detention Without Judicial Warrant of Arrest. - The provisions of Article 125 of
the Revised Penal Code to the contrary notwithstanding, any police or law enforcement personnel, who,
having been duly authorized in writing by the Anti-Terrorism Council has taken custody of a person
charged with or suspected of the crime of terrorism or the crime of conspiracy to commit terrorism shall,
without incurring any criminal liability for delay in the delivery of detained persons to the proper judicial
authorities, deliver said charged or suspected person to the proper judicial authority within a period of
three days counted from the moment the said charged or suspected person has been apprehended or
arrested, detained, and taken into custody by the said police, or law enforcement personnel: Provided,
That the arrest of those suspected of the crime of terrorism or conspiracy to commit terrorism must result
from the surveillance under Section 7 and examination of bank deposits under Section 27 of this Act.
The police or law enforcement personnel concerned shall, before detaining the person suspected of the
crime of terrorism, present him or her before any judge at the latter's residence or office nearest the
place where the arrest took place at any time of the day or night. It shall be the duty of the judge, among
other things, to ascertain the identity of the police or law enforcement personnel and the person or
persons they have arrested and presented before him or her, to inquire of them the reasons why they
have arrested the person and determine by questioning and personal observation whether or not the
suspect has been subjected to any physical, moral or psychological torture by whom and why. The judge
shall then submit a written report of what he/she had observed when the subject was brought before him
to the proper court that has jurisdiction over the case of the person thus arrested. The judge shall
forthwith submit his/her report within three calendar days from the time the suspect was brought to
his/her residence or office.
Immediately after taking custody of a person charged with or suspected of the crime of terrorism or
conspiracy to commit terrorism, the police or law enforcement personnel shall notify in writing the judge
of the court nearest the place of apprehension or arrest: Provided ,That where the arrest is made during
Saturdays, Sundays, holidays or after office hours, the written notice shall be served at the residence of
the judge nearest the place where the accused was arrested.
The penalty of ten (10) years and one day to twelve (12) years of imprisonment shall be imposed upon
the police or law enforcement personnel who fails to notify and judge as Provided in the preceding
paragraph.
SEC. 19. Period of Detention in the Event of an Actual or Imminent Terrorist Attack. - In the
event of an actual or imminent terrorist attack, suspects may not be detained for more than three days
without the written approval of a municipal, city, provincial or regional official of a Human Rights
Commission or judge of the municipal, regional trial court, the Sandiganbayan or a justice of the Court of
Appeals nearest the place of the arrest. If the arrest is made during Saturdays, Sundays, holidays or after
office hours, the arresting police or law enforcement personnel shall bring the person thus arrested to the
residence of any of the officials mentioned above that is nearest the place where the accused was
arrested. The approval in writing of any of the said officials shall be secured by the police or law
enforcement personnel concerned within five days after the date of the detention of the persons
concerned: Provided, however, That within three days after the detention the suspects, whose connection
with the terror attack or threat is not established, shall be released immediately.
SEC. 20. Penalty for Failure to Deliver Suspect to the Proper Judicial Authority within Three
Days. - The penalty of ten (10) years and one day to twelve (12) years of imprisonment shall be imposed
upon any police or law enforcement personnel who has apprehended or arrested, detained and taken
custody of a person charged with or suspected of the crime of terrorism or conspiracy to commit
terrorism and fails to deliver such charged or suspected person to the proper judicial authority within the
period of three days.
SEC. 21. Rights of a Person under Custodial Detention. - The moment a person charged with or
suspected of the crime of terrorism or the crime of conspiracy to commit terrorism is apprehended or
arrested and detained, he shall forthwith be informed, by the arresting police or law enforcement officers
or by the police or law enforcement officers to whose custody the person concerned is brought, of his or
her right: (a) to be informed of the nature and cause of his arrest, to remain silent and to have competent
and independent counsel preferably of his choice. If the person cannot afford the services of counsel of
his or her choice, the police or law enforcement officers concerned shall immediately contact the free
legal assistance unit of the Integrated Bar of the Philippines (IBP) or the Public Attorney's Office (PAO). It
shall be the duty of the free legal assistance unit of the IBP or the PAO thus contacted to immediately visit
the person(s) detained and provide him or her with legal assistance. These rights cannot be waived
except in writing and in the presence of the counsel of choice; (b) informed of the cause or causes of his
detention in the presence of his legal counsel; (c) allowed to communicate freely with his legal counsel
and to confer with them at any time without restriction; (d) allowed to communicate freely and privately
without restrictions with the members of his family or with his nearest relatives and to be visited by them;
and, (e) allowed freely to avail of the service of a physician or physicians of choice.
SEC. 22. Penalty for Violation of the Rights of a Detainee. - Any police or law enforcement
personnel, or any personnel of the police or other law enforcement custodial unit that violates any of the
aforesaid rights of a person charged with or suspected of the crime of terrorism or the crime of conspiracy
to commit terrorism shall be guilty of an offense and shall suffer the penalty of ten (10) years and one
day to twelve (12) years of imprisonment.
Unless the police or law enforcement personnel who violated the rights of a detainee or detainees as
stated above is duly identified, the same penalty shall be imposed on the police officer or hear or leader
of the law enforcement unit having custody of the detainee at the time the violation was done.
SEC. 23. Requirement for an Official Custodial Logbook and its Contents. - The police or other
law enforcement custodial unit in whose care and control the person charged with or suspected of the
crime of terrorism or the crime of conspiracy to commit terrorism has been placed under custodial arrest
and detention shall keep a securely and orderly maintained official logbook, which is hereby declared as a
public document and opened to and made available for .the inspection and scrutiny of the lawyer or
lawyers of the person under custody or any member of his or her family or relative by consanguinity or
affinity within the fourth civil degree or his or her physician at any time of the day or night without any
form of restriction. The logbook shall contain a clear and concise record of: (a) the name, description, and
address of the detained person; (b) the date and exact time of his initial admission for custodial arrest
and detention; (c) the name and address of the physician or physicians who examined him physically and
medically; (d) the state of his health and physical condition at the time of his initial admission for
custodial detention; (e) the date and time of each removal of the detained person from his cell for
interrogation or for any purpose; (f) the date and time of his return to his cell; (g) the name and address
of the physician or physicians who physically and medically examined him after each interrogation; (h) a
summary of the physical and medical findings on the detained person after each of such interrogation; (i)
the names and addresses of his family members and nearest relatives, if any and if available; (j) the
names and addresses of persons, who visit the detained person; (k) the date and time of each of such
visits; (1) the date and time of each request of the detained person to communicate and confer with his
legal counsel or counsels; (m) the date and time of each visit, and date and time of each departure of his
legal counsel or counsels; and, (n) all other important events bearing on and all relevant details regarding
the treatment of the detained person while under custodial arrest and detention.
The said police or law enforcement custodial unit shall upon demand of the aforementioned lawyer or
lawyers or members of the family or relatives within the fourth civil degree of consanguinity or affinity of
the person under custody or his or her physician issue a certified true copy of the entries of the logbook
relative to the concerned detained person without delay or restriction or requiring any fees whatsoever
including documentary stamp tax, notarial fees, and the like. This certified true copy may be attested by
the person who has custody of the logbook or who allowed the party concerned to scrutinize it at the time
the demand for the certified true copy is made.
The police or other law enforcement custodial unit who fails to comply with the preceding paragraph to
keep an official logbook shall suffer the penalty of ten (10) years and one day to twelve (12) years of
imprisonment.
SEC. 24. No Torture or Coercion in Investigation and Interrogation. - No threat, intimidation, or
coercion, and no act which will inflict any form of physical pain or torment, or mental, moral, or
psychological pressure, on the detained person, which shall vitiate his freewill, shall be employed in his
investigation and interrogation for the crime of terrorism or the crime of conspiracy to commit terrorism;
otherwise, the evidence obtained from said detained person resulting from such threat, intimidation, or
coercion, or from such inflicted physical pain or torment, or mental, moral, or psychological pressure,
shall be, in its entirety, absolutely not admissible and usable as evidence in any judicial, quasi-judicial,
legislative, or administrative investigation, inquiry, proceeding, or hearing.
SEC. 25. Penalty for Threat, Intimidation, Coercion, or Torture in the Investigation and
Interrogation of a Detained Person. - Any person or persons who use threat, intimidation, or coercion,
or who inflict physical pain or torment, or mental, moral, or psychological pressure, which shall vitiate the
free-will of a charged or suspected person under investigation and interrogation for the crime of terrorism
or the crime of conspiracy to commit terrorism shall be guilty of an offense and shall suffer the penalty of
twelve (12) years and one day to twenty (20) years of imprisonment.
When death or serious permanent disability of said detained person occurs as a consequence of the use
of such threat, intimidation, or coercion, or as a consequence of the infliction on him of such physical pain
or torment, or as a consequence of the infliction on him of such mental, moral, or psychological pressure,
the penalty shall be twelve (12) years and one day to twenty (20) years of imprisonment.
SEC. 26. Restriction on Travel. - In cases where evidence of guilt is not strong, and the person
charged with the crime of terrorism or conspiracy to commit terrorism is entitled to bail and is granted
the same, the court, upon application by the prosecutor, shall limit the right of travel of the accused to
within the municipality or city where he resides or where the case is pending, in the interest of national
security and public safety, consistent with Article III, Section 6 of the Constitution. Travel outside of said
municipality or city, without the authorization of the court, shall be deemed a violation of the terms and
conditions of his bail, which shall then be forfeited as provided under the Rules of Court.
He/she may also be placed under house arrest by order of the court at his or her usual place of residence.
While under house arrest, he or she may not use telephones, cellphones, e-mails, computers, the internet
or other means of communications with people outside the residence until otherwise ordered by the
court.
The restrictions abovementioned shall be terminated upon the acquittal of the accused or of the dismissal
of the case filed against him or earlier upon the discretion of the court on motion of the prosecutor or of
the accused.
SEC. 27. Judicial Authorization Required to Examine Bank Deposits, Accounts, and Records. -
The provisions of Republic Act No. 1405 as amended, to the contrary notwithstanding, the justices of the
Court of Appeals designated as a special court to handle anti-terrorism cases after satisfying themselves
of the existence of probable cause in a hearing called for that purpose that: (1) a person charged with or
suspected of the crime of terrorism or, conspiracy to commit terrorism, (2) of a judicially declared and
outlawed terrorist organization, association, or group of persons; and (3) of a member of such judicially
declared and outlawed organization, association, or group of persons, may authorize in writing any police
or law enforcement officer and the members of his/her team duly authorized in writing by the anti-
terrorism council to: (a) examine, or cause the examination of, the deposits, placements, trust accounts,
assets and records in a bank or financial institution; and (b) gather or cause the gathering of any relevant
information about such deposits, placements, trust accounts, assets, and records from a bank or financial
institution. The bank or financial institution concerned, shall not refuse to allow such examination or to
provide the desired information, when so, ordered by and served with the written order of the Court of
Appeals.
SEC. 28. Application to Examine Bank Deposits, Accounts, and Records. - The written order of the
Court of Appeals authorizing the examination of bank deposits, placements, trust accounts, assets, and
records: (1) of a person charged with or suspected of the crime of terrorism or conspiracy to commit
terrorism; (2) of any judicially declared and outlawed terrorist organization, association, or group of
persons, or (3) of any member of such organization, association, or group of persons in a bank or financial
institution, and the gathering of any relevant information about the same from said bank or financial
institution, shall only be granted by the authorizing division of the Court of Appeals upon an ex parte
application to that effect of a police or of a law enforcement official who has been duly authorized in
writing to file such ex parte application by the Anti-Terrorism Council created in Section 53 of this Act to
file such ex parte application, and upon examination under oath or affirmation of the applicant and, the
witnesses he may produce to establish the facts that will justify the need and urgency of examining and
freezing the bank deposits, placements, trust accounts, assets, and records: (1) of the person charged
with or suspected of the crime of terrorism or conspiracy to commit terrorism; (2) of a judicially declared
and outlawed terrorist organization, association or group of persons; or (3) of any member of such
organization, association, or group of persons.
SEC. 29. Classification and Contents of the Court Order Authorizing the Examination of Bank
Deposits, Accounts, and Records. - The written order granted by the authorizing division of the Court
of Appeals as well as its order, if any, to extend or renew the same, the original ex parte application of
the applicant, including his ex parte application to extend or renew, if any, and the written authorizations
of the Anti-Terrorism Council, shall be deemed and are hereby declared as classified information:
Provided, That the person whose bank deposits, placements, trust accounts, assets, and records have
been examined, frozen, sequestered and seized by law enforcement authorities has the right to be
informed of the acts done by the law enforcement authorities in the premises or to challenge, if he or she
intends to do so, the legality of the interference. The written order of the authorizing division of the Court
of Appeals designated to handle cases involving terrorism shall specify: (a) the identify of the said: (1)
person charged with or suspected of the crime of terrorism or conspiracy to commit terrorism; (2)
judicially declared and outlawed terrorist organization, association, or group of persons; and (3) member
of such judicially declared and outlawed organization, association, or group of persons, as the case may
be. whose deposits, placements, trust accounts, assets, and records are to be examined or the
information to be gathered; (b) the identity of the bank or financial Institution where such deposits,
placements, trust accounts, assets, and records are held and maintained; (c) the identity of the persons
who will conduct the said examination and the gathering of the desired information; and, (d) the length of
time the authorization shall be carried out.
SEC. 30. Effective Period of Court Authorization to Examine and Obtain Information on Bank
Deposits, Accounts, and Records. - The authorization issued or granted by the authorizing division of
the Court of Appeals to examine or cause the examination of and to freeze bank deposits, placements,
trust accounts, assets, and records, or to gather information about the same, shall be effective for the
length of time specified in the written order of the authorizing division of the Court of Appeals, which shall
not exceed a period of thirty (30) days from the date of receipt of the written order of the authorizing
division of the Court of Appeals by the applicant police or law enforcement official.
The authorizing division of the Court of Appeals may extend or renew the said authorization for another
period, which shall not exceed thirty (30) days renewable to another thirty (30) days from the expiration
of the original period: Provided, That the authorizing division of the Court of Appeals is satisfied that such
extension or renewal is in the public interest: and, Provided, further, That the application for extension or
renewal, which must be filed by the original applicant, has been duly authorized in writing by the Anti-
Terrorism Council.
In case of death of the original applicant or in case he is physically disabled to file the application for
extension or renewal, the one next in rank to the original applicant among the members of the ream
named in the original written order of the authorizing division of the Court of Appeals shall file the
application for extension or renewal: Provided, That, without prejudice to the liability of the police or law
enforcement personnel under Section 19 hereof, the applicant police or law enforcement official shall
have thirty (30) days after the termination of the period granted by the Court of Appeals as provided in
the preceding paragraphs within which to file the appropriate case before the Public Prosecutor's Office
for any violation of this Act.
If no case is filed within the thirty (30)-day period, the applicant police or law enforcement official shall
immediately notify in writing the person subject of the bank examination and freezing of bank deposits,
placements, trust accounts, assets and records. The penalty of ten (10) years and one day to twelve (12)
years of imprisonment shall be imposed upon the applicant police or law enforcement official who fails to
notify in writing the person subject of the bank examination and freezing of bank deposits, placements,
trust accounts, assets and records.
Any person, law enforcement official or judicial authority who violates his duty to notify in writing as
defined above shall suffer the penalty of six years and one day to eight years of imprisonment.
SEC. 31. Custody of Bank Data and Information Obtained after Examination of Deposits,
Placements, Trust Accounts, Assets and Records. - All information, data, excerpts, summaries,
notes, memoranda, working sheets, reports, and other documents obtained from the examination of the
bank deposits, placements, trust accounts, assets and records of: (1) a person charged with or suspected
of the crime of terrorism or the crime of conspiracy to commit terrorism; (2) a judicially declared and
outlawed terrorist organization, association, or group of persons; or (3) a member of any such
organization, association, or group of persons shall, within forty-eight (48) hours after the expiration of
the period fixed in the written order of the authorizing division of the Court of Appeals or within forty-
eight (48) hours after the expiration of the extension or renewal granted by the authorizing division of the
Court of Appeals, be deposited with the authorizing division of the Court of Appeals in a sealed envelope
or sealed package, as the case may be, and shall be accompanied by a joint affidavit of the applicant
police or law enforcement official and the persons who actually conducted the examination of said bank
deposits, placements, trust accounts, assets and records.
SEC. 32. Contents of Joint Affidavit. - The joint affidavit shall state: (a) the identifying marks,
numbers, or symbols of the deposits, placements, trust accounts, assets, and records examined; (b) the
identity and address of the bank or financial institution where such deposits, placements, trust accounts,
assets, and records are held and maintained; (c) the number of bank deposits, placements, trust
accounts, assets, and records discovered, examined, and frozen; (d) the outstanding balances of each of
such deposits, placements, trust accounts, assets; (e) all information, data, excerpts, summaries, notes,
memoranda, working sheets, reports, documents, records examined and placed in the sealed envelope or
sealed package deposited with the authorizing division of the Court of Appeals; (f) the date of the original
written authorization granted by the Anti-Terrorism Council to the applicant to file the ex parte
Application to conduct the examination of the said bank deposits, placements, trust accounts, assets and
records, as well as the date of any extension or renewal of the original written authorization granted by
the authorizing division of the Court of Appeals; and (g) that the items Enumerated were all that were
found in the bank or financial institution examined at the time of the completion of the examination.
The joint affidavit shall also certify under oath that no duplicates or copies of the information, data,
excerpts, summaries, notes, memoranda, working sheets, reports, and documents acquired from the
examination of the bank deposits, placements, trust accounts, assets and records have been made, or, if
made, that all such duplicates and copies are placed in the sealed envelope or sealed package deposited
with the authorizing division of the Court of Appeals.
It shall be unlawful for any person, police officer or custodian of the bank data and information obtained
after examination of deposits, placements, trust accounts, assets and records to copy, to remove, delete,
expunge, incinerate, shred or destroy in any manner the items enumerated above in whole or in part
under any pretext whatsoever,
Any person who copies, removes, deletes, expunges, incinerates, shreds or destroys the items
enumerated above shall suffer a penalty of not less than six years and one day to twelve (12) years of
imprisonment.
SEC. 33. Disposition of Bank Materials. - The sealed envelope or sealed package and the contents
thereof, which are deposited with the authorizing division of the Court of Appeals, shall be deemed and
are hereby declared classified information and the sealed envelope or sealed package shall not be
opened and its contents shall not be divulged, revealed, read, or used as evidence unless authorized in a
written order of the authorizing division of the Court of Appeals, which written order shall be granted only
upon a written application of the Department of Justice filed before the authorizing division of the Court of
Appeals and only upon a showing that the Department of Justice has been duly authorized in writing by
the Anti-Terrorism Council to file the application, with notice in writing to the party concerned not later
than three days before the scheduled opening, to open, reveal, divulge, and use the contents of the
sealed envelope or sealed package as evidence.
Any person, law enforcement official or judicial authority who violates his duty to notify in writing as
defined above shall suffer the penalty of six years and one day to eight years of imprisonment.
SEC. 34. Application to Open Deposited Bank Materials. - The written application, with notice in
writing to the party concerned not later than three days of the scheduled opening, to open the sealed
envelope or sealed package shall clearly state the purpose and reason: (a) for opening the sealed
envelope or sealed package; (b) for revealing and disclosing its classified contents; and, (c) for using the
classified information, data, excerpts, summaries, notes, memoranda, working sheets, reports, and
documents as evidence.
SEC. 35. Evidentiary Value of Deposited Bank Materials. - Any information, data, excerpts,
summaries, notes, memoranda, work sheets, reports, or documents acquired from the examination of the
bank deposits, placements, trust accounts, assets and records of: (1) a person charged or suspected of
the crime of terrorism or the crime of conspiracy to commit terrorism; (2) a judicially declared and
outlawed terrorist organization, association, or group of persons; or (3) a member of such organization,
association, or group of persons, which have been secured in violation of the provisions of this Act, shall
absolutely not be admissible and usable as evidence against anybody in any judicial, quasi-judicial,
legislative, or administrative investigation, inquiry, proceeding, or hearing.
SEC. 36. Penalty for Unauthorized or Malicious Examination of a Bank or a Financial
Institution. - Any person, police or law enforcement personnel who examines the deposits, placements,
trust accounts, assets, or records in a bank or financial institution of: (1) a person charged with or
suspected of the crime of terrorism or the crime of conspiracy to commit terrorism; (2) a judicially
declared and outlawed terrorist organization, association, or group of persons; or (3) a member of such
organization, association, or group of persons, without being authorized to do so by the Court of Appeals,
shall be guilty of an offense and shall suffer the penalty of ten (10) years and one day to twelve (12)
years of imprisonment.
In addition to the liability attaching to the offender for the commission of any other offense, the penalty of
ten (10) years and one day to twelve (12) years of imprisonment shall be imposed upon any police or law
enforcement personnel, who maliciously obtained an authority from the Court of Appeals to examine the
deposits, placements, trust accounts, assets, or records in a bank or financial institution of: (1) a person
charged with or suspected of the crime of terrorism or conspiracy to commit terrorism; (2) a judicially
declared and outlawed terrorist organization, association, or group of persons; or (3) a member of such
organization, association, or group of persons: Provided, That notwithstanding Section 33 of this Act, the
party aggrieved by such authorization shall upon motion duly filed be allowed access to the sealed
envelope or sealed package and the contents thereof as evidence for the prosecution of any police or law
enforcement personnel who maliciously procured said authorization.
SEC. 37. Penalty of Bank Officials and Employees Defying a Court Authorization. - An employee,
official, or a member of the board of directors of a bank or financial institution, who refuses to allow the
examination of the deposits, placements, trust accounts, assets, and records of: (1) a person charged
with or suspected of the crime of terrorism or the crime of conspiracy to commit terrorism; (2) a judicially
declared and outlawed organization, association, or group of persons; or (3) a member of such judicially
declared and outlawed organization, association, or group of persons in said bank or financial institution,
when duly served with the written order of the authorizing division of the Court of Appeals, shall be guilty
of an offense and shall suffer the penalty of ten (10) years and one day to twelve (12) years of
imprisonment.
SEC. 38. Penalty for False or Untruthful Statement or Misrepresentation of Material Fact in
Joint Affidavits.- Any false or untruthful statement or misrepresentation of material fact in the joint
affidavits required respectively in Section 12 and Section 32 of this Act shall constitute a criminal offense
and the affiants shall suffer individually the penalty of ten (10) years and one day to twelve (12) years of
imprisonment.
SEC. 39. Seizure and Sequestration. - The deposits and their outstanding balances, placements, trust
accounts, assets, and records in any bank or financial institution, moneys, businesses, transportation and
communication equipment, supplies and other implements, and property of whatever kind and nature
belonging: (1) to any person suspected of or charged before a competent Regional Trial Court for the
crime of terrorism or the crime of conspiracy to commit terrorism; (2) to a judicially declared and
outlawed organization, association, or group of persons; or (3) to a member of such organization,
association, or group of persons shall be seized, sequestered, and frozen in order to prevent their use,
transfer, or conveyance for purposes that are inimical to the safety and security of the people or injurious
to the interest of the State.
The accused or a person suspected of may withdraw such sums as may be reasonably needed by the
monthly needs of his family including the services of his or her counsel and his or her family's medical
needs upon approval of the court. He or she may also use any of his property that is under seizure or
sequestration or frozen because of his/her indictment as a terrorist upon permission of the court for any
legitimate reason.
Any person who unjustifiably refuses to follow the order of the proper division of the Court of Appeals to
allow the person accused of the crime of terrorism or of the crime of conspiracy to commit terrorism to
withdraw such sums from sequestered or frozen deposits, placements, trust accounts, assets and records
as may be necessary for the regular sustenance of his/her family or to use any of his/her property that
has been seized, sequestered or frozen for legitimate purposes while his/her case is pending shall suffer
the penalty of ten (10) years and one day to twelve (12) years of imprisonment.
SEC. 40. Nature of Seized. Sequestered and Frozen Bank Deposits, Placements, Trust
Accounts, Assets and Records. - The seized, sequestered and frozen bank deposits, placements, trust
accounts, assets and records belonging to a person suspected of or charged with the crime of terrorism or
conspiracy to commit terrorism shall be deemed as property held in trust by the bank or financial
institution for such person and the government during the pendency of the investigation of the person
suspected of or during the pendency of the trial of the person charged with any of the said crimes, as the
case may be and their use or disposition while the case is pending shall be subject to the approval of the
court before which the case or cases are pending.
SEC. 41. Disposition of the Seized, Sequestered and Frozen Bank Deposits, Placements, Trust
Accounts, Assets and Record. - If the person suspected of or charged with the crime of terrorism or
conspiracy to commit terrorism is found, after his investigation, to be innocent by the investigating body,
or is acquitted, after his arraignment or his case is dismissed before his arraignment by a competent
court, the seizure, sequestration and freezing of his bank deposits, placements, trust accounts, assets
and records shall forthwith be deemed lifted by the investigating body or by the competent court, as the
case may be, and his bank deposits, placements, trust accounts, assets and records shall be deemed
released from such seizure, sequestration and freezing, and shall be restored to him without any delay by
the bank or financial institution concerned without any further action on his part. The filing of any appeal
on motion for reconsideration shall not state the release of said funds from seizure, sequestration and
freezing.
If the person charged with the crime of terrorism or conspiracy to commit terrorism is convicted by a final
judgment of a competent trial court, his seized, sequestered and frozen bank deposits, placements, trust
accounts, assets and records shall be automatically forfeited in favor of the government.
Upon his or her acquittal or the dismissal of the charges against him or her, the amount of Five hundred
thousand pesos (P500.000.00) a day for the period in which his properties, assets or funds were seized
shall be paid to him on the concept of liquidated damages. The amount shall be taken from the
appropriations of the police or law enforcement agency that caused the filing of the enumerated charges
against him/her.
SEC. 42. Penalty for Unjustified Refusal to Restore or Delay in Restoring Seized, Sequestered
and Frozen Bank Deposits, Placements, Trust Accounts, Assets and Records. - Any person who
unjustifiably refuses to restore or delays the restoration of seized, sequestered and frozen bank deposits,
placements, trust accounts, assets and records of a person suspected of or charged with the crime of
terrorism or conspiracy to commit terrorism after such suspected person has been found innocent by the
investigating body or after the case against such charged person has been dismissed or after he is
acquitted by a competent court shall suffer the penalty of ten (10) years and one day to twelve (12) years
of imprisonment.
SEC. 43. Penalty for the Loss, Misuse, Diversion or Dissipation of Seized, Sequestered and
Frozen Bank Deposits, Placements, Trust Accounts, Assets and Records. - Any person who is
responsible for the loss, misuse, diversion, or dissipation of the whole or any part of the seized,
sequestered and frozen bank deposits, placements, trust accounts, assets and records of a person
suspected of or charged with the crime of terrorism or conspiracy to commit terrorism shall suffer the
penalty of ten (10) years and one day to twelve (12) years of imprisonment.
SEC. 44. Infidelity in the Custody of Detained Persons. - Any public officer who has direct custody
of a detained person or under the provisions of this Act and who by his deliberate act, misconduct, or
inexcusable negligence causes or allows the escape of such detained person shall be guilty of an offense
and shall suffer the penalty of: (a) twelve (12) years and one day to twenty (20) years of imprisonment, if
the detained person has already been convicted and sentenced in a final judgment of a competent court;
and (b) six years and one day to twelve (12) years of imprisonment, if the detained person has not been
convicted and sentenced in a final judgment of a competent court.
SEC. 45. Immunity and Protection of Government Witnesses. - The provisions of Republic Act No.
6981 (Witness Protection, Security and Benefits Act) to the contrary notwithstanding, the immunity of
government witnesses testifying under this Act shall be governed by Sections 17 and 18 of Rule 119 of
the Rules of Court: Provided, however, That said witnesses shall be entitled to benefits granted to
witnesses under said Republic Act No.6981.
SEC. 46. Penalty for Unauthorized Revelation of Classified Materials. - The penalty of ten (10)
years and one day to twelve (12) years of imprisonment shall be imposed upon any person, police or law
enforcement agent, judicial officer or civil servant who, not being authorized by the Court of Appeals to
do so, reveals in any manner or form any classified information under this Act.
SEC. 47. Penalty for Furnishing False Evidence, Forged Document, or Spurious Evidence. - The
penalty of twelve (12) years and one day to twenty (20) years of imprisonment shall be imposed upon
any person who knowingly furnishes false testimony, forged document or spurious evidence in any
investigation or hearing under this Act.
SEC. 48. Continuous Trial. - In cases of terrorism or conspiracy to commit terrorism, the judge shall set
the continuous trial on a daily basis from Monday to Friday or other short-term trial calendar so as to
ensure speedy trial.
SEC. 49. Prosecution Under This Act Shall be a Bar to Another Prosecution under the Revised
Penal Code or any Special Penal Laws. - When a person has been prosecuted under a provision of
this Act, upon a valid complaint or information or other formal charge sufficient in form and substance to
sustain a conviction and after the accused had pleaded to the charge, the acquittal of the accused or the
dismissal of the case shall be a bar to another prosecution for any offense or felony which is necessarily
included in the offense charged under this Act.
SEC. 50. Damages for Unproven Charge of Terrorism. - Upon acquittal, any person who is accused
of terrorism shall be entitled to the payment of damages in the amount of Five hundred thousand pesos
(P500,000.00) for every day that he or she has been detained or deprived of liberty or arrested without a
warrant as a result of such an accusation. The amount of damages shall be automatically charged against
the appropriations of the police agency or the Anti-Terrorism Council that brought or sanctioned the filing
of the charges against the accused. It shall also be released within fifteen (15) days from the date of the
acquittal of the accused. The award of damages mentioned above shall be without prejudice to the right
of the acquitted accused to file criminal or administrative charges against those responsible for charging
him with the case of terrorism.
Any officer, employee, personnel, or person who delays the release or refuses to release the amounts
awarded to the individual acquitted of the crime of terrorism as directed in the paragraph immediately
preceding shall suffer the penalty of six months of imprisonment.
If the deductions are less than the amounts due to the detained persons, the amount needed to complete
the compensation shall be taken from the current appropriations for intelligence, emergency, social or
other funds of the Office of the President.
In the event that the amount cannot be covered by the current budget of the police or law enforcement
agency concerned, the amount shall be automatically included in the appropriations of the said agency
for the coming year.
SEC. 51. Duty to Record and Report the Name and Address of the Informant. - The police or law
enforcement officers to whom the name or a suspect in the crime of terrorism was first revealed shall
record the real name and the specific address of the informant.
The police or law enforcement officials concerned shall report the informant's name and address to their
superior officer who shall transmit the information to the Congressional Oversight Committee or to the
proper court within five days after the suspect was placed under arrest or his properties were
sequestered, seized or frozen.
The name and address of the informant shall be considered confidential and shall not be unnecessarily
revealed until after the proceedings against the suspect shall have been terminated.
SEC. 52. Applicability of the Revised Penal Code. - The provisions of Book I of the Revised Penal
Code shall be applicable to this Act.
SEC. 53. Anti-Terrorism Council. - An Anti-Terrorism Council, hereinafter referred to, for brevity, as the
"Council," is hereby created. The members of the Council are: (1) the Executive Secretary, who shall be
its Chairperson; (2) the Secretary of Justice, who shall be its Vice Chairperson; and (3) the Secretary of
Foreign Affairs; (4) the Secretary of National Defense; (5) the Secretary of the Interior and Local
Government; (6) the Secretary of Finance; and (7) the National Security Advisor, as its other members.
The Council shall implement this Act and assume the responsibility for the proper and effective
implementation of the anti-terrorism policy of the country. The Council shall keep records of its
proceedings and decisions. All records of the Council shall be subject to such security classifications as
the Council may, in its judgment and discretion, decide to adopt to safeguard the safety of the people,
the security of the Republic, and the welfare of the nation.
The National Intelligence Coordinating Agency shall be the Secretariat of the Council. The Council shall
define the powers, duties, and functions of the National Intelligence Coordinating Agency as Secretariat of
the Council. The National Bureau of Investigation, the Bureau of Immigration, the Office of Civil Defense,
the Intelligence Service of the Armed Forces of the Philippines, the Anti-Money Laundering Council, the
Philippine Center on Transnational Crime, and the Philippine National Police intelligence and investigative
elements shall serve as support agencies for the Council.
The Council shall formulate and adopt comprehensive, adequate, efficient, and effective anti-terrorism
plans, programs, and counter-measures to suppress and eradicate terrorism in the country and to protect
the people from acts of terrorism. Nothing herein shall be interpreted to empower the Anti-Terrorism
Council to exercise any judicial or quasi-judicial power or authority.
SEC. 54. Functions of the Council. - In pursuit of its mandate in the previous Section, the Council shall
have the following functions with due regard for the rights of the people as mandated by the Constitution
and pertinent laws:
1. Formulate and adopt plans, programs and counter-measures against terrorists and acts of terrorism in
the country;
2. Coordinate all national efforts to suppress and eradicate acts of terrorism in the country and mobilize
the entire nation against terrorism prescribed in this Act;
3. Direct the speedy investigation and prosecution of all persons accused or detained for the crime of
terrorism or conspiracy to commit terrorism and other offenses punishable under this Act, and monitor
the progress of their cases;
4. Establish and maintain comprehensive data-base information system on terrorism, terrorist activities,
and counter-terrorism operations;
5. Freeze the funds property, bank deposits, placements, trust accounts, assets and records belonging to
a person suspected of or charged with the crime of terrorism or conspiracy to commit terrorism, pursuant
to Republic Act No. 9160, otherwise known as the Anti-Money Laundering Act of 2001, as amended;
6. Grant monetary rewards and other incentives to informers who give vital information leading to the
apprehension, arrest, detention, prosecution, and conviction of person or persons who are liable for the
crime of terrorism or conspiracy to commit terrorism;
7. Establish and maintain coordination with and the cooperation and assistance of other nations in the
struggle against international terrorism; and
8. Request the Supreme Court to designate specific divisions of the Court of Appeals and Regional Trial
Courts in Manila, Cebu City and Cagayan de Oro City, as the case may be, to handle all cases involving
the crime of terrorism or conspiracy to commit terrorism and all matters incident to said crimes. The
Secretary of Justice shall assign a team of prosecutors from: (a) Luzon to handle terrorism cases filed in
the Regional Trial Court in Manila; (b) from the Visayas to handle cases filed in Cebu City; and (c) from
Mindanao to handle cases filed in Cagayan de Oro City.
SEC. 55. Role of the Commission on Human Rights. - The Commission on Human Rights shall give
the highest priority to the investigation and prosecution of violations of civil and political rights of persons
in relation to the implementation of this Act; and for this purpose, the Commission shall have the
concurrent jurisdiction to prosecute public officials, law enforcers, and other persons who may have
violated the civil and political rights of persons suspected of, or detained for the crime of terrorism or
conspiracy to commit terrorism.
SEC. 56. Creation of a Grievance Committee. - There is hereby created a Grievance Committee
composed of the Ombudsman, as chair, and the Solicitor General, and an undersecretary from the
Department of Justice (DOJ), as members, to receive and evaluate complaints against the actuations of
the police and law enforcement officials in the implementation of this Act. The Committee shall hold office
in Manila. The Committee shall have three subcommittees that will be respectively headed by the Deputy
Ombudsmen in Luzon, the Visayas and Mindanao. The subcommittees shall respectively hold office at the
Offices of Deputy Ombudsman. Three Assistant Solicitors General designated by the Solicitor General,
and the regional prosecutors of the DOJ assigned to the regions where the Deputy Ombudsmen hold
office shall be members thereof. The three subcommittees shall assist the Grievance Committee in
receiving, investigating and evaluating complaints against the police and other law enforcement officers
in the implementation of this Act. If the evidence warrants it, they may file the appropriate cases against
the erring police and law enforcement officers. Unless seasonably disowned or denounced by the
complainants, decisions or judgments in the said cases shall preclude the filing of other cases based on
the same cause or causes of action as those that were filed with the Grievance Committee or its
branches.
SEC. 57. Ban on Extraordinary Rendition. - No person suspected or convicted of the crime of
terrorism shall be subjected to extraordinary rendition to any country unless his or her testimony is
needed for terrorist related police investigations or judicial trials in the said country and unless his or her
human rights, including the right against torture, and right to counsel, are officially assured by the
requesting country and transmitted accordingly and approved by the Department of Justice.
SEC. 58. Extra-Territorial Application of this Act. - Subject to the provision of an existing treaty of
which the Philippines is a signatory and to any contrary provision of any law of preferential application,
the provisions of this Act shall apply: (1) to individual persons who commit any of the crimes defined and
punished in this Act within the terrestrial domain, interior waters, maritime zone, and airspace of the
Philippines; (2) to individual persons who, although physically outside the territorial limits of the
Philippines, commit, conspire or plot to commit any of the crimes defined and punished in this Act inside
the territorial limits of the Philippines; (3) to individual persons who, although physically outside the
territorial limits of the Philippines, commit any of the said crimes on board Philippine ship or Philippine
airship; (4) to individual persons who commit any of said crimes within any embassy, consulate, or
diplomatic premises belonging to or occupied by the Philippine government in an official capacity; (5) to
individual persons who, although physically outside the territorial limits of the Philippines, commit said
crimes against Philippine citizens or persons of Philippines descent, where their citizenship or ethnicity
was a factor in the commission of the crime; and (6) to individual persons who, although physically
outside the territorial limits of the Philippines, commit said crimes directly against the Philippine
government.
SEC. 59. Joint Oversight Committee. - There is hereby created a Joint Oversight Committee to oversee
the implementation of this Act. The Oversight Committee shall be composed of five members each from
the Senate and the House in addition to the Chairs of the Committees of Public Order of both Houses who
shall also Chair the Oversight Committee in the order specified herein. The membership of the Committee
for every House shall at least have two opposition or minority members. The Joint Oversight Committee
shall have its own independent counsel. The Chair of the Committee shall rotate every six months with
the Senate chairing it for the first six months and the House for the next six months. In every case, the
ranking opposition or minority member of the Committee shall be the Vice Chair. Upon the expiration of
one year after this Act is approved by the President, the Committee shall review the Act particularly the
provision that authorize the surveillance of suspects of or persons charged with the crime of terrorism. To
that end, the Committee shall summon the police and law enforcement officers and the members of the
Anti-Terrorism Council and require them to answer questions from the members of Congress and to
submit a written report of the acts they have done in the implementation of the law including the manner
in which the persons suspected of or charged with the crime of terrorism have been dealt with in their
custody and from the date when the movements of the latter were subjected to surveillance and his or
her correspondences, messages, conversations and the like were listened to or subjected to monitoring,
recording and tapping. Without prejudice to its submitting other reports, the Committee shall render a
semiannual report to both Houses of Congress. The report may include where necessary a
recommendation to reassess the effects of globalization on terrorist activities on the people, provide a
sunset clause to or amend any portion of the Act or to repeal the Act in its entirety. The courts dealing
with anti-terrorism cases shall submit to Congress and the President a report every six months of the
status of anti-terrorism cases that have been filed with them starting from the date this Act is
implemented.
SEC. 60. Separability Clause. - If for any reason any part or provision of this Act is declared
unconstitutional or invalid, the other parts or provisions hereof which are not affected thereby shall
remain and continue to be in full force and effect.
SEC. 61. Repealing Clause. - All laws, decrees, executive orders, rules or regulations or parts thereof,
inconsistent with the provisions of this Act are hereby repealed, amended, or modified accordingly.
SEC. 62. Special Effectivity Clause. - After the bill shall have been signed into law by the President,
the Act shall be published in three newspapers of national circulation; three newspapers of local
circulation, one each in llocos Norte, Baguio City and Pampanga; three newspapers of local circulation,
one each in Cebu, lloilo and Tacloban; and three newspapers of local circulation, one each in Cagayan de
Oro, Davao and General Santos city.
The title of the Act and its provisions defining the acts of terrorism that are punished shall be aired
everyday at primetime for seven days, morning, noon and night over three national television and radio
networks; three radio and television networks, one each in Cebu, Tacloban and lloilo; and in five radio and
television networks, one each in Lanao del Sur, Cagayan de Oro, Davao City, Cotabato City and
Zamboanga City. The publication in the newspapers of local circulation and the announcements over local
radio and television networks shall be done in the dominant language of the community. After the
 publication required above shall have been done, the Act shall take effect two months after the elections
are held in May 2007. Thereafter, the provisions of this Act shall be automatically suspended one month
before and two months as after the holding of any election.
Approved,

JOSE DE VENECIA JR. MANNY VILLAR

Speaker of the House of President of the Senate
Representatives
This Act which is a consolidation of Senate Bill No. 2137 and House Bill No. 4839 was finally passed by the
Senate and the House of Representatives on February 8, 2007 and February 19, 2007, respectively.

ROBERTO P. NAZARENO OSCAR G. YABES

Secretary General Secretary of Senate
House of Represenatives
Approved: MARCH 06, 2007
GLORIA MACAPAGAL-ARROYO
President of the Philippines

Pasted from <http://www.lawphil.net/statutes/repacts/ra2007/ra_9372_2007.html>

Code of Commerce
Sunday, June 06, 2010
3:34 AM

Code of Commerce
• BOOK ONE
• BOOK TWO
• BOOK ONE
• BOOK TWO

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/>

BOOK ONE
Merchants and Commerce in General
• Title I – Merchants and Acts of Commerce
Title I – Merchants and Acts of Commerce
ARTICLE 1. For purposes of this Code, merchants are:
1. Those who, having legal capacity to engage in commerce, habitually devote themselves to it;
2. The commercial or industrial companies which may be created in accordance with [this Code]
existing legislation.
ARTICLE 2. Acts of commerce, whether those who execute them be merchants or not, and whether
specified in this Code or not, should be governed by the provisions contained in it, in their absence, by
the usages of commerce generally observed in each place; and in the absence of both rules, by those
of the civil law.
Those acts contained in this Code and all others of analogous character shall be deemed acts of
commerce.
ARTICLE 3. The legal presumption of habitually engaging in commerce shall exist from the moment
the person who intends to engage therein announces through circulars, newspapers, handbills, posters
exhibited to the public, or in any other manner whatsoever, an establishment which has for its object
some commercial operation.
ARTICLE 4. Persons who possess the following qualifications shall have legal capacity to habitually
engage in commerce:
1. Having completed the age of twenty-one years.
2. Not being subject to the authority of the father or of the mother nor to marital authority.
3. Having the free disposition of their property.
ARTICLE 5. Those under twenty-one years of age and those incapacitated may continue, through
their guardians, the business engaged in by their parents or their predecessors. If the guardians do not
have legal capacity to trade or are under some disqualifications, they shall be obliged to appoint one
or more factors having the legal qualifications who shall substitute them in conduct of the business.
ARTICLE 6. (Repealed) 1
ARTICLE 7. (Repealed) 2
ARTICLE 8. The husband may freely revoke the authorization impliedly or expressly granted to his
wife to trade, stating the revocation in a public instrument which shall also be recorded in the
commercial registry, published in the official periodical of the town, if there be one, or otherwise in that
of the town, if there be one, or otherwise in that of the province, and announced to her correspondents
by means of circulars. The publication may also be made, if the husband so demands, by
proclamations and common criers.
This revocation may, in no case, prejudice rights acquired before its publication in the official
periodical.
ARTICLE 9. (Repealed) 3
ARTICLE 10. (Repealed) 4
ARTICLE 11. (Repealed) 5
ARTICLE 12. (Repealed) 6
ARTICLE 13. The following may not engage in commerce nor hold office or have any direct
administrative or financial intervention in commercial or industrial companies:
1. Those sentenced to the penalty of civil interdiction, while they have not served their sentence or
have not been amnestied or pardoned.
2. Those declared bankrupt, while they have not obtained their discharge [or have not been
authorized, by virtue of an agreement accepted at a general meeting of creditors and approved by
judicial authority, to continue at the head of the establishment, the authority being understood in such
case as limited to that expressed in the agreement.]
3. Those who on account of special laws or provisions can not trade.
ARTICLE 14. The following cannot engage in the mercantile profession, in person or through another,
nor hold office or have any direct administrative or financial intervention in commercial or industrial
associations, within the limits of the districts, provinces or towns in which they discharge their duties:
1. Justices, judges and officials of the fiscals’ office in active service.
This provision shall not be applicable to the municipal mayors, judges and prosecuting attorneys, nor
to those who may temporarily discharge judicial or prosecution duties.
2. Administrative, economic or military heads of districts, provinces, or posts.
3. Those employed in the collection and administration of funds of the State, appointed by the
Government.
Those who administer and collect under contract and their representative are excepted.
4. Stock and commercial brokers of whatever class they may be.
5. Those who, under special laws and provisions, cannot trade in specified territory.
ARTICLE 15. Foreigners and companies created abroad may engage in commerce in the Philippines,
subject to the laws of their country with respect to their capacity to contract, and to the provisions of
this Code as regard the creation of their establishments in Philippine territory, their mercantile
operations, and the jurisdiction of the courts of the nation.
The provisions of the article shall be understood to be without prejudice to what, in particular cases,
may be established by treaties or agreements with other powers.

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-one/title-i-

merchants-and-acts-of-commerce/>

• Title II – Commercial Registries

Title II – Commercial Registries
ARTICLE 16. In all the capitals of provinces shall be opened a mercantile registry composed of two
independent books in which shall be inscribed:
1. Individual merchants.
2. Associations.
In the coastal provinces and in the interior ones where it is considered convenient because of the
presence of navigation, the registry shall include a third book for the registration of vessels.
ARTICLE 17. Registration in the mercantile registry shall be optional for individual merchants and
compulsory for associations which are created in accordance with this Code or with special laws, and
for vessels.
ARTICLE 18. The unregistered merchant cannot request the inscription of any document in the
mercantile registry, nor take advantage of its legal effects.
ARTICLE 19. The register shall keep the books necessary for registration, stamped, folioed and with a
memorandum on the first page of the number of pages which each book contains, signed by the
justice of the peace.
Where there are several justices of the peace, any one of them may sign the memorandum.
ARTICLE 20. The registrar shall enter in chronological order in the registry and general index all the
merchants and companies which are registered, giving each sheet the correlative number which
corresponds to it.
ARTICLE 21. On the record sheet of each merchant or company shall be entered:
1. The name, firm name, or title. cd
2. The class of commerce or transactions in which engaged.
3. The date on which the transactions shall commence or have commenced.
4. The domicile, with a specification of the branches which may have been established, without
prejudice to the registration of the branches in the registry of the province in which they may be
domiciled.
5. Instruments for the creation of commercial associations, whatever their object or denomination
may be, as well as those for the modification, rescission or dissolution of such associations.
6. [General powers of attorney, and the revocation of the same, should there be any, given to
managers, factors, employees and any other agents.]
7. [The authorization of the husband for his wife to engage in commerce and the legal or judicial
authority of the wife to administer her property on account of the absence or incapacity of the
husband.]
8. [The revocation of the permission given to the wife to trade.]
9. [Dotal instruments], marriage settlement and the title which prove the ownership of the
paraphernal property of the wives of merchants.
10. The issue of shares, certificates, and bonds of railroads and of all classes of associations, be
they associations for public works, credit companies, or others, stating the series and number of the
certificates of each issue, their participation, interest, payment and premium, should they have one or
the other, the total amount of the issue, and the property, works, rights or mortgages, should there be
any, by which their payment is secured. The issues which may be made by individuals shall also be
recorded in accordance with the provisions of the preceding paragraph.
11. [The issues of bank notes, stating the date, class, series, quantity and value of each issue.]
12. [The titles of industrial property, patents, and trademarks, in the form and manner established
by law.]
Foreign associations which desire to establish themselves or create branches in the Philippines shall
present and record in the registry, besides their by-laws and the documents required of Filipinos, a
certificate issued by the Philippine consul that they are constituted and authorized in accordance with
the laws of their respective countries.
ARTICLE 22. [In the registry of vessels there shall be stated:
1. The name of the vessel, kind of equipment, system or power of the engines, if it is a steamer,
stating whether they are nominal or indicated horsepower; place of construction of the hull and
engines; year thereof, material of the hull, stating whether it is of wood, iron, steel, or mixed; principal
dimensions of length, breadth of beam, and depth of hold; the gross and net tonnage; distinctive signal
which it bears in the International Code of Signals; finally, the names and domiciles of the owners or
part owners of the same.
2. The changes in the ownership of vessels, in their name, or in any of the other conditions
enumerated in the foregoing paragraph.
3. The imposition, modification or cancellation of liens of any class whatsoever which encumber
vessels.]
ARTICLE 23. As a general rule, the registration shall be made by virtue of notarial copies of the
documents which the interested party may present.
The registration of notes, bonds, or order and bearer instruments which do not carry mortgages of
immovable property shall be made upon presentation of the certified minutes where in appears the
resolution of the person or persons who made the issue, and the conditions, requisites and guaranties
thereof.
When these guaranties consist of mortgage of immovables, the corresponding instrument shall be
presented for annotation in the mercantile registry.
ARTICLE 24. Unregistered articles of association shall produce effect among the members who
execute them, but they shall not prejudice third person who, however, may make use thereof in so far
as favorable.
ARTICLE 25. All the resolutions or acts which effect an increase or reduction in the capital of
commercial associations, whatever their denomination may be, and those which modify or alter the
conditions of recorded instruments, shall also be recorded in the mercantile registry.
The omission of this requisite shall produce the effects mentioned in the preceding article.
ARTICLE 26. Registered documents shall produce legal effect to the prejudice of third persons only
from the date of their registration, and cannot be invalidated by prior or subsequent unregistered
documents.
ARTICLE 27. [Dotal] instruments [and those] referring to paraphernal property of the merchant’s
wife, not registered in the mercantile registry, shall have no right of preference over other credits.
Immovable property and real rights over them, acquired by the wife prior to the creation of the
concurrent credits, shall be excepted.
ARTICLE 28. If a merchant should fail to make in the registry the inscription of the [dotal or]
paraphernal property of his wife, the latter herself may request it or it may be done for her by her
parents, by others or uncles by consanguinity, as well as by those who discharge or may have
discharged the duties of guardians or curators of the wife, [or who constitute or may have constituted
the dowry.]
ARTICLE 29. [Unregistered powers of attorney shall give rise to actions between the principal and the
agent, but they cannot be used to the prejudice of third persons, who, however, may rely thereon in so
far as they may be favorable.]
ARTICLE 30. The mercantile registry shall be public. The registrar shall furnish those who may
request it any data referring to what may appear on the registration sheet of each merchant,
association or vessel. Likewise, he shall issue true copies of the whole or part of said sheet to anyone
who may ask for it in a signed request.
ARTICLE 31. [The commercial registrar shall have under his charge, where there is an exchange,
copies of the daily quotations of the properties negotiated and the exchanges fixed therein.
The copies shall serve as original instruments in all cases of investigation and verfication of exchanges
and quotations on determined dates.]
ARTICLE 32. [The office of commercial registrar shall be filled by the government after a competitive
examination.]

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-one/title-ii-

commercial-registries/>

• Title III – Books and Bookkeeping of Commerce

Title III – Books and Bookkeeping of Commerce
ARTICLE 33. Merchants shall necessarily keep:
1. A book of inventories and balances.
2. A journal.
3. A ledger.
4. A book or books for copies of letters and telegrams.
5. Other books which may be required by special laws.
Associations and companies shall also keep a book or books of minutes, in which shall be entered all
resolutions referring to the progress and operations of the entities, approved at general meetings or at
those of managing boards.
ARTICLE 34. They may also keep other books which they may deem convenient, according to the
system of bookkeeping they may adopt.
These books shall not be subject to the provisions of Article 36; but they may legalize those which they
may consider proper.
ARTICLE 35. Merchants may keep their books personally or through persons whom they authorize for
the purpose. If a merchant does not keep his books personally, authorization shall be presumed
granted to him who keeps them unless there is proof to the contrary.
ARTICLE 36. Merchants shall present the books referred to in Article 33, bound, ruled, and folioed, to
the justice of the peace of the municipality in which they have their commercial establishments in
order that he may put on the first page of each one a signed memorandum of the number of pages
which the book contains. The seal of the justice of the peace legalizing it shall, furthermore, be
stamped on all the pages of each book.
ARTICLE 37. The book of inventories and balance shall begin with the inventory which the merchant
must prepare at the time he starts his operations, and shall contain:
 1. An exact statement of the money, securities, credits, notes receivable, movable and immovable
property, merchandise and goods of all kinds, appraised at their true value, and which constitute his
assets.
2. An exact statement of the debts and all kinds of pending obligations, should there be any, and
which form his liabilities.
3. He shall determine, in proper cases, the exact difference between the assets and the liabilities,
which shall be the capital with which he begins his operations.
The merchant shall, furthermore, prepare annually and enter in the same book the general balance of
his business, with the details mentioned in this article, and in accordance with the entries in the
journal, without any reservations or omissions, under his signature and responsibility.
ARTICLE 38. In the journal shall be entered as the first item the result of the inventory mentioned in
the preceding article, divided into one or various consecutive accounts, according to the system of
bookkeeping adopted.
Thereafter, all his operations shall follow day by day, each entry stating the credit and debit of the
respective accounts.
When the operations are numerous, whatever their importance may be, or when they have taken place
outside the domicile, those referring to each account and which have taken place in each day may be
included in a single entry, but observing in their statement, if itemized, the same order in which they
took place.
Likewise, the amounts which the merchant uses for his household expenses shall be entered on the
date on which they are withdrawn from the funds, and they shall be carried into a special account to
be opened for that purpose in the ledger.
ARTICLE 39. The accounts referring to each object or person in particular shall, furthermore, be
opened with Debit and Credit in the ledger, and to each of these accounts shall be transferred, in strict
order of dates, the entries in the journal referring to them.
ARTICLE 40. In the book of minutes which each association shall carry shall be entered verbatim the
resolutions agreed upon at its meetings or at those of its managers, stating the date of each one,
those present in them, the votes cast, and other matters conducive to an exact knowledge of what as
agreed upon, authenticated with the signatures of the managers, directors or administrators charged
with the management of the association or designated by the by-laws or regulations by which it is
governed.
ARTICLE 41. All the letters which a merchant may write regarding his business and the telegraphic
dispatches which he may send shall be transferred, either by hand or by any mechanical means, to the
book for copies., fully and successively by order of dates, including the subscribing clause and the
signatures.
ARTICLE 42. Merchants shall carefully keep, in bundles and in proper order, the letters and
telegraphic dispatches which they may receive relative to their transactions.
ARTICLE 43. Besides complying with and fulfilling the conditions and formalities prescribed in this
title, merchants must keep their books with clearness, in the order of dates, without blanks,
interpolations, erasures or blots, and without showing signs of having been altered by substituting or
tearing out folios, or in any other manner whatsoever.
ARTICLE 44. Merchants shall correct the errors or omissions which they may make in entering in their
books, immediately upon noticing them, explaining clearly in what they consisted, and writing the
entry as it should have been written.
If some time should have elapsed since the error was committed or since the omission was incurred,
they shall make the proper entry of correction, adding on the margin of the erroneous entry a
memorandum indicating the correction.
ARTICLE 45. No judge or court or authority may, on his own initiative, make an inquiry to ascertain if
merchants keep their books in accordance with the provisions of this Code, nor make a general
investigation or examination of the bookkeeping in the offices or counting-houses of merchants.
ARTICLE 46. [Neither may the communication, delivery or general examination of the books,
correspondence and other documents of merchants, be decreed at the instance of a party, except in
the cases of liquidation, universal succession or bankruptcy.]
ARTICLE 47. [Outside of the cases mentioned in the preceding article, the exhibition of the books and
documents of merchants may be decreed at the instance of a party or at the initiative of the court,
only when the person to whom they belong has an interest or responsibility in the case in which the
exhibition is made.
The examination shall be made in the counting-house of the merchant, in his presence or in that of the
person whom he commissions, and shall be limited to the points related to the question at issue; these
being the only ones that may be verified.]
ARTICLE 48. In order to measure the probative force of the books of merchants, the following rules
shall be observed:
1. The books of merchants shall be evidence against themselves, no proof to the contrary being
admissible; but the adverse party cannot accept the entries which may be favorable to him and reject
those which may prejudice him, but having accepted this means of proof, he shall be bound by the
result which it may show in its entirety, taking into equal consideration all the entries relative to the
question in litigation.
2. If there should be a conflict in the entries of the books kept by two merchant, and those of one
should have been kept with all the formalities mentioned in this title, and those of the other should
suffer from any defect or should lack the requisites prescribed by this Code, the entries of the books
properly kept shall be admitted against those of the defective one. unless the contrary is shown by
means of other evidence admissible in law.
3. If one of the merchants should not present his books or should manifest that he does not have
them, those of his adversary, kept with all the legal formalities, shall be admitted against him, unless it
is shown that the absence of such books is due to force majeure, and always saving proof by other
means admissible in suits against the entries exhibited.
4. If the books of the merchants should have all the legal requisites and should be contradictory, the
court shall decide by the other proofs, weighing them according to the general rules of law.
ARTICLE 49. Merchants and their heirs or successors shall keep the books, telegrams, and
correspondence of their business in general, during all the time that this may last and for five years
after the liquidation of all their business and commercial affairs.
Documents which specially concern specific acts or transactions may be rendered useless or destroyed
upon the laps of the prescriptive period of the actions which may arise therefrom, unless some
questions referring directly or indirectly to them should be pending, in which case, they must be kept
until the conclusion thereof.

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-one/title-iii-books-

and-bookkeeping-of-commerce/>

• Title IV – General Provisions Relating to Commercial Contracts

Title IV – General Provisions Relating to Commercial Contracts
ARTICLE 50. Commercial contracts, in everything relative to their requisites, modifications,
exceptions, interpretations and extinction and to the capacity of the contracting parties, shall be
governed in all matters not expressly provided for in this Code or in special laws, by the general rules
of the civil law.
[Telegraphic correspondence shall only be the basis of an obligation between contracting parties who
have previously admitted this medium in a written contract, and provided the telegrams fulfill the
conventional conditions or conventional signs which may have been previously fixed and agreed to by
the contracting parties.]
ARTICLE 51. Commercial contracts shall be valid and shall give rise to obligations and causes of
action in suits, whatever the form and language in which they may be executed, the class to which
they may belong, and the amount they may involve, provided their existence is shown by any means
established by the civil law. However, the testimony of witness alone shall not be sufficient to prove
the existence of a contract which involves an amount exceeding 1,500 pesetas unless supported by
some other evidence.
ARTICLE 52. From the provisions of the preceding article shall be excepted:
1. Contracts which, in accordance with this Code or with special laws, must be reduced to writing or
require forms or formalities necessary for their efficacy.
2. Contracts executed in a foreign country in which the law requires certain instruments, forms or
formalities for their validity, although Philippine law does not require them.
In either case, contracts which do not satisfy the circumstances respectively required shall not give
rise to obligations or causes of action.
ARTICLE 53. Illicit agreements do not give rise to obligations or causes of action even should they
refer to commercial transaction.
ARTICLE 54. Contracts entered into by correspondence shall be perfected from the moment an
answer is made accepting the offer or the conditions by which the latter may be modified.
ARTICLE 55. Contracts in which an agent or broker intervenes shall be perfected when the
contracting parties shall have accepted his offer.
ARTICLE 56. In a commercial contract in which a penalty for indemnification against the party failing
to comply therewith is fixed, the injured party may demand through legal means the fulfillment of the
contract or the penalty stipulated; but the recourse to one of these actions shall extinguish the other
unless the contrary is stipulated.
ARTICLE 57. Commercial contracts shall be executed and complied with in good faith, according to
the terms in which they were made and drawn up, without evading through arbitrary interpretations
the plain, proper and usual meaning of the spoken or written words, or limiting the effects which are
naturally derived from the manner in which the contracting parties may have expressed their will and
contracted their obligations.
ARTICLE 58. If a discrepancy should appear between the copies of a contract which the contracting
parties present, and, in its execution, an agent or broker should have intervened, that which appears
in the books of the latter shall prevail provided they are kept in accordance with law.
ARTICLE 59. If doubts which cannot be decided in accordance with what is provided in Article 2 of
this Code should arise, the question shall be decided in favor of the debtor.
ARTICLE 60. In all computations of days, months and years, it shall be understood that a day has
twenty four hours, the months as designated in the Gregorian calendar, and the year has three
hundred sixty-five days.
Bills of exchange, promissory notes, and loans, with respect to which that specially provided for them
by this Code shall govern, are excepted.
ARTICLE 61. Days of grace, courtesy or others which under any name whatsoever defer the
fulfillment of commercial obligations, shall not be recognized, except those which the parties may have
previously fixed in the contract or which are based on a definite provision of law.
ARTICLE 62. Obligations which do not have a period previously fixed by the parties or by the
provisions of this Code, shall be demandable ten days after having been contracted if they give rise
only to an ordinary action, and on the next day if they involve immediate execution.
ARTICLE 63. The effect of default in the performance of commercial obligations shall commence:
1. In contracts with a day for performance fixed by the will of the parties or by the law, on the day
following their maturity.
2. In those which do not have such day fixed, from the day on which the creditor makes a judicial
demand on the debtor or notifies him of the protest for loss and damages made against him before a
judge, notary or other public official authorized to admit the same.

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-one/title-iv-general-

provisions-relating-to-commercial-contracts/>

• Title V – Places and Buildings for Commercial Transactions

Title V – Places and Buildings for Commercial Transactions
SECTION ONE
Commercial Exchanges
[ARTICLE 64. Legally authorized public establishments in which merchants and licensed intermediary
agents usually assemble to agree upon or carry out the commercial transactions mentioned in this
section shall be called commercial exchanges.
[ARTICLE 65. The government may establish or authorize the creation of commercial exchanges
wherever it may deem it convenient. LPrE05
Associations established in accordance with this Code may also create them, provided the power to do
so is one of the objects thereof.
Notwithstanding this, in order that the quotations of transactions effected and published in this kind of
exchanges may have an official character, it shall be necessary for the Government to authorize said
transactions before becoming the subject of the public traffic, shown by the quotation. iatdc2005
The Government may grant such authorization, after procuring the information which it may consider
necessary regarding its public convenience.
[ARTICLE 66. Existing commercial exchanges, as well as those newly created, shall be governed by
the provisions of this Code.
[ARTICLE 67. The following shall be the subject of transactions on exchange:
1. Public bonds and securities.
2. Industrial and commercial securities issued by private parties or associations or enterprises
legally constituted.
3. Bills of exchange, drafts, promissory notes, and any other commercial papers.
4. The sale of precious metals, in coin or bullion.
5. Merchandise of all kinds and warehouse receipts.
6. The insurance of commercial effects against land or marine risks.
7. Transportation and freightage, bills of lading, and waybills.
 8. Any other transactions similar to those mentioned in the foregoing subdivisions, provided they
are lawful.
The bonds and securities referred to in subdivisions 1 and 2 of this article shall only be included in the
official quotations when their negotiation is authorized, in accordance with Article 65, in the exchanges
of private constitution, or which are declared negotiable on the exchanges officially established.
[ARTICLE 68. In order to include them in the official quotations treated of in the foregoing article,
under the designation of public securities shall be understood:
1. Those which by means of an issue represent credits against the State, provinces, or
municipalities, and are legally recognized as negotiable on exchange.
2. Those issued by foreign nations, if their negotiation has been duly authorized by the government
after a report of the board of directors of the association of money brokers.
[ARTICLE 69. There may also be included in the official quotations, as a matter of traffic on exchange,
instruments of credit payable to bearer issued by national establishments, companies, or enterprises in
accordance with law and the by-laws of the same, provided that the resolution authorizing their issue,
with all the other requisites enumerated in Article 21, are duly recorded in the commercial registry, as
well as in those of property, when on account of their nature, this should be done, and provided that
these details have been previously reported to the board of directors of the association of money
brokers.
[ARTICLE 70. In order to include in the official quotations as a matter of traffic on exchange, credit
instruments payable to bearer of foreign enterprises established in accordance with the laws of the
State in which said enterprises are situated, the previous authorization of the board of directors of the
association of money brokers shall be necessary, after it has been proved that the issue has been
made in accordance with law and the by-laws of the company which issues the same, and that all the
requisites prescribed in the said provisions have been complied with, and provided there exist no
reasons of public interest which may make them objectionable.
[ARTICLE 71. Instruments or securities issued by private parties can not be included in the official
quotations without the authority of the board of directors of the association of money brokers, which
shall always be granted when they are mortgage bonds or are sufficiently guaranteed in their
judgment and under their liability.
[ARTICLE 72. The following can not be included in the official quotations:
1. Instruments or securities issued by companies or copartnerships not recorded in the commercial
registry.
2. Instruments or securities issued by associations which, although recorded in the commercial
registry, have not made the issue in accordance with this Code or with special laws.
[ARTICLE 73. The regulations shall fix the days and hours on which the meetings of the exchanges
established by the Government or by private parties are to be held, after they have acquired an official
character, and all that relates to their interior government and police, which shall in each one of them
be in charge of the board of directors of the association of money brokers. The Government shall fix
the schedule of the fees of the brokers.]
SECTION TWO
Transactions on Exchange
[ARTICLE 74. Every person, be he a merchant or not, may make contracts relating to public
instruments, or industrial or commercial securities, without the intervention of a licensed money
broker; but said contracts shall have no more value than arises from their form and which is granted
them by the common law.
[ARTICLE 75. Transactions which take place on exchange shall be complied with under the conditions
and in the manner and form agreed upon by the contracting parties, and can be either for cash or on
time, definite or optional, with or without brokerage, stating at the time of announcing the same the
conditions which may have been stipulated in each transaction. All these transactions may be binding
and the basis of actions before courts.
[ARTICLE 76. Transactions for cash made on exchange must be consummated on the same day of
their execution, or at the utmost, in the time intervening until the next meeting of the exchange.
The seller shall be under the obligation to deliver, without further delay, the instruments or securities
sold and the purchaser to receive them, satisfying their price immediately. Transactions on time and
conditional ones shall be consummated in the same manner at the time agreed upon.
[ARTICLE 77. If the transactions take place through a licensed money broker, the latter being silent
regarding the name of the principal, or between agents with the same conditions, and the licensed
agent, vendor, or purchaser delays the fulfilment of the agreement, the person prejudiced by the delay
may choose in the exchange itself between abandoning the contract, denouncing it to the board of
directors, or demanding the compliance of the same.
In the latter case it shall be consummated through one of the members of the board of directors by
purchasing or selling the public instruments agreed upon for account and risk of the tardy agent,
without prejudice to the suit of the latter against the principal. The board of directors shall order the
realization of that part of the bond of the tardy agent necessary to immediately satisfy these
differences.
In transactions involving industrial and commercial instruments, metals, or merchandise, the person
who delays or refuses to consummate a contract shall be compelled to comply therewith by means of
the actions which may be proper according to the prescriptions of this Code.
[ARTICLE 78. Whenever any transaction which can be quoted has been agreed upon, the money
broker who may have taken part therein shall make a signed memorandum thereof, delivering it
immediately to the announcer, who, after reading it aloud, shall transmit it to the board of directors.
[ARTICLE 79. The transactions which take place through a licensed broker, involving bonds or public
instrument, shall be announced aloud immediately upon being agreed upon, without prejudice to
transmitting the proper memorandum to the board of directors. Other contracts shall be made known
in the quotation bulletin, stating the maximum and minimum price of the purchases of merchandise,
transportation and freightage, the rate of discount, and that of the exchanges for drafts and loans.
[ARTICLE 80. The boards of directors shall meet after the exchange hours, and in view of the
negotiations of public instruments which result from the memoranda delivered by the licensed brokers,
and with the notice of sales and other operations in which the same took part, it shall prepare the lists
of quotations, transmitting a certified copy thereof to the commercial registry.]
SECTION THREE
Other Public Places for Transactions — Fairs, Markets, and Shops
[ARTICLE 81. The Government, as well as commercial associations which fulfill the conditions
mentioned in article 65 of this Code, may establish exchanges or commercial agencies.
[ARTICLE 82. The competent authority shall announce the place and time of holding fairs and the
police regulations which are to be observed in the same.
[ARTICLE 83. Sale and resale contracts executed at fairs may be for cash or on time; the former must
be complied with on the same day of their execution, or, at the utmost, within the following twenty-
four hours.
After this time has elapsed without either of the contracting parties having demanded its compliance,
they shall be considered null, and the deposits or earnest-money which may have been delivered shall
be forfeited to the person who received the same.
[ARTICLE 84. Questions which may arise at fairs regarding contracts executed at the same shall be
decided in an oral trial by the municipal judge of the town in which the fair is held, in accordance with
the prescriptions of this Code, provided the value of the article in litigation does not exceed 1,500
pesetas.
Should there be more than one municipal judge, the one selected by the plaintiff shall be the one of
complete jurisdiction.
[ARTICLE 85. The purchase of merchandise from warehouses or shops open to the public shall cause
the forfeiture of the right in favor of the purchaser with regard to the merchandise acquired, reserving
in a proper case the rights of the owner of the merchandise sold to institute the civil or criminal actions
which may be proper against the person who sold the same without having a right to do so.
For the purposes of this forfeiture, as warehouses or shops open to the public shall be considered:
1. Those which may be established by recorded merchants.
2. Those established by merchants who are not recorded, provided the warehouses or shops remain
open to the public for a period of eight consecutive days, or that they have been announced by means
of signs, cards, or posters, in the places themselves, or through circulars distributed to the public or
inserted in the newspapers of the locality.
[ARTICLE 86. The money in which the payment of merchandise bought for cash is effected, in shops
or public establishments, shall not be recoverable.
[ARTICLE 87. Purchases and sales which take place in establishments shall always be presumed as
made for cash unless there is proof to the contrary.]

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-one/title-v-places-

and-buildings-for-commercial-transactions/>

• Title VI – Commercial Agents and Their Respective Obligations

Title VI – Commercial Agents and Their Respective Obligations
SECTION ONE
General Provisions Common to Commercial Agents
[ARTICLE 88. The following shall be subject to the commercial laws as commercial agents:
1. Money and stock brokers.
2. Commercial brokers.
3. Ship-broking interpreters.
[ARTICLE 89. The services of stock brokers or agents no matter what may be their class, may be
rendered by Filipinos and foreigners; but licensed agents and brokers only may issue certifications.
The means of proving the existence and conditions of instruments or contracts in which agents who
are not licensed take part shall be those established by the commercial or common law to justify
obligations.
[ARTICLE 90. In every commercial center there may be established an association of stock brokers,
another of commercial brokers, and in maritime centers one of ship-broking interpreters.
[ARTICLE 91. The associations treated of in the foregoing article shall be composed of the individuals
who may have obtained the proper certificate of possessing the qualifications required by this Code.
[ARTICLE 92. At the head of each association there shall be a board of directors elected by the
members.
[ARTICLE 93. The licensed agents shall have the character of notaries in all that refers to the
negotiation of public instruments, industrial and commercial securities, merchandise, and the other
commercial acts included in their office in the respective center.
They shall keep a registry book in accordance with the prescriptions of Article 36, entering therein in
proper order, separately and daily, all the transactions in which they may have taken part, being
moreover permitted to keep other books with the same formalities.
The books and policies of licensed agents shall be admitted as evidence in suits.
[ARTICLE 94. In order to become a member of any of the associations referred to in Article 90, it shall
be necessary:
1. To be a Spaniard or a naturalized foreigner.
2. To have capacity to trade in accordance with this Code.
3. Not to be suffering any correctional or punitive penalty.
4. To prove good moral conduct and well known honesty by means of a judicial report of three
recorded merchants.
5. To constitute in the depository, or in the Spanish Philippine Bank (Banco Español Filipino), the
bond fixed by the Government.
6. To obtain from the Governor-General, after a report from the board of directors, the provisional
certificate, which shall be presented in the colonial department for the royal confirmation, which must
be issued free of charge within the period of six months from the date on which it was executed.
[ARTICLE 95. It shall be the obligation of licensed agents:
1. To assure themselves of the identity and legal capacity to trade of the persons in whose affairs
they act, and, if proper, of the legitimacy of the signatures of the contracting parties.
When the latter do not have the free disposition of their property, agents can not act without
previously obtaining the authorization prescribed by law.
2. To submit the transactions with exactness, precision, and clearness, abstaining from making
suppositions which might lead the contracting parties into error.
3. To preserve secrecy in all that refers to the business they may transact and not reveal the names of
the persons who in trust the same to them, unless it is otherwise required by law, or by the character
of the transactions, or if the persons interested consent to their names being made public.
4. To issue at the expense of the persons interested, who may request them, certificates of the
respective entries of their contracts.
[ARTICLE 96. Licensed agents can not:
1. Trade for their own account.
2. Constitute themselves underwriters of commercial risks.
3. Negotiate securities or merchandise for the account of individuals or associations which have
suspended payments, or which have been declared in bankruptcy or insolvent, unless they have
obtained their discharge.
4. Acquire for themselves the effects the negotiation of which was intrusted to them, except in case
the agent is to answer for noncompliance of the purchaser to the vendor.
5. Issue certifications which do not directly refer to facts which appear in the entries on their books.
6. Discharge the duties of cashiers, bookkeepers, or employees of any merchant or commercial
establishment.
[ARTICLE 97. The persons violating the provisions of the preceding article shall be removed from their
office by the Government, after hearing the board of directors and the interested party, who may
appeal from this decision through administrative litigation (via contenciosa administrativa).
They shall, moreover, be civilly liable for the damage caused by any neglect of the obligations of their
office.
[ARTICLE 98. The bonds of stock brokers, commercial brokers, and ship-broking interpreters shall be
specially liable for the results of the business of their office, the persons prejudiced having a right of
preferred real action against the same without prejudice to any others which may be proper according
to law.
This bond can not be restored, notwithstanding that the agent ceases in the discharge of his office,
until the period fixed in Article 946 has elapsed, unless a claim has been filed within the same period.
The bond shall only be subject to liabilities not connected with the office when those of the latter are
first fully secured.
If the bond is divided by the liabilities to which it is subject, or its real value is diminished for any
reason whatsoever, it must be replaced by the agent within the period of twenty days.
[ARTICLE 99. In case of disability, incapacity, or suspension from office of stock brokers, commercial
brokers, or ship-broking interpreters the books which they are to keep in accordance with this Code
shall be deposited in the commercial registry.]
SECTION TWO
Licensed Money and Stock Brokers
[ARTICLE 100. Money and stock brokers shall be authorized to:
1. Take part privately in negotiations and transfers of all kinds of public instruments or securities
which can be quoted, defined in Article 68.
2. Take part, in concurrence with commercial agents, in all other exchange transactions and
contracts, subject to the liabilities appertaining to these transactions.
[ARTICLE 101. Stock agents who take part in purchase or sale contracts or in other transactions for
cash or on time shall be liable to the purchaser for the delivery of the instruments or securities
involved in said transactions and to the vendor for the payment of the price or indemnity agreed upon.
[ARTICLE 102. Stock brokers shall enter in their books, in correlative numerical order and by dates,
all the transactions in which they take part.
[ARTICLE 103. Stock brokers shall deliver to each other a signed memorandum of every transaction
agreed upon, on the same day on which it took place. Another memorandum, signed in the same
manner, shall be delivered to their constituents, and the latter shall deliver one to the agents, stating
their acquiescence with the terms and conditions of the transaction.
The memoranda or policies which agents deliver to their constituents, and those which they mutually
issue, shall be evidence against the agent who subscribes them in all cases of claims which may arise
by virtue thereof.
In order to determine the amount which can be claimed, the board of directors shall issue a certificate
stating the difference in cash which appears against the constituents in view of the memoranda of the
transaction.
The acquiescence of the constituents, after their signature has been acknowledged in a suit, shall
include an execution, provided the certificate of the board of directors mentioned in the preceding
paragraph is presented.
[ARTICLE 104. Stock agents, besides the obligations common to all agents enumerated in Articles
95, 96, 97, and 98, shall be civilly liable for the industrial or commercial instruments or securities
which they may sell after the denunciation of said securities as illegitimate has been made public by
the board of directors.
[ARTICLE 105. The president, or the person acting in his stead, and two members at least of the
board of directors shall always be present at the meeting of the exchange in order to decide what may
be proper in the cases which may arise.
The board of directors shall fix the rate of the monthly liquidations in closing the exchange on the last
day of each month, taking as a basis the average of the quotations of the same day.
The same board shall be in charge of receiving the partial liquidations and preparing the general one
of the month.]
SECTION THREE
Licensed Commercial Brokers
[ARTICLE 106. Besides the obligations common to all commercial agents enumerated in Article 95,
licensed commercial brokers shall be under the obligation:
1. To answer legally for the authenticity of the signature of the last conveyer in negotiations of bills
of exchange and other negotiable paper.
2. To take part and certify, in contracts of purchase and sale, to the delivery of the paper and to its
payment, if the persons interested demand it.
3. To collect from the conveyer and deliver to the buyer the drafts or negotiable paper which may
have been negotiated through him.
 4. To collect from the buyer and deliver to the conveyer the value of the bills of exchange or
negotiable paper which is negotiated.
[ARTICLE 107. Licensed brokers shall enter in their books in separate entries all the transactions in
which they may have taken part, stating the names and the domiciles of the contracting parties and
the subject and conditions of the contracts.
In sales they shall state the quality, amount, and price of the article sold, place and date of the
delivery, and the manner in which the price is to be paid.
In negotiations of bills of exchange, they shall enter the dates, places of issue and payment, terms and
due dates, names of the drawer, endorser and payer, those of the conveyer and purchaser, and the
exchange agreed upon.
In insurance there shall be stated, with reference to the policy, besides the number and date of the
same, the names of the underwriter and of the insured, object of the insurance, its value according to
the contracting parties, the premium agreed upon, and, in a proper case, the place of loading and
unloading, and a precise and exact statement of the ship or of the means of transportation.
[ARTICLE 108. Within the day on which the contract is executed, the licensed brokers shall deliver to
each one of the contracting parties a signed memorandum containing all that the latter may have
agreed to.
[ARTICLE 109. In cases in which, on account of the convenience of the parties, a written contract is
executed, the broker shall certify at the foot of the duplicates and shall keep the originals.
[ARTICLE 110. Licensed brokers may, in concurrence with the ship-broking interpreters, discharge the
duties of the latter subjecting themselves to the prescriptions of the following section of this title.
[ARTICLE 111. The association of brokers, where there is not one of agents, shall issue on each day of
negotiation a memorandum of the current exchanges and of the prices of merchandise, for which
purpose two members of the board of directors shall be present at the meeting of the exchange, a
certified copy of said memorandum being transmitted to the commercial registry.]
SECTION FOUR
Licensed Ship-broking Interpreters
[ARTICLE 112. In order to discharge the duties of ship-broking interpreter, besides possessing the
qualifications required of agents in Article 94, it shall be necessary to prove, either by examination or
by a certificate of a public establishment, the knowledge of two modern foreign languages.
ARTICLE 113. The obligations of ship-broking interpreters shall be:
1. To take part in charter contracts, marine insurance, and bottomry bonds, when requested to do
so.
2. To assist captains and supercargoes of foreign vessels and serve as interpreters in the
declarations, protests, and other business which may take place in courts and public offices.
3. To translate the documents that the said foreign captains and supercargoes are obliged to
present in the said offices, provided there arises any doubt regarding their understanding, certifying
that the translations have been well and faithfully made.
4. To represent the same in suits when they, the shipowner or consignee of the vessel, do not
appear.
[ARTICLE 114. It shall furthermore be the obligation of ship-broking interpreters to keep:
1. A copying book for the translations they may make, entering the same literally.
2. A registry of the names of the captains to whom they render the services proper to their office,
stating the flag, name, class, and tonnage of the vessels and the ports of departure and their
destination.
3. A daybook of the contracts of charter in which they take part, stating in each entry the name of
the vessel, its flag, register, and tonnage; those of the captain and of the charterer; value and
destination of the cargo; money in which it is to be paid; advances on the same, should there be any;
the goods of which the cargo consists; conditions agreed upon between the charterer and captain
regarding demurrage, and the date previously fixed on which to commence and finish loading.
[ARTICLE 115. The ship-broking interpreter shall keep one copy of the contract or contracts which
may have been executed between the captain and the charterer.]

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-one/title-vi-

commercial-agents-and-their-respective-obligations/>

• Title II – Commercial Registries

Title II – Commercial Registries
ARTICLE 16. In all the capitals of provinces shall be opened a mercantile registry composed of two
independent books in which shall be inscribed:
1. Individual merchants.
2. Associations.
In the coastal provinces and in the interior ones where it is considered convenient because of the
presence of navigation, the registry shall include a third book for the registration of vessels.
ARTICLE 17. Registration in the mercantile registry shall be optional for individual merchants and
compulsory for associations which are created in accordance with this Code or with special laws, and
for vessels.
ARTICLE 18. The unregistered merchant cannot request the inscription of any document in the
mercantile registry, nor take advantage of its legal effects.
ARTICLE 19. The register shall keep the books necessary for registration, stamped, folioed and with a
memorandum on the first page of the number of pages which each book contains, signed by the
justice of the peace.
Where there are several justices of the peace, any one of them may sign the memorandum.
ARTICLE 20. The registrar shall enter in chronological order in the registry and general index all the
merchants and companies which are registered, giving each sheet the correlative number which
corresponds to it.
ARTICLE 21. On the record sheet of each merchant or company shall be entered:
1. The name, firm name, or title. cd
2. The class of commerce or transactions in which engaged.
3. The date on which the transactions shall commence or have commenced.
4. The domicile, with a specification of the branches which may have been established, without
prejudice to the registration of the branches in the registry of the province in which they may be
domiciled.
5. Instruments for the creation of commercial associations, whatever their object or denomination
may be, as well as those for the modification, rescission or dissolution of such associations.
6. [General powers of attorney, and the revocation of the same, should there be any, given to
managers, factors, employees and any other agents.]
7. [The authorization of the husband for his wife to engage in commerce and the legal or judicial
authority of the wife to administer her property on account of the absence or incapacity of the
husband.]
8. [The revocation of the permission given to the wife to trade.]
9. [Dotal instruments], marriage settlement and the title which prove the ownership of the
paraphernal property of the wives of merchants.
10. The issue of shares, certificates, and bonds of railroads and of all classes of associations, be
they associations for public works, credit companies, or others, stating the series and number of the
certificates of each issue, their participation, interest, payment and premium, should they have one or
the other, the total amount of the issue, and the property, works, rights or mortgages, should there be
any, by which their payment is secured. The issues which may be made by individuals shall also be
recorded in accordance with the provisions of the preceding paragraph.
11. [The issues of bank notes, stating the date, class, series, quantity and value of each issue.]
12. [The titles of industrial property, patents, and trademarks, in the form and manner established
by law.]
Foreign associations which desire to establish themselves or create branches in the Philippines shall
present and record in the registry, besides their by-laws and the documents required of Filipinos, a
certificate issued by the Philippine consul that they are constituted and authorized in accordance with
the laws of their respective countries.
ARTICLE 22. [In the registry of vessels there shall be stated:
1. The name of the vessel, kind of equipment, system or power of the engines, if it is a steamer,
stating whether they are nominal or indicated horsepower; place of construction of the hull and
engines; year thereof, material of the hull, stating whether it is of wood, iron, steel, or mixed; principal
dimensions of length, breadth of beam, and depth of hold; the gross and net tonnage; distinctive signal
which it bears in the International Code of Signals; finally, the names and domiciles of the owners or
part owners of the same.
2. The changes in the ownership of vessels, in their name, or in any of the other conditions
enumerated in the foregoing paragraph.
3. The imposition, modification or cancellation of liens of any class whatsoever which encumber
vessels.]
ARTICLE 23. As a general rule, the registration shall be made by virtue of notarial copies of the
documents which the interested party may present.
The registration of notes, bonds, or order and bearer instruments which do not carry mortgages of
immovable property shall be made upon presentation of the certified minutes where in appears the
resolution of the person or persons who made the issue, and the conditions, requisites and guaranties
thereof.
When these guaranties consist of mortgage of immovables, the corresponding instrument shall be
presented for annotation in the mercantile registry.
ARTICLE 24. Unregistered articles of association shall produce effect among the members who
execute them, but they shall not prejudice third person who, however, may make use thereof in so far
as favorable.
ARTICLE 25. All the resolutions or acts which effect an increase or reduction in the capital of
commercial associations, whatever their denomination may be, and those which modify or alter the
conditions of recorded instruments, shall also be recorded in the mercantile registry.
The omission of this requisite shall produce the effects mentioned in the preceding article.
ARTICLE 26. Registered documents shall produce legal effect to the prejudice of third persons only
from the date of their registration, and cannot be invalidated by prior or subsequent unregistered
documents.
ARTICLE 27. [Dotal] instruments [and those] referring to paraphernal property of the merchant’s
wife, not registered in the mercantile registry, shall have no right of preference over other credits.
Immovable property and real rights over them, acquired by the wife prior to the creation of the
concurrent credits, shall be excepted.
ARTICLE 28. If a merchant should fail to make in the registry the inscription of the [dotal or]
paraphernal property of his wife, the latter herself may request it or it may be done for her by her
parents, by others or uncles by consanguinity, as well as by those who discharge or may have
discharged the duties of guardians or curators of the wife, [or who constitute or may have constituted
the dowry.]
ARTICLE 29. [Unregistered powers of attorney shall give rise to actions between the principal and the
agent, but they cannot be used to the prejudice of third persons, who, however, may rely thereon in so
far as they may be favorable.]
ARTICLE 30. The mercantile registry shall be public. The registrar shall furnish those who may
request it any data referring to what may appear on the registration sheet of each merchant,
association or vessel. Likewise, he shall issue true copies of the whole or part of said sheet to anyone
who may ask for it in a signed request.
ARTICLE 31. [The commercial registrar shall have under his charge, where there is an exchange,
copies of the daily quotations of the properties negotiated and the exchanges fixed therein.
The copies shall serve as original instruments in all cases of investigation and verfication of exchanges
and quotations on determined dates.]
ARTICLE 32. [The office of commercial registrar shall be filled by the government after a competitive
examination.]

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-one/title-ii-

commercial-registries>

• Title III – Books and Bookkeeping of Commerce

ARTICLE 33. Merchants shall necessarily keep:
1. A book of inventories and balances.
2. A journal.
3. A ledger.
4. A book or books for copies of letters and telegrams.
5. Other books which may be required by special laws.
Associations and companies shall also keep a book or books of minutes, in which shall be entered all
resolutions referring to the progress and operations of the entities, approved at general meetings or at
those of managing boards.
ARTICLE 34. They may also keep other books which they may deem convenient, according to the
system of bookkeeping they may adopt.
These books shall not be subject to the provisions of Article 36; but they may legalize those which they
may consider proper.
ARTICLE 35. Merchants may keep their books personally or through persons whom they authorize for
the purpose. If a merchant does not keep his books personally, authorization shall be presumed
granted to him who keeps them unless there is proof to the contrary.
ARTICLE 36. Merchants shall present the books referred to in Article 33, bound, ruled, and folioed, to
the justice of the peace of the municipality in which they have their commercial establishments in
order that he may put on the first page of each one a signed memorandum of the number of pages
which the book contains. The seal of the justice of the peace legalizing it shall, furthermore, be
stamped on all the pages of each book.
ARTICLE 37. The book of inventories and balance shall begin with the inventory which the merchant
must prepare at the time he starts his operations, and shall contain:
1. An exact statement of the money, securities, credits, notes receivable, movable and immovable
property, merchandise and goods of all kinds, appraised at their true value, and which constitute his
assets.
2. An exact statement of the debts and all kinds of pending obligations, should there be any, and
which form his liabilities.
3. He shall determine, in proper cases, the exact difference between the assets and the liabilities,
which shall be the capital with which he begins his operations.
The merchant shall, furthermore, prepare annually and enter in the same book the general balance of
his business, with the details mentioned in this article, and in accordance with the entries in the
journal, without any reservations or omissions, under his signature and responsibility.
ARTICLE 38. In the journal shall be entered as the first item the result of the inventory mentioned in
the preceding article, divided into one or various consecutive accounts, according to the system of
bookkeeping adopted.
Thereafter, all his operations shall follow day by day, each entry stating the credit and debit of the
respective accounts.
When the operations are numerous, whatever their importance may be, or when they have taken place
outside the domicile, those referring to each account and which have taken place in each day may be
included in a single entry, but observing in their statement, if itemized, the same order in which they
took place.
Likewise, the amounts which the merchant uses for his household expenses shall be entered on the
date on which they are withdrawn from the funds, and they shall be carried into a special account to
be opened for that purpose in the ledger.
ARTICLE 39. The accounts referring to each object or person in particular shall, furthermore, be
opened with Debit and Credit in the ledger, and to each of these accounts shall be transferred, in strict
order of dates, the entries in the journal referring to them.
ARTICLE 40. In the book of minutes which each association shall carry shall be entered verbatim the
resolutions agreed upon at its meetings or at those of its managers, stating the date of each one,
those present in them, the votes cast, and other matters conducive to an exact knowledge of what as
agreed upon, authenticated with the signatures of the managers, directors or administrators charged
with the management of the association or designated by the by-laws or regulations by which it is
governed.
ARTICLE 41. All the letters which a merchant may write regarding his business and the telegraphic
dispatches which he may send shall be transferred, either by hand or by any mechanical means, to the
book for copies., fully and successively by order of dates, including the subscribing clause and the
signatures.
ARTICLE 42. Merchants shall carefully keep, in bundles and in proper order, the letters and
telegraphic dispatches which they may receive relative to their transactions.
ARTICLE 43. Besides complying with and fulfilling the conditions and formalities prescribed in this
title, merchants must keep their books with clearness, in the order of dates, without blanks,
interpolations, erasures or blots, and without showing signs of having been altered by substituting or
tearing out folios, or in any other manner whatsoever.
ARTICLE 44. Merchants shall correct the errors or omissions which they may make in entering in their
books, immediately upon noticing them, explaining clearly in what they consisted, and writing the
entry as it should have been written.
If some time should have elapsed since the error was committed or since the omission was incurred,
they shall make the proper entry of correction, adding on the margin of the erroneous entry a
memorandum indicating the correction.
ARTICLE 45. No judge or court or authority may, on his own initiative, make an inquiry to ascertain if
merchants keep their books in accordance with the provisions of this Code, nor make a general
investigation or examination of the bookkeeping in the offices or counting-houses of merchants.
ARTICLE 46. [Neither may the communication, delivery or general examination of the books,
correspondence and other documents of merchants, be decreed at the instance of a party, except in
the cases of liquidation, universal succession or bankruptcy.]
ARTICLE 47. [Outside of the cases mentioned in the preceding article, the exhibition of the books and
documents of merchants may be decreed at the instance of a party or at the initiative of the court,
only when the person to whom they belong has an interest or responsibility in the case in which the
exhibition is made.
The examination shall be made in the counting-house of the merchant, in his presence or in that of the
person whom he commissions, and shall be limited to the points related to the question at issue; these
being the only ones that may be verified.]
ARTICLE 48. In order to measure the probative force of the books of merchants, the following rules
shall be observed:
1. The books of merchants shall be evidence against themselves, no proof to the contrary being
admissible; but the adverse party cannot accept the entries which may be favorable to him and reject
those which may prejudice him, but having accepted this means of proof, he shall be bound by the
result which it may show in its entirety, taking into equal consideration all the entries relative to the
question in litigation.
2. If there should be a conflict in the entries of the books kept by two merchant, and those of one
should have been kept with all the formalities mentioned in this title, and those of the other should
suffer from any defect or should lack the requisites prescribed by this Code, the entries of the books
properly kept shall be admitted against those of the defective one. unless the contrary is shown by
means of other evidence admissible in law.
3. If one of the merchants should not present his books or should manifest that he does not have
them, those of his adversary, kept with all the legal formalities, shall be admitted against him, unless it
is shown that the absence of such books is due to force majeure, and always saving proof by other
means admissible in suits against the entries exhibited.
4. If the books of the merchants should have all the legal requisites and should be contradictory, the
court shall decide by the other proofs, weighing them according to the general rules of law.
ARTICLE 49. Merchants and their heirs or successors shall keep the books, telegrams, and
correspondence of their business in general, during all the time that this may last and for five years
after the liquidation of all their business and commercial affairs.
Documents which specially concern specific acts or transactions may be rendered useless or destroyed
upon the laps of the prescriptive period of the actions which may arise therefrom, unless some
questions referring directly or indirectly to them should be pending, in which case, they must be kept
until the conclusion thereof.

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-one/title-iii-books-

and-bookkeeping-of-commerce>

• Title IV – General Provisions Relating to Commercial Contracts

ARTICLE 50. Commercial contracts, in everything relative to their requisites, modifications,
exceptions, interpretations and extinction and to the capacity of the contracting parties, shall be
governed in all matters not expressly provided for in this Code or in special laws, by the general rules
of the civil law.
[Telegraphic correspondence shall only be the basis of an obligation between contracting parties who
have previously admitted this medium in a written contract, and provided the telegrams fulfill the
conventional conditions or conventional signs which may have been previously fixed and agreed to by
the contracting parties.]
ARTICLE 51. Commercial contracts shall be valid and shall give rise to obligations and causes of
action in suits, whatever the form and language in which they may be executed, the class to which
they may belong, and the amount they may involve, provided their existence is shown by any means
established by the civil law. However, the testimony of witness alone shall not be sufficient to prove
the existence of a contract which involves an amount exceeding 1,500 pesetas unless supported by
some other evidence.
ARTICLE 52. From the provisions of the preceding article shall be excepted:
1. Contracts which, in accordance with this Code or with special laws, must be reduced to writing or
require forms or formalities necessary for their efficacy.
2. Contracts executed in a foreign country in which the law requires certain instruments, forms or
formalities for their validity, although Philippine law does not require them.
In either case, contracts which do not satisfy the circumstances respectively required shall not give
rise to obligations or causes of action.
ARTICLE 53. Illicit agreements do not give rise to obligations or causes of action even should they
refer to commercial transaction.
ARTICLE 54. Contracts entered into by correspondence shall be perfected from the moment an
answer is made accepting the offer or the conditions by which the latter may be modified.
ARTICLE 55. Contracts in which an agent or broker intervenes shall be perfected when the
contracting parties shall have accepted his offer.
ARTICLE 56. In a commercial contract in which a penalty for indemnification against the party failing
to comply therewith is fixed, the injured party may demand through legal means the fulfillment of the
contract or the penalty stipulated; but the recourse to one of these actions shall extinguish the other
unless the contrary is stipulated.
ARTICLE 57. Commercial contracts shall be executed and complied with in good faith, according to
the terms in which they were made and drawn up, without evading through arbitrary interpretations
the plain, proper and usual meaning of the spoken or written words, or limiting the effects which are
naturally derived from the manner in which the contracting parties may have expressed their will and
contracted their obligations.
ARTICLE 58. If a discrepancy should appear between the copies of a contract which the contracting
parties present, and, in its execution, an agent or broker should have intervened, that which appears
in the books of the latter shall prevail provided they are kept in accordance with law.
ARTICLE 59. If doubts which cannot be decided in accordance with what is provided in Article 2 of
this Code should arise, the question shall be decided in favor of the debtor.
ARTICLE 60. In all computations of days, months and years, it shall be understood that a day has
twenty four hours, the months as designated in the Gregorian calendar, and the year has three
hundred sixty-five days.
Bills of exchange, promissory notes, and loans, with respect to which that specially provided for them
by this Code shall govern, are excepted.
ARTICLE 61. Days of grace, courtesy or others which under any name whatsoever defer the
fulfillment of commercial obligations, shall not be recognized, except those which the parties may have
previously fixed in the contract or which are based on a definite provision of law.
ARTICLE 62. Obligations which do not have a period previously fixed by the parties or by the
provisions of this Code, shall be demandable ten days after having been contracted if they give rise
only to an ordinary action, and on the next day if they involve immediate execution.
ARTICLE 63. The effect of default in the performance of commercial obligations shall commence:
1. In contracts with a day for performance fixed by the will of the parties or by the law, on the day
following their maturity.
2. In those which do not have such day fixed, from the day on which the creditor makes a judicial
demand on the debtor or notifies him of the protest for loss and damages made against him before a
judge, notary or other public official authorized to admit the same.

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-one/title-iv-general-

provisions-relating-to-commercial-contracts>

• Title V – Places and Buildings for Commercial Transactions

SECTION ONE
Commercial Exchanges
[ARTICLE 64. Legally authorized public establishments in which merchants and licensed intermediary
agents usually assemble to agree upon or carry out the commercial transactions mentioned in this
section shall be called commercial exchanges.
[ARTICLE 65. The government may establish or authorize the creation of commercial exchanges
wherever it may deem it convenient. LPrE05
Associations established in accordance with this Code may also create them, provided the power to do
so is one of the objects thereof.
Notwithstanding this, in order that the quotations of transactions effected and published in this kind of
exchanges may have an official character, it shall be necessary for the Government to authorize said
transactions before becoming the subject of the public traffic, shown by the quotation. iatdc2005
The Government may grant such authorization, after procuring the information which it may consider
necessary regarding its public convenience.
[ARTICLE 66. Existing commercial exchanges, as well as those newly created, shall be governed by
the provisions of this Code.
[ARTICLE 67. The following shall be the subject of transactions on exchange:
 1. Public bonds and securities.
2. Industrial and commercial securities issued by private parties or associations or enterprises
legally constituted.
3. Bills of exchange, drafts, promissory notes, and any other commercial papers.
4. The sale of precious metals, in coin or bullion.
5. Merchandise of all kinds and warehouse receipts.
6. The insurance of commercial effects against land or marine risks.
7. Transportation and freightage, bills of lading, and waybills.
8. Any other transactions similar to those mentioned in the foregoing subdivisions, provided they
are lawful.
The bonds and securities referred to in subdivisions 1 and 2 of this article shall only be included in the
official quotations when their negotiation is authorized, in accordance with Article 65, in the exchanges
of private constitution, or which are declared negotiable on the exchanges officially established.
[ARTICLE 68. In order to include them in the official quotations treated of in the foregoing article,
under the designation of public securities shall be understood:
1. Those which by means of an issue represent credits against the State, provinces, or
municipalities, and are legally recognized as negotiable on exchange.
2. Those issued by foreign nations, if their negotiation has been duly authorized by the government
after a report of the board of directors of the association of money brokers.
[ARTICLE 69. There may also be included in the official quotations, as a matter of traffic on exchange,
instruments of credit payable to bearer issued by national establishments, companies, or enterprises in
accordance with law and the by-laws of the same, provided that the resolution authorizing their issue,
with all the other requisites enumerated in Article 21, are duly recorded in the commercial registry, as
well as in those of property, when on account of their nature, this should be done, and provided that
these details have been previously reported to the board of directors of the association of money
brokers.
[ARTICLE 70. In order to include in the official quotations as a matter of traffic on exchange, credit
instruments payable to bearer of foreign enterprises established in accordance with the laws of the
State in which said enterprises are situated, the previous authorization of the board of directors of the
association of money brokers shall be necessary, after it has been proved that the issue has been
made in accordance with law and the by-laws of the company which issues the same, and that all the
requisites prescribed in the said provisions have been complied with, and provided there exist no
reasons of public interest which may make them objectionable.
[ARTICLE 71. Instruments or securities issued by private parties can not be included in the official
quotations without the authority of the board of directors of the association of money brokers, which
shall always be granted when they are mortgage bonds or are sufficiently guaranteed in their
judgment and under their liability.
[ARTICLE 72. The following can not be included in the official quotations:
1. Instruments or securities issued by companies or copartnerships not recorded in the commercial
registry.
2. Instruments or securities issued by associations which, although recorded in the commercial
registry, have not made the issue in accordance with this Code or with special laws.
[ARTICLE 73. The regulations shall fix the days and hours on which the meetings of the exchanges
established by the Government or by private parties are to be held, after they have acquired an official
character, and all that relates to their interior government and police, which shall in each one of them
be in charge of the board of directors of the association of money brokers. The Government shall fix
the schedule of the fees of the brokers.]
SECTION TWO
Transactions on Exchange
[ARTICLE 74. Every person, be he a merchant or not, may make contracts relating to public
instruments, or industrial or commercial securities, without the intervention of a licensed money
broker; but said contracts shall have no more value than arises from their form and which is granted
them by the common law.
[ARTICLE 75. Transactions which take place on exchange shall be complied with under the conditions
and in the manner and form agreed upon by the contracting parties, and can be either for cash or on
time, definite or optional, with or without brokerage, stating at the time of announcing the same the
conditions which may have been stipulated in each transaction. All these transactions may be binding
and the basis of actions before courts.
[ARTICLE 76. Transactions for cash made on exchange must be consummated on the same day of
their execution, or at the utmost, in the time intervening until the next meeting of the exchange.
The seller shall be under the obligation to deliver, without further delay, the instruments or securities
sold and the purchaser to receive them, satisfying their price immediately. Transactions on time and
conditional ones shall be consummated in the same manner at the time agreed upon.
[ARTICLE 77. If the transactions take place through a licensed money broker, the latter being silent
regarding the name of the principal, or between agents with the same conditions, and the licensed
agent, vendor, or purchaser delays the fulfilment of the agreement, the person prejudiced by the delay
may choose in the exchange itself between abandoning the contract, denouncing it to the board of
directors, or demanding the compliance of the same.
In the latter case it shall be consummated through one of the members of the board of directors by
purchasing or selling the public instruments agreed upon for account and risk of the tardy agent,
without prejudice to the suit of the latter against the principal. The board of directors shall order the
realization of that part of the bond of the tardy agent necessary to immediately satisfy these
differences.
In transactions involving industrial and commercial instruments, metals, or merchandise, the person
who delays or refuses to consummate a contract shall be compelled to comply therewith by means of
the actions which may be proper according to the prescriptions of this Code.
[ARTICLE 78. Whenever any transaction which can be quoted has been agreed upon, the money
broker who may have taken part therein shall make a signed memorandum thereof, delivering it
immediately to the announcer, who, after reading it aloud, shall transmit it to the board of directors.
[ARTICLE 79. The transactions which take place through a licensed broker, involving bonds or public
instrument, shall be announced aloud immediately upon being agreed upon, without prejudice to
transmitting the proper memorandum to the board of directors. Other contracts shall be made known
in the quotation bulletin, stating the maximum and minimum price of the purchases of merchandise,
transportation and freightage, the rate of discount, and that of the exchanges for drafts and loans.
[ARTICLE 80. The boards of directors shall meet after the exchange hours, and in view of the
negotiations of public instruments which result from the memoranda delivered by the licensed brokers,
and with the notice of sales and other operations in which the same took part, it shall prepare the lists
of quotations, transmitting a certified copy thereof to the commercial registry.]
SECTION THREE
Other Public Places for Transactions — Fairs, Markets, and Shops
[ARTICLE 81. The Government, as well as commercial associations which fulfill the conditions
mentioned in article 65 of this Code, may establish exchanges or commercial agencies.
[ARTICLE 82. The competent authority shall announce the place and time of holding fairs and the
police regulations which are to be observed in the same.
[ARTICLE 83. Sale and resale contracts executed at fairs may be for cash or on time; the former must
be complied with on the same day of their execution, or, at the utmost, within the following twenty-
four hours.
After this time has elapsed without either of the contracting parties having demanded its compliance,
they shall be considered null, and the deposits or earnest-money which may have been delivered shall
be forfeited to the person who received the same.
[ARTICLE 84. Questions which may arise at fairs regarding contracts executed at the same shall be
decided in an oral trial by the municipal judge of the town in which the fair is held, in accordance with
the prescriptions of this Code, provided the value of the article in litigation does not exceed 1,500
pesetas.
Should there be more than one municipal judge, the one selected by the plaintiff shall be the one of
complete jurisdiction.
[ARTICLE 85. The purchase of merchandise from warehouses or shops open to the public shall cause
the forfeiture of the right in favor of the purchaser with regard to the merchandise acquired, reserving
in a proper case the rights of the owner of the merchandise sold to institute the civil or criminal actions
which may be proper against the person who sold the same without having a right to do so.
For the purposes of this forfeiture, as warehouses or shops open to the public shall be considered:
1. Those which may be established by recorded merchants.
2. Those established by merchants who are not recorded, provided the warehouses or shops remain
open to the public for a period of eight consecutive days, or that they have been announced by means
of signs, cards, or posters, in the places themselves, or through circulars distributed to the public or
inserted in the newspapers of the locality.
[ARTICLE 86. The money in which the payment of merchandise bought for cash is effected, in shops
or public establishments, shall not be recoverable.
[ARTICLE 87. Purchases and sales which take place in establishments shall always be presumed as
made for cash unless there is proof to the contrary.]
Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-one/title-v-places-
and-buildings-for-commercial-transactions>

• Title VI – Commercial Agents and Their Respective Obligations

SECTION ONE
General Provisions Common to Commercial Agents
[ARTICLE 88. The following shall be subject to the commercial laws as commercial agents:
1. Money and stock brokers.
2. Commercial brokers.
3. Ship-broking interpreters.
[ARTICLE 89. The services of stock brokers or agents no matter what may be their class, may be
rendered by Filipinos and foreigners; but licensed agents and brokers only may issue certifications.
The means of proving the existence and conditions of instruments or contracts in which agents who
are not licensed take part shall be those established by the commercial or common law to justify
obligations.
[ARTICLE 90. In every commercial center there may be established an association of stock brokers,
another of commercial brokers, and in maritime centers one of ship-broking interpreters.
[ARTICLE 91. The associations treated of in the foregoing article shall be composed of the individuals
who may have obtained the proper certificate of possessing the qualifications required by this Code.
[ARTICLE 92. At the head of each association there shall be a board of directors elected by the
members.
[ARTICLE 93. The licensed agents shall have the character of notaries in all that refers to the
negotiation of public instruments, industrial and commercial securities, merchandise, and the other
commercial acts included in their office in the respective center.
They shall keep a registry book in accordance with the prescriptions of Article 36, entering therein in
proper order, separately and daily, all the transactions in which they may have taken part, being
moreover permitted to keep other books with the same formalities.
The books and policies of licensed agents shall be admitted as evidence in suits.
[ARTICLE 94. In order to become a member of any of the associations referred to in Article 90, it shall
be necessary:
1. To be a Spaniard or a naturalized foreigner.
2. To have capacity to trade in accordance with this Code.
3. Not to be suffering any correctional or punitive penalty.
4. To prove good moral conduct and well known honesty by means of a judicial report of three
recorded merchants.
5. To constitute in the depository, or in the Spanish Philippine Bank (Banco Español Filipino), the
bond fixed by the Government.
6. To obtain from the Governor-General, after a report from the board of directors, the provisional
certificate, which shall be presented in the colonial department for the royal confirmation, which must
be issued free of charge within the period of six months from the date on which it was executed.
[ARTICLE 95. It shall be the obligation of licensed agents:
1. To assure themselves of the identity and legal capacity to trade of the persons in whose affairs
they act, and, if proper, of the legitimacy of the signatures of the contracting parties.
When the latter do not have the free disposition of their property, agents can not act without
previously obtaining the authorization prescribed by law.
2. To submit the transactions with exactness, precision, and clearness, abstaining from making
suppositions which might lead the contracting parties into error.
3. To preserve secrecy in all that refers to the business they may transact and not reveal the names of
the persons who in trust the same to them, unless it is otherwise required by law, or by the character
of the transactions, or if the persons interested consent to their names being made public.
4. To issue at the expense of the persons interested, who may request them, certificates of the
respective entries of their contracts.
[ARTICLE 96. Licensed agents can not:
1. Trade for their own account.
2. Constitute themselves underwriters of commercial risks.
3. Negotiate securities or merchandise for the account of individuals or associations which have
suspended payments, or which have been declared in bankruptcy or insolvent, unless they have
obtained their discharge.
 4. Acquire for themselves the effects the negotiation of which was intrusted to them, except in case
the agent is to answer for noncompliance of the purchaser to the vendor.
5. Issue certifications which do not directly refer to facts which appear in the entries on their books.
6. Discharge the duties of cashiers, bookkeepers, or employees of any merchant or commercial
establishment.
[ARTICLE 97. The persons violating the provisions of the preceding article shall be removed from their
office by the Government, after hearing the board of directors and the interested party, who may
appeal from this decision through administrative litigation (via contenciosa administrativa).
They shall, moreover, be civilly liable for the damage caused by any neglect of the obligations of their
office.
[ARTICLE 98. The bonds of stock brokers, commercial brokers, and ship-broking interpreters shall be
specially liable for the results of the business of their office, the persons prejudiced having a right of
preferred real action against the same without prejudice to any others which may be proper according
to law.
This bond can not be restored, notwithstanding that the agent ceases in the discharge of his office,
until the period fixed in Article 946 has elapsed, unless a claim has been filed within the same period.
The bond shall only be subject to liabilities not connected with the office when those of the latter are
first fully secured.
If the bond is divided by the liabilities to which it is subject, or its real value is diminished for any
reason whatsoever, it must be replaced by the agent within the period of twenty days.
[ARTICLE 99. In case of disability, incapacity, or suspension from office of stock brokers, commercial
brokers, or ship-broking interpreters the books which they are to keep in accordance with this Code
shall be deposited in the commercial registry.]
SECTION TWO
Licensed Money and Stock Brokers
[ARTICLE 100. Money and stock brokers shall be authorized to:
1. Take part privately in negotiations and transfers of all kinds of public instruments or securities
which can be quoted, defined in Article 68.
2. Take part, in concurrence with commercial agents, in all other exchange transactions and
contracts, subject to the liabilities appertaining to these transactions.
[ARTICLE 101. Stock agents who take part in purchase or sale contracts or in other transactions for
cash or on time shall be liable to the purchaser for the delivery of the instruments or securities
involved in said transactions and to the vendor for the payment of the price or indemnity agreed upon.
[ARTICLE 102. Stock brokers shall enter in their books, in correlative numerical order and by dates,
all the transactions in which they take part.
[ARTICLE 103. Stock brokers shall deliver to each other a signed memorandum of every transaction
agreed upon, on the same day on which it took place. Another memorandum, signed in the same
manner, shall be delivered to their constituents, and the latter shall deliver one to the agents, stating
their acquiescence with the terms and conditions of the transaction.
The memoranda or policies which agents deliver to their constituents, and those which they mutually
issue, shall be evidence against the agent who subscribes them in all cases of claims which may arise
by virtue thereof.
In order to determine the amount which can be claimed, the board of directors shall issue a certificate
stating the difference in cash which appears against the constituents in view of the memoranda of the
transaction.
The acquiescence of the constituents, after their signature has been acknowledged in a suit, shall
include an execution, provided the certificate of the board of directors mentioned in the preceding
paragraph is presented.
[ARTICLE 104. Stock agents, besides the obligations common to all agents enumerated in Articles
95, 96, 97, and 98, shall be civilly liable for the industrial or commercial instruments or securities
which they may sell after the denunciation of said securities as illegitimate has been made public by
the board of directors.
[ARTICLE 105. The president, or the person acting in his stead, and two members at least of the
board of directors shall always be present at the meeting of the exchange in order to decide what may
be proper in the cases which may arise.
The board of directors shall fix the rate of the monthly liquidations in closing the exchange on the last
day of each month, taking as a basis the average of the quotations of the same day.
The same board shall be in charge of receiving the partial liquidations and preparing the general one
of the month.]
SECTION THREE
Licensed Commercial Brokers
[ARTICLE 106. Besides the obligations common to all commercial agents enumerated in Article 95,
licensed commercial brokers shall be under the obligation:
1. To answer legally for the authenticity of the signature of the last conveyer in negotiations of bills
of exchange and other negotiable paper.
2. To take part and certify, in contracts of purchase and sale, to the delivery of the paper and to its
payment, if the persons interested demand it.
3. To collect from the conveyer and deliver to the buyer the drafts or negotiable paper which may
have been negotiated through him.
4. To collect from the buyer and deliver to the conveyer the value of the bills of exchange or
negotiable paper which is negotiated.
[ARTICLE 107. Licensed brokers shall enter in their books in separate entries all the transactions in
which they may have taken part, stating the names and the domiciles of the contracting parties and
the subject and conditions of the contracts.
In sales they shall state the quality, amount, and price of the article sold, place and date of the
delivery, and the manner in which the price is to be paid.
In negotiations of bills of exchange, they shall enter the dates, places of issue and payment, terms and
due dates, names of the drawer, endorser and payer, those of the conveyer and purchaser, and the
exchange agreed upon.
In insurance there shall be stated, with reference to the policy, besides the number and date of the
same, the names of the underwriter and of the insured, object of the insurance, its value according to
the contracting parties, the premium agreed upon, and, in a proper case, the place of loading and
unloading, and a precise and exact statement of the ship or of the means of transportation.
[ARTICLE 108. Within the day on which the contract is executed, the licensed brokers shall deliver to
each one of the contracting parties a signed memorandum containing all that the latter may have
agreed to.
[ARTICLE 109. In cases in which, on account of the convenience of the parties, a written contract is
executed, the broker shall certify at the foot of the duplicates and shall keep the originals.
[ARTICLE 110. Licensed brokers may, in concurrence with the ship-broking interpreters, discharge the
duties of the latter subjecting themselves to the prescriptions of the following section of this title.
[ARTICLE 111. The association of brokers, where there is not one of agents, shall issue on each day of
negotiation a memorandum of the current exchanges and of the prices of merchandise, for which
purpose two members of the board of directors shall be present at the meeting of the exchange, a
certified copy of said memorandum being transmitted to the commercial registry.]
SECTION FOUR
Licensed Ship-broking Interpreters
[ARTICLE 112. In order to discharge the duties of ship-broking interpreter, besides possessing the
qualifications required of agents in Article 94, it shall be necessary to prove, either by examination or
by a certificate of a public establishment, the knowledge of two modern foreign languages.
ARTICLE 113. The obligations of ship-broking interpreters shall be:
1. To take part in charter contracts, marine insurance, and bottomry bonds, when requested to do
so.
2. To assist captains and supercargoes of foreign vessels and serve as interpreters in the
declarations, protests, and other business which may take place in courts and public offices.
3. To translate the documents that the said foreign captains and supercargoes are obliged to
present in the said offices, provided there arises any doubt regarding their understanding, certifying
that the translations have been well and faithfully made.
4. To represent the same in suits when they, the shipowner or consignee of the vessel, do not
appear.
[ARTICLE 114. It shall furthermore be the obligation of ship-broking interpreters to keep:
1. A copying book for the translations they may make, entering the same literally.
2. A registry of the names of the captains to whom they render the services proper to their office,
stating the flag, name, class, and tonnage of the vessels and the ports of departure and their
destination.
3. A daybook of the contracts of charter in which they take part, stating in each entry the name of
the vessel, its flag, register, and tonnage; those of the captain and of the charterer; value and
destination of the cargo; money in which it is to be paid; advances on the same, should there be any;
the goods of which the cargo consists; conditions agreed upon between the charterer and captain
regarding demurrage, and the date previously fixed on which to commence and finish loading.
[ARTICLE 115. The ship-broking interpreter shall keep one copy of the contract or contracts which
may have been executed between the captain and the charterer.]
Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-one/title-vi-
commercial-agents-and-their-respective-obligations>

BOOK TWO
Special Commercial Contracts
• Title I – Commercial Associations
SECTION ONE
Manner of Establishing Associations and Their Kinds
[ARTICLE 116. Articles of association by which two or more persons obligate themselves to place in a
common fund any property, industry, or any of these things, in order to obtain profit, shall be
commercial, no matter what its class may be, provided it has been established in accordance with the
provisions of this Code.
After a commercial association has been established, it shall have legal representation in all its acts
and contracts.
[ARTICLE 117. Articles of mercantile association, executed with the essential requisites of law, shall
be valid and binding between the parties thereto, no matter what form, conditions, and combinations,
legal and honest, are included therein, provided they are not expressly prohibited by this Code.
The establishment of land, agricultural, issuing, and discount banks, of loan and mortgage loan
associations, of concessionaires of public works, manufacturing, general warehouses, of mines, of the
establishment of principals and life annuities, of insurance and other associations, the purpose of
which is any industrial or commercial enterprise shall be unrestricted.
[ARTICLE 118. Contracts executed between commercial associations and any other persons capable
of binding themselves shall also be valid and binding, provided the same are legal and honest, and
that the requisites mentioned in the following article have been complied with.
[ARTICLE 119. Every commercial association, before beginning its business, must state its articles,
agreements, and conditions in a public instrument, which shall be presented for record in the
mercantile registry, in accordance with the provisions of Article 17.
Additional instruments which modify or alter in any manner whatsoever the original contracts of the
association are subject to the same formalities, in accordance with the provisions of Article 25.
The members can not make private agreements, but all must appear in the articles of association.
[ARTICLE 120. The persons in charge of the management of the association who violate the
provisions of the foregoing article shall be responsible in solidum to the person not members of the
association with whom they may have transacted business in the name of the association.
[ARTICLE 121. Commercial associations shall be governed by the clauses and conditions of their
articles, and in all that is not determined and prescribed therein, by the provisions of this Code.
[ARTICLE 122. As a general rule, commercial associations shall be established by the adoption of any
of the following forms:
1. The regular general copartnership in which all the partners, under a collective and commercial
name, bind themselves to participate, in the proportion they may establish, in the same rights and
obligations.
2. The limited copartnership to which one or more persons contribute a specific amount of capital
to a common fund, to become liable for the business transactions of the firm executed exclusively by
others under a collective name.
3. The corporation, in which the members form the common fund by means of specific parts or
portions, represented by shares or in any other unquestionable manner, leaving its management to
removable managers or administrators, who represent the company under an appropriate
denomination according to the purpose or undertaking for which funds are to be employed.
[ARTICLE 123. Commercial associations may be, according to the character of their operations:
Loan associations.
Banks of issue and discount.
Mortgage loan associations.
Mining associations.
Agricultural banks.
Concessionaires of railroads, tramways, and public works.
General warehouse companies.
And of other kinds, provided their agreements are legal, and industry or commerce is their object.
[ARTICLE 124. Mutual fire insurance companies, companies of tontine life combinations for help in old
age, and companies, of any other class, as well as co-operative companies of production, loan, or
consumption, shall only be considered commercial, and shall be subject to the provisions of this Code
when they are engaged in commercial transactions which are not mutual or when they are converted
into associations charging a fixed premium.]
SECTION TWO
General Copartnerships
[ARTICLE 125. The articles of general copartnership must state:
The names, surnames, and domiciles of the partners.
The firm name.
The names and surnames of the partners to whom the management of the firm and the use of its
signature is intrusted.
The capital which each partner contributes in cash, credits, or property, stating the value given the
latter or the basis on which their appraisement is to be made.
The duration of the copartnership.
The amounts which, in a proper case, are to be given to each managing partner annually for his
private expenses.
There may be also included in the articles the other legal agreements and special conditions which the
partners may wish to make.
[ARTICLE 126. The general copartnership must transact business under the name of all its members,
of several of them, or of one only, it being necessary to add in the latter two cases to the name or
names given the words "and company."
This collective name shall constitute the firm name or signature, in which there shall never be included
the name of a person who is not at the time a partner in the association.
Those who not being members of the partnership, include their names in the firm name shall be
subject to joint liability, without prejudice to the penal liability which may be proper.
[ARTICLE 127. All the members of the general copartnership, be they or be they not managing
partners of the same, are liable personally and in solidum with all their property for the results of the
transactions made in the name and for the account of the partnership, under the signature of the
latter, and by a person authorized to make use thereof.
[ARTICLE 128. The partners not duly authorized to make use of the firm signature shall not make the
company liable through their acts and contracts, even though they execute them in the name of the
latter and under its signature. The civil or criminal liability for these acts shall be incurred exclusively
by the authors thereof.
[ARTICLE 129. If the management of the general copartnerships has not been limited by a special
instrument to one of its members, all of them shall have the right to take part in the direction and
management of the common business and the partners present shall come to an agreement with
regard to all contracts or obligations in which the company may be interested.
[ARTICLE 130. No new obligation shall be contracted against the will of one of the managing partners,
should he have expressly stated it; but if, however, it should be contracted it shall not be annulled for
this reason, and shall have its effects without prejudice to the liability of the partner or partners who
contracted it to reimburse the firm for any loss occasioned by reason thereof.
[ARTICLE 131. Should there be partners especially intrusted with the management, the other
partners can not oppose nor hinder the actions of the former nor prevent their effects.
[ARTICLE 132. When the special power to manage and to use the signature of the copartnership has
been conferred in an express condition of the articles of copartnership, the person who obtained the
same can not be deprived thereof; but should the latter make an improper use of said power, and his
management cause serious damage to the common capital, the rest of the partners may appoint from
among themselves a comanager to take part in all transactions, or they may request the rescission of
the articles before the judge or court of competent jurisdiction, who shall declare them annulled should
such damage be proven.
[ARTICLE 133. In general copartnerships all the partners, be they managing or not, have a right to
examine the condition of the administration and of the bookkeeping and to make the objections which
they may consider proper, in accordance with the agreements contained in the articles of
copartnership or in the general provisions of law.
[ARTICLE 134. Transactions made by the partners in their own names and with their private funds
shall not be communicated to the company nor shall it be liable therefor, provided they are of a kind
that partners may legally make for their own account and risk.
[ARTICLE 135. The partners can not apply the funds of the copartnership nor make use of the firm
signature for business for their own account; and should they do so, they shall lose to the benefit of
the company that part of the profit which in the transaction or transactions made in this manner may
be due them, and the articles of copartnership in so far as they are concerned may be annulled,
without prejudice to the return of the funds they may have made use of, and to indemnify the
copartnership for all losses and damages which it may have suffered.
[ARTICLE 136. In general copartnerships which do not transact business in a specific branch of
commerce their members can not make transactions for their own account without the previous
consent of the copartnership, which can not refuse it without proving that it will suffer thereby
manifest and pecuniary damage.
Partners who do not comply with this provision shall contribute to the common funds the profit they
may derive from these transactions and they shall individually suffer the losses should there be any.
[ARTICLE 137. If the copartnership should have determined in its articles of copartnership the branch
of commerce in which it is to engage, the partners may legally transact any commercial business they
may desire, provided it does not belong to the kind of transactions the copartnership of which they are
partners is engaged in, unless there is a special agreement to the contrary.
[ARTICLE 138. An industrial partner (socio industrial) can not engage in any kind of business
transactions whatsoever, unless expressly permitted to do so by the company, and should he do so the
capitalist partners (socios capitalistas) may, at their option, remove them from the company, depriving
them of the profits due them in the same, or they may enjoy the profits said partner may have
obtained in violation of this provision.
[ARTICLE 139. In general or in limited copartnerships, no partner may remove or divert from the
common funds a larger amount than that assigned to each one for his personal expenses; should he do
so, he may be compelled to repay it as if he had not completed the portion of the capital which he
bound himself to contribute to the copartnership.
[ARTICLE 140. Should there not have been stated in the articles of copartnership the portion of the
profits to be received by each partner, said profits shall be divided pro rata in accordance with the
interest each one may have in the copartnership, the industrial partners, if there are any, should be
considered in the distribution of profits as among the partners who have contributed the smallest
capital.
[ARTICLE 141. Losses shall be computed in the same proportion among the capitalist partners
without including the industrial partners, unless by special agreement the latter have been constituted
as participants therein.
[ARTICLE 142. The copartnership must reimburse the partners of the expenses they may incur, and
indemnify them for the damages they may suffer, when caused immediately and directly by the
business which the former may intrust to them; but it shall not be bound to indemnify for the losses
the partners may incur by their own fault, in an accidental case, or on account of any other reason,
independent of the business, during the time they were transacting the same.
[ARTICLE 143. No partner can transfer to another person the interest he may have in the
copartnership, nor can he substitute another person in his place for the discharge of the work under his
charge in the partnership administration, without the previous consent of the partners.
[ARTICLE 144. The damage suffered by the copartnership by reason of malice, abuse of powers, or
serious negligence on the part of one of the partners, shall obligate the author thereof to indemnify it,
should the other partners request it, provided an express or virtual approval or ratification of the act
on which the claim is based can not be deduced in any manner whatsoever.]
SECTION THREE
Limited Copartnerships
[ARTICLE 145. The same statements shall be included in the articles of limited partnerships which are
required for those of general copartnerships.
[ARTICLE 146. Limited copartnerships must transact business under the name of all the general
members thereof, of several of them, or of one only, it being necessary to add in the latter two cases
to the name or names given, the words "and company" and in all cases the words "limited
copartnership".
[ARTICLE 147. This collective name shall constitute the firm name, in which there may never be
included the names of limited partners.
Should any limited partner include his name or permit its inclusion in the firm name, he shall be
subject, with regard to persons not members of the copartnership, to the same liabilities as the
managing partners, without acquiring any more rights than those corresponding to his character of a
limited partner.
[ARTICLE 148. All the general members of the copartnership, be they or be they not managing
partners of the limited copartnership, shall be liable personally and in solidum for the results of the
transactions of the latter in the same manner and to the same extent as in general copartnerships, as
set forth in Article 127.
They shall furthermore have the same rights and obligations which are prescribed in the foregoing
sections for partners in general copartnerships. The liability of limited partners for the obligations and
losses of the copartnership shall be limited to the funds which they contributed or bound themselves to
contribute to the limited copartnership, with the exception of the case mentioned in Article 147.
Limited partners can not take any part whatsoever in the management of the interests of the
copartnership, not even in the capacity of special agents of the managing partners.
[ARTICLE 149. The provisions of Article 144 shall be applicable to partners in limited copartnerships.
[ARTICLE 150. Limited partners can not examine the condition and situation of the management of
the partnership except at the times and under the penalties prescribed in the articles of copartnership
or in additional ones.
Should the articles not contain any provision of this character the balance of the copartnership shall
necessarily be communicated to the limited copartners at the end of the year, exhibiting for a period
which can not be less than fifteen days the exact data and documents proving said balance and
permitting the transactions to be understood.
SECTION FOUR
Corporations
[ARTICLE 151. The articles of incorporation must include:
The names, surnames, and domiciles of the incorporators.
The name of the corporation.
The designation of the person or persons who are to direct the affairs of the same and the manner
of filling vacancies.
The corporation capital, stating the value at which property, not cash, contributed has been
appraised, or the basis on which the appraisement is to be made.
The number of shares into which the corporation capital is divided and represented.
The period or periods within which the portion of the capital not subscribed at the time of
incorporation is to be contributed, otherwise stating the person or persons authorized to determine the
time and manner in which the assessments are to be made.
The time the corporation is to continue in existence.
The transactions the capital is to be employed in.
The periods and manner of calling and holding general ordinary meetings of members, and the
cases and manner of calling and holding extraordinary ones.
The submission to the vote of the majority of the meeting of members, duly called and held, of such
matters as may properly be brought before the same.
The manner of counting and constituting the majority, in order to adopt binding resolutions, at
ordinary as well as at extraordinary meetings.
There may furthermore be included in the articles all legal agreements and special conditions the
members may agree to.
[ARTICLE 152. The name of a corporation shall be adequate to the purpose or purposes of the branch
of business adopted.
No name can be adopted identical with that of a pre-existing corporation.
[ARTICLE 153. The liability of the members of a corporation for the obligations and losses of the same
shall be limited to the funds they contributed or bound themselves to contribute to the corporate
capital. iatdclet
[ARTICLE 154. The corporate capital, composed of the stock and of the accrued profits, shall be liable
for the obligations contracted in its management and administration by a person legally authorized
thereto and in the manner prescribed in the articles of incorporation, by-laws, or regulations.
[ARTICLE 155. The managers of corporations shall be designated by the members thereof in the
manner determined in the articles or incorporation, by-laws, or regulations.
[ARTICLE 156. The managers of a corporation are its agents, and during the time they observe the
rules of the commission they shall not be subject to personal nor to joint liability on account of the
corporation business; and if by reason of infraction of the laws and the statutes of the corporation, or if
by acting in violation of the legitimate resolutions adopted at general meetings, they should incur
losses, and there should be several persons responsible therefor, each one of the latter shall answer
pro rata.
[ARTICLE 157. Corporations are under the obligation to publish monthly in the Gaceta de Madrid
detailed balance of the business, stating the rate at which the balance on hand in securities is
calculated, as well as all kinds of property, the prices of which can be quoted on exchange.
[ARTICLE 158. The members or stockholders of corporations can not examine the management
thereof nor make any investigation with regard thereto except at the times and in the manner
prescribed by their statutes and regulations.
[ARTICLE 159. Corporations existing prior to the publication of this Code, and which are still governed
by their regulations and by-laws, may choose between continuing to be governed thereby or by the
provisions of this Code.]
SECTION FIVE
Shares
[ARTICLE 160. The common capital of limited copartnerships belonging to the special partners and
that of corporations may be represented by shares or other equivalent certificates.
[ARTICLE 161. The shares may be payable to order or to bearer.
[ARTICLE 162. The shares payable to order must be recorded in a book which the copartnership or
corporations shall keep for this purpose, and in which subsequent transfers shall be entered.
[ARTICLE 163. The shares payable to bearer shall be enumerated, and shall be recorded in stub
books.
[ARTICLE 164. In all certificates of shares, either payable to order or to bearer, there shall always be
entered the sum which has been paid on account of its nominal value or that they are fully paid.
In shares payable to order, until the full value thereof has been paid, the first subscriber or holder of
the share, his assignee, and each person succeeding the latter, should they be transferred, shall
answer of the payment of the portion not contributed, jointly and at the option of the directors of the
corporations, against whose liability, thus determined, no agreement whatsoever suppressing it can be
established.
After an action to enforce said liability has been instituted against any of the persons mentioned in the
foregoing paragraph no new action against any other of the holders or assignees of the shares can be
instituted, except when it is proved that the person who was first or previously proceeded against is
insolvent.
When shares not fully paid for are payable to bearer the persons who appear as the holders thereof
only shall be liable for the payment of their share. Should they not appear, making a personal claim
impossible, the corporations or copartnerships may resolve to annul the certificates corresponding to
the shares on which the requisite quotas for the full payment of the value of each one have not been
satisfied. In such case the copartnerships or corporations shall have the right to issue duplicate
certificates of the same shares, in order to convey them for and against the account of the defaulting
holders of the certificates annulled.
All shares shall be payable to order until 50 per cent of their nominal value has been paid in. After said
50 per cent has been paid in they may be converted into shares payable to bearer, if it is thus resolved
upon by the copartnership or corporations in their by-laws or by means of special acts subsequent to
the same.
[ARTICLE 165. New series of stock can not be issued before the total payment of the series previously
issued has been made. Any agreement to the contrary included in the articles of co-partnership or of
corporation, in the by-laws or regulations, or any resolution adopted at a general meeting of members
in opposition to this precept shall be null and of no value.
[ARTICLE 166. Corporations may only purchase their own shares with the profits of their capital for
the purpose of amortization.
In case of a reduction in the corporate capital, when it is proper in accordance with the provisions of
this Code, there may also be amortization with a portion of said capital, the legal measures which may
be considered advisable being employed.
[ARTICLE 167. Corporations can never give guaranties by pledging their own shares.
[ARTICLE 168. Corporations sitting in a general meeting of stockholders previously called for the
purpose shall have the power to resolve upon the reduction or increase of the corporate capital.
In no case can these resolutions be adopted at ordinary meetings unless it was stated, in the call or
sufficient time in advance, that an increase or reduction of the capital would be discussed and voted
upon.
The by-laws of each corporation shall fix the number of members and the amount of capital which shall
be required to be present at meetings at which said capital is to be reduced or increased or in which
the modification or dissolution of the corporation is to be treated of. In no case shall it be less than
three-fourths of the number of the former and two-thirds of the nominal value of the latter.
The directors may immediately take steps to carry out the resolution of reduction adopted legally at a
general meeting if the capital remaining after said reduction has been made exceeds 75 per cent of
the amount of the debts and obligations of the corporation. Otherwise the reduction can not take place
until all the debts and obligations pending at the date of the resolution have been liquidated and paid,
unless the copartnership or corporation obtains the previous consent of its creditors.
For the execution of this article the directors shall present to the judge or court an inventory, in which
the stock held shall be appraised at the average quotation for the last quarter and the property by a
capitalization of the profits accruing there from according to the legal rate of interest on money.
[ARTICLE 169. Funds belonging to foreigners invested in corporations shall not be subject to reprisals
in case of war.]
SECTION SIX
Rights and Obligations of Members
[ARTICLE 170. If within the period agreed upon any member does not contribute to the common
funds the amount of capital he has obligated himself to contribute, the association may choose
between proceeding to obtain an execution against his property to recover the portion of capital not
contributed, or to rescind the contract with regard to the member in default, retaining the amounts
which belong to him in the common capital.
[ARTICLE 171. A member who, for any reason whatsoever, delays the full contribution of his capital,
after the period fixed in the articles of association has elapsed, or should said period not have been
fixed therein, from the time the fund is established, shall pay into the common funds the legal interest
on the money he has not delivered at the proper time and the amount of the damages and losses he
may have occasioned by reason of him default.
[ARTICLE 172. When the capital or the part thereof which a partner is to contribute consists of
property, the appraisement thereof shall be made in the manner prescribed in the articles of
association, and should there be no special agreement on the matter the appraisement shall be made
by experts selected by both parties and according to current prices, subsequent increases or
reductions therein being for the account of the association.
In case of disagreement between the experts a third one shall be designated, selected by lot from
among persons of his class who appear as paying the highest taxes in the locality, in order that he may
adjust said disagreement.
[ARTICLE 173. The managers or directors of commercial associations can not refuse to permit
partners or stockholders to examine all the vouchers of the balances drawn up showing the condition
of the management, with the exception of the provisions of Articles 150 and 158.
[ARTICLE 174. The creditors of a member shall not have, with regard to the association, not even in
the case of the failure of the same, any further right than that of attaching and collecting the amounts
which may be due the debtor partner by reason of profits or liquidation. The provisions contained in
the latter part of the foregoing paragraph shall not be applicable to stock companies, except when said
stock is payable to order, or when the legitimate owner thereof is established without question, should
it be payable to bearer.]
SECTION SEVEN
Special Rules for Loan Associations
[ARTICLE 175. The following transactions are mainly the business of these associations:
1. To receive subscriptions or contract loans for the government, and provincial or municipal
corporations.
2. To acquire public funds and shares or securities of all kinds of industrial undertakings or of loan
associations.
3. To create companies of railroads, canals, factories, mines, docks, general warehouses, lighting,
excavations and breaking of ground, irrigation, drainage, and any other industrial enterprises or those
of public utility.
4. To effect the fusion or transformation of all kinds of commercial associations, and take charge of
the issue of shares or securities of the same.
5. To administer and lease all kinds of taxes and public services, and execute for their own account
or assign, with the approval of the Government, contracts subscribed for the purpose.
6. To sell or give as security all shares, bonds and securities acquired by the association, and
exchange them when they consider it advisable.
7. To make loans on public effects, shares or bonds, produce, commodities, crops, estates,
factories, vessels and their cargoes and other property, and open credits in account current, receiving
as a guaranty property of the same kind.
8. To effect for the account of other associations or persons all kind of collections and payments,
and transact any other business for the account of others.
9. To receive on deposit all kinds of negotiable paper and cash, and keep current accounts with
any corporations, copartnerships, or persons.
10. To draw and discount bills of exchange and other exchange paper.
[ARTICLE 176. Loan associations may issue obligations for an amount equal to that invested in, and
which is represented by securities on hand, in accordance with the provisions of the title relating to the
commercial registry. These obligations shall be payable to order or to bearer at fixed period, which
shall not be less than thirty days in any case, with the amortization, should there be any, and the rate
of interest fixed.]
SECTION EIGHT
Banks of Issue and Discount
[ARTICLE 177. The following is the principal business of these institutions:
Discounts, deposits, current accounts, collections, loans, drafts, and contracts with the Government or
public corporations.
[ARTICLE 178. Banks can not make transactions extending over a period of more than ninety days.
Neither shall they discount drafts, promissory notes, or other commercial paper without the guaranty
of two responsible firms.
[ARTICLE 179. Banks may issue notes payable to bearer, but their admission in business transactions
shall not be compulsory. This privilege of the issue of notes payable to bearer shall continue in
suspense, however, during the time the privilege actually enjoyed by the Spanish Philippine Bank
(Banco Español Filipino), by virtue of special laws, continues.
[ARTICLE 180. Banks shall keep in their vaults in cash at least one-fourth of the amount of the
deposits and current cash accounts and of notes in circulation.
[ARTICLE 181. Banks are under the obligation to change their notes for cash upon their presentation
by the bearer. Non-compliance with this obligation shall give rise to an action to secure a judgment in
favor of the bearer, after a demand for payment, through a notary.
[ARTICLE 182. The value of the notes in circulation, together with the sum represented by the
deposits and current accounts, can not exceed, in any case, the amount of the cash reserve and of the
securities on hand which can be realized within the maximum period of ninety days.
[ARTICLE 183. Banks of issue and discount shall publish, at least once a month, and under the
liability of their directors, statements of their condition in the Gaceta of Manila and in the official
bulletin, where there is one.]
SECTION NINE
Railroads and Other Public Works Companies
[ARTICLE 184. The following are the principal transactions of these companies:
1. The construction of railroads and other public works of any kind whatsoever.
2. The operation thereof, either in perpetuity or during the period of time fixed in the concession.
[ARTICLE 185. The capital stock of the company, together with the subsidy, should there be any, shall
represent at least half the amount of the total estimate of the work.
The companies can not establish themselves before half of the capital stock has been subscribed to
and 25 per cent thereof has been realized.
[ARTICLE 186. Railroad companies and companies of other public works may issue bonds payable to
bearer or to order unrestrictedly and without further limitations than those contained in this Code and
those established in their respective by-laws. These issues must be recorded in the commercial
registry of the province; and if the bonds are mortgage bonds, said issues shall furthermore be
recorded in the escribania or receptoria in charge of the registry of property. The issues of prior dates
shall have preference over subsequent ones for the payment of coupons and for the amortization of
the bonds, should there be any.
[ARTICLE 187. The bonds issued by companies shall be subject to amortization or not, at their option,
and in accordance with the provisions of their by-laws.
Whenever railroads or other public works enjoying a subsidy from the State are in question, or for the
construction of which a legislative or administrative concession was granted, if the concession is
temporary, the bonds issued by the concessionaire company shall be withdrawn by amortization or
extinguished within the period of said concession, and the State shall receive the work at the
termination of this period free from all incumbrances.
[ARTICLE 188. Railroad companies and other public work companies may sell, assign, and transfer
their rights in the respective undertakings, and may also combine with other similar companies.
In order that these transfers and fusions may be effectual, it shall be necessary —
1. That the stockholders unanimously agree thereto, unless it is otherwise prescribed in the by-laws
with relation to a change in the object of the company.
2. That all the creditors of said companies also agree thereto. This consent shall not be necessary
when the purchase or fusion takes place without confounding the guaranties and mortgages and when
the creditors retain their respective rights in full.
[ARTICLE 189. For the transfers and fusions of the companies referred to in the foregoing article no
authorization whatsoever shall be necessary from the government, even though the work has been
declared of public utility for the purpose of the right of the exercise of eminent domain, unless the
company enjoys a direct subsidy from the State, or has been incorporated by a law or other
administrative provision.
[ARTICLE 190. The action to secure an execution referred to in the law of civil procedure with regard
to the due coupons of securities issued by railroad companies and companies of other public works, as
well as with relation to the bonds drawn by lot for amortization, should there be any, can only be
brought against the net receipts of the company and against the other property owned by the same,
which is not a part of the road, or work, nor necessary for the operation.
[ARTICLE 191. Railroad and other public work companies may employ the funds remaining from the
construction, operation, and payment of credits when they fall due, in the manner they may deem fit,
in accordance with their by-laws.
Said surplus shall be invested at such times, as not to leave in any case the construction, preservation,
operation, and payment of credits unattended to, under the liability of the directors.
[ARTICLE 192. After the forfeiture of a concession has been declared the creditors of a company shall
have as a guaranty:
1. The net receipts of the company.
2. When said receipts are not sufficient the net proceeds from the works sold at public auction for
the time still remaining of the concession.
3. The other property owned by the company, if it does not constitute part of the road or of the
work, or is not necessary for its movement or operation.]
SECTION TEN
General Warehouse Associations
[ARTICLE 193. The following are the principal transactions of the associations:
1. The deposit, preservation, and custody of produce and merchandise intrusted to them.
2. The issue of receipts to order or to bearer.
[ARTICLE 194. The receipts issued by general warehouse associations for the produce and
merchandise they accept to care for shall be negotiable, shall be transferred by indorsement,
assignment, or in any other manner transferring ownership, according as to whether they are issued to
order or to bearer, and shall have the force and value of commercial bills of lading.
These receipts must necessarily state the class of goods, with the number or amount each one
represents.
[ARTICLE 195. The owner of the receipts is vested with the full ownership of the commodities
deposited in the warehouses of the association, and shall be exempted from all liability for claims
brought against the receiver, the indorsers, or prior owners, except if said claims arise from the
transportation, storage, and preservation of the merchandise.
[ARTICLE 196. If a creditor who has legal possession of a receipt as security should not be paid on the
day his claim falls due, he may require the association to sell the goods on deposit sufficient to cover
his credit, and shall have preference over other debts of the depositor, with the exception of those
mentioned in the foregoing article, who shall enjoy the preference.
[ARTICLE 197. The sales referred to in the preceding article shall be made in the warehouse of the
association, without the necessity of a judicial decree, at a public auction previously announced, and
through a licensed broker, where there is any, and otherwise through a notary or the person
discharging his duties.
[ARTICLE 198. General warehouse associations shall in all cases be liable for the identity and
preservation of the goods on deposit, according to law relating to deposits for which compensation is
agreed on.]
SECTION ELEVEN
Mortgage Loan Associations or Banks
[ARTICLE 199. The following shall be the principal transactions of these associations or banks:
1. To make loans of real estate on time.
2. To issue mortgage bonds and certificates.
[ARTICLE 200. Loans shall be made on mortgages of real estate the ownership of which is recorded in
the registry in the name of the person creating said mortgage, and shall be repaid in annual payments.
[ARTICLE 201. These associations and banks can not issue bonds nor certificates to the bearer during
the time the privilege actually enjoyed by virtue of special laws by the Mortgage Bank of Spain
continues.
[ARTICLE 202. Loans made to provinces and to towns are excepted from the mortgage required by
Article 200 when said provinces or towns are legally authorized to contract loans within the limit of
said authorization, and provided the repayment of the capital loaned, together with interest and
expenses, is assured by revenues, taxes, and capitals, or surtaxes or special imports.
Loans to the State are also excepted which can be made, furthermore, on promissory notes of
purchasers of national property. Loans to the State, to provinces, or to towns may be repaid within a
period of less than five years.
[ARTICLE 203. In no case may loans exceed half the values of the property on which the mortgage is
to be created. The basis and manner of appraising the real property shall be fixed exactly in the by-
laws or regulations.
[ARTICLE 204. The amount of the coupon and the rate of amortization of mortgage certificates, which
are issued by virtue of a loan, shall never exceed the amount of the net annual profits which the real
estate offered and taken in mortgage as security for the said loan produce on an average during five
years. The computation shall always be made with relation to the loan, the income of the property
mortgaged, and the annual premium of the certificates issued by virtue of said mortgage. This annuity
may at any time be less than the net income of the respective real estate mortgaged as security for
the loan and for the issue of the certificates.
[ARTICLE 205. When the real estate mortgaged diminishes in value by 40 per cent, the bank may
request the increase of the mortgage in order to cover said depreciation, or the annulment of the
contract, and the debtor shall choose between these two measures.
[ARTICLE 206. Mortgage loan banks may issue mortgage certificates to an amount equal to the total
value of the loans on real estate.
They may, furthermore, issue special obligations for the amount of the loans to the State, to provinces,
or to towns.
[ARTICLE 207. The mortgage certificates and special obligations treated of in the foregoing article
shall be payable to order or to bearer, with or without amortization, for short or long periods, with or
without premium.
These certificates and obligations, their coupons and the premiums, shall be the basis for an execution
in the manner prescribed in the law of civil procedure.
[ARTICLE 208. The mortgage certificates and special obligations, as well as their interest and
coupons, and the premiums assigned to them, shall be secured, with preference over all other
creditors or obligations, by the credits and loans in favor of the bank or association which may have
issued the same and which represent said credits and loans, being, therefore, jointly and severally
liable for the payment thereof.
Without prejudice to this special guaranty, they shall enjoy the general guaranty of the capital of the
association; also with preference in regard to the latter over the credits resulting from other
transactions.
[ARTICLE 209. Mortgage loan banks may also make loans secured by mortgage, repayable in a
period of less than five years.
These loans at short time shall be without amortization, and shall not authorize the issue of mortgage
obligations or certificates, and must be made from the capital of the common funds and from the
accrued profits.
[ARTICLE 210. Mortgage loan banks may receive, with or without interest, capital on deposit, and
employ half thereof in making advances for a period not to exceed ninety days on their mortgage
obligations and certificates, as well as on any other deeds which banks of issue and discount receive
as security.
In case of default in payment on the part of the person who secure the loan, the bank may demand the
sale of the certificates or deeds given as security, in accordance with the provisions of Article 323.
[ARTICLE 211. All combinations for mortgage loans, including mutual associations of landowners,
shall be subject, in so far as the issue of mortgage certificates and obligations is concerned, to the
rules contained in this section.]
SECTION TWELVE
Special Rules for Agricultural Banks and Associations
[ARTICLE 212. The following shall be the principal transactions of these associations:
1. To make loans in cash or in kind, for a period not to exceed three years, on products, crops,
cattle, or other special pledges or securities.
2. To guarantee with their signature promissory notes and paper demandable within a period not to
exceed ninety days, in order to facilitate its discount or negotiation to the owner or farmer.
3. Other transactions, the purpose of which is to favor the breaking or improving of ground, draining
of lands, and the development of agriculture and other industries related thereto.
[ARTICLE 213. Agricultural loan banks or associations may have agents outside of their domicile who
may personally answer for the solvency of the landowners or tenants who request the assistance of
the association, placing their signature on the promissory note which said association is to discount or
indorse.
[ARTICLE 214. The guaranty or indorsement placed by these associations or their representatives, or
by the agents referred to in the foregoing article, on the promissory notes of the landowner or farmer
shall entitle the bearer thereof to demand their payment directly, and to obtain an execution on the
day any of the subscriptions fall due.
[ARTICLE 215. The promissory notes of the landowner or farmer, be they either held by the
association or negotiated by the same, shall when they fall due give rise to the execution which may
be proper, in accordance with the law of civil procedure, against the property of the landowner or
farmer who may have subscribed them.
[ARTICLE 216. The interest and commission which the agricultural loan associations and their agents
or representatives are to receive shall be unrestrictedly stipulated within the limits fixed by the by-
laws.
[ARTICLE 217. Agricultural loan associations can not devote to the transactions referred to in
paragraphs 2 and 3 of Article 212 more than 50 per cent of the common capital, applying the
remaining 50 per cent to the loans referred to in number 1 of the same article.]
SECTION THIRTEEN
Expiration and Liquidation of Commercial Associations
[ARTICLE 218. The partial rescission of the articles of general and limited commercial copartnerships
shall take place in any of the following causes:
1. When a partner makes use of the common capital and of the firm name for private business.
2. When a partner interferes in the management of the company who has no right to do so,
according to the conditions of the articles of copartnership.
3. When any managing partner commits a fraud in the management or in the bookkeeping of the
copartnership.
4. When any partner fails to contribute to the common capital the amount stipulated in the articles
of copartnership, after having been requested to do so.
5. When a partner transacts commercial business for his own account, which is not lawful in
accordance with the provisions of Articles 136, 137, and 138.
6. When a partner who is under the obligation to render personal services to the copartnership
absents himself, after having been requested to return and comply with his duties, and does not do so
or does not give a good reason which temporarily prevents him from returning.
7. When one or more partners fail to comply, in any manner whatsoever, with the obligations
imposed in the articles of copartnership.
[ARTICLE 219. The partial rescission of the copartnership will produce the annulment of the articles in
so far as the partner at fault is concerned, who shall be considered as excluded therefrom, requiring
him to pay the amount of the loss which may correspond to him, should there be any, and the
copartnership shall be authorized to retain the funds he may have contributed to the common capital,
until all the transactions pending at the time of the rescission have been concluded and liquidated,
without allowing him to participate in the profits nor giving him any indemnification.
[ARTICLE 220. The liability of the excluded partner as well as that of the copartnership to third
persons for all acts and obligations contracted in the name and for the account of the latter, shall
continue until the record of the partial rescission of the articles of copartnership has been made in the
commercial registry.
[ARTICLE 221. Associations of any kind whatsoever shall be completely dissolved for the following
causes:
1. The termination of the period fixed in the articles of association or the conclusion of the
enterprise which constitutes its purpose.
2. The entire loss of the capital.
3. The bankruptcy of the association.
[ARTICLE 222. General and limited copartnerships shall furthermore be totally dissolved for the
following causes:
1. The death of one of the general partners if the articles of copartnership do not contain an
express agreement that the heirs of the deceased partner are to continue in the copartnership, or that
said copartnership will continue between the surviving partners.
2. The insanity of a managing partner or any other cause which renders him incapable of
administering his property.
3. The bankruptcy of any of the general partners.
[ARTICLE 223. Commercial associations shall not be understood as extended by the implied or
presumed will of the members after the period for which they were constituted has elapsed; and if the
members desire to continue in association they shall draw up new articles, subject to all the formalities
prescribed for their creation, according to the provisions of Article 119.
[ARTICLE 224. In general or limited copartnerships, created for an indefinite period, if any of the
partners requests its dissolution, the other partners can not oppose it except for reasons of bad faith
on the part of the persons suggesting it.
It shall be understood that a partner acts in bad faith with regard to the dissolution of the
copartnership when he would thereby derive a private profit which he would not receive should the
copartnership continue.
[ARTICLE 225. A member who retires from a partnership on his own accord or who suggests its
dissolution can not prevent pending transactions to be concluded in the manner most convenient to
the common interests, and until said transactions are concluded the division of the property and assets
of the copartnership shall not take place.
[ARTICLE 226. The dissolution of a commercial association, which proceeds from any other cause but
the termination of the period for which it was constituted, shall not cause any prejudice to third parties
until it has been recorded in the commercial registry.
[ARTICLE 227. In the liquidation and division of the common assets the rules established in the
articles of association shall be observed, and in their absence the rules contained in the following
articles.
[ARTICLE 228. From the time an association is declared in liquidation the representation of the
managing members to make new contracts and obligations shall cease, their powers being limited as
liquidators to collecting the credits of the association, to extinguishing the obligations previously
contracted as they fall due, and to realizing pending transactions.
[ARTICLE 229. In general or limited copartnerships, should there be no opposition on the part of any
of the partners, the person who managed the common funds shall continue in charge of the
liquidation; but should all the partners not agree thereto a general meeting shall be called without
delay, and the decision adopted at the same shall be enforced with regard to the appointment of
liquidators from among the members of the association or not, as well as in all that refers to the form
and proceedings of the liquidation and the management of the common funds.
[ARTICLE 230. Under the penalty of removal the liquidators shall —
1. Draw up and communicate to the members, within the period of twenty days, an inventory of the
firm assets with a balance of accounts of the association in liquidation, according to its books.
2. Communicate in the same manner to the members every month the condition of the liquidation.
[ARTICLE 231. The liquidators shall be liable to the members for any loss suffered by the common
funds on account of fraud or serious negligence in the discharge of their duty, without thereby being
understood as authorized to compromise or to submit to arbitration the common interests, unless the
members have expressly granted them these privileges.
[ARTICLE 232. At the conclusion of the liquidation and when the time has come to make the division
of the common funds, according to the classifications made by the liquidators, or by the meeting of
members, which any of whom can request to be held for this purpose, said liquidators shall make the
division within the period decided by the meeting.
[ARTICLE 233. If any of the members considers himself unjustly treated in the division made, he may
make use of his right before the judge or court of competent jurisdiction.
[ARTICLE 234. In the liquidation of commercial associations in which minors or incapacitated persons
are interested, the fathers, mothers, or guardians of the latter shall act, as may be the case, with full
powers, as though the business were their own and all the acts done and consented to by said
representatives for their principal shall be valid and irrevocable without the right of restitution and
without prejudice to the liability the former may incur to the latter by reason of their carelessness or
negligence.
[ARTICLE 235. No member can demand the delivery to him of the assets due him from the common
funds while all the debts and obligations of the association have not yet been extinguished, or the
amount thereof has not been deposited, if the delivery can not at once take place.
[ARTICLE 236. There shall be deducted from the first divisions made among the members the sums
they may have received for personal expenses or which have been advanced them by the company for
any other reason whatsoever.
[ARTICLE 237. The private property of the general partners which has not been included in the assets
of the copartnership when it was formed can not be seized for the payment of the obligations
contracted by the copartnership until after the common assets have been attached.
[ARTICLE 238. In corporations in liquidation, the provisions of their by-laws shall continue to be
observed in so far as ordinary or extraordinary general meetings are concerned, as well as with
relation to the accounts to be given of the progress of the liquidation, and to resolve upon what may
be advisable for the common interests.

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-two/title-i-

commercial-associations/>

• Title II – Joint Accounts

ARTICLE 239. Merchants may interest themselves in the transaction of other merchants, 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.
ARTICLE 240. With regard to their formation, joint accounts shall not be subjected to any formality,
and may be privately contracted orally or in writing, and their existence may be proved by any of the
means accepted by law, in accordance with the provisions of Article 51.
ARTICLE 241. In the transactions treated of in the foregoing articles, no commercial name common to
all the participants can be adopted, nor can any further direct credit be made use of except that of the
merchant who transacts and manages the business in his own name and under his individual liability.
ARTICLE 242. Persons transacting business with the merchant carrying on the joint business shall
only have a right of action against the latter and not against the other persons interested, and the
latter, on the other hand, shall have no right of action against the third person who made the
transaction with the manager unless said manager formally cedes his rights to them.
ARTICLE 243. The liquidation shall be effected by the manager, and after the transactions have been
concluded, he shall render a proper account of its results.

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-two/title-ii-joint-

accounts/>

• Title III – Commercial Agency

SECTION ONE
Agents
[ARTICLE 244. A commercial commission shall be considered that which involves a commercial act or
transaction and in which the principal or the agent is a merchant or commercial broker.
[ARTICLE 245. The agents may discharge the commission, acting in his own name or in that of the
principal.
[ARTICLE 246. When the agent transacts business in his own name, it shall not be necessary for him
to state who is the principal and he shall be directly liable, as if the business were for his own account,
to the persons with whom he transacts the same, said persons not having any right of action against
the principal, nor the latter against the former, the liabilities of the principal and of the agent to each
other always being reserved.
[ARTICLE 247. If the agent transacts business in the name of the principal, he must state that fact,
and if the contract is in writing, he must state it therein or in the subscribing clause, giving the name,
surname, and domicile of said principal.
In the case prescribed in the foregoing paragraph, the contract and the actions arising therefrom shall
be effective between the principal and the person or persons who may have transacted business with
the agent; but the latter shall be liable to the persons with whom he transacted business during the
time he does not prove the commission, if the principal should deny it, without prejudice to the
obligation and proper actions between the principal and agent.
[ARTICLE 248. In case an agent should refuse the commission intrusted to him, he shall be obliged to
communicate his decision to the principal by the quickest means possible, being required in any case
to confirm it by the first mail after receiving the commission.
He shall also be obliged to exercise due care in the custody and preservation of the merchandise which
the principal may have forwarded to him until the latter appoints a new agent, in view of his refusal, or
until, without awaiting a new designation, the court has taken possession of the goods at the request
of the agent.
The noncompliance with any of the obligations established in the two foregoing paragraphs shall cause
the agent to incur the liability of indemnifying the principal for the loss and damages which may arise.
[ARTICLE 249. The commission shall be understood as accepted whenever the agent takes any action
in the discharge of the commission intrusted to him by the principal which is not limited to the action
mentioned in the second paragraph of the foregoing article.
[ARTICLE 250. The discharge of commissions requiring the disbursement of funds shall not be
compulsory, even though they have been accepted, until the principal places the sum necessary for
the purpose at the disposal of the agent.
The agent may also suspend the taking of further action with regard to the commission intrusted to
him when, after having made use of the sums received, the principal should refuse to forward the
further funds requested by the former.
[ARTICLE 251. If an agreement has been made to advance the funds necessary for the discharge of
the commission, the agent shall be obliged to supply them, except in case of the suspension of
payments or bankruptcy of the principal.
[ARTICLE 252. The agent who, without legal cause, does not fulfill the commission accepted or the
performance of which he has begun to carry out, shall be liable for all the damages the principal may
suffer by virtue thereof.
[ARTICLE 253. After a contract has been made by the agent with all the legal formalities, the principal
must accept all the consequences of the commission, reserving the right of action against the agent by
reason of fault or omission committed in its fulfillment.
[ARTICLE 254. The agent, who, in the discharge of his commission, acts in accordance with the
instructions received from the principal, shall be exempted from all liability to the same.
[ARTICLE 255. As to matters not expressly foreseen and provided for by the principal, the agent shall
consult him, provided this is permitted by the nature of the business. But should said agent be
authorized to proceed according to his judgment, or the consultation be not possible, he shall proceed
with prudence and in accordance with commercial customs, acting in the business as if it were his own.
Should an unforeseen accident make the execution of the instructions received hazardous or
prejudicial, in the judgment of the agent, he may suspend the fulfillment of the commission,
communicating the reasons for his action to the principal by the speediest means of communication.
[ARTICLE 256. In no case shall the agent proceed against an express order of the principal, being
liable for all the losses and damages he may occasion his principal by doing so. Similar liability shall be
incurred by an agent in cases of malice or of abandonment.
[ARTICLE 257. An agent shall bear the risks for the cash he may have in his hands by reason of the
commission.
[ARTICLE 258. An agent who, without express authority from the principal, should transact some
business at prices or conditions which are more onerous than the current market rates on the date on
which it took place, shall be liable to the principal for the loss he may have caused him thereby, the
statement that he made transactions at the same time for his own account under similar
circumstances not being admissible as an excuse.
[ARTICLE 259. An agent must observe the provisions contained in the laws and regulations with
regard to the transaction which has been intrusted to him, and shall be liable for the results of their
violation or omission. If he acted in virtue of the express order of the principal, the liabilities which may
arise shall be incurred by both conjointly.
[ARTICLE 260. The agent shall frequently communicate to the principal the information which may
concern the successful result of the transaction, informing him of the contracts he may have executed
by the mail of the same or of the next day on which they took place.
[ARTICLE 261. The agent shall personally discharge the commissions he may receive, and can not
delegate them without the prior consent of the principal unless he has been previously authorized to
make the delegation; but he may under his liability make use of his employees in the routine
transactions which, according to general commercial customs, are intrusted to the same.
[ARTICLE 262. If the agent should have made a delegation or substitution with the authority of the
principal he shall be liable for the acts of the substitute, if the person to whom the business was
delegated was selected by him, being otherwise released from liability.
[ARTICLE 263. An agent is required to render, in accordance with his books, a specific and proper
account of the amounts he received for the commission, returning to the principal, at the time and in
the manner prescribed by him, the surplus which appears in his favor. In case of tardiness he shall pay
the legal rate of interest. The loss of surplus funds shall be suffered by the principal, provided the
agent has observed the instructions of the former with regard to their return.
[ARTICLE 264. An agent who, having received funds to discharge a commission, invests them in or
uses them for a purpose other than that of the commission, shall pay the constituent the principal and
its legal interest, and shall be liable from the date on which he received the same, for the loss and
damage caused by reason of noncompliance with the commission, without prejudice to the criminal
action which may be proper.
[ARTICLE 265. The agent shall be liable for the goods and merchandise he may receive, in the terms
and with the conditions and descriptions he has been informed of in the consignments, unless he
proves, in receiving the same, the averages and deterioration it has suffered, comparing its condition
with the contents of the bill of lading or charter or of the instructions received from the principal.
[ARTICLE 266. An agent who has in his possession merchandise or goods for the account of another
person, shall be liable for their preservation in the condition in which he received the same. This
liability shall cease when their destruction or impairment is due to accidental causes, force majeure,
lapse of time, or by a defect in the article.
In cases of total or partial loss on account of lapse of time or defect in the article, the agent shall be
obliged to prove the impairment of the merchandise in a legal manner, informing the principal thereof
as soon as it is observed.
[ARTICLE 267. No agent shall purchase for himself nor for another person what has been given him to
sell, nor shall he sell what he has been requested to purchase, without the permission of the principal.
He shall furthermore not be permitted to change the marks on the goods he may have purchased or
sold for the account of another.
[ARTICLE 268. Agents can not handle goods of the same kind belonging to different parties, bearing
the same mark, without distinguishing them by a countermark, in order to avoid confusion and for the
purpose of designating the respective property of each principal.
[ARTICLE 269. If the goods intrusted to an agent should suffer some change, making their sale urgent
in order to save as much as possible of their value, and the haste were such that there is no time to
advise the principal and await his orders, the agent shall apply to the judge or court of competent
jurisdiction, who shall authorize the sale with the formalities and precautions he may consider most
beneficial to the principal.
[ARTICLE 270. An agent can not, without authority from the principal, loan or sell on credit or on
time, the principal being permitted in such cases to require cash payment of the agent, leaving him
any interest, profit, or advantage which may arise from said credit on time.
[ARTICLE 271. If an agent, with the due authority, sells on time, he must so state it in the account or
in the communication to the principal, informing him of the names of the purchasers; and should he
not do so, the sale shall be considered as made for cash, in so far as the principal is concerned.
[ARTICLE 272. If an agent receives for a sale, besides the ordinary commission, another one called a
guaranty commission, the risks of the collection shall be for his account, being obliged to pay the
principal the proceeds of the sale at the same periods as agreed upon with the purchaser.
[ARTICLE 273. An agent who does not make the collection of the credits of his principal at the period
they are demandable, shall be liable for the losses arising from his negligence or delay unless he
proves that he at the proper time made use of the legal remedies to recover the payment.
[ARTICLE 274. An agent who is intrusted with the expedition of merchandise, and who has received
order to insure the same shall be liable, should he not do so, for the damage said merchandise may
suffer, provided the funds necessary for the payment of the premium have been furnished, or provided
he has obligated himself to advance them and should not have immediately advised the principal of
his impossibility to do so.
If during the risk the underwriter is a declared bankrupt it shall be the duty of the agent to renew the
insurance, unless the principal has given him orders to the contrary.
[ARTICLE 275. An agent who as such is to forward merchandise to another point, shall make the
transportation contract, complying with the obligations which are imposed on shippers in land and
maritime transportations.
Should he make the contract for transportation in his own name, although he is acting for another, he
shall be responsible to the carrier for all the obligations imposed on shippers in land and maritime
transportations.
[ARTICLE 276. Merchandise forwarded on consignment shall be understood as specially bound to the
payment of the commission fees, advances and expenses the agent may have made on account of its
value or proceeds.
As a consequence of this obligation:
1. No agent can be dispossessed of the merchandise he receives on consignment until he is
previously reimbursed for his advances, expenses, and commission charges.
2. The agent must be paid from the proceeds of said merchandise, in preference over the other
creditors of the principal, with the exception of the provisions of Article 375.
In order to enjoy the preference mentioned in this article it shall be a necessary condition that the
merchandise be in the possession of the consignee or agent, or that it is at his disposal in a public
store or warehouse, or that the shipment was made consigned to his name, the bill of lading, stub or
transportation contract having been received by him properly signed by the carrier.
[ARTICLE 277. The principal shall be obliged to pay the agent the commission premium, unless there
is an agreement to the contrary. Should there be no express agreement with regard to the brokerage,
the latter shall be fixed in accordance with the commercial practices and customs of the market where
the commission is fulfilled.
[ARTICLE 278. The principal shall furthermore be obliged to pay the agent in cash, upon the
presentation of a proper account, the total amount of his expenses and disbursements, with legal
interest from the day he incurred them until they have been fully repaid.
[ARTICLE 279. The principal may revoke the commission intrusted to an agent at any stage of the
transaction, advising him thereof, but always being liable for the result of the transactions which took
place before the latter was informed of the revocation.
[ARTICLE 280. A contract shall be rescinded by the death of the agent or by his incapacity; but it shall
not be rescinded by the death or incapacity of the principal, although it may be revoked by his
representatives.]
SECTION TWO
Other Forms of Commercial Commission — Factors, Employees, and Shop Clerks
[ARTICLE 281. A merchant may constitute general or special attorneys or agents for the purpose of
transacting business in his name and for his account in whole or in part, or for the purpose of assisting
him therein.
[ARTICLE 282. A factor must have the qualifications necessary to obligate himself in accordance with
this Code, and a power of attorney from the person for whose account he transacts the business.
[ARTICLE 283. The manager of an enterprise or manufacturing or commercial establishment for the
account of another, authorized to administer it, direct it, and to transact business relating thereto, with
more or less powers, as the owner may have considered advisable, shall have the legal qualifications
of a factor, and the provisions contained in this section shall be applicable to him.
[ARTICLE 284. The factors shall transact business and make contract in the names of their principals,
and in all instruments which they subscribe as such they shall state that they do so by virtue of a
power of attorney or in the name of the person or association they represent.
[ARTICLE 285. When factors transact business in the manner prescribed in the foregoing article, all
the obligations they may contract shall devolve upon the principals. Any claim to compel them to fulfill
said obligations shall be brought against the property of the principal, his establishment or enterprise,
and not against the property of the factors, unless it is confounded with that of the former.
[ARTICLE 286. Contracts made by the factor of a manufacturing or commercial establishment or
enterprise, when it is common knowledge that he belongs to a well-known enterprise or association,
shall be understood as made for the account of the owner of said enterprise or association, even
though the factor did not mention this fact at the time of making the contract; or that breach of trust,
transgression of powers, or appropriation of the goods, which are the subject of the contract, is
alleged, provided these contracts involve objects included in the transactions and business of the
establishment, or if, not being of this kind, it should be proven that the factor acted according to orders
from his principal, or that the latter approved his action in express terms or by positive acts.
[ARTICLE 287. A contract made by a factor in his own name shall bind him directly with the person
with whom it was made; but if the transaction was made for the account of the principal, the other
contracting party may bring his action against the factor or against the principal.
[ARTICLE 288. Factors can not transact business for their own account, nor interest themselves in
their own names or in that of another person, in negotiations of the same character as those they are
engaged in for their principals, unless the latter expressly authorize them thereto.
Should they negotiate without this authorization, the profits of the negotiation shall be for the
principals and the losses for the account of the factors. If the principal has granted the factor
authorization to make transactions for his own account or in union with other persons, the former shall
not be entitled to the profits, nor shall he participate in the losses which may be suffered.
If the principal has permitted the factor to have an interest in some transaction, the participation of the
latter in the profits shall be, unless there is an agreement to the contrary, in proportion to the capital
he may have contributed; and should he not have contributed any capital, he shall be considered a
working partner.
[ARTICLE 289. The fines which a factor may incur for the violations of the fiscal laws and ordinances
of the public administration in the management of his agency shall be thereupon enforced against the
property he manages, without prejudice to the right of the principal against the factor for his guilt in
the acts which gave rise to the fine.
[ARTICLE 290. The powers of attorney granted a factor shall be considered in force until they are
expressly revoked, notwithstanding the death of the principal or of the person from whom they were
received in due form.
[ARTICLE 291. The acts and contracts made by the factor shall be valid with regard to his constituent,
provided they are prior to the time the former is informed by legitimate means of the revocation of the
powers of attorney or of the alienation of the establishment.
They shall also be valid with regard to third persons, until the provisions of number 6 or Article 21 have
been fulfilled, with regard to the revocation of the powers of attorney.
[ARTICLE 292. Merchants may intrust to other persons besides the factors the constant
managements, in their name and for their accounts, of one or more of the branches of the business
they are engaged in by virtue of a written or verbal agreement, associations including such
agreements in their by-laws, and private parties making them known by public notices or by means of
circulars to their correspondents. The acts of these special employees or agents shall not bind the
principals except with regard to the transactions proper to the branch of business which has been
expressly intrusted to them.
[ARTICLE 293. The provisions of the foregoing article shall also be applicable to commercial shop
clerks who are authorized to manage a commercial transaction or some branch of the business of their
principals.
[ARTICLE 294. Shop clerk intrusted with selling at retail in a public store shall be considered
authorized to collect the amounts of the sales they may effect, and their receipts shall be valid, being
issued in the name of the principal.
The same power shall be enjoyed by shop clerks who sell in wholesale stores, provided the sales are
for cash and that the payment therefor is made in the said store; but when the collections are to be
made outside of the same, or when they proceed from sales made on time, the receipts must
necessarily be signed by the principal or by his factor, or by an agent legally authorized to make
collections.
[ARTICLE 295. When a merchant intrusts a shop clerk with the receipt of merchandise and the latter
receives it without making any remarks with regard to its quantity or quality, its reception shall have
the same effects as though received by the principal.
[ARTICLE 296. Without the consent of their principals, neither factors nor shop clerks of commerce
may delegate to others the commissions they receive from the former; and should they do so without
said consent, they shall be directly responsible for the conduct of the substitutes and for the
obligations contracted by the latter.
[ARTICLE 297. Factors and shop clerks of commerce shall be liable to their principals for any damage
they may cause their interests by reason of having proceeded in the discharge of their duties with
malice, negligence, or violation of the orders or instructions they may have received.
[ARTICLE 298. If, by reason of the service he is rendering, a shop clerk of commerce should incur
some extraordinary expense or should suffer loss regarding which there was no express agreement
between him and his principal, the latter shall be obliged to indemnify him for the loss suffered.
[ARTICLE 299. If the contracts between the merchants and their shop clerks and employees should
have been made for a fixed period, none of the contracting parties, without the consent of the other,
may withdraw from the fulfillment of said contract until the termination of the period agreed upon.
Persons violating this clause shall be subject to indemnify the loss and damage suffered, with the
exception of the provisions contained in the following articles.
[ARTICLE 300. The following shall be special reasons for which merchants may discharge their
employees, even though the time of service of the contract has not elapsed:
1. Fraud or breach of trust in the business intrusted to them.
2. The transaction of some commercial business for their own account without the express
knowledge and permission of the principal.
3. Serious disrespect and lack of consideration to said principal or to members of his family or
establishment.
[ARTICLE 301. The following shall be reasons for which employees may leave the service of their
principals, even though the time of their contract of service has not elapsed:
1. Nonpayment of the salary of remuneration agreed upon at the times fixed.
2. Noncompliance with any of the other conditions agreed upon in favor of the employee.
3. Bad treatment or serious offenses on the part of the principal.
[ARTICLE 302. In cases in which no special time is fixed in the contracts of service, any one of the
parties thereto may dissolve it, advising the other party thereof one month in advance.
The factor or shop clerk shall be entitled, in such case, to the salary due for said month.]

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commercial-agency/>

• Title IV – Commercial Deposits

[ARTICLE 303. In order that a deposit may be considered commercial, it is necessary —
1. That the depositary, at least, be a merchant.
2. That the things deposited be commercial objects.
3. That the deposit constitutes in itself a commercial transaction, or be made by reason or as a
consequence of commercial transactions.
[ARTICLE 304. The depositary shall have a right to demand compensation for the deposit, unless
there is an express agreement to the contrary. If the contracting parties have not fixed the amount of
the compensation, it shall be determined according to the current rates in the locality where the
deposit was made.
[ARTICLE 305. The deposit shall be perfected by means of the delivery to the depositary of the thing
which constitutes its object.
[ARTICLE 306. The depositary is obliged to preserve the thing deposited in the manner he receives it,
and return it with its increase, should there be any, when the depositor requests it of him.
In the preservation of the deposit the depositary shall be liable for the injury and damage the articles
deposited may suffer by reason of his malice or negligence, and also for those arising from the nature
or defects of the articles, if he should not in the latter cases personally have done all that was possible
in order to avoid or remedy them, furthermore notifying the depositor immediately upon their
appearance.
[ARTICLE 307. When the deposits consist of cash with a specification of the currency constituting the
same, or when they are delivered, sealed, or closed, the increase or reduction in value suffered by the
same shall be for the account of the depositor. The risks of such deposits shall be run by the
depositary, and he shall also be liable for any injury they may suffer unless he proves that they were
caused by force majeure or by insurmountable accidental case.
When the deposits of cash are made without a specification of the currency or without being closed or
sealed, the depositary shall be liable for its preservation and risks in the manner established in the
second paragraph of Article 306.
[ARTICLE 308. The depositaries of bonds, securities, certificates, or instruments which earn interest
are obliged to collect the same when they fall due, as well as to take the steps necessary in order that
the securities deposited may preserve their value and the rights corresponding to the same according
to legal provisions.
[ARTICLE 309. Whenever, with the consent of the depositor, the depositary disposes of the articles on
deposit either for himself or for his business, or for transactions intrusted to him by the former, the
rights and obligations of the depositary and of the depositor shall cease, and the rules and provisions
applicable to the commercial loans, commission, or contract which took the place of the deposit shall
be observed.
[ARTICLE 310. Notwithstanding the provisions of the foregoing articles, deposits made with banks,
with general warehouses, with loan or any other associations, shall be governed in the first place by
the by-laws of the same, in the second by the provisions of this Code, and finally by the rules of
common law, which are applicable to all deposits.]

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• Title V – Commercial Loans

SECTION ONE
Commercial Loans
[ARTICLE 311. A loan shall be considered commercial when the following conditions are present:
1. If one of the contracting parties is a merchant.
2. If the articles loaned are destined to commercial transactions.
[ARTICLE 312. If the loan consists of money, the debtor shall pay it by returning an amount equal to
that received, in accordance with the legal value the money may have at the time of the return, unless
there was an agreement with regard to the kind of money in which the payment was to be made, in
which case the fluctuations in value shall be for the loss or benefit of the lender.
In loans of bonds or securities the debtor shall pay returning the same number of the same kind and
same conditions, or their equivalents if the former have been done away with, unless there is an
agreement to the contrary.
If the loans are in kind the debtor return, unless there is an agreement to the contrary, a similar
amount in the same kind and quality, or its equivalent in cash if the kind due should be done away
with.
[ARTICLE 313. In loans for an indefinite period, or in which no due time has been fixed for their
maturity, payment can not be demanded of the debtor until thirty days have elapsed, to be counted
from the date of the notarial demand which may have been made.
[ARTICLE 314. Loans shall not pay any interest unless there is an agreement to that effect in writing.
[ARTICLE 315. The interest of the loan may be agreed upon without any established rate limitation
whatsoever. Any agreement made in favor of the creditor shall be considered as interest.
[ARTICLE 316. Debtors who delay the payment of their debts after the same have fallen due, must
pay, from the day following that on which it became due, the interest agreed upon in such case, or in
the absence of such agreement, the legal interest.
If the loan is in kind, in order to compute the interest, its value shall be graduated by the prices of the
merchandise loaned in the locality in which the return is to be made, on the day following that on
which it falls due, or by the value fixed by experts if the merchandise should no longer exist at the
time its appraisement is to be made.
And if the loan consists of bonds or securities, the interest, by reason of delay in repayment, shall be
that earned by said securities or bonds, or in the absence thereof, the legal rate of interest, the value
of the securities being determined by their price on exchange, if they are subject to quotation, or at
their current prices on the day following that on which they fall due.
[ARTICLE 317. Interest which has fallen due and has not been paid shall not earn interest. The
contracting parties may, however, capitalize the net interest which has not been paid, which, as an
increased principal, shall earn interest.
[ARTICLE 318. The receipt of the principal by the creditor without an express reserve of the right to
the interest agreed upon or due shall extinguish the obligation of the debtor with regard to the same.
Payments on account, when there is no express stipulation with regard to their application, shall first
be applied to the payment of interests as they fall due and then to the principal.
[ARTICLE 319. After an action has been brought the accrued interest can not be added to the
principal for the purpose of demanding greater interest.]
SECTION TWO
Loans Guaranteed by the Public Bonds or Securities
[ARTICLE 320. A loan with a guaranty of securities quoted on exchange, contained in an instrument
with the intermediation of licensed agents, shall always be considered commercial. The lender shall
have, on the public bonds or securities pledged in accordance with the provisions of this section, a
right to collect his credit with reference over other creditors, who can not remove said securities from
his possession unless they satisfy the loan made on the same.
[ARTICLE 321. The rights of preference, treated of in the foregoing article, shall only be had on the
same securities which constituted the guaranty, for which purpose, if said guaranty consisted of
instruments payable to bearer, their numbers shall be stated in the instrument constituting the
contract, and if it consists of stock or transferable securities, the transfer shall be made to the lender,
stating in the instrument, besides the circumstances necessary to prove the identity of the guaranty,
that the transfer does not include the conveyance of ownership.
[ARTICLE 322. At the will of the persons interested instead of the numeration of securities payable to
bearer, they may be deposited in the public establishment determined in the exchange regulations.
[ARTICLE 323. After the period for which the loan was contracted has elapsed, the creditor, unless
there was an agreement to the contrary, and without necessity of notifying the debtor, shall be
authorized to request the alienation of the securities, for which purpose he shall present them, with the
instrument constituting the loan, to the board of directors, which, after finding their numeration
correct, shall convey them to the amount necessary through a licensed agent, on the same day if it be
possible, and otherwise on the next. A lender can only make use of the said right during the hours of
the exchange of the day following that on which the debt fell due.
[ARTICLE 324. Securities which are quoted on exchange payable to bearer, pledged in the manner
fixed in the foregoing articles, shall not be subject to return until the lender has been reimbursed,
without prejudice to the rights and actions of the dispossessed owner against the persons liable
according to the laws, for the acts by virtue of which he has been deprived of the possession and
ownership of the securities given as a guaranty.]

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• Title VI – Commercial Purchase and Sale and Barter and Transfers

SECTION ONE
Purchase and Sale
[ARTICLE 325. A purchase and sale of personal property for the purpose of resale, either in the form
purchased or in a different form, for the purpose of deriving profit in the resale, shall be considered
commercial.
[ARTICLE 326. The following can not be considered commercial:
1. The purchase of goods destined for the consumption of the purchaser or of the person for whom
they are bought.
2. Sales made by owners and by farmers or cattlemen of the fruits or products of their crops or
cattle, or of the goods in which their rents are paid them.
3. Sales made by artificers in their workshops of the articles constructed or manufactured by them.
4. The resale made by any person who is not a merchant, of the remainder of the stock he laid in
for his own consumption.
[ARTICLE 327. If the sales take place by samples or by a fixed quality known in commerce, the
purchaser can not refuse to receive the articles contracted for, if they are in accordance with the
samples or quality mentioned in the contract.
In case the purchaser refuses to accept them, experts shall be appointed by both parties, who shall
decide whether their reception is proper or not. If the experts should declare that the articles are to be
received, the sale shall be considered as consummated, and in a contrary case the contract shall be
rescinded, without prejudice to the indemnification to which the purchaser may be entitled.
[ARTICLE 328. In the purchase of goods which are not seen or can not be classified by a fixed quality
and well known in commerce it shall be understood that the purchaser reserves the privilege of
examining them and unrestrictedly rescinding the contract if the goods do not suit him.
The purchaser shall also be entitled to rescind said contract if he reserved the right by an express
agreement to examine the goods contracted for.
[ARTICLE 329. If the vendor does not deliver the goods sold at the time stipulated, the purchaser may
request the fulfillment or the rescission of the contract, with damages in either case for the loss he
may have suffered by reason of the delay.
[ARTICLE 330. In contracts in which the delivery of a certain amount of merchandise is stipulated
within a certain time, the purchaser shall not be obliged to receive part of said amount even on the
promise of delivering the balance; but if he accepts the partial delivery the sale shall be consummated
with regard to the goods received, reserving the right of the purchaser to demand for the rest the
fulfillment of the contract or its rescission, in accordance with the foregoing article.
[ARTICLE 331. The loss or impairment of the goods before their delivery, on account of unforeseen
accidents or without the fault of the vendor, shall entitle the purchaser to rescind the contract, unless
the vendor has constituted himself the depositary of the merchandise, in accordance with Article 339,
in which case his liability shall be limited to that arising by reason of the deposit.
[ARTICLE 332. If the purchaser refuses without just cause to receive the goods bought, the vendor
may demand the fulfillment or rescission of the contract, depositing the merchandise in court in the
first case.
The same judicial deposit may be made by the vendor whenever the purchaser delays in taking charge
of the merchandise.
The expenses arising from the deposit shall be defrayed by the person who caused said deposit to be
made.
[ARTICLE 333. The damages and impairment suffered by merchandise after the contract has been
perfected and the vendor has the goods at the disposal of the purchaser in the place and at the time
agreed upon, shall be suffered by the purchaser, except in cases of fraud or negligence on the part of
the vendor.
[ARTICLE 334. The damages and impairment suffered by merchandise, even though it be by reason
of an accidental case, shall be for the account of the vendor in the following cases:
1. If the sale took place by number, weight, or measure, or if the article sold is not fixed and
determined, with marks and signs which identify it.
2. If by reason of an express agreement or the usages of commerce, in view of the nature of the
article sold, the purchaser has the privilege to previously examine and investigate it.
3. If the contract contains a clause to the effect that the delivery is not to be made until the article
sold has acquired the conditions stipulated.
[ARTICLE 335. If the merchandise sold should perish or deteriorate and said loss is to be suffered by
the vendor, he shall return to the purchaser the amount of the price he may have received.
[ARTICLE 336. A purchaser who, at the time of receiving the merchandise, fully examines the same
shall not have a right of action against the vendor, alleging a defect in the quantity or quality of the
merchandise.
A purchaser shall have a right of action against a vendor for defects in the quantity or quality of
merchandise received in bales or packages, provided he brings his action within the four days
following its receipt, and that the damage is not due to accident or to natural defect of the
merchandise or to fraud.
In such cases the purchaser may choose between the rescission of the contract or its fulfillment in
accordance with what has been agreed upon, but always with the payment of the damages he may
have suffered by reason of the defects or faults. The vendor may avoid this claim by demanding when
making the delivery that the merchandise be examined by the purchaser for his satisfaction with
regard to the quantity and quality thereof.
[ARTICLE 337. If the period for the delivery of the merchandise sold has not been stipulated, the
vendor must have it at the disposal of the purchaser within twenty-four hours after the contract.
[ARTICLE 338. The expenses of the delivery of merchandise in commercial sales shall be defrayed by
the vendor until said merchandise is placed at the disposal of the purchaser, weighed or measured,
unless there is an express agreement to the contrary. The expenses arising from the receipt and
removal of the merchandise from the place of delivery shall be defrayed by the purchaser.
[ARTICLE 339. After the merchandise sold has been placed at the disposal of the purchaser and after
the latter has stated his satisfaction, or if said merchandise is judicially deposited in the case foreseen
in Article 332, the obligation of the purchaser, to pay the price of the same in cash or at the periods
agreed upon with the vendor shall begin. The vendor shall constitute himself the depositary of the
goods sold, and shall be obliged to care for and preserve them in accordance with the laws governing
deposits.
[ARTICLE 340. During the time the articles sold are in the possession of the vendor, even though they
be in the nature of deposit, the latter shall have preference to the same over any other creditor to
obtain the payment of the price with the interest arising from the delay.
[ARTICLE 341. The delay in the payment of the article purchased shall obligate the purchaser to pay
the legal rate of interest on the amount he owes the vendor.
[ARTICLE 342. A purchaser who has not made any claim based on the inherent defects in the article
sold, within the thirty days following its delivery, shall lose all rights of action against the vendor for
such defects.
[ARTICLE 343. The amounts which, as earnest money, are delivered in commercial sales shall always
be considered as paid on account of the price and as a proof of the ratification of the contract, unless
there is an agreement to the contrary.
[ARTICLE 344. Commercial sales shall not be rescinded by reason of damage; but the contracting
party who acted with malice or fraud, in the contract or in its fulfillment, shall indemnify for loss and
damage, without prejudice to the criminal action which may be proper.
[ARTICLE 345. In all commercial sales the vendor shall be liable for eviction and indemnity in favor of
the purchaser, for any prejudice he may suffer by being disturbed in his possession of the same unless
there has been an agreement to the contrary.]
SECTION TWO
Barter
[ARTICLE 346. Commercial barter shall be governed by the same rules prescribed in this title for
purchase and sale in so far as they are applicable to the circumstances and conditions of the former.]
SECTION THREE
Transfers of Non-Negotiable Credits
[ARTICLE 347. Commercial credits which are neither negotiable nor payable to bearer may be
transferred by the creditor without requiring the consent of the debtor, it being sufficient that he be
inform of the transfer. The debtor shall be bound to the new creditor by virtue of the notification, and,
from the time it is made, no payment shall be considered valid except that made to the latter.
[ARTICLE 348. The assignor shall answer for the legality of the credit and the capacity in which he
made the transfer; but he shall not answer for the solvency of the debtor unless there is an express
agreement to the effect.]

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-two/title-vi-

commercial-purchase-and-sale-and-barter-and-transfers/>

• Title VII – Commercial Contracts for Transportation Overland

ARTICLE 349. A contract of transportation by land or water ways of any kind shall be considered
commercial:
1. When it has for its object merchandise or any article of commerce.
2. When, whatever its object may be, the carrier is a merchant or is habitually engaged in
transportation for the public.
ARTICLE 350. The shipper as well as the carrier of merchandise or goods may mutually demand that
a bill of lading be made, stating:
1. The name, surname and residence of the shipper.
2. The name, surname and residence of the carrier.
3. The name, surname and residence of the person to whom or to whose order the goods are to be
sent or whether they are to be delivered to the bearer of said bill.
4. The description of the goods, with a statement of their kind, of their weight, and of the external
marks or signs of the packages in which they are contained.
5. The cost of transportation.
6. The date on which shipment is made.
7. The place of delivery to the carrier.
8. The place and the time at which delivery to the consignee shall be made.
9. The indemnity to be paid by the carrier in case of delay, if there should be any agreement on this
matter.
ARTICLE 351. In transportation made by railroads or other enterprises subject to regulation rate and
time schedules, it shall be sufficient for the bills of lading or the declaration of shipment furnished by
the shipper to refer, with respect to the cost, time and special conditions of the carriage, to the
schedules and regulations the application of which he requests; and if the shipper does not determine
the schedule, the carrier must apply the rate of those which appear to be the lowest, with the
conditions inherent thereto, always including a statement or reference to in the bill of lading which he
delivers to the shipper.
ARTICLE 352. The bills of lading, or tickets in cases of transportation of passengers, may be diverse,
some for persons and others for baggage; but all of them shall bear the name of the carrier, the date
of shipment, the points of departure and arrival, the cost, and, with respect to the baggage, the
number and weight of the packages, with such other manifestations which may be considered
necessary for their easy identification.
ARTICLE 353. The legal evidence of the contract between the shipper and the carrier shall be the bills
of lading, by the contents of which the disputes which may arise regarding their execution and
performance shall be decided, no exceptions being admissible other than those of falsity and material
error in the drafting.
After the contract has been complied with, the bill of lading which the carrier has issued shall be
returned to him, and by virtue of the exchange of this title with the thing transported, the respective
obligations and actions shall be considered cancelled, unless in the same act the claim which the
parties may wish to reserve be reduced to writing, with the exception of that provided for in Article
366.
In case the consignee, upon receiving the goods, cannot return the bill of lading subscribed by the
carrier, because of its loss or of any other cause, he must give the latter a receipt for the goods
delivered, this receipt producing the same effects as the return of the bill of lading.
ARTICLE 354. In the absence of a bill of lading, disputes shall be determined by the legal proofs which
the parties may present in support of their respective claims, according to the general provisions
established in this Code for commercial contracts.
ARTICLE 355. The responsibility of the carrier shall commence from the moment he receives the
merchandise, personally or through a person charged for the purpose, at the place indicated for
receiving them.
ARTICLE 356. Carriers may refuse packages which appear unfit for transportation; and if the carriage
is to be made by railway, and the shipment is insisted upon, the company shall transport them, being
exempt from all responsibility if its objections, is made to appear in the bill of lading.
ARTICLE 357. If by reason of well-founded suspicion of falsity in the declaration as to the contents of
a package the carrier should decide to examine it, he shall proceed with his investigation in the
presence of witnesses, with the shipper or consignee in attendance. If the shipper or consignee who
has to be cited does not attend, the examination shall be made before a notary, who shall prepare a
memorandum of the result of the investigation, for such purposes as may be proper.
If the declaration of the shipper should be true, the expense occasioned by the examination and that
of carefully repacking the packages shall be for the account of the carrier and in a contrary case for
the account of the shipper.
ARTICLE 358. If there is no period fixed for the delivery of the goods the carrier shall be bound to
forward them in the first shipment of the same or similar goods which he may make point where he
must deliver them; and should he not do so, the damages caused by the delay should be for his
account.
ARTICLE 359. If there is an agreement between the shipper and the carrier as to the road over which
the conveyance is to be made, the carrier may not change the route, unless it be by reason of force
majeure; and should he do so without this cause, he shall be liable for all the losses which the goods
he transports may suffer from any other cause, beside paying the sum which may have been
stipulated for such case. When on account of said cause of force majeure, the carrier had to take
another route which produced an increase in transportation charges, he shall be reimbursed for such
increase upon formal proof thereof.
ARTICLE 360. The shipper, without changing the place where the delivery is to be made, may change
the consignment of the goods which he delivered to the carrier, provided that at the time of ordering
the change of consignee the bill of lading signed by the carrier, if one has been issued, be returned to
him, in exchange for another wherein the novation of the contract appears.
The expenses which this change of consignment occasions shall be for the account of the shipper.
ARTICLE 361. [The merchandise shall be transported at the risk and venture of the shipper, if the
contrary has not been expressly stipulated. As a consequence, all the losses and deteriorations which
the goods may suffer during the transportation by reason of fortuitous event, force majeure, or the
inherent nature and defect of the goods, shall be for the account and risk of the shipper. cdta
Proof of these accidents is incumbent upon the carrier.]
ARTICLE 362. Nevertheless, the carrier shall be liable for the losses and damages resulting from the
causes mentioned in the preceding article if it is proved, as against him, that they arose through his
negligence or by reason of his having failed to take the precautions which usage has established
among careful persons, unless the shipper has committed fraud in the bill of lading, representing the
goods to be of a kind or quality different from what they really were. If, notwithstanding the
precautions referred to in this article, the goods transported run the risk of being lost, on account of
their nature or by reason of unavoidable accident, there being no time for their owners to dispose of
them, the carrier may proceed to sell them, placing them for this purpose at the disposal of the judicial
authority or of the officials designated by special provisions.
ARTICLE 363. Outside of the cases mentioned in the second paragraph of Article 361, the carrier shall
be obliged to deliver the goods shipped in the same condition in which, according to the bill of lading,
they were found at the time they were received, without any damage or impairment, and failing to do
so, to pay the value which those not delivered may have at the point and at the time at which their
delivery should have been made. If those not delivered form part of the goods transported, the
consignee may refuse to receive the latter, when he proves that he cannot make use of them
independently of the others.
ARTICLE 364. If the effect of the damage referred to in Article 361 is merely a diminution in the value
of the goods, the obligation of the carrier shall be reduced to the payment of the amount which, in the
judgment of experts, constitutes such difference in value.
ARTICLE 365. If, in consequence of the damage, the goods are rendered useless for sale and
consumption for the purposes for which they are properly destined, the consignee shall not be bound
to receive them, and he may have them in the hands of the carrier, demanding of the latter their value
at the current price on that day.
If among the damaged goods there should be some pieces in good condition and without any defect,
the foregoing provision shall be applicable with respect to those damaged and the consignee shall
receive those which are sound, this segregation to be made by distinct and separate pieces and
without dividing a single object, unless the consignee proves the impossibility of conveniently making
use of them in this form. The same rule shall be applied to merchandise in bales or packages,
separating those parcels which appear sound.
ARTICLE 366. Within the twenty-four hours following the receipt of the merchandise, the claim
against the carrier for damage or average be found therein upon opening the packages, may be made,
provided that the indications of the damage or average which gives rise to the claim cannot be
ascertained from the outside part of such packages, in which case the claim shall be admitted only at
the time of receipt.
After the periods mentioned have elapsed, or the transportation charges have been paid, no claim
shall be admitted against the carrier with regard to the condition in which the goods transported were
delivered.
ARTICLE 367. If doubts and disputes should arise between the consignee and the carrier with respect
to the condition of the goods transported at the time their delivery to the former is made, the goods
shall be examined by experts appointed by the parties, and, in case of disagreement, by a third one
appointed by the judicial authority, the results to be reduced to writing; and if the interested parties
should not agree with the expert opinion and they do not settle their differences, the merchandise
shall be deposited in a safe warehouse by order of the judicial authority, and they shall exercise their
rights in the manner that may be proper.
ARTICLE 368. The carrier must deliver to the consignee, without any delay or obstruction, the goods
which he may have received, by the mere fact of being named in the bill of lading to receive them; and
if he does not do so, he shall be liable for the damages which may be caused thereby.
ARTICLE 369. If the consignee cannot be found at the residence indicated in the bill of lading, or if he
refuses to pay the transportation charges and expenses, or if he refuses to receive the goods, the
municipal judge, where there is none of the first instance, shall provide for their deposit at the disposal
of the shipper, this deposit producing all the effects of delivery without prejudice to third parties with a
better right.
ARTICLE 370. If a period has been fixed for the delivery of the goods, it must be made within such
time, and, for failure to do so, the carrier shall pay the indemnity stipulated in the bill of lading, neither
the shipper nor the consignee being entitled to anything else.
If no indemnity has been stipulated and the delay exceeds the time fixed in the bill of lading, the
carrier shall be liable for the damages which the delay may have caused.
ARTICLE 371. In case of delay through the fault of the carrier, referred to in the preceding articles,
the consignee may leave the goods transported in the hands of the former, advising him thereof in
writing before their arrival at the point of destination.
When this abandonment takes place, the carrier shall pay the full value of the goods as if they had
been lost or mislaid.
If the abandonment is not made, the indemnification for losses and damages by reason of the delay
cannot exceed the current price which the goods transported would have had on the day and at the
place in which they should have been delivered; this same rule is to be observed in all other cases in
which this indemnity may be due.
ARTICLE 372. The value of the goods which the carrier must pay in cases if loss or misplacement shall
be determined in accordance with that declared in the bill of lading, the shipper not being allowed to
present proof that among the goods declared therein there were articles of greater value and money.
Horses, vehicles, vessels, equipment and all other principal and accessory means of transportation
shall be especially bound in favor of the shipper, although with respect to railroads said liability shall
be subordinated to the provisions of the laws of concession with respect to the property, and to what
this Code established as to the manner and form of effecting seizures and attachments against said
companies.
ARTICLE 373. The carrier who makes the delivery of the merchandise to the consignee by virtue of
combined agreements or services with other carriers shall assume the obligations of those who
preceded him in the conveyance, reserving his right to proceed against the latter if he was not the
party directly responsible for the fault which gave rise to the claim of the shipper or consignee.
The carrier who makes the delivery shall likewise acquire all the actions and rights of those who
preceded him in the conveyance.
The shipper and the consignee shall have an immediate right of action against the carrier who
executed the transportation contract, or against the other carriers who may have received the goods
transported without reservation. However, the reservation made by the latter shall not relieve them
from the responsibilities which they may have incurred by their own acts.
ARTICLE 374. The consignees to whom the shipment was made may not defer the payment of the
expenses and transportation charges of the goods they receive after the lapse of twenty-four hours
following their delivery; and in case of delay in this payment, the carrier may demand the judicial sale
of the goods transported in an amount necessary to cover the cost of transportation and the expenses
incurred.
ARTICLE 375. The goods transported shall be especially bound to answer for the cost of
transportation and for the expenses and fees incurred for them during their conveyance and until the
moment of their delivery. This special right shall prescribe eight days after the delivery has been
made, and once prescribed, the carrier shall have no other action than that corresponding to him as an
ordinary creditor.
ARTICLE 376. The preference of the carrier to the payment of what is owed him for the transportation
and expenses of the goods delivered to the consignee shall not be cut off by the bankruptcy of the
latter, provided it is claimed within the eight days mentioned in the preceding article.
ARTICLE 377. The carrier shall be liable for all the consequences which may arise from his failure to
comply with the formalities prescribed by the laws and regulations of the public administration, during
the whole course of the trip and upon arrival at the point of destination, except when his failure arises
from having been led into error by falsehood on the part of the shipper in the declaration of the
merchandise. If the carrier has acted by virtue of a formal order of the shipper or consignee of the
merchandise, both shall become responsible.
ARTICLE 378. Agents for transportation shall be obliged to keep a special registry, with the formalities
required by Article 36, in which all the goods the transportation of which is undertaken shall be entered
in consecutive order of number and dates, with a statement of the circumstances required in Article
350 and others following for the respective bills of lading.
ARTICLE 379. The provisions contained in Articles 349 and following shall be understood as equally
applicable to those who, although they do not personally effect the transportation of the merchandise,
contract to do so through others, either as contractors for a particular and definite operation, or as
agents for transportations and conveyances. In either case they shall be subrogated in the place of the
carriers themselves, with respect to the obligations and responsibility of the latter, as well as with
regard to their rights.

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-two/title-vii-

commercial-contracts-for-transportation-overland/>

• Title VIII – Insurance Contracts

SECTION ONE
Insurance Contracts in General
[ARTICLE 380. An insurance contract shall be commercial if the underwriter is a merchant and the
contract is at a fixed premium, or when the insured pays only a single and constant amount as the
price or compensation for the insurance.
[ARTICLE 381. An insurance contract shall be void —
 1. By reason of the bad faith of any of the parties at the time of the execution of the contracts.
2. By reason of the incorrect declaration of the insured, even though made in good faith, provided it
may influence the estimation of the risks.
3. By reason of the omission or concealment on the part of the insured, of facts or circumstances
which may have influenced the execution of the contract.
[ARTICLE 382. An insurance contract shall be reduced to writing in a policy or in another public or
private instrument subscribed by the contracting parties.
[ARTICLE 383. The policy of an insurance contract must contain —
1. The names of the underwriter and of the insured.
2. The risk against which insurance is taken.
3. The designation and location of the articles insured, and the indications which may be necessary
to determine the nature of the risks.
4. The appraised value of the articles insured, in detailed amounts, according to the different kinds
of articles.
5. The sum or premium which the insured binds himself to pay the form and manner of payment,
and the place where said payment is to be made.
6. The duration of the insurance.
7. The day and the hour from which the effect of the contract is to begin.
8. The insurance already existing on the same goods.
9. The other agreements made by the contracting parties.
[ARTICLE 384. The novations made in the contract during the time of the insurance, increasing the
goods insured, extending the insurance to new risks, reducing the latter or the amount insured, or
introducing any other essential modification, must be included in the policy of insurance.
[ARTICLE 385. The insurance contract shall be governed by the licit agreements contained in each
policy or instrument, and in the absence thereof, by the rules contained in this title.]
SECTION TWO
Fire Insurance
[ARTICLE 386. All personal or real property which is liable to be destroyed or injured by fire may be
the subject of an insurance contract against fire.
[ARTICLE 387. All commercial securities or instruments are excepted from this provision, as well as
those of the State or of private parties, bank notes, shares and obligations of associations, precious
stones and metals, in coin or in bullion, and objects of art, unless an express agreement to the
contrary is made, the value and conditions of said article being fixed in the policy.
[ARTICLE 388. In contracts of insurance against fire, in order that the underwriter be obligated, he
must have received the single premium agreed upon or the partial ones at the periods fixed.
The insurance premium shall be paid in advance, and the payment shall bind the underwriter, no
matter what may be the duration of the insurance.
[ARTICLE 389. If the insured delays in paying the premium, the underwriter may rescind the contract
within the first forty-eight hours, immediately advising the insured of his action.
Should he not exercise this right the contract shall be understood as in force and he shall have a right
of action to secure an execution to recover payment for the premium or premiums lapsed without
further requisite than the acknowledgment of the signatures of the policy.
[ARTICLE 390. The value set upon the objects of the insurance, the premiums paid by the insured,
the designations, and the appraisements contained in the policy shall not in themselves be proof of the
existence of the articles insured at the time and in the place where the fire occurs.
[ARTICLE 391. The substitution or change of the articles insured for others of a different kind or
species not included in the insurance shall annul the contract from the time the substitution took
place.
[ARTICLE 392. The alteration or transformation of the articles insured, by reason of an accident or by
the act of a third person, shall entitle either of the contracting parties to rescind the contract.
[ARTICLE 393. The insurance against fire shall include the repair or indemnity for all the loss and
material damage caused by the direct action of the fire and by the inevitable consequences of the fire,
and particularly —
1. The expenses incurred by the insured by reason of the transportation of the goods for the
purpose of saving them.
2. The damage suffered by the goods saved.
3. The damage to the goods insured caused by the measures adopted by the authority to reduce or
extinguish the fire.
[ARTICLE 394. In insurance against meteorological accidents, explosions of gas or steam apparatus,
the underwriter shall only be liable for the consequences of the fires caused by said accidents, unless
there is an agreement to the contrary.
[ARTICLE 395. The insurance against fires does not include, unless there is an agreement to the
contrary, the loss suffered by the insured on account of suspension of work or of industry, or of profit
from the estate lost by fire, or any other similar causes which give rise to losses and damages.
[ARTICLE 396. The underwriter shall secure the insured against the effects of fire, be it caused either
by an accident or by the malice of strangers or by personal negligence or carelessness of the persons,
he is civilly liable for.
The underwriter shall not secure against fires caused by the crime of the insured; nor by military forces
in time of war nor on account of those caused by mobs or by eruptions, volcanoes and earthquakes.
[ARTICLE 397. The guaranty of the underwriter shall only extend to the goods insured and in the
building in which they were located, and his liability shall in no case exceed the amount at which the
good were valued or at which the risk was appraised.
[ARTICLE 398. The insured must give an account to the underwriter of:
1. All previous insurances, and those taken out simultaneously or subsequently.
2. The modifications to which the insurance mentioned in the policy was subjected.
3. The changes and alterations in quality suffered by the goods insured, and which increase the
risks.
[ARTICLE 399. The goods insured for their full value can not be again insured while the first insurance
is in force, unless in case the new underwriter guarantee or give bond for the fulfillment of the contract
made with the first underwriter.
[ARTICLE 400. If in different contracts one article has been insured for an aliquot part of its value, the
underwriters shall contribute to the indemnity in proportion to the amounts they underwrote.
The underwriter may convey to other underwriters one or more parts of the insurance, but shall be
directly and exclusively liable to the insured.
In cases of conveyance of part of the insurance or of the reinsurance the assignees who receive the
proportionate part of the premium shall be obligated, with regard to the first underwriter, to contribute
in equal proportion to the indemnity, assuming the liability of the agreements, transactions, and
arrangements made between the insured and the principal or first underwriter.
[ARTICLE 401. The insurance shall not be annulled by reason of the death, liquidation, or bankruptcy
of the insured, and sale or transfer of the goods, if the article insured consisted of real estate.
The underwriter may rescind the contract by reason of the death, liquidation, or bankruptcy of the
insured and the sale or transfer of the goods, if the articles insured consisted of personal property, of a
manufacturing establishment, or shop. In case of rescission, the underwriter must inform the insured
or his representatives within the period of fifteen days, which can not be extended.
[ARTICLE 402. If the insured or his representative does not inform the underwriter of any of the facts
enumerated in the second paragraph of the foregoing article within the period of fifteen days, the
contract shall be void from the date on which said acts occurred.
[ARTICLE 403. Personal property shall be liable for the payment of the insurance premium with
preference to any other credits whatsoever which may be due. With regard to real property, the
provisions of the mortgage law shall be observed.
[ARTICLE 404. In case of a calamity the insured must immediately inform the underwriter, also filing
with the municipal judge a statement of the goods existing at the time of the calamity, and of goods
saved, as well as the loss suffered, according to his valuation.
[ARTICLE 405. The insured must prove the loss suffered, proving the existence of the goods before
the fire occurred.
[ARTICLE 406. The appraisement of the damage caused by the fire shall be made by experts in the
manner established in the policy, by an agreement between the parties, in the absence of which, said
appraisement shall be made in accordance with the provisions of the Law of Civil Procedure.
[ARTICLE 407. The experts shall decide:
1. The causes of the fire.
2. The true value of the goods insured on the day of the fire, before it took place.
3. The value of the same goods after the fire, and everything else which may be submitted to their
judgment.
[ARTICLE 408. If the amount of loss suffered exceeds the amount of insurance carried, the insured
shall be considered his own underwriter for this excess, and shall be liable for the aliquot part of the
losses and expenses.
[ARTICLE 409. The underwriter shall be obliged to pay the indemnity fixed by the experts within ten
days following their decision after it has been agreed to.
In case of delay, the underwriter shall pay the insured the legal interest on the amount due from the
date of the termination of said period.
[ARTICLE 410. The decision of the experts shall be the basis for an execution against the underwriter,
if said decision was rendered before a notary; and should this not have been done, after an
acknowledgment and judicial admission of their signatures and of the truth of the instrument.
[ARTICLE 411. The insurer shall choose, within the ten days fixed in Article 409, between
indemnifying for the calamity, or repair, rebuild, or replace, according to their nature or character, in
whole or in part, the goods insured and destroyed by the fire, if an agreement should be reached.
[ARTICLE 412. The insurer may acquire the goods saved for himself, provided he pays the insured
their true value in accordance with the appraisement referred to in case No. 2 of Article 407.
[ARTICLE 413. The underwriter after paying the indemnity shall be subrogated to the rights and
actions of the insured against all the authors and persons liable for the fire in the necessary capacity or
right, as the case may be.
[ARTICLE 414. The underwriter, after the calamity, may rescind the contract with regard to ulterior
accidents, as well as any other contract he may have made with the insured, advising the latter fifteen
days in advance and returning the part of the premium corresponding to the period not elapsed.
[ARTICLE 415. The expenses arising from the expert appraisement and the liquidation of the
indemnity shall be defrayed for the account in equal parts of the insured and of the underwriter; but if
there is an obvious exaggeration of the loss on the part of the insured, the latter shall be the only one
liable therefor.]
SECTION THREE
Life Insurance
[ARTICLE 416. Life insurance shall include all the combinations which can be made, making
agreements with regard to the payment of premiums or of capital in exchange for the enjoyment of a
life annuity or up to a certain age, or the receipt of capital on the death of a certain person, in favor of
the insured, his legal representative, or of a third person, or any other similar or analogous
combination.
[ARTICLE 417. The life-insurance policy shall contain, besides the requisites mentioned in Article 383,
the following:
1. A statement of the amount insured for, in capital or in annuity.
2. A statement of the reduction or increase in the capital or annuity assured, and of the dates from
which said increase or reduction is to be computed.
[ARTICLE 418. The contract may be made on the life of a person or of several persons without regard
to age, condition, sex, and state of health.
[ARTICLE 419. The insurance may be made in favor of a third person, stating in the policy the name,
surname, and conditions of the donor or person insured, or determining said person in some other
indisputable manner.
[ARTICLE 420. A person insuring a third person is bound to fulfill the conditions of the insurance, the
provisions of Articles 426 and 430 being applicable to the latter.
[ARTICLE 421. Only the person who insures and contracts directly with the underwriting company
shall be bound to the fulfillment of the contract as insured and to the consequent payment of the
premium, by the payment of the single sum or of the partial ones which may have been agreed upon.
The policy, however, shall entitle the person insured to demand the fulfillment of the contract of the
underwriting company.
[ARTICLE 422. There shall only be understood embraced in a life insurance the risks which are
enumerated specially and in detail in the policy.
[ARTICLE 423. The insurance in case of death shall not be paid if it occurs in any of the following
manners:
1. If the insured dies in a duel or as the consequences thereof.
2. If he commits suicide.
3. If he suffers capital punishment for ordinary crimes.
[ARTICLE 424. The insurance in case of death shall not be paid, unless there is an agreement to the
contrary and the insured pays the extra premium required by the underwriter —
1. If the death occurs in voyages outside the limits of the lands and water under the jurisdiction of
the Spanish provinces of Oceania.
2. If the death occurs in the military or naval service in time of war.
3. If the death occurs in any extraordinary undertaking or act which is acknowledged as reckless
and imprudent.
[ARTICLE 425. The insured who delays the payment of the premium or sum agreed upon shall not
have a right to demand the amount of the insurance or the amount insured if the calamity occurs or
the condition of the contract is complied with if he is in default.
[ARTICLE 426. If the insured has paid several partial installments and can not continue the contract,
he shall inform the underwriter, reducing the amount insured to the sum which is in just proportion
with the installments paid, in accordance with the calculations which appear in the schedules of the
insurance company, and taking into consideration the risks run by the latter.
[ARTICLE 427. The insured must inform the underwriter of the insurance on his life which he
previously or simultaneously takes out in other insurance companies.
The lack of this requisite shall deprive the insured of the benefits of the insurance, he being only
entitled to the face value of the policy.
[ARTICLE 428. The amounts which the underwriter must deliver to the person insured, in fulfillment of
the contract, shall be the property of the latter, even against the claims of the legitimate heirs or
creditors of any kind whatsoever of the person who effected the insurance in favor of the former.
[ARTICLE 429. The failure or bankruptcy of the insured shall not annul nor rescind the life-insurance
contract, but it may be reduced at the request of the legitimate representatives of the bankruptcy, or
be liquidated in the terms fixed in Article 426.
[ARTICLE 430. The life-insurance policies, after the premiums or installments which the insured
bound himself to pay have been satisfied, shall be negotiable, the indorsement being placed on the
policy itself, the insurance company being informed thereof in an authentic manner by the indorser
and indorsee.
[ARTICLE 431. The life-insurance policy in which a fixed amount and time for payment is stipulated,
either in favor of the insured or in that of the underwriter, shall be the basis for an action to obtain an
execution with regard to both contracting parties.
The insurance company, after the period fixed in the policy for payment has elapsed, may furthermore
rescind the contract, communicating its decision within a period not exceeding twenty days following
the due date, and the amount of the policy being for the benefit of the insured exclusively.]
SECTION FOUR
Land Transportation Insurance
[ARTICLE 432. All goods which can be transported by the usual means of land locomotion may be the
subject of an insurance contract against the risks of transportation.
[ARTICLE 433. Besides the requisites which a policy must contain, according to Article 383, a
transportation-insurance policy must include:
1. The company or person who takes charge of the transportation.
2. The specific kinds of goods insured, with a statement of the number of packages and their marks.
3. The designation of the point where the goods insured are to be received and where the delivery
is to be made.
[ARTICLE 434. Not only the owners of the goods transported, but also all those who are interested or
are liable for their preservation, may take out insurance thereon, stating in the policy in what capacity
they do so.
[ARTICLE 435. The contract for transportation insurance shall include risks of all kinds, no matter
what their reason may be, but the underwriter shall not be liable for impairment caused by the defects
inherent in the article or on account of the natural lapse of time, unless there is an agreement to the
contrary.
[ARTICLE 436. In cases of impairment on account of a defect in the article or by reason of lapse of
time, the underwriter shall judicially prove the condition of the merchandise insured, within the twenty-
four hours following its arrival at the point it is to be delivered. Without this proof the exemption which
he may bring forward as underwriter shall not be admissible.
[ARTICLE 437. The underwriters shall subrogate themselves to the rights of the insured for the
purpose of bringing an action against the carriers on account of the damage they may be liable for, in
accordance with the provisions of this code.]
SECTION FIVE
Other Kinds of Insurance
[ARTICLE 438. Any other risks may be the subject of a commercial insurance contract, which arises
from accidental cases or natural accidents, and the agreements made must be complied with provided
they are licit and are in accordance with the provisions of the first section of this title.]

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-two/title-viii-

insurance-contracts/>

• Title IX – Commercial Guarantees

[ARTICLE 439. All guaranties shall be considered commercial the purpose of which is to insure the
fulfillment of a commercial contract, even though the guarantor is not a merchant.
[ARTICLE 440. The commercial guaranty must be reduced to writing being otherwise null and void.
[ARTICLE 441. A commercial guaranty shall be gratuitous unless there is an agreement to the
contrary.
[ARTICLE 442. In contracts for an indefinite period, if it has been agreed to give the guarantor a
compensation, the guaranty shall continue in force until, by reason of the complete termination of the
principal contract which is secured, the obligations arising therefrom are definitely canceled, no matter
what their duration may be, unless a fixed period during which the guaranty was to continue in force
was expressly agreed upon.]

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-two/title-ix-

commercial-guarantees/>

• Title X – Contracts for Bills of Exchange

ARTICLE 443. A bill of exchange shall be considered a commercial instrument, [and all the rights and
actions arising therefrom, without distinction of persons, shall be governed by the provisions of this
Code.]
ARTICLE 444. [The bill of exchange must contain, in order that it may be admissible in suits —
1. The designation of the place, day, month, and year on which it is issued.
2. The time it falls due.
3. The name and surname, firm name, or title of the person to whose order the payment is to be
made.
4. The amount which the drawer orders paid, stating the same in cash or in the figures which
commerce may have adopted for exchange purposes.
5. The form in which the consideration is acknowledged, either on account of the receipt of its value
in cash or merchandise or other property, which shall be expressed with the words "value received,"or
accepting it on those which may be pending, which shall be indicated by the words "value on
account" or "value understood."
6. The name, surname, firm name, or title of the person from whom the amount of the bill of
exchange is received, or to whose account it is charged.
7. The name and surname, firm name, or title of the person or association on whom it is drawn, as
well as his or its domicile.
8. The signature of the drawer, in his own hand or that of his agent having sufficient power of
attorney for the purpose.]
ARTICLE 445. The clauses of “value on account” and “value understood” shall make the purchaser of
the draft liable for the amount of the same in favor of the drawer, in order to demand it or compensate
him in the manner and at the time which both may have agreed on in making the exchange contract.
ARTICLE 446. [The drawer may draw the bill of exchange:
1. To his own order, stating that he reserves to himself the value thereof.
2. On a person, in order that he may make the payment at the domicile of a third person.
3. On another person, at the same place as the residence of the drawer.
4. On himself, but by order and for the account of a third person, this being stated in the bill of
exchange.
This circumstance shall not change the liability of the drawer, nor shall the holder acquire any right
whatsoever against the third person for whose account the bill was drawn.]
ARTICLE 447. [All persons who place their signature on bills of exchange in the name of others, as
drawers, indorsers, or as acceptors of the same, must be authorized thereto by virtue of a power of
attorney of the persons for whom they act, this being stated in the subscribing clause.
The purchasers and holders of bills of exchange shall have a right to demand of the signers the
exhibition of the power of attorney. The managers of associations shall be understood as authorized by
the mere fact of their appointment.]
ARTICLE 448. The drawers cannot refuse to issue to holders of the bills of exchange second and third
bills, and as many as they may require on the same bill, provided the request is made before the bills
fall due, excepting the provision of Article 500, there being stated in all of them that they shall not be
considered valid except in case payment was not made on the first bill of exchange issued, or other
prior ones.
ARTICLE 449. In the absence of duplicate copies of the draft issued by the drawer, any holder may
give the purchaser a copy, stating that he issues it in the absence of the original, which it is desired to
substitute. In this copy, there must be inserted literally all the indorsements which the original
contains.
ARTICLE 450. [If the bill of exchange contains some error or lack of legal formality it shall be looked
upon as a promissory note in favor of the holder and for the account of the drawer.]
SECTION TWO
Periods and Due Dates of Drafts
ARTICLE 451. [Drafts may be drawn for cash or on time for one of the following periods:
1. At sight.
2. At one or more days, and at one or more months after sight.
3. At one or more days or at one or more months from date.
4. At one or more usances.
5. At a fixed or determined day.
6. At fairs.]
ARTICLE 452. [Each one of these periods shall obligate to the payment of the drafts, as follows:
1. The sight draft, on its presentation.
2. The days or months after sight draft, on the day the period fixed elapses, to be counted from the
day following its acceptance or protest on account of nonacceptance.
3. The days or months from date draft as well as that at one or more usances, on the day the period
fixed elapses, to be counted from that immediately following the date of the draft.
4. Those drawn for payment on a certain date, on said date.
5. Those drawn on fairs, on the last day thereof.]
ARTICLE 453. [The usance of drafts drawn in one place on another in the interior of the islands of
Luzon and Visayas shall be sixty days. That of the drafts drawn on Visayas or Luzon in the other
Spanish islands of said archipelago shall be ninety days, as well as for those drawn in ports of China on
the sea of the same name, calling places in the Yellow Sea, and places in the straits of Sonda and
Malakka. In other places, one hundred and twenty days.]
ARTICLE 454. The months for the periods of drafts shall be computed from date to date.
If in the months the drafts falls due, there is no equivalent to that of the date on which the bill was
drawn, it shall be understood that if falls due the last day of the month.
ARTICLE 455. [All drafts must be paid on the day they fall due, before sunset, without any days of
grace or of courtesy. If the day it falls due should be a holiday the draft shall be paid on the previous
day.]
SECTION THREE
Obligations of Drawers
ARTICLE 456. [The drawer shall be under the obligation to supply the funds necessary to the person
on whom the bill was drawn, unless the draft is made for the account of a third person, in which case
the obligation will rest on the latter, always reserving the direct liability of the drawer with regard to
the purchaser or holder of the draft and that of the third person for whose account the draft was made
with regard to the drawer.]
ARTICLE 457. [The supply of funds shall be considered made, when, the bill being due, the person on
whom it was drawn is the debtor of an equal or greater sum than the draft to the drawer or to the third
person for whose account the bill was drawn.]
ARTICLE 458. The expenses arising from the nonacceptance or nonpayment of the draft shall be paid
by the drawer or by the third person for whose account it was made, [unless he proves that he
supplied the funds at the proper time, or that he was a creditor in accordance with the foregoing
article, or that he was specially authorized to draw for the amount in question.
In any of the three cases, the drawer may require of the person obligated to accept and to pay the
indemnity for the expenses which he may have paid the holder of the draft.]
ARTICLE 459. [The drawer shall be civilly liable for the results of his draft to all the persons who
successively acquire and convey it. The effects of this liability are specified in Articles 456, 458, and
the following one.]
ARTICLE 460. [The liability of the drawer shall cease when the holder of the draft has not presented it
or did not protest it in due time and form, provided he proves that when the bill fell due he had
supplied the funds for its payment in the manner prescribed in Articles 456 and 457. Should he not
adduce this proof, he shall reimburse the amount of the draft not paid, even though the protest was
not made at the proper time during the time the draft has not prescribed. Should he adduce said proof,
the liability for the reimbursement shall be incurred by the person who is in default, provided the draft
has not prescribed.]
SECTION FOUR
Indorsements of Bills of Exchange
[ARTICLE 461. The ownership of drafts shall be transferred by indorsement.
[ARTICLE 462. The indorsement must contain:
1. The name and surname, firm name, or title of the person or company to whom or which the draft
is transferred.
 2. The form in which the assignor acknowledges the consideration of the purchaser, as stated in No.
5 of Article 444.
3. The name and surname, firm name, or title of the person from whom it is received, or to the
account of whom it is charged, if it is not the same person to whom the draft is transferred.
4. The date on which it is drawn.
5. The signature of the indorser, or of the person legally authorized to sign for him, which shall be
stated in the subscribing clause.
[ARTICLE 463. If the statement of the date is omitted in the indorsement, the ownership of the draft
shall not be transferred, and it shall be understood as simply a commission for collection.
[ARTICLE 464. If a date prior to the day on which the indorsement was made is placed on the draft,
the indorser shall be liable for the damages suffered thereby by a third person, without prejudice to
the penalty which he may incur for the crime of forgery, if he did so maliciously.]
ARTICLE 465. Indorsements signed in blank and those in which the value is not stated shall transfer
the ownership of the draft and shall produce the same effect as if “value received” were written
therein.
[ARTICLE 466. Drafts not issued to order can not be indorsed, nor those which have fallen due or are
damaged. The transfer of ownership shall be licit by the means acknowledged in the common law; and
if, however, an indorsement is made, it shall have no further force than that of a simple cession.
[ARTICLE 467. The indorsement shall produce in each and every one of the indorsers the liability for
the guaranty for the amount of the draft, if it is not accepted, and to its repayment, with the costs of
the protest and re-exchange, if not paid when due, provided the proceeding of presentation and
protest took place at the time and in the manner prescribed in this Code.
This liability shall cease on the part of the indorsers who, at the time of transferring the draft, may
have placed thereon the clause"without my liability." In such case the indorser shall only answer for
the identity of the person making the transfer or for the right with which he makes the transfer or
indorsement.
[ARTICLE 468. The broker of negotiable bills of exchange or promissory notes, constitutes himself
guarantor of those he acquires or negotiates for the account of others, if he places his indorsement
thereon, and he can only refuse to do so for good reasons, when there was an express agreement
made by which the principal freed him from the liability.
In this case the agent may make the indorsement at the order of the principal, with the
clause, "without my liability."]
SECTION FIVE
Presentation of Drafts and Their Acceptance
ARTICLE 469. Drafts which are not presented for acceptance or payment within the period fixed shall
be affected thereby, as well as when they are not protested at the proper time.
[ARTICLE 470. Bills of exchange drawn in the islands of Luzon and Visayas and in the adjacent ones,
on any point therein, at sight or at a period counted after sight, must be presented for collection or
acceptance within sixty days from their date.
[ARTICLE 471. Bills of exchange drawn in the islands of Luzon, Visayas, and the adjacent ones, on
place in the Mariana Islands, Carolines, and Palaos, shall be presented in the cases referred to in the
foregoing article within the period of six months.
Bills of exchange drawn between the Peninsula and the Spanish Antilles or other points which are on
this side of Cape Horn and the Cape of Good Hope, no matter what may be the form of the period
mentioned therein, shall be presented for payment, or acceptance within six months at most.
With regard to places which are on the other side of said capes the period shall be of one year.
[ARTICLE 472. Bills of exchange drawn between the Philippine Islands and the Peninsula, no matter
what may be the form of the period mentioned therein, shall be presented for payment or acceptance
within six months at most. With regard to places situated in the Antilles and other Spanish territories,
the period shall be of one year.
[ARTICLE 473. Persons forwarding bills of exchange to points across the seas must send at least
second copies in different vessels from those by which the first were sent; and should they prove that
the carrying vessels suffered some accident on the sea which delayed their voyage, the time which
elapsed up to the date on which said accident was made known in the place of residence of the sender
shall not be taken into consideration in the computation of the legal period. The same effect shall be
produced by the real or presumed loss of the vessels. In accidents which occurred on land and which
are well known, the same rule shall be observed with regard to the computation of the legal period.
[ARTICLE 474. Drafts drawn at sight in foreign countries on places of the territory of the Philippine
Islands shall be presented for collection or acceptance within the forty days following their introduction
in the respective islands, and those drawn after date at the times stipulated therein.
[ARTICLE 475. Drafts drawn in the Philippine Islands on foreign countries shall be presented in
accordance with the laws in force in the place where they are to be paid.
[ARTICLE 476. The holders of the drafts drawn at a period counted after the date thereof need not be
presented for acceptance. The holder of the draft may, if he deems it convenient to him interests,
present it to the person on whom it is drawn before it falls due, and in such case, the latter shall accept
it or shall state the reasons for his refusal to do so.
[ARTICLE 477. After a draft has been presented for acceptance within the periods fixed in the
foregoing articles, the person or persons on whom it is drawn must accept it by means of the words "I
accept" or "we accept," adding the date, or state to the holder their reasons for not accepting it.
If the bill of exchange is drawn at sight or at a period to be counted after sight, and the person on
whom it is drawn does not add the date of the acceptance, the period shall run from the day on which
the holder could have presented the draft without delay in the mail; and the computation of time being
made in this manner, and the draft being due, it is collectable on the day immediately following that of
the presentation.]
ARTICLE 478. [The acceptance of the draft must take place or be refused on the same day on which
the holder presents it for this purpose, and the person of whom acceptance is demanded cannot retain
the draft in his possession under any pretext whatsoever.]
If the draft presented for acceptance is to be paid in a place other than that of the residence of the
person accepting the same, the domicile in which payment is to be made must be stated in the draft.
[The person who receives a draft for acceptance, if it is drawn on him, or to have it accepted if it is
drawn on a third person, and should retain possession thereof expecting another copy, and shall
advise its acceptance by means of a letter, telegram, or other means of writing, shall be liable to the
drawer and indorsers thereof in the same manner as if the acceptance had been placed on the draft in
question, even though such acceptance has not taken place, or even when he refuses the delivery of
the copy accepted to the person legally requesting it.]
[ARTICLE 479. Bill of exchange can not be accepted conditionally, but the acceptance for a smaller
amount than that contained in the draft can be made, in which case it may be protested for the
balance of the full amount of the same.
[ARTICLE 480. The acceptance of a draft shall bind the person accepting it to the payment thereof
when it falls due, and he shall not be relieved from making the payment on account of not having been
supplied with funds by the drawer, nor for any other reason whatsoever except the forgery of the draft.
[ARTICLE 481. In case the acceptance of a bill of exchange is refused it shall be protested, and in
view of said protest the holder shall have a right to require the drawer or anyone of the indorsers to
secure the amount of the draft to his satisfaction, or to deposit the amount thereof, or to reimburse
him for the costs of the protest and of the re-exchange, discounting the legal rate of interest for the
period which still is to elapse until it falls due.
The holder may also, even though the draft has been accepted by the person on whom it is drawn, if
the latter allowed other acceptances to be protested, apply before its due date to the other person
mentioned therein requesting by protest a better security.
[ARTICLE 482. If the holder of a draft allows the periods fixed according to the cases to elapse
without presenting it for acceptance, or does not order it protested, he shall lose all rights to demand
the security, deposit, or reimbursement, with the exception of the provisions of Article 525.
[ARTICLE 483. If the holder of a bill of exchange should not present it for collection on the day it falls
due, or, in the absence of payment, does not have it protested on the following day, he shall lose his
right to be reimbursed by the indorsers; and with regard to the drawer, the provisions of Articles 458
and 460 shall be observed. The holder shall not lose his right to reimbursement, if it were not possible
to present the draft or to take out the protest in time by reason of force majeure.
[ARTICLE 484. If the bill of exchange should contain indications made by the drawer or indorsers of
other persons of whom acceptance is to be demanded in default of the one indicated in the first place,
the holder must, after the protest has been made, if the former has refused acceptance, demand
acceptance of the persons mentioned.]
ARTICLE 485. Persons who forward drafts from one place to another too late to be presented or
protested at the proper time shall be liable for the consequences which may arise by reason thereof.
SECTION SIX
Guaranties and Their Effects
ARTICLE 486. The payment of a draft may be secured by a written obligation, independent of that
contracted by the acceptor and indorser, known by the name of guarantee (aval).
ARTICLE 487. If the guarantee (aval) is drawn up in general terms and without restriction, the person
giving it shall be liable for the payment of the draft in the same cases and manner as the person for
whom he appears as guarantor; but if the guarantee (aval) is limited as to a determined time, case,
amount, or person, it shall not produce further liability than that arising from the terms of the
guarantee(aval).
SECTION SEVEN
Payments
ARTICLE 488. [Bills of exchange must be paid to the holder on the day they fall due, in accordance
with Article 455.]
ARTICLE 489. Bills of Exchange must be paid in the money designated therein, and if that could not
be procured, in its equivalent according to the use and customs at the place of payment.
ARTICLE 490. The person paying a bill of exchange before it is due shall not be exempted from
paying the amount of the same if the first payment was not made to a legitimate person.
ARTICLE 491. The payment of a bill of exchange payable to bearer which is due, shall be considered
valid unless a garnishment of the amount thereof by reason of a judicial judgment was previously
issued.
ARTICLE 492. The holder of a draft who requests its payment, is obliged to satisfy the person paying
it as to his identity, by means of instruments or though residents who are acquainted with him or who
will guarantee his identity.
The absence of this proof shall not prevent the deposit of the amount of the draft on the day of its
presentation in an establishment or with a person accepted by the holder and payor, in which case, the
establishment or person shall retain the sum deposited in his or its possession until the legitimate
payment is made. The expenses and risks arising from this deposit shall be for the account of the
holder of the draft.
ARTICLE 493. The holder of a draft shall not be obliged to collect its amount before it falls due; but
should he accept said payment, it shall be valid, [except in case of the bankruptcy of the payor in the
fifteen days following, in accordance with the provisions of Article 879.]
ARTICLE 494. Neither shall the holder be obliged, even after the draft has fallen due, to receive part
and not the whole amount of the same, and only with his consent may a portion of its value be paid
and the balance be left standing.
In such case, the draft may be protested for the amount which has been paid, and the holder shall
retain possession thereof, making a memorandum on the same of the amount collected and giving a
separate receipt for said amount.
ARTICLE 495. Drafts accepted must necessarily be paid on the copy which contains the acceptance.
If the payment is made on any of the other ones, the person who made the payment shall be liable for
the value of the draft to the third person who is the legitimate holder of the acceptance.
ARTICLE 496. The acceptor cannot be forced to pay even though the holder of the copy not
containing the acceptance binds himself to give security to the satisfaction of the former; but in the
latter case, the bearer may demand the deposit and formulate the protest in the terms mentioned in
Article 498. If the acceptor voluntarily admits the security and makes the payment, the former shall be
legally cancelled as soon as the acceptance has prescribed which give rise to the execution of the
security.
[ARTICLE 497. Bills of exchange not accepted may be paid after they have fallen due and not before,
on the seconds, thirds, or other ones issued in accordance with the provisions of Article 448; but not on
the copies given in accordance with the provision of Article 449, unless one of the copies issued by the
drawer is attached thereto.
[ARTICLE 498. The person who may have lost a draft, accepted or not, and the person having in his
possession an accepted first draft and who is awaiting the second, and has no other copy with which to
request the payment, may demand the payor to deposit the amount of the draft in the public
establishment devoted to this purpose, or with a person having their mutual confidence, or designated
by the judge or court in case of disagreement, and if the person obliged to pay should refuse to make
the deposit, the refusal shall be made known by a protest similar to that for nonpayment, and with this
instrument the claimant shall preserve his rights against the persons who may be liable for the results
of the draft.
[ARTICLE 499. If the draft lost should have been drawn abroad or outside of the territory of the
Philippine Islands, and the holder proves his ownership by the books or by the correspondence of the
person from whom he received the draft, or by a certificate of the broker who mediated in the
transaction, he shall be entitled to recover its value, if besides this proof he gives sufficient security,
the effects of which shall continue until the copy of the draft given by the said drawer is presented or
until it has prescribed.]
ARTICLE 500. The request for a copy to take the place of the draft lost must be made by the last
holder from the person who transferred it to him, and thus successively from one to another indorser
until the drawer is reached. No person can refuse to lend his name and interposition to the steps taken
to procure a new copy, the owner of the draft defraying the expenses which may arise until it is
obtained.
ARTICLE 501. The payments made on account of the value of a draft by the person on whom it is
drawn shall reduce the liability of the drawer and indorsers in like proportion.
SECTION EIGHT
Protests
ARTICLE 502. [The nonacceptance or nonpayment of bills of exchange must be proven by means of a
protest, without the first protest having been made exempting the holder from making the second, and
without the death of the person on whom it is drawn nor his condition of bankruptcy permitting the
holder not to make protest.]
ARTICLE 503. All protests on account of non-acceptance or non-payment place the person who gave
rise thereto under the obligation to defray the expenses, losses, and damages.
[ARTICLE 504. In order that a protest may be valid, it must necessarily include the following
conditions:
1. It must be made before sunset on the day following that on which acceptance or payment was
refused; and, if it is a holiday, on the first working day thereafter.
2. It must be before a notary public.
3. Said protest must be served on the person on whom the bill of exchange is drawn, in the place
where it is to be paid if he can be found there, and otherwise, on his employees, should he have any;
or, in the absence of the latter, on his wife, children, or servants, or on the neighbor referred to in
Article 505.
4. It must contain an exact copy of the bill of exchange, of its acceptance, should it have been
accepted, and of all the indorsements and indications included in the same.
5. It must include the demand for payment made on the person who must accept or pay the bill;
and should he not have been found, the demand shall be made upon the person with whom the
proceedings are had.
6. It must also contain the answer given to the demand.
7. It must state in the same manner the threat that the expenses and losses are to be paid by the
person who occasioned them.
8. It must be signed by the person who makes it, and, should he not know how or not be able to do
so, by two attending witnesses.
9. It must state the date and hour when the protest was made.
10. The person with whom the proceedings were held must be furnished a copy of the protest
drafted on common paper.
[ARTICLE 505. The legal domicile in which to make the protest shall be:
1. That designated in the draft.
2. In the absence of such designation, the domicile of the payor at the time.
3. In the absence of either, the last at which he was known.
Should the domicile of the person on whom the draft was drawn not appear to be in any of the three
places above cited, a neighbor having an office in the place where the acceptance and payment is to
be made shall be applied to, with whom the formalities shall be gone through and to whom the copy
shall be delivered.
[ARTICLE 506. No matter at what time the protest may be made, the notaries shall retain possession
of the drafts, without delivering the latter or the certified copy of the protest to the holder, until sunset
of the day on which it is made; and if the protest was made for nonpayment, and the payor in the
meantime appears in order to satisfy the amount of the draft and the costs of the protest, the payment
shall be accepted, the draft being delivered with a memorandum thereon stating that the protest has
been paid and canceled.
[ARTICLE 507. If the protested draft should contain indications, there shall be included in the protest
the demand made of the persons indicated and their answers and the acceptance or payment, if they
should have done so.
In such cases, if the indications are made for the same place, the period for the conclusion and
delivery of the protest shall be extended to 11 o'clock a.m. of the following working-day.
If the indications are for a different place the protest shall be closed as if it did not contain any, the
holder of the draft being permitted to apply to them within a period not to exceed twice the time
required by the mail to reach said place from the first one designated, and may, through a notary,
demand payment in their order of the persons in each place, renewing the protest with the same if
there should be occasion therefor.
[ARTICLE 508. All the formalities of a protest of a bill of exchange must be drafted in a single
instrument, being entered successively in the order they take place. The notary shall give a certified
copy of this instrument to the holder, returning the original draft to him.]
ARTICLE 509. No act or instrument can supply the omission and absence of the protest for the
preservation of the action which may be instituted by the holder against the persons liable for the legal
effect of the draft.
ARTICLE 510. [If the person on whom the draft was drawn should become a bankrupt, it may be
protested for nonpayment even before it falls due; and after being protested, the holder may make use
of his right of action against the persons liable for the legal effects of the draft.]
SECTION NINE
Intervention in Acceptance and Payment
ARTICLE 511. [If after a bill of exchange should be protested for nonacceptance or nonpayment a
third person should appear offering to accept or pay the same for the account of the drawer or for the
account of any of the indorsers, even though there is no prior mandate to do so, the intervention for
the acceptance or payment shall be admitted, one or the other being entered immediately after the
protest, under the signature of the person who intervened and that of the notary, the name of the
person for whose account the intervention took place being stated in the instrument. If several persons
appear to intervene, the person doing so for the drawer shall be preferred, and if all of them desire to
intervene for the indorsers, the one who does so for the prior indorser shall be preferred.]
ARTICLE 512. [The person who intervenes in the protest of a bill of exchange, if he accepts it, shall be
liable for its payment in the same manner as if it were drawn on him, being obliged to give notice of its
acceptance by the first mail to the person for whom he intervened]; and should he pay it, he shall be
subrogated to the rights of the holder, complying with the obligations prescribed for the latter, with the
following limitations:
1. If he pays said draft for the account of the drawer, the latter only shall be liable for the amount
disbursed, the indorsers being free.
2. If he pays it for the account of one of the latter, he shall be entitled to bring an action against the
drawer, against the indorser for whose account he intervened, and against the others who precede
said indorser in the order of their indorsements, but not against those who may be subsequent.
ARTICLE 513. The intervention in the acceptance shall not deprive the holder of the draft protested of
the right to demand of the drawer or of the indorsers the security for the results.
ARTICLE 514. If the person who did not accept a draft, giving rise to a protest thereby, should appear
to pay it when it falls due, his payment shall be accepted in preference to that of the person who
intervened or wished to intervene for the acceptance or payment; but the expenses caused by the
non-acceptance of the draft at the proper time shall be for his account.
ARTICLE 515. [A person who intervenes in the payment of a draft affected in any manner, shall not
have any further right of action than that which the holder would have against the drawer who did not
provide funds at the proper time, or against the person who retains possession of the value of the draft
without having made its delivery or reimbursement.]
SECTION TEN
Actions Which May Be Instituted by Holders of Bill of Exchange
ARTICLE 516. In default of the payment of a bill of exchange presented and protested at the proper
time and in the proper manner, the holder shall have a right to demand of the acceptor, of the drawer,
or of any of the indorsers, the reimbursement for the costs of protest and re-exchange; [but after an
action has been instituted against one of them, it cannot be brought against the rest except in the
case of the insolvency of the defendant.]
ARTICLE 517. [If the holder of a protested draft would direct his action against the acceptor before
the drawer and indorsers, he shall notify all of them of the protest through a notary public within the
periods mentioned in the fifth section of this title, for the purpose of obtaining their acceptance; and if
it is directed against any of the latter a similar notification shall be made within the same periods to
the rest.
The indorsers to whom this notification is not made shall be exempted from liability, even when the
defendant is insolvent, and the same shall be understood with regard to the drawer who proves that he
made the provision of funds at the proper time.]
ARTICLE 518. If an execution has been had against the property of the debtor for the payment or
reimbursement of a draft and the holder should have been able to realize only a part of his credit, he
may bring an action against the rest for the balance of his account until he is fully reimbursed, in the
manner established in Article 516.
The same shall be done in case the person proceeded against is declared in bankruptcy, and if all the
persons liable for the draft are in similar circumstances, the claimant shall be entitled to recover from
each set of assets the corresponding dividend until his credit is totally cancelled.
ARTICLE 519. [The indorser who pays a protested draft shall subrogate himself to the rights of the
holder thereof, viz.:
 1. If the protest were for non-acceptance, against the drawer and the other indorsers who precede
him in order, for the security of the value of the draft, or the deposit in the absence of security.
2. If it were for non-payment, against the said drawer, acceptor, and prior indorsers for the recovery
of the amount of the draft and of all the costs he may have paid.]
If the drawer and the indorser both should appear to make the payment, the drawer shall be preferred;
and if the indorsers only should appear, the one of a prior date.
ARTICLE 520. The drawer as well as any of the indorsers of a protested bill of exchange may demand,
as soon as they receive notice of the protest, that the holder receive the amount with the legitimate
expenses, and deliver to them the draft with the protest and the account of the redraft.
[ARTICLE 521. The action arising from bills of exchange to recover, in the respective cases, of the
drawer, acceptors, or indorsers the payment or reimbursement, shall include an attachment, which
must be issued, in view of the draft and of the protest, without further requisite than the judicial
acknowledgment of their signatures by the drawer and indorsers proceeded against. A similar action
may be brought against the acceptor to compel him to make the payment. The acknowledgment of the
signature shall not be necessary to carry out the attachment against the acceptor when no charge of
forgery has been made in the instrument of protest for nonpayment.
[ARTICLE 522. The action brought to secure the guaranty or the deposit of the amount of a bill of
exchange, in the cases in which it is proper with regard to the provisions of Articles 481, 492, and 498
of this Code, shall be in accordance with the proceedings prescribed in Book 3, part 2, title 3, of the
law of civil procedure, it being sufficient to accompany to the claim in the first case the protest
showing the nonacceptance of the draft.
[ARTICLE 523. Against the actions including attachment by reason of bills of exchange, no further
exceptions shall be admitted but those mentioned in the law of civil procedure.]
ARTICLE 524. The amount which a creditor remits or releases to a debtor against whom an action has
been brought from the payment or reimbursement of a bill of exchange, shall be understood as
extended also to the rest who may be liable for the effects of the collection.
ARTICLE 525. The prescription of a protested draft shall not have any effect by reason of non-
presentation, protest, or its notification at the times which have been stated, with regard to the drawer
or indorser who, after said periods have elapsed, has balanced the amount of the draft in his accounts
with the debtor or reimbursed him with bonds or securities belonging to him.
ARTICLE 526. Bills of exchange protested by reason of nonpayment shall earn interest in favor of the
holders thereof from the date of the protest.
SECTION ELEVEN
Re-Exchange and Redraft
ARTICLE 527. The holder of a protested bill of exchange may recover the amount thereof and the
costs of protests and re-exchange by drawing a new bill against the drawer or one of its indorsers and
attaching to this draft the original one, as well as the certified copy of the protest and the account of
the redraft, which shall only contain the following clauses:
1. The amount of the bill of exchange protested.
2. Protest costs.
3. Stamp tax for the redraft.
4. Exchange according to the customs of the place.
5. Brokerage of the transaction.]
6. Expense of the correspondence.
7. Loss by reason of the re-exchange.
In this account, there shall be stated the name of the person on whom the redraft is made.
ARTICLE 528. All the items of the redraft shall conform to the usages of the place, [and the re-
exchange to the current rate of the day of the draft. This will be proven by the official quotation on
exchange, or by means of a certificate of an official agent or broker, should there be one, and, in their
absence, by that of two recorded merchants.]
ARTICLE 529. Only one account or redraft can be made for each bill of exchange, which account shall
be paid by the indorsers of one or the other until it is extinguished by means of the reimbursement of
the drawer.
[More than one re-exchange shall not be charged, and the amount thereof shall be graduated by
increasing or reducing the amount due from each person, according as to whether the paper on the
place to which the redraft is addressed is negotiated in that of its domicile with a premium or with
discount which circumstance shall be proven by means of certificate or an agent, broker, or merchant.]
ARTICLE 530. The holder of a redraft cannot demand legal interest thereon until after the day he
demands payment of the person who is to pay it, in the manner prescribed in Article 63 of this Code.
Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-two/title-x-
contracts-for-bills-of-exchange/>

• Title XI – Drafts, Bills, and Promissory Notes Payable to Order and Checks
SECTION ONE
Drafts, Bills, and Promissory Notes Payable to Order
[ARTICLE 531. The drafts, bills, and promissory notes payable to order must contain:
1. The specific name of the draft, bill or promissory note.
2. The date of issue.
3. The amount.
4. The time of payment.
5. The person to whose order the payment is to be made, and, in drafts, the name and domicile of
the person against whom they are drawn.
6. The place where the payment is to be made.
7. The origin and kind of value they represent.
8. The signature of the person making the draft, and, in bills or promissory notes, the person who
contracts the obligation to pay them.
Bills which are to be paid in a place other than that of the residence of the payor, shall indicate a
domicile for the payment.
[ARTICLE 532. Drafts payable to order between merchants and the bills or promissory notes likewise
payable to order, which arise from commercial transactions, shall produce the same obligations and
effects as bills of exchange, except with regard to acceptance, which is a quality of the latter only.
The bills or promissory notes which are not payable to order shall be considered simple promises to
pay subject to the common law or the commercial law according to their nature, excepting the
provisions contained in the following title.
[ARTICLE 533. The indorsements on drafts and promissory notes payable to order must contain the
same statements as those on bills of exchange.]
SECTION TWO
Checks
[ARTICLE 534. The order to pay, known in commerce by the name of check, is an instrument which
permits the maker to withdraw for his benefit or for that of a third person the whole or part of the
funds he may have at his disposal in the hands of the depositary.
[ARTICLE 535. The check must contain:
The name and the signature of the maker, and the name of the person on whom it is drawn and his
domicile, amount and date of issue, which must be written out, and if payable to bearer, to a
determined person, or to order; in the latter case it shall be transferable by indorsement.]
ARTICLE 536. It may be drawn in the same place it is to be paid, or in a different place; but the maker
shall be obliged to previously have the funds on deposit with the person on whom it is drawn.
[ARTICLE 537. The holder of a check must present it for payment within five days of its issue, if
drawn in the same place, and within eight days if drawn in another one. The holder who allows this
period to elapse shall lose his right of action against the indorsers as well as against the maker, if the
funds deposited with the person on whom it is drawn should disappear because the latter has
suspended payments or is a bankrupt.
[ARTICLE 538. The period of eight days following the arrival of the mail fixed in the foregoing article
shall also be understood for those drawn abroad.]
ARTICLE 539. Payment of a check shall be demanded of the depository on presentation.
[The person to whom payment is made shall state in his receipt his name and the date of payment.]
[ARTICLE 540. Duplicates of checks can not be issued unless the originals have been previously
canceled after they have lapsed and the agreement thereto of the depository has been obtained.]
ARTICLE 541. The maker or any legal holder of a check shall be entitled to indicate therein that it be
paid to a certain banker or institution, which he shall do by writing across the face the name of said
banker or institution, or only the words “and company.” The payment made to a person other than
banker or institution shall not exempt the person on whom it is drawn, if the payment was not correctly
made.
[ARTICLE 542. The provisions contained in this Code relating to the joint liability of the maker and
indorsers, and to protests, as well as to the exercise of the actions arising from bills of exchange, shall
be applicable to these instruments.
[ARTICLE 543. The foregoing provision, in so far as they are applicable, shall govern pay orders
known by the name of stubs, in current account, of banks or institutions.]
Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-two/title-xi-drafts-
bills-and-promissory-notes-payable-to-order-and-checks/>

• Title XII – Instruments Payable to Bearer, and Forgery, Robbery, Theft, or Loss of the Same
SECTION ONE
Instruments Payable to Bearer
[ARTICLE 544. All instruments payable to order, discussed in the foregoing title, may be issued
payable to bearer, and shall, the same as the former, include an attachment from the day they fall
due, without further requisite than the acknowledgment of the signature of the person liable for the
payment.
The due date shall be counted according to the rules established for instruments issued payable to
order, and against the action to secure judgment no exceptions but those mentioned in Article 523
shall be admitted.
[ARTICLE 545. Other instruments payable to bearer, be they either the ones mentioned in Article 68
or bank notes, shares, or obligations of other banks, mortgage loan, agricultural loan, or of
associations handling public securities, railroad companies, companies of public works, industrial or
commercial associations, or of any other kind whatsoever, issued in accordance with the laws and
provisions of this Code, shall produce the following effects:
1. They shall include attachment, as well as their coupons, from the day the respective obligation
falls due, or when they are presented, if no due date has been affixed.
2. They shall be transferable by the simple delivery of the instrument.
3. They are not subject to restitution if they were negotiated on exchange with the intervention of a
licensed agent, and where there is no such agent with the intervention of a notary public or of a
commercial broker.
The rights and actions of the legitimate owner against the vendor or other persons liable according to
the laws for the acts which deprived him of the possession and ownership of the instruments sold, shall
be reserved.]
ARTICLE 546. The holder of an instrument payable to bearer shall have a right to compare it with the
original whenever he consider it advisable.
SECTION TWO
Robbery; Theft, or Loss of Instruments of Credit and those Payable to Bearer
ARTICLE 547. The following shall be instruments of credit payable to bearer for the effects of this
section, according to the following cases:
1. Instruments of credit against the State, provinces or municipalities, legally issued.
2. Those issued by foreign countries the quotation of which has been authorized by the
Government, on the recommendation of the board of directors of the associations of agents.
3. Instruments of credit payable to bearer, of foreign enterprises, established in accordance with
the law of the State to which they belong.
4. Instruments of credit payable to bearer issued in accordance with the laws of their association by
national establishments, associations, or enterprises.
5. Those issued by private parties, provided they are mortgaged or are sufficiently secured.
ARTICLE 548. The dispossessed owner, no matter for what cause it may be, may apply to the judge or
court of competent jurisdiction, asking that the principal, interest or dividends due or about to become
due, be not paid a third person, as well as in order to prevent the ownership of the instrument from
being transferred to another person, or he may request that a duplicate he issued him.
The judge or court exercising jurisdiction in the district in which the debtor establishment or person is
situated shall be of competent jurisdiction.
ARTICLE 549. In the complaint made to the judge or court by the dispossessed owner, he must state
the name, character, nominal value, number if it should have one, and the series of the instrument;
and furthermore, if it were possible, the time and place he acquired ownership and the manner of
acquisition thereof, the time and place where he received the last interest or dividends, and the
circumstances attending the dispossession.
The person dispossessed, in making the complaint, shall indicate within the district in which the judge
or court of competent jurisdiction exercises the domicile where he is to be served with all notifications.
ARTICLE 550. If the complaint relates only to the payment of the principal or interest or dividends
which are due or about to become due, the judge or court, when the legality of the acquisition of the
instrument has been proved, must admit said complaint immediately ordering:
[1. That the complaint be immediately published in the Gacetas of Madrid and Manila, in the Boletin
oficial of the province, and in the Diario oficial de Avisos of the place, should there be one fixing a short
period within which the holder of the instrument may appear.]
 2. That it be communicated to the managing office of the institution which issued the instrument, or
to the association or private person from whom it originates, in order that the payment of the principal
or interest may be suspended.
[ARTICLE 551. The request shall be heard in the presence of a member of the department of public
prosecution, and in the manner prescribed in the law of civil procedure for interlocutory issues.]
ARTICLE 552. After one year has elapsed since the complaint without anybody contradicting it, and, if
in the interval, two dividends have been distributed, the complainant may request the judge or court
for authority not only to recover the interest of dividends due or about to become due, in the
proportion and means of their collectibility, but also the principal of the instruments, if it is
demandable.
ARTICLE 553. After authorization has been granted by the judge or court, the person dispossessed
must, before receiving the interest or dividends, or the principal, give sufficient security to cover the
amount of the annuities recoverable, and, furthermore, twice the amount of the last annuity due.
After two years have elapsed from the date of the authorization without the complainant being
contradicted, the guaranty shall be cancelled.
If the complainant does not wish to or cannot give the security, the debtor association or private
person may request the deposit of the interest or dividends past due or of the principal recoverable,
and to receive after the two years the amount deposited if there be no objection.
ARTICLE 554. If the principal should be recoverable after the authorization, it may be demanded
under security or the deposit may be required. After five years have elapsed, without opposition, from
the date of the authorization, or ten years from the date it was demandable, the person dispossessed
may receive the securities deposited.
ARTICLE 555. The solvency of the guaranty shall be passed upon by the judges and courts.
The complainant may give security in bonds of the State, recovering them at the termination of the
period fixed for the guaranty.
ARTICLE 556. If the complaint relates to coupons payable to bearer separated from the instrument,
and the claim should not be overruled, the claimant may recover the amount of the coupons after
three years have elapsed, counted from the date of the judicial declaration admitting the complaint.
ARTICLE 557. The payments made to the person dispossessed in accordance with the rules above
established exempt the debtor from all the liability; and a third person who considers himself injured
shall only retain the right of personal action against the claimant who acted without just cause.
ARTICLE 558. If, before the exemption of the debtor, a third holder should appear with the
instruments the subject of the complaint, the former must retain possession thereof and inform the
judge or court and the first claimant, at the same time stating the name, residence, or manner in
which the third holder may be found. The appearance of a third person shall suspend the effects of
the claim until it is decided by the judge or court.
[ARTICLE 559. If the purpose of the complaint should be to prevent the negotiation or transfer of
instruments which can be quoted, the person dispossessed may address himself to the board of
directors of the association of agents, and, in the absence of the latter, to the board of the association
of commercial brokers, complaining of the robbery, theft, or loss, and accompanying thereto a
memorandum giving the series and numbers of the instruments lost, time of their acquisition, and
manner in which they were acquired.
The board of directors, on the same day of the exchanges or on the following one, shall affix a notice
to the board, and shall announce at the opening of the exchange the complaint made, and also advise
the other boards of directors of exchanges of said complaint.
In the absence of a board of directors of the association of agents or of commercial brokers, the person
dispossessed shall complain of the robbery, theft, or loss in the manner prescribed in this article, to the
Judge of First Instance of his domicile, which authority shall make it public by means of letters regatory
to the board of directors of the association of agents of Madrid.
The complaints to which this article limits itself shall be inserted at the expense of the complainant in
the official Gaceta of Manila, and in one or two of the newspapers having the largest circulation, in the
opinion of the judge.
[ARTICLE 560. The negotiation of securities lost or stolen, which take place after the announcements
referred to in the foregoing article, shall be void, and the person acquiring the same shall not enjoy the
right of remaining in undisturbed possession thereof; but the right of the third person against the
vendor and against the agent who took part in the transaction shall be reserved.
[ARTICLE 561. If the complainant should apply directly to the board of directors of the exchange of
Madrid, or of other exchanges, he shall be required, in order for the complaint to have effect, to
communicate it to the judge of his domicile in order that the latter may ratify the prohibition to
negotiate or transfer the instruments. If the decision rendered should not be communicated to the
board of directors by the first mail after the complainant gave notice, the board shall annul the notice
after nine days from the date of the arrival of the mail at the place of residence of the board of
directors have elapsed, and the transfer of the instruments which may subsequently be made shall be
valid.
[ARTICLE 562. After five years have elapsed to be counted from the date of the publications made by
virtue of the provisions of Articles 550 and 559, and from that of the ratification of the judge or court
referred to in Article 561, without any objection to the complaint having been made, the judge or court
shall declare the nullity of the instrument stolen or lost, and shall communicate it to the official
managing office, association, or private person from whom it came, ordering the issue of a duplicate to
the person who appears to be its legal owner. If within the five years a third complainant should
appear, the period shall be suspended until the decision of the judges or courts is rendered.
[ARTICLE 563. The duplicate shall bear the same number as the original instrument; it shall state that
it was issued in duplicate; it shall produce the same effects as the former, and shall be negotiable
under the same conditions. The issue of the duplicate shall annul the original instrument, and this shall
be stated in the entires or records relating thereto.
[ARTICLE 564. If the complaint of the person who suffered the loss should be for the purpose of
recovering the principal, dividends, or coupons, and also to prevent the negotiation or transfer on
exchange of the instruments which can be quoted thereon, the rules established for each one of the
foregoing articles shall be observed according to the cases.
[ARTICLE 565. Notwithstanding the provisions contained in this section, if the person dispossessed
should have acquired the instruments on exchange, and if he attaches to the complaint the certificate
of the agent in which the instruments are detailed or specified in such manner that they can be
identified before applying to the judge or court, he may do so to the debtor institution or person, and
even to the board of directors of the association of agents objecting to making the payment and
requesting that the proper notices be issued. In such case the debtor institution or person and the
board of directors shall be obliged to act as if the court or judge has notified them of the admission of
the complaint and that it has been passed upon.
If the judge or court, within the period of one month, does not order the retention or publication, the
complaint made by the person dispossessed shall have no effect, and the debtor institution or person
and the board of directors shall be exempted from all liability.]
ARTICLE 566. The foregoing provisions shall not be applicable to the bank notes of the Spanish
Philippine Bank (Banco Español-Filipino), nor to notes of the same kind issued by institutions subject to
the same rule, nor to the instruments payable to bearer issued by the State, which are governed by
special laws, decrees, or regulations.

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-two/title-xii-

instruments-payable-to-bearer-and-forgery-robbery-theft-or-loss-of-the-same/>

• Title XIII – Letters of Credit

ARTICLE 567. Letters of credit are those issued by one merchant to another or for the purpose of
attending to a commercial transaction.
ARTICLE 568. The essential conditions of letters of credit shall be:
1. To be issued in favor of a definite person and not to order.
2. To be limited to a fixed and specified amount, or to one or more undetermined amounts, but
within a maximum the limits of which has to be stated exactly.
Those which do not have any of these last circumstances shall be considered as mere letters of
recommendation.
ARTICLE 569. The drawer of a letter of credit shall be liable to the person on whom it was issued, for
the amount paid by virtue thereof, within the maximum fixed therein.
Letters of credit may not be protested even should they not be paid, nor shall the bearer thereof
acquire any right of action by reason of such non-payment against the person who issued it.
The person paying shall have the right to demand the proof of the identity of the person in whose favor
the letter of credit was issued.
ARTICLE 570. The drawer of a letter of credit may annul it, informing the bearer and the person to
whom it is addressed of such revocation.
ARTICLE 571. The bearer of a letter of credit shall pay the amount received to the drawer without
delay. Should he not do so, an action involving execution may be brought to recover it, with legal
interest and the current exchange in the place where payment was made on the place where it is
repaid.
ARTICLE 572. If the bearer of a letter of credit does not make use thereof within the period agreed
upon with the drawer, or, in default of a period fixed, within six months, counted from its date in any
point in the Philippines, and with in twelve months anywhere outside thereof, it shall be void in fact
and in law.

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-two/title-xiii-letters-

of-credit/>

• Maritime Commerce
• TITLE ONE – Vessel
ARTICLE 573. Merchant vessels constitute property which may be acquired and transferred by any of
the means recognized by law. The acquisition of a vessel must appear in a written instrument, which
shall not produce any effect with respect to third persons if not inscribed in the registry of vessels.
The ownership of a vessel shall likewise be acquired by possession in good faith, continued for three
years, with a just title duly recorded.
In the absence of any of these requisites, continuous possession for ten years shall be necessary in
order to acquire ownership. A captain may not acquire by prescription the vessel of which he is in
command.
ARTICLE 574. Builders of vessels may employ the materials and follow, with respect to their
construction and rigging, the systems most suitable to their interests. Ship owners and seamen shall
be subject to what the laws and regulations of the public administration on navigation, customs,
health, safety of vessels, and other similar matters.
ARTICLE 575. Co-owners of vessels shall have the right of repurchase and redemption in sales made
to strangers, but they may exercise the same only within the nine days following the inscription of the
sale in the registry, and by depositing the price at the same time.
ARTICLE 576. In the sale of a vessel it shall always be understood as included the rigging, masts,
stores and engine of a streamer appurtenant thereto, which at the time belongs to the vendor.
The arms, munitions of war, provisions and fuel shall not be considered as included in the sale.
The vendor shall be under the obligation to deliver to the purchaser a certified copy of the record sheet
of the vessel in the registry up to the date of the sale.
ARTICLE 577. If the alienation of the vessel should be made while it is on a voyage, the freightage
which it earns from the time it receives its last cargo shall pertain entirely to the purchaser, and the
payment of the crew and other persons who make up its complement for the same voyage shall be for
his account.
If the sale is made after the vessel has arrived at the port of its destination, the freightage shall pertain
to the vendor, and the payment of the crew and other individuals who make up its complement shall
be for his account, unless the contrary is stipulated in either case.
ARTICLE 578. If the vessel being on a voyage or in a foreign port, its owner or owners should
voluntarily alienate it, either to Filipinos or to foreigners domiciled in the capital or in a port of another
country, the bill of sale shall be executed before the consul of the Republic of the Philippines at the
port where it terminates its voyage and said instrument shall produce no effect with respect to third
persons if it is not inscribed in the registry of the consulate. The consul shall immediately forward a
true copy of the instrument of purchase and sale of the vessel to the registry of vessels of the port
where said vessel is inscribed and registered.
In every case the alienation of the vessel must be made to appear with a statement of whether the
vendor receives its price in whole or in part, or whether he preserves in whole or in part any claim on
said vessel. In case the sale is made to a Filipino, this fact shall be stated in the certificate of
navigation.
When a vessel, being on a voyage, shall be rendered useless for navigation, the captain shall apply to
the competent judge on court of the port of arrival, should it be in the Philippines; and should it be in a
foreign country, to the consul of the Republic of the Philippines, should there be one, or, where there is
none, to the judge or court or to the local authority; and the consul, or the judge or court, shall order
an examination of the vessel to be made.
If the consignee or the insurer should reside at said port, or should have representatives there, they
must be cited in order that they may take part in the proceedings on behalf of whoever may be
concerned.
ARTICLE 579. After the damage to the vessel and the impossibility of her being repaired, in order to
continue the voyage had been shown, its sale at public auction shall be ordered, subject to the
following rules:
 1. The hull of the vessel, its rigging, engines, stores, and other articles shall be appraised, after
making an inventory, said proceedings to be brought to the notice of the persons who may wish to
take part in the auction.
2. The order or decree ordering the auction to be held shall be posted in the usual places, an
announcement thereof to be inserted in the Official Gazette and in two of the newspapers of the
largest circulation of the port where the auction is to be held, should there be any.
The period which may be fixed for the auction shall not be less than twenty days.
3. These announcements shall be repeated every ten days, and their publication shall be made to
appear in the records.
4. The auction shall be held on the day fixed, with the formalities prescribed in the common law for
judicial sales.
5. If the sale should take place while the vessel is in a foreign country, the special provisions
governing such cases shall be observed.
ARTICLE 580. In all judicial sales of any vessel for the payment of creditors, the following shall have
preference in the order stated:
1. The credit in favor of the public treasury proven by means of an official certificate of competent
authority.
2. The judicial costs of the proceedings, according to an appraisement approved by the judge or
court.
3. The pilotage charges, tonnage dues, and the other sea or port charges, proven by means of
proper certificates of the officers intrusted with the collection thereof.
4. The salaries of the depositaries and keepers of the vessel and any other expenses for its
preservation from the time of arrival at the port until the sale, which appear to have been paid or be
due by virtue of an account verified and approved by the judge or court.
5. The rent of the warehouse where the rigging and stores of the vessel have been taken care of,
according to contract.
6. The salaries due the captain and crew during its last voyage, which shall be verified by means of
the liquidation to be made in view of the lists and of the books of account of the vessel, approved by
the chief of the Bureau of Merchant Marine, where there is one, and in his absence by the consul or
judge or court.
7. The reimbursement for the goods of the freight which the captain may have sold in order to
repair the vessel, provided that the sale has been ordered through a judicial proceedings held with the
formalities required in such cases, and recorded in the certificate of registry of the vessel.
8. The part of the price which has not been paid to the said vendor, the unpaid credits for materials
and labor in the construction of the vessel, when it has not navigated, and those arising from the
repair and equipment of the vessels and from its provisioning with victuals and fuel during the last
voyage.
In order that the credits provided for in this subdivision may enjoy this preference, they must appear
by contracts recorded in the registry of vessels, or if they were contracted for the vessel while on a
voyage and said vessel has not returned to the port where it is registered, they must be made with the
authorization required for such cases and annotated in the certificate of registration of the vessel.
9. The amount borrowed on bottomry on the hull, keel, tackle, and stores of the vessel before its
departure, proven by means of the contract executed according to law and recorded in the registry of
vessels; those borrowed during the voyage with the authorization mentioned in the preceding
subdivision, satisfying the same requisites; and the insurance premium, proven by the insurance policy
or a certificate taken from the books of the broker.
10. The indemnity due the shipper for the value of the goods shipped which were not delivered to
the consignees, or for averages suffered for which the vessel is liable, provided that either appear in a
judicial or arbitration decision.
ARTICLE 581. If the proceeds of the sale should not be sufficient to pay all the creditors included in
one number or grade, the residue shall be divided among them pro rata.
ARTICLE 582. After the bill of the judicial sale at public auction has been executed and inscribed in
the registry of vessels, all the other liabilities of the vessel in favor of the creditors shall be considered
extinguished.
But if the sale should have been voluntary and should have been made while the vessel was on a
voyage, the creditors shall preserve their rights against the vessel until it returns to the port of her
registry, and three months after the inscription of the sale in the registry of vessel or the arrival.
ARTICLE 583. If while on a voyage the captain should find it necessary to contract one or more of the
obligations mentioned in subdivisions 8 and 9 of Article 580, he shall apply to the judge or court if he is
in Philippine territory, and otherwise to the consul of the Republic of the Philippines, should there be
one, and, in his absence, to the judge or court or proper local authority, presenting the certificate of
the registration sheet treated of in Article 612 and the instruments proving the obligation contracted.
The judge or court, the consul, or the local authority, as the case may be, in view of the result of the
proceedings instituted, shall make a temporary memorandum of their result in the certificate, in order
that it may be recorded in the registry when the vessel returns to the port of its registry, or so that it
can be admitted as a legal and preferred obligation in case of sale before its return, by reason of the
sale of the vessel on account of a declaration of unseaworthiness.
The omission of this formality shall make the captain personally liable for the credits prejudiced on his
account.
ARTICLE 584. The vessels subject to liability for the credits mentioned in Article 580 may be attached
and judicially sold in the manner prescribed in Article 579, in the port in which they may be found, at
the instance of any of the creditors; but if they should be loaded and ready to sail, the attachment may
not be effected except for debts contracted to prepare and provision the vessel for the same voyage,
and even then the attachment shall be dissolved if any person interested in its sailing should give a
bond for the return of the vessel within the period fixed in the certificate of navigation binding himself
to pay the indebtedness insofar as it may be legal, should it fail to do so, even if this failure be due to
fortuitous event.
For debts of any other kind whatsoever not comprised within the said Article 580, the vessel may be
attached only in the port of her registry.
ARTICLE 585. For all purposes of law not modified or restricted by the provisions of this Code, vessels
shall continue to be considered as personal property.

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commerce/title-one-vessel/>

• TITLE TWO – Persons Who Take Part in Maritime Commerce

SECTION ONE
Shipowners and Ship Agents
ARTICLE 586. The shipowner and the ship agent shall be civilly liable for the acts of the captain and
for the obligations contracted by the latter to repair, equip, and provision the vessel, provided the
creditor proves that the amount claimed was invested for the benefit of the same.
By ship agent is understood the person entrusted with provisioning or representing the vessel in the
port in which it may be found.
ARTICLE 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons
which may arise from the conduct of the captain in the care of the goods which he loaded on the
vessel; but he may exempt himself therefrom by abandoning the vessel with all her equipments and
the freight it may have earned during the voyage.
ARTICLE 588. Neither the shipowner nor the ship agent shall be liable for the obligations contracted
by the captain, if the latter exceeds the powers and privileges pertaining to him by reason of his
position or conferred upon him by the former.
Nevertheless, if the amounts claimed were invested for the benefit of the vessel, the responsibility
therefor shall devolve upon its owner or agent.
ARTICLE 589. If two or more persons should be part owners of a merchant vessel, a partnership shall
be presumed as established by the co-owners.
This partnership shall be governed by the resolutions of the majority of the members.
If the part owners should not be more than two, the disagreement of views, if any, shall be decided by
the vote of the member having the largest interest. If the interests are equal, it should be decided by
lot.
The person having the smallest share in the ownership shall have one vote; and proportionately the
other part owners as many votes as they have parts equal to the smallest one.
A vessel may not be detained, attached or levied upon in execution in its entirety, for the private debts
of a part owner, but the proceedings shall be limited to the interest which the debtor may have in the
vessel, without interfering with the navigation.
ARTICLE 590. The co-owners of a vessel shall be civilly liable in the proportion of their interests in the
common fund, for the results of the acts of the captain, referred to in Article 587.
Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part
of the vessel belonging to him.
ARTICLE 591. All the part owners shall be liable, in proportion to their respective ownership, for the
expenses for repairing the vessel, and for other expenses which are incurred by virtue of a resolution
of the majority.
They shall likewise be liable in the same proportion for the expenses for the maintenance, equipment,
and provisioning of the vessel, necessary for navigation.
ARTICLE 592. The resolution of the majority with regard to the repair, equipment, and provisioning of
the vessel in the port of departure shall bind the minority, unless the minority members renounce their
interests, which must be acquired by the other co-owners, after a judicial appraisement of the value of
the portion or portions assigned.
The resolutions of the majority relating to the dissolution of the partnership and sale of the vessel shall
also be binding on the minority.
The sale of the vessel must be made at public auction, subject to the provisions of the law of civil
procedure, unless the co-owners unanimously agree otherwise, saying always the right of repurchase
and redemption provided for in Article 575.
ARTICLE 593. The owners of a vessel shall have preference in her charter over other persons, under
the same conditions and price. If two or more of them should claim this right, the one having the
greater interest shall be preferred; and should they have equal interests, the matter shall be decided
by lot.
ARTICLE 594. The co-owners shall elect the manager who is to represent them in the capacity of ship
agent. The appointment of director or ship agent shall be revocable at the will of the members.
ARTICLE 595. The ship agent, whether he is at the same time the owner of the vessel, or a manager
for an owner or for an association of co-owners, must have the capacity to trade and must be recorded
in the merchant’s registry of the province.
The ship agent shall represent the ownership of the vessel, and may, in his own name and in such
capacity, take judicial and extrajudicial steps in matters relating to commerce.
ARTICLE 596. The ship agent may discharge the duties of captain of the vessel, subject in every case
to the provision of Article 609.
If two or more co-owners apply for the position of captain, the disagreement shall be decided by a vote
of the members; and if the vote should result in a tie, it shall be decided in favor of the co-owner
having the larger interest in the vessel.
If the interests of the applicants should be equal, and there should be a tie, the matter shall be decided
by lot.
ARTICLE 597. The ship agent shall designate and come to terms with the captain, and shall contract
in the name of the owners, who shall be bound in all that refer to repairs, details of equipment,
armament, provisions of food and fuel, and freight of the vessel, and, in general, in all that relate to
the requirements of navigation.
ARTICLE 598. The ship agent may not order a new voyage, or make contracts for a new charter, or
insure the vessel, without the authorization of its owner or resolution of the majority of the co-owners,
unless these powers were granted him in the certificate of his appointment.
If he insures the vessel without authorization therefore, he shall be subsidiarily liable for the solvency
of the insurer.
ARTICLE 599. The ship agent managing for an association shall render to his associates an account of
the results of each voyage of the vessel, without prejudice to always having the books and
correspondence relating to the vessel and to its voyages at their disposal.
ARTICLE 600. After the account of the managing agent has been approved by a relative majority, the
co-owners shall pay the expenses in proportion to their interest, without prejudice to the civil or
criminal actions which the minority may deem fit to institute afterwards.
In order to enforce the payment, the managing agent shall be entitled to an executory action (“accion
ejecutiva”), which shall be instituted by virtue of a resolution of the majority, and without further
proceedings than the acknowledgment of the signatures of the persons who voted for the resolution.
ARTICLE 601. Should there be any profits, the co-owners may demand of the managing agent the
amount corresponding to their interests by means of an executory action (“accion ejecutiva”),without
any other requisite than the acknowledgment of the signatures on the instrument approving the
account.
ARTICLE 602. The ship agent shall indemnify the captain for all the expenses he may have incurred
with funds of his own or of others, for the benefit of the vessel.
ARTICLE 603. Before the vessel sets out to sea the ship agent may at his discretion discharge the
captain and members of the crew whose contracts are not for a definite period or voyage, paying them
the salaries earned according to their contracts, and without any indemnity whatsoever, unless there is
an express and specific agreement in respect thereto.
ARTICLE 604. If the captain or any other member of the crew should be discharged during the
voyage, they shall receive their salary until they return to the port where the contract was made,
unless there should be just cause for the discharge, all in accordance with Article 636 and following of
this Code.
ARTICLE 605. If the contracts of the captain and members of the crew with the ship agent should be
for a definite period or voyage, they may not be discharged until after the fulfillment of their contracts,
except by reason of insubordination in serious matters, robbery, theft, habitual drunkenness, or
damage caused to the vessel or to its cargo through malice or manifest or proven negligence.
ARTICLE 606. If the captain should be a co-owner of the vessel, he may not be discharged unless the
ship agent returns to him the amount of his interest therein, which, in the absence of agreement
between the parties, shall be appraised by experts appointed in the manner established in the law of
civil procedure.
ARTICLE 607. If the captain who is a co-owner should have obtained the command of the vessel by
virtue of a special agreement contained in the articles of association, he may not be deprived of his
office except for the causes mentioned in Article 605.
ARTICLE 608. In case of the voluntary sale of the vessel, all contracts between the ship agent and the
captain shall terminate, reserving to the latter his right to the indemnity which may pertain to him,
according to the agreements made with the ship agent.
They vessel sold shall remain subject to the security of the payment of said indemnity if, after the
action against the vendor has been instituted, the latter is found to be insolvent.
SECTION TWO
Captains and Masters of Vessels
ARTICLE 609. [Captains, masters or patrons of vessels must be Filipinos, have legal capacity to
contract in accordance with this code, and prove the skill, capacity, and qualifications necessary to
command and direct the vessel, as established by marine or navigation laws, ordinances, or
regulations, and must not be disqualified according to the same for the discharge of the duties of the
position.
If the owner of a vessel desires to be the captain thereof, without having the legal qualifications
therefor, he shall limit himself to the financial administration of the vessel, and shall intrust the
navigation to a person possessing the qualifications required by said ordinances and regulations.]
ARTICLE 610. The following powers shall be inherent in the position of captain, master or patron of a
vessel:
1. To appoint or make contracts with the crew in the absence of the ship agent, and to propose said
crew, should said agent be present; but the ship agent may not employ any member against the
captain’s express refusal.
2. To command the crew and direct the vessel to the port of its destination, in accordance with the
instructions he may have received from the ship agent.
3. To impose, in accordance with the contracts and with the laws and regulations of the merchant
marine, and when on board the vessel, correctional punishment upon those who fail to comply with his
orders or are wanting in discipline, holding a preliminary hearing on the crimes committed on board
the vessel on the seas, which crimes shall be turned over to the authorities having jurisdiction over the
same at the first port touched.
4. To make contracts for the charter of the vessel in the absence of the ship agent or of its
consignee, acting in accordance with the instructions received and protecting the interests of the
owner with utmost care.
5. To adopt all proper measures to keep the vessel well supplied and equipped, purchasing all that
may be necessary for the purpose, provided there is no time to request instruction from the ship
agent.
6. To order, in similar urgent cases while on a voyage, the repairs on the hull and engines of the
vessel and in its rigging and equipment, which are absolutely necessary to enable it to continue and
finish its voyage; but if he should arrive at a point where there is a consignee of the vessel, he shall act
in concurrence with the latter.
ARTICLE 611. In order to comply with the obligations mentioned in the preceding article, the captain,
when he has no funds and does not expect to receive any from the ship agent, shall obtain the same in
the successive order stated below:
1. By requesting said funds from the consignee of the vessel or correspondents of the ship agent.
2. By applying to the consignees of the cargo or to those interested therein.
3. By drawing on the ship agent.
4. By borrowing the amount required by means of a loan on bottomry.
5. By selling a sufficient amount of the cargo to cover the sum absolutely indispensable for the
repair of the vessel and to enable it to continue its voyage.
In these two last cases he must apply to the judicial authority of the port, if in the Philippines, and to
the consul of the Republic of the Philippines if in a foreign country, and where there is none, to the
local authority, proceeding in accordance with the provisions of Article 583, and with the provisions of
the law of civil procedure.
ARTICLE 612. The following obligations shall be inherent in the office of captain:
1. To have on board before starting on a voyage a detailed inventory of the hull, engines, rigging,
spare-masts, tackle, and other equipment of the vessel; the royal or the navigation certificate; the roll
of the persons who make up the crew of the vessel, and the contracts entered into with them; the lists
of passengers; the bill of health; the certificate of the registry proving the ownership of the vessel and
all the obligations which encumber the same up to that date; the charter parties or authenticated
copies thereof; the invoices or manifests of the cargo, and the memorandum of the visit or inspection
by experts, should it have been made at the port of departure.
2. To have a copy of this code on board.
3. To have three folioed and stamped books, placing at the beginning of each one a memorandum
of the number of folios it contains, signed by the maritime authority, and in his absence by the
competent authority.
In the first book, which shall be called “log book,” he shall enter day by day the condition of the
atmosphere, the prevailing winds, the courses taken, the rigging carried, the power of the engines
used in navigation, the distances covered, the maneuvers executed, and other incidents of navigation;
he shall also enter the damage suffered by the vessel in her hull, engines, rigging, and tackle, no
matter what its cause may be, as well as the impairment and damage suffered by cargo, and the effect
and importance of the jettison, should there be any; and in cases of serious decisions which require the
advice or a meeting of the officers of the vessel, or even of the crew and passengers, he shall record
the decisions adopted. For the information indicated he shall make use of the binnacle book and of the
steam of engine book kept by the engineer.
In the second book called the “accounting book,” he shall record all the amounts collected and paid for
the account of the vessel, entering specifically article by article, the source of the collection and the
amounts spent for provisions, repairs, acquisitions of equipment or goods, fuel, food, outfits, wages,
and other expenses of whatever nature they may be. He shall furthermore enter therein a list of all the
members of the crew, stating their domiciles, their wages and salaries, and the amounts they may
have received on account, directly or by delivery to their families.
In the third book, called “freight book,” he shall record the loading and discharge of all the goods,
stating their marks and packages, names of the shippers and of the consignees, ports of loading and
unloading, and the freightage they give. In this same book he shall record the names and places of
sailing of the passengers, the number of packages in their baggage, and the price of passage.
4. Before receiving cargo, to make with the officers of the crew and two experts, if required by the
shippers and passengers, an examination of the vessel, in order to ascertain whether it is water-tight,
with the rigging and engines in good condition, and with the equipment required for good navigation,
preserving under his responsibility a certificate of the memorandum of his inspection, signed by all
those who may have taken part therein.
The experts shall be appointed, one by the captain of the vessel and another by those who request its
examination, and in case of disagreement a third shall be appointed by the marine authority of the
port or by the authority, exercising his functions.
5. To remain constantly on board the vessel with the crew while the cargo is being taken on board
and to carefully watch the stowage thereof; not to consent to the loading of any merchandise or
matter of a dangerous character, such as inflammable or explosive substances, without the
precautions which are recommended for their packing, handling and isolation; not to permit the
carriage on deck of any cargo which by reason of its arrangement, volume, or weight makes the work
of the sailors difficult, and which might endanger the safety of the vessel; and if, on account of the
nature of the merchandise, the special character of the shipment, and principally the favorable season
in which it is undertaken, merchandise may be carried on deck, he must hear the opinion of the
officers of the vessel and have the consent of the shippers and of the ship agent.
6. To demand a pilot at the expense of the vessel whenever required by the navigation, and
principally when he has to enter a port, canal, or river, or has to take a roadstead or anchoring place
with which neither he nor the officers and crew are acquainted.
7. To be on deck on reaching land and to take command on entering and leaving ports, canals,
roadsteads, and rivers, unless there is a pilot on board discharging his duties. He shall not spend the
night away from the vessel except for serious causes or by reason of official business.
8. To present himself, when making a port in distress, to the maritime authority if in the Philippines
and to the consul of the Republic of the Philippines if in a foreign country, before twenty-four hours
have elapsed, and to make a statement of the name registry, and port of departure of the vessel, of its
cargo, and the cause of arrival which declaration shall be visaed by the authority or the consul, if after
examining the same it is found to be acceptable, giving the captain the proper certificate proving his
arrival in distress and the reasons therefor. In the absence of the maritime authority or of the consul,
the declaration must be made before the local authority.
 9. To take the necessary steps before the competent authority in order to record in the certificate
of the vessel in the registry of vessels the obligations which he may contract in accordance with Article
583.
10. To place under good care and custody all the papers and belongings of any members of the
crew who might die on the vessel, drawing up a detailed inventory, in the presence of passengers, or,
in their absence, of members of the crew as witnesses.
11. To conduct himself according to the rules and precepts contained in the instructions of the ship
agent, being liable for all that which he may do in violation thereof.
12. To inform the ship agent from the port at which the vessel arrives, of the reason of his arrival,
taking advantage of the semaphore, telegraph, mail, etc., as the case may be; to notify him of the
cargo he may have received, stating the names and domiciles of the shippers, freightage earned, and
amounts borrowed on bottomry loan; to advise him of his departure, and of any operation and date
which may be of interest to him.
13. To observe the rules with respect to situation, lights and maneuvers in order to avoid collisions.
14. To remain on board, in case the vessel is in danger, until all hope to save it is lost, and before
abandoning it, to hear the officers of the crew, abiding by the decision of the majority; and if the boats
are to be taken to, he shall take with him, before anything else, the books and papers, and then the
articles of most value, being obliged to prove, in case of the loss of the books and papers, that he did
all he could to save them.
15. In case of wreck, to make the proper protest in due form at the first port of arrival, before the
competent authority or the Philippine consul, within twenty-four hours, specifying therein all the
incidents of the wreck, in accordance with subdivision 8 of this article.
16. To comply with the obligations imposed by the laws and regulations on navigation, customs,
health, and others.
ARTICLE 613. A captain who navigates for freight in common or on shares may not make any
separate transaction for his own account; and should he do so, the profit which may accrue shall
belong to the other persons interested, and the losses shall be borne by him exclusively.
ARTICLE 614. A captain who, having made an agreement to make a voyage, fails to perform his
undertaking, without prevented by fortuitous accident or force majeure, shall indemnify for all the
losses which he may cause without prejudice to the criminal penalties which may be proper.
ARTICLE 615. Without the consent of the agent, the captain cannot have himself substituted by
another person; and should he do so, besides being liable for all the acts of the substitute and bound
to the indemnities mentioned in the foregoing articles, the captain as well as the substitute may be
discharged by the ship agent.
ARTICLE 616. If the provisions and fuel of the vessel should be consumed before arriving at the port
of destination, the captain shall order, with the consent of the officers of the same, the arrival at the
nearest port to get a supply of either; but if there are persons on board who have provisions of their
own, he may force them to deliver said provision for the common consumption of all those who may be
on board, paying the price thereof at the same time, or at the latest, at the first port reached.
ARTICLE 617. The captain may not contract loans on respondentia secured by the cargo; and should
he do so, the contracts shall be void.
Neither may he borrow money on bottomry for his own transactions, except on the portion of the
vessel he owns, provided no money has been previously borrowed on the whole vessel, and there does
not exist any other kind of lien or obligation chargeable against the vessel. If he may do so, he must
state what interest he has in the vessel.
In case of violation of this article, the principal, interest, and costs shall be for the personal account of
the captain, and the ship agent may furthermore discharge him.
ARTICLE 618. The captain shall be civilly liable to the ship agent, and the latter to the third persons
who may have made contracts with the former;
1. For all the damages suffered by the vessel and its cargo by reason of want of skill or negligence
on his part. If a misdemeanor or crime has been committed, he shall be liable in accordance with the
Penal Code.
2. For all the thefts committed by the crew, reserving his right of action against the guilty parties.
3. For the losses, fines, and confiscations imposed an account of violation of customs, police,
health, and navigation laws and regulations.
4. For the losses and damages caused by mutinies on board the vessel or by reason of faults
committed by the crew in the service and defense of the same, if he does not prove that he made
timely use of all his authority to prevent or avoid them.
5. For those caused by the misuse of the powers and the non-fulfillment of the obligations
pertaining to him in accordance with Articles 610 and 612.
 6. For those arising by reason of his going out of his course or taking a course which he should not
have taken without sufficient cause, in the opinion of the officers of the vessel, at a meeting with the
shippers or supercargoes who may be on board. No exceptions whatsoever shall exempt him from this
obligation.
7. For those arising by reason of his voluntarily entering a port other than that of his destination,
outside of the cases or without the formalities referred to in Article 612.
8. For those arising by reason of non-observance of the provisions contained in the regulations on
situation of lights and maneuvers for the purpose of preventing collisions.
ARTICLE 619. The captain shall be liable for the cargo from the time it is delivered to him at the dock
or afloat alongside the ship, at the port of loading, until he delivers it on the shore or on the
discharging wharf at the port of unloading, unless the contrary has been expressly agreed upon.
ARTICLE 620. The captain shall not be liable for the damages caused to the vessel or to the cargo by
force majeure; but he shall always be so for those arising through his own fault, no agreement to the
contrary being valid.
Neither shall he be personally liable for the obligations he may have contracted for the repair,
equipment, and provisioning of the vessel, which shall devolve upon the ship agent, unless the former
has expressly bound himself personally or has signed a bill of exchange or promissory note in his
name.
ARTICLE 621. A captain who borrows money on the hull, engine, rigging or tackle of the vessel, or
pledges or sells merchandise or provisions outside of the cases and without the formalities prescribed
in this Code, shall be liable for the principal, interests, and costs, and shall indemnify for the damages
he may cause.
He who commits fraud in his accounts shall pay the amount defrauded and shall be subject to the
provisions of the Penal Code.
ARTICLE 622. If while on a voyage the captain should learn of the appearance of privateers or men of
war against his flag, he shall be obliged to make the nearest neutral port, inform his agent or shippers,
and await an occasion to sail under convoy, or until the danger is over or he has received express
orders from the ship agent or the shippers.
ARTICLE 623. If he should be attacked by a privateer, and, after having tried to avoid the encounter
and having resisted the delivery of the effects of the vessel or its cargo, they should be forcibly taken
away from him, or he should be obliged to deliver them, he shall make an entry thereof in his freight
book and shall prove the fact before the competent authority at the first port he touches.
After the force majeure has been proved, he shall be exempted from liability.
ARTICLE 624. A captain whose vessel has gone through a hurricane or who believes that the cargo
has suffered damages or averages, shall make a protest thereon before the competent authority at the
first port he touches, within twenty-four hours following his arrival and shall ratify it within the same
period when he arrives at his destination, immediately proceeding with the proof of the facts, and he
may not open the hatches until after this has been done.
The captain shall proceed in the same manner, if, the vessel having been wrecked; he is saved alone
or with part of his crew, in which case he shall appear before the nearest authority, and make a sworn
statement of facts.
The authority or the consul shall verify the said facts receiving sworn statements of the members of
the crew and passengers who may have been saved; and taking such other steps as may assist in
arriving at the facts he shall make a statement of the result of the proceedings in the log book and in
that of the sailing mate, and shall deliver to the captain the original record of the proceedings,
stamped and folioed, with a memorandum of the folios, which he must rubricate, in order that it may
be presented to the judge or court of the port of destination.
The statement of the captain shall be accepted if it is in accordance with those of the crew and
passengers; if they disagree, the latter shall be accepted, always saying proof to the contrary.
ARTICLE 625. The captain, under his personal responsibility as soon as he arrives at the port of
destination, should get the necessary permission from the health and customs officers, and perform
the other formalities required by the regulations of the administration, delivering the cargo without any
defalcation, to the consignee, and in a proper case, the vessel, rigging, and freightage to the ship
agent.
[If by reason of the absence of the consignee or on account of the nonappearance of a legal holder of
the bills of lading, the captain should not know to whom he is to legally make the delivery of the cargo,
he shall place it at the disposal of the proper judge or court or authority, in order that he may
determine what is proper with regard to its deposit, preservation and custody.]
SECTION THREE
Officers and Crew of Vessels
ARTICLE 626. In order to be a sailing mate it shall be necessary:
1. To have the qualifications required by the marine or navigation laws or regulations.
2. Not to be disqualified in accordance therewith for the discharge of his duties.]
ARTICLE 627. The sailing mate, as the second chief of the vessel, and unless the agent orders
otherwise, shall take the place of the captain in cases of absence, sickness, or death, and shall then
assume all his powers, duties, and responsibilities.
ARTICLE 628. The sailing mate must provide himself with charts of the seas in which he will navigate
with the astronomical tables and instruments for observation which are in use and which are necessary
for the discharge of his duties, being liable for the accidents which may arise by reason of his omission
in this regard.
ARTICLE 629. The sailing mate shall particularly and personally keep a book, folioed and stamped on
all its pages, denominated “Binnacle Book” with a memorandum at the beginning stating the number
of folios it contains, signed by the competent authority, and shall enter therein daily the distance, the
course travelled, the variations of the needle, the leeway, the direction and force of the wind, the
condition of the atmosphere and of the sea, the rigging set, the latitude and longitude observed, the
number of furnace heated, the steam pressure, the number of revolutions, and under the
title“incidents,” the maneuvers made, the meeting with other vessels, and all the details and incidents
which. may occur during the voyage.
ARTICLE 630. In order to change the course and to take the one most convenient for a good voyage
of the vessel, the sailing mate shall come to an agreement with the captain. If the latter should object,
the sailing mate shall state to him the proper observations in the presence of the other officers of the
sea. If the captain should still insist on his negative decision, the sailing mate shall make the proper
protest, signed by him and by one other officer, in the log book, and shall obey the captain, who alone
shall be responsible for the consequences of his decision.
ARTICLE 631. The sailing mate shall be responsible for all the damages caused to the vessel and the
cargo by reason of his negligence or want of skill without prejudice to the criminal liability which may
arise, if a felony or misdemeanor has been committed. aisadc
ARTICLE 632. The following shall be the obligations of the second mate:
1. To watch over the preservation of the hull and rigging of the vessel, and to take charge of the
preservation of the tackle and equipment which make up her outfit, suggesting to the captain the
repairs necessary and the replacement of the goods and implements which are rendered useless and
are lost.
2. To take care that the cargo is well arranged, keeping the vessel always ready for maneuver.
3. To preserve order, discipline, and good service among the crew, requesting the necessary orders
and Instructions of the captain, and giving him prompt information of any occurrence in which the
intervention of his authority may be necessary.
4. To assign to each sailor the work he is to do on board, in accordance with the instruction
received and to see that it is promptly and accurately carried out.
5. To take charge under inventory of the rigging and all the equipment of the vessel, if it should be
laid up, unless the ship agent has ordered otherwise.
With regard to engineers the following rules shall govern:
1. In order to be taken on board as a marine engineer forming part of the complement of a
merchant vessel, it shall be necessary to have the qualifications which the laws and regulations
require, and not be disqualified in accordance therewith for the discharge of his duties. Engineers shall
be considered officers of the vessel but they shall have no authority or intervention except in matters
referring to the motor apparatus.
2. When there are two or more engineers on board a vessel, one of them shall be the chief, and the
other engineers and all the personnel of the engines shall be under his orders; he shall also have
charge of the motor apparatus, the spare parts, the instruments and tools pertaining thereto, the fuel,
the lubricating material and, finally, whatever is entrusted to an engineer on board a vessel.
3. He shall keep the engines and boilers in good condition and state of cleanliness, and shall order
what may be proper in order that they may always be ready to work with regularity, being liable for
the accidents or damages which his negligence or want of skill may cause to the motor apparatus, to
the vessel and to the cargo, without prejudice to the criminal liability which may be proper if there has
been a felony or misdemeanor.
4. He shall not make any change in the motor apparatus, or proceed to repair the averages he may
have noticed in the same, or change the normal speed of its movement without the prior authorization
of the captain., to whom, if he should object to their being made, he shall state the proper
observations in the presence of the other engineers or officers; and if, notwithstanding this, the
captain should insist on his objection, the chief engineer shall make the proper protests, entering the
same in the engine book, and shall obey the captain, who, alone shall be responsible for the
consequences of his decision.
 5. He shall inform the captain of any average which may occur in the motor apparatus, and shall
advise him whenever it may be necessary to stop the engines for some time, or when any other
incident occurs in his department of which the captain should be immediately informed, besides
frequently advising him of the consumption of fuel and lubricating material.
6. He shall keep a book or registry called the “engine book,” in which shall be entered all the date
referring to the work of the engines, such as, for example, the number of furnaces heated, the vacuum
in the condenser, the temperature, the degree of saturation of the water in the boilers the
consumption of fuel and lubricating material, and under the heading of “noteworthy occurrences,” the
averages and maladjustments which occur in the engines and boilers, the causes thereof and the
means employed to repair the same likewise, the force and direction of the wind, the rigging set and
the speed of the vessel shall be stated, taking the information from the Binnacle Book.
ARTICLE 633. The second mate shall take command of the vessel in case of the inability or
disqualification of the captain and the sailing mate, assuming in such case their powers and
responsibility.
ARTICLE 634. The captain may make up the crew of his vessel with such number of men as he may
consider proper, and in the absence of Filipino sailors, he may take on foreigners residing in the
country, the number thereof not to exceed one-fifth of the crew. If in foreign ports the captain should
not find a sufficient number of Filipino sailors, he may complete the crew with foreigners, with the
consent of the consul or marine authorities.
The agreement which the captain may make with the members of the crew and others who go to make
up the complement of the vessel, to which reference is made in Article 612, must be reduced to writing
in the account book, without the intervention of a notary public or clerk of court (“escribano”), signed
by the parties thereto and visaed by the marine authority if they be executed in Philippine territory or
by the consuls or consular agents of the Republic of the Philippines if executed abroad, stating therein
all the obligations which each one contracts and all the rights he acquires said authorities taking care
that these obligations and rights are recorded in a clear and definite manner which give no room for
doubts or claims.
The captain shall take care to read to them the articles of this Code which concern them, stating in
said document that they were read.
If the book contains the requisites prescribed in Article 612, and there should not appear any signs of
alterations in its entries, it shall be admitted as evidence in questions which may arise between the
captain and the crew with respect to the agreements contained therein and the amounts paid on
account of the same.
Every member of the crew may demand of the captain a copy, signed by the latter, of the agreement
and of the liquidation of his wages, as they appear in the book.
ARTICLE 635. A seaman who has been contracted to serve on a vessel may not rescind his contract
or fail to comply therewith except by reason of a legitimate impediment which may have happened to
him.
Neither may he transfer from the service of one vessel to another without obtaining the written
permission of the captain of the vessel on which he may be.
If, without obtaining said permission, the seaman who has signed for one vessel should sign for
another one, the second contract shall be void, and the captain may choose between forcing him to
fulfill the service to which he first bound himself, or at his expense to look for a person to substitute
him.
Furthermore, he shall lose the wages earned on his first contract, to the benefit of the vessel for which
he had signed.
A captain who, knowing that a seaman is in the service of another vessel, should have made a new
agreement with him without having required of him the permission referred to in the preceding
paragraphs, shall be subsidiarily responsible to the captain of the vessel to which the seaman first
belonged, for that part of the indemnity, referred to in the third paragraph of this article, which the
seaman may not be able to pay.
ARTICLE 636. If there is no fixed period for which a seaman has been contracted he may not be
discharged until the end of the return voyage to the port where he enlisted.
ARTICLE 637. Neither may the captain discharge a seaman during the time of his contract except for
just cause, the following being considered as such:
1. The perpetration of a crime which disturbs order on the vessel.
2. Repeated insubordination, want of discipline, or non-fulfillment of the service.
3. Repeated incapacity and negligence in the fulfillment of the service he should render.
4. Habitual drunkenness.
5. Any occurrence which incapacitates the seaman to perform the work entrusted to him, with the
exception of that provided in Article 644.
 6. Desertion.
The captain may, however, before getting out on a voyage and without giving any reason, refuse to
permit a seaman whom he may have engaged to go on board, and leave him on land, in which case he
will be obliged to pay him his wages as if he had rendered services.
This indemnity shall be paid from the funds of the vessel if the captain should have acted for reasons
of prudence and in the interest of the safety and good services of the farmer. Should this not be the
case, it shall be paid by the captain personally.
After the voyage has begun, during the same, and until the conclusion thereof, the captain may not
abandon any member of his crew on land or on sea, unless, by reason of some crime, his
imprisonment and delivery to the competent authority in the first port touched should be proper, a
matter obligatory for the captain.
ARTICLE 638. If, after the crew has been engaged, the voyage is revoked by the will of the ship agent
or of the charterers before or after the vessel has put to sea, or if the vessel is for the same reason
given a destination different from that fixed in the agreement with the crew, the latter shall be
indemnified on account of the rescission of the contract, according to the cases follows:
1. If the revocation of the voyage should be decided upon before the departure of the vessel from
the port, each sailor engaged shall be given one month’s salary, besides what may be due him, in
accordance with his contract, for the services rendered to the vessel up to the date of the revocation.
2. If the agreement should have been for a fixed amount for the whole voyage, that which may be
due for said month and days shall be determined in proportion to the approximate number of days the
voyage should have lasted, in the judgment of experts, in the manner established in the law of Civil
Procedure; and if the proposed voyage should be of such short duration that it is calculated at
approximately one month, the indemnity shall be fixed for fifteen days, discounting in all cases the
sums advanced.
3. If the revocation should take place after the vessel has put to sea, the seamen engaged for a
fixed amount for the voyage shall receive in full the salary which may have been offered them as if the
voyage had terminated; and those engaged by the month shall receive the amount corresponding to
the time they might have been on board and to the time they may require to arrive at the port of
destination, the captain being obliged, furthermore, to pay the seamen in both cases, the passage to
the said port or to the port of sailing of the vessel, as may be convenient for them.
4. If the ship agent or the charterers of the vessel should give it a destination different from that
fixed in the agreement, and the members of the crew should not agree thereto, they shall be given by
way of indemnity half the amount fixed in case No. 1, besides what may be owed them for the part of
the monthly wages corresponding to the days which have elapsed from the date of their agreements.
If they accept the change, and the voyage, on account of the greater distance or of other reasons,
should give rise to an increase of wages, the latter shall be adjusted privately or through amicable
arbitrators in case of disagreement. Even though the voyage should be shortened to a nearer point,
this shall not give rise to a reduction in the wages agreed upon.
If the revocation or change of the voyage should come from the shippers or charterers, the agent shall
have a right to demand of them the indemnity which may be justly due.
ARTICLE 639. If the revocation of the voyage should arise from a just cause independent of the will of
the ship agent and charterers, and the vessel should not have left the port, the members of the crew
shall have no other right than to collect the wages earned up to the day on which the revocation took
place.
ARTICLE 640. The following shall be just causes for the revocation of the voyage.
1. A declaration of war or interdiction of commerce with the power to whose territory the vessel was
bound.
2. The blockade of the port of its destination, or the breaking out of an epidemic after the
agreement.
3. The prohibition to receive in said port the goods which make up the cargo of the vessel.
4. The detention or embargo of the same by order of the government, or for any other reason
independent of the will of the ship agent.
5. The inability of the vessel to navigate. cdasia
ARTICLE 641. If, after a voyage has been begun, any of the first three causes mentioned in the
foregoing article should occur, the sailors shall be paid at the port which the captain may deem
advisable to make for the benefit of the vessel and cargo, according to the time they may have served
thereon; but if the vessel is to continue its voyage, the captain and the crew may mutually demand the
enforcement of the contract.
In case of the occurrence of the fourth cause, the crew shall continue to be paid half wages, if the
agreement is by month; but if the detention should exceed three months, the contract shall be
rescinded and the crew shall be paid what they should have earned according to the contract if the
voyage had been concluded. And if the agreement should be for a fixed sum for the voyage, the
contract must be complied within the terms agreed upon.
In the fifth case, the crew shall have no other right than to collect the wages earned; but if the
disability of the vessel should have been caused by the negligence or lack of skill of the captain,
engineer, or sailing mate, they shall indemnify the crew for the damages suffered, always without
prejudice to the criminal liability which may be proper.
ARTICLE 642. If the crew have been engaged on shares, they shall not be entitled, by reason of the
revocation, delay, or greater extension of the voyage, to anything but the proportionate part of the
indemnity which way be paid into the common funds of the vessel by the persons liable for said
occurrences.
ARTICLE 643. If the vessel and her cargo should be totally lost, by reason of capture or wreck, all
rights shall be extinguished, both as regards the crew to demand any wages whatsoever, and as
regards the ship agent to recover the advances made.
If a portion of the vessel or of the cargo, or of both, should be saved, the crew engaged on wages,
including the captain, shall retain their rights on the salvage, so far as they go, on the remainder of the
vessel as well as on the amount of the freightage of the cargo saved; but sailors who are engaged on
shares shall not have any right whatsoever on the salvage of the hull, but only on the portion of the
freightage saved. [If they should have worked to recover the remainder of the shipwrecked vessel they
shall be given from the amount of the salvage an award in proportion of the efforts made and to the
risks, encountered in order to accomplish the salvage.]
ARTICLE 644. A seaman who falls sick shall not lose his right to wages during the voyage, unless the
sickness is the result of his own fault. At any rate, the costs of the attendance and cure shall be
defrayed from the common funds, in the form of a loan.
If the sickness should come from an injury received in the service or defense of the vessel, the seaman
shall be attended and cured at the expense of the common funds deducting, before anything else,
from the proceeds of the freightage the cost of the attendance and cure.
ARTICLE 645. If a seaman should die during the voyage, his heirs will be given the wages earned
and not received according to his contract and the cause of his death, namely —
If he died a natural death and was engaged on wages, that which may have been earned up to the
date of his death shall be paid.
If the contract was for a fixed sum for the whole voyage, half the amount earned shall be paid if the
seamen died on the voyage out, and the whole amount if he died on the return voyage.
And if the contract was on shares and death occurred after the voyage was begun, the heirs shall be
paid the entire portion due the seaman; but if the latter died before the departure of the vessel from
the port, the heirs shall not be entitled to claim anything.
If death occurred in the defense of the vessel, the seaman shall be considered as living, and his heirs
shall be paid, at the end of the voyage, the full amount of wages or the integral part of the profits
which may be due him as to others of his class.
In the same manner, the seaman captured while defending the vessel shall be considered present so
as to enjoy the same benefits as the rest; but should he have been captured on account of
carelessness or other accident not related to the service, he shall only receive the wages due up to the
day of his capture.
ARTICLE 646. The vessel with her engines, rigging, equipment, and freightage shall be liable for the
wages earned by the crew engaged per month or for the trip, the liquidation and payment to take
place between one voyage and the other.
After a new voyage has been undertaken, credits of such kind pertaining to the preceding voyage shall
lose their right of preference.
ARTICLE 647. The officers and the crew of the vessel shall be free from all obligations if they deem it
proper, in the following cases:
1. If, before beginning the voyage, the captain attempts to change it, or a naval war with the power
to which the vessel was destined occurs.
2. If a disease should break out and be officially declared an epidemic in the port of destination.
3. If the vessel should change owner or captain.
ARTICLE 648. By the complement of a vessel shall be understood all the persons on board, from the
captain to the cabin boy, necessary for the management, maneuvers, and service, and therefore, the
complement shall include the crew, the sailing mates, engineers, stokers and other employees on
board not having specific designations; but it shall not include the passengers or the persons whom
the vessel is transporting.
SECTION FOUR
Supercargoes
ARTICLE 649. Supercargoes shall discharge on board the vessel the administrative duties which the
ship agent or the shippers may have assigned to them; they shall keep an account and record of their
transactions in a book which shall have the same conditions and requisites as required for the
accounting book of the captain, and they shall respect the latter in his capacity as chief of the vessel.
The powers and responsibilities of the captain shall cease, when there is a supercargo, with regard to
that part of the administration legitimately conferred upon the latter, but shall continue in force for all
acts which are inseparable from his authority and office.
ARTICLE 650. All the provisions contained in the second section of Title III, Book II, with regard to
capacity, manner of making contracts, and liabilities of factors, shall be applicable to supercargoes.
ARTICLE 651. Supercargoes may not, without special authorization or agreement, make any
transaction for their own account during the voyage, with the exception of the ventures which, in
accordance with the custom of the port of destination, they are permitted to do.
Neither shall they be permitted to invest in the return trip more than the profits from the ventures,
unless there is an express authorization from the principals.

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-two/maritime-

commerce/title-two-persons-who-take-part-in-maritime-commerce/>

• TITLE THREE – Special Contracts of Maritime Commerce

SECTION ONE
Charter Parties
PART 1
Forms and Effects of Charter Parties
ARTICLE 652. A charter party must be drawn in duplicate and signed by the contracting parties, and
when either does not know how or is not able to do so, by two witnesses at his request.
The charter party shall contain, besides the conditions freely stipulated, the following circumstances:
1. The kind, name, and tonnage of the vessel.
2. Its flag and port of registry.
3. The name, surname, and domicile of the captain.
4. The name, surname, and domicile of the ship agent, if the latter should make the charter party.
5. The name, surname, and domicile of the charterer; and if he states that he is acting by
commission, that of the person for whose account he makes the contract.
6. The port of loading and unloading.
7. The capacity, number of tons or the weight or measurement which they respectively bind
themselves to load and to transport, or whether the charter party is total.
8. The freightage to be paid, stating whether it is to be a fixed amount for the voyage or so much
per month, or for the space to be occupied, or for the weight or measure of the goods of which the
cargo consists, or in any other manner whatsoever agreed upon.
9. The amount of primage to be paid to the captain.
10. The days agreed upon for loading and unloading.
11. The lay days and extra lay days to be allowed and the demurrage to be paid for each of them.
ARTICLE 653. If the cargo should be received without the charter party having been signed, the
contract shall be understood as executed in accordance with what appears in the bill of lading, the sole
evidence of title with regard to the cargo for determining the rights and obligations of the ship agent,
of the captain, and of the charterer.
ARTICLE 654. The charter parties executed with the intervention of a broker, who certifies to the
authenticity of the signatures of the contracting parties because they were signed in his presence,
shall be full evidence in court; and if they should be conflicting, that which accords with one which the
broker must keep in his registry, if kept in accordance with law, shall govern.
The contracts shall also be admitted as evidence, even though a broker has not taken part therein, if
the contracting parties acknowledge the signatures to be the same as their own.
If no broker has intervened in the charter party and the signatures are not acknowledged, doubts shall
be decided by what is provided for in the bill of lading and in the absence thereof, by the proofs
submitted by the parties.
ARTICLE 655. Charter parties executed by the captain in the absence of the ship agent shall be valid
and effective, even though in executing them he should have acted in violation of the orders and
instructions of the ship agent or shipowner; but the latter shall have a right of action against the
captain for indemnification of damages.
ARTICLE 656. If in the charter party the time in which the loading and unloading are to take place is
not stated, the usages of the port where these acts take place shall be observed. After the stipulated
or the customary period has passed, and there is no express proviso in the charter party fixing the
indemnity for the delay, the captain shall be entitled to demand demurrage for the lay days and extra
lay days which may have elapsed in loading and unloading.
ARTICLE 657. If during the voyage the vessel should be rendered unseaworthy, the captain shall be
obliged to charter at his expense another one in good condition to receive the cargo and carry it to its
destination, for which purpose he shall be obliged to look for a vessel not only at the port of arrival but
also in the neighborhood within distance of 150 kilometers.
If the captain, through indolence or malice, should not furnish a vessel to its destination, the shippers,
after requiring the captain to charter a vessel within an inextendible period, may charter one and
petition the judicial authority to summarily approve the charter party which they may have made.
The same authority shall judicially (“por la via de appremio”) compel the captain, to carry out, for his
account and under his responsibility, the charter made by the shippers.
If the captain, notwithstanding his diligence, should not find a vessel for the charter, he shall deposit
the cargo at the disposal of the shippers, to whom he shall communicate the facts on the first
opportunity which presents itself, the freight being adjusted in such cases by the distance covered by
the vessel, with no right to any indemnification whatsoever.
ARTICLE 658. The freightage shall accrue according to the conditions stipulated in the contract, and
should they not be expressed, or should they be ambiguous, the following rules shall be observed:
1. If the vessel has been chartered by months or by days, the freightage shall begin to run from the
day the loading of the vessel is begun.
2. In charters made for a fixed period, the freightage shall begin to run from that very day.
3. If the freightage is charged according to weight, the payment shall be made according to gross
weight, including the containers, such as barrels or any other objects in which the cargo is contained.
ARTICLE 659. The merchandise sold by the captain to pay for the necessary repairs to the hull,
machinery or equipment, or for unavoidable and urgent needs, shall pay freightage.
The price of this merchandise shall be fixed according to the result of the voyage, namely:
1. If the vessel should arrive safely at the port of destination, the captain shall pay the price which
the sale of merchandise of the same kind brings at that port.
2. If the vessel should be lost, the captain shall pay the price realized from said merchandise in the
sale.
The same rule shall be observed in the payment of the freightage, which shall be in full if the vessel
arrives at her destination, and in proportion to the distance covered if she should be lost before arrival.
ARTICLE 660. Merchandise jettisoned for the common safety shall not pay freightage; but the amount
of the latter shall be considered as general average computing the same in proportion to the distance
covered when they were jettisoned.
ARTICLE 661. Neither merchandise lost by reason of shipwreck or stranding nor those seized by the
pirates or enemies, shall pay freightage.
If the freightage should have been paid in advance, it shall be returned, unless there is an agreement
to the contrary.
ARTICLE 662. If the vessel or the merchandise should be redeemed, or the effects of the shipwreck
be salvaged, the freightage corresponding to the distance covered by the vessel transporting the
cargo shall be paid; and should the vessel, after being repaired, transport said merchandise to the port
of destination, the full freightage shall be paid, without prejudice to what may be due by reason of the
average.
ARTICLE 663. Merchandise which suffer deterioration or diminutions on account of inherent defects or
bad quality and condition of the packing, or because of fortuitous event, shall pay freightage in full and
as stipulated in the charter party.
ARTICLE 664. The natural increase in weight or size of the merchandise loaded on the vessel shall
accrue to the benefit of the owner, and shall pay the proper freightage fixed in the contract for the
same.
ARTICLE 665. The cargo shall be specially liable for the payment of the freightage, expenses and
duties arising therefrom, which must be reimbursed by the shippers, as well as for the part of the
general average which may correspond to it; but it shall not be legal for the captain to delay unloading
on account of suspicion that this obligation may not be complied with.
Should there be reasons for distrust, the judge or court, at the instance of the captain, may order the
deposit of the merchandise until he has been paid in full.
ARTICLE 666. The captain may request the sale of the cargo to the amount necessary to pay the
freightage, expenses, and averages due him, reserving the right to demand the balance due him
therefor if the proceeds of the sale should not suffice to cover his credit.
ARTICLE 667. The goods loaded shall be liable in the first place for the freight and expenses thereof
during twenty days, to be counted from the date of their delivery or deposit. During this period, the
sale of the same may be requested, even though there be other creditors and the bankruptcy of the
shipper or consignee should occur.
This right may not he made use of, however, on the goods which, after being delivered, were turned
over to a third person without malice on the part of the latter and for a valuable consideration. cdasia
ARTICLE 668. If the consignee should not be found or should refuse to receive the cargo, the judge or
court, at the instance of the captain, shall order its deposit and the sale of what may be necessary to
pay the freightage and other expenses on the same.
The sale shall likewise be allowed when the goods deposited run the risk of deteriorating, or by reason
of their condition or other circumstances the expenses of preservation and custody should be
disproportionate.
PART 2
Rights and Obligations of Shipowners
ARTICLE 669. The shipowner or the captain shall observe in charter parties the capacity of the vessel
or that expressly designated in its registry, a difference greater than 2 per cent between that stated
and her true capacity not being permissible.
If the shipowner or the captain should contract to carry a greater amount of cargo than the vessel can
carry in view of her tonnage, they shall indemnify the shippers whose contracts they do not fulfill for
the losses they may have caused when by reason of their default, according to the following cases, viz:
If the vessel has been chartered by one shipper only, and there should appear to be an error or fraud
in her capacity, and the charterer should not wish to rescind the contract, when he has a right to do so,
the freightage shall be reduced in proportion to the cargo which the vessel can not receive, the person
from whom the vessel is chartered being furthermore obliged to indemnify the charterer for the losses
he may have caused him.
If, on the contrary there should be several charter parties, and by reason of want of space all the cargo
contracted for cannot be loaded, and none of the charterers desires to rescind the contract, preference
shall be given to the person who has already loaded and arranged the freight in the vessel, and the
rest shall take the places corresponding to them in the order of the dates of their contracts.
Should there be no priority, the charterers may load, if they wish, in proportion to the amounts of
weight or space for which each may have contracted, and the person from whom the vessel was
chartered shall be obliged to indemnify them for losses and damages.
ARTICLE 670. If the person from whom the vessel is chartered, after receiving a part of the freight,
should not find sufficient to make up at least three-fifths of the amount which the vessel may hold, at
the price he may have fixed, he may substitute for the transportation another vessel inspected and
declared suitable for the same voyage, the expenses of transfer and the increase in the price of the
charter, should there be any, being for his account. Should he not be able to make this change, he
shall undertake the voyage at the time agreed upon; and should no time have been fixed, within
fifteen days from the time the loading began, unless otherwise stipulated.
If the owner of the part of the freight already loaded should procure some more at the same price and
under similar or proportionate conditions to those accepted for the freight received, the person from
whom the vessel is chartered or the captain can not refuse to accept the rest of the cargo; and should
he do so, the shipper shall have a right to demand that the vessel put to sea with the cargo which it
may have on board.
ARTICLE 671. After three-fifths of the vessel has been loaded, the person from whom she is chartered
may not, without the consent of the charterers or shippers, substitute the vessel designated in the
charter party by another one, under the penalty of making himself thereby liable for all the losses and
damages occurring during the voyage to the cargo of those who did not consent to the change.
ARTICLE 672. If the vessel has been chartered in whole, the captain may not, without the consent of
the charterer, accept cargo from any other person; and should he do so, said charterer may oblige him
to unload it and to indemnify him for the losses suffered thereby.
ARTICLE 673. The person from whom the vessel is chartered shall be liable for all the losses caused
to the charterer by reason of the voluntary delay of the captain in putting to sea, according to the rules
prescribed, provided he has been requested, notarially or judicially, to put to sea at the proper time.
ARTICLE 674. If the charterer should carry to the vessel more cargo than that contracted for, the
excess may be admitted in accordance with the price stipulated in the contract, if it can be well stowed
without injuring the other shippers; but if in order to load it, the vessel would be thrown out of trim, the
captain must refuse it or unload it at the expense of its owner.
In the same manner, the captain may, before leaving the port, unload merchandise clandestinely
placed on board, or transport them, if he can do so with the vessel in trim, demanding by way of
freightage the highest price which may have been stipulated for said voyage.
ARTICLE 675. If the vessel has been chartered to receive the cargo in another port, the captain shall
appear before the consignee designated in the charter party; and, should the latter not deliver the
cargo to him, he shall inform the charterer and wait his instructions, the lay days agreed upon or those
allowed by custom in the port beginning to run in the meantime, unless there is an express, agreement
to the contrary.
Should the captain not receive an answer within the time necessary therefor, he shall make efforts to
find freight; and should he not find any after the lay days and extra lay days have elapsed, he shall
make a protest and return to the port where the charter was made.
The charterer shall pay the freightage in full, discounting that which may have been earned on the
merchandise which may have been carried on the voyage out or on the return trip, if carried for the
account of third persons.
The same shall be done if a vessel, having been chartered for the round trip, should not be given any
cargo on its return.
ARTICLE 676. The captain shall lose the freightage and shall indemnify the charterers if the latter
should prove, even against the certificate of inspection, if one has been made at the port of departure,
that the vessel was not in a condition to navigate at the time of receiving the cargo.
ARTICLE 677. The charter party shall subsist if a declaration of war or a blockade should take place
during the voyage, the captain not having any instructions from the charterer. In such case the captain
must proceed to the nearest safe and neutral port, requesting and awaiting orders from the shipper,
and the expenses and salaries paid during the detention shall be paid as general average.
If, by orders of the shipper, the cargo should be discharged at the port of arrival, the freightage for the
voyage out shall be paid in full.
ARTICLE 678. If the time necessary, in the opinion of the judge or court, to receive the orders of the
shipper should have elapse, without the captain having received any instructions, the cargo shall be
deposited, and it shall be liable for the payment of the freightage and expenses on its account during
the delay, which shall be paid from the proceeds of the part first sold.
PART 3
Obligations of Charterers
ARTICLE 679. The charterer of an entire vessel may sub-charter the whole or part thereof on such
terms as he may consider most convenient, the captain not being allowed to refuse to receive on
board the freight delivered by the second charterers, provided that the conditions of the first charter
are not change, and that the price agreed upon is paid in full to the person from whom the vessel is
chartered, even though the full cargo is not embarked, with the limitation established in the next
article.
ARTICLE 680. A charterer who does not complete the full cargo he bound himself to ship shall pay
the freightage of the amount he fails to ship, if the captain does not take other freight to complete the
load of the vessel, in which case the first charterer shall pay the difference, should there be any.
ARTICLE 681. If the charterer should load goods different from those stated at the time of executing
the charter party, without the knowledge of the person from whom the vessel was chartered or of the
captain, and should thereby give rise to losses, by reason of confiscation, embargo, detention, or other
causes, to the person from whom the vessel was chartered or to the shippers, the person giving rise
thereto shall be liable with the value of his shipment and furthermore with his property, for the full
indemnity to all those injured through his fault.
ARTICLE 682. If the merchandise should have been shipped for the purpose of illicit commerce, and
were taken on board with the knowledge of the person from whom the vessel was chartered or of the
captain, the latter, jointly with the owner of the same, shall be liable for all the losses which may be
caused the other shippers; and even though it may have been stipulated, they can not demand any
indemnity whatsoever from the charterer for the damaged caused to the vessel.
ARTICLE 683. In case of making a port to repair the hull, machinery, or equipment of the vessel, the
shippers must await until the vessel is repaired, being permitted to unload it at their own expense
should they deem it proper.
If, for the benefit of the cargo subject to deterioration, the shippers or the court, or the consul, or the
competent authority in a foreign country, should order the merchandise to be unloaded, the expenses
of unloading and reloading shall be for the account of the former.
ARTICLE 684. If the charterer, without the occurrence of any of the cases of force majeure
mentioned in the foregoing article, should wish to unload his merchandise before arriving at the port of
destination, he shall pay the full freightage, the expenses of the arrival made at his request, and the
losses and damages caused the other shippers, should there be any.
ARTICLE 685. In charters for transportation of general freight, any of the shippers may unload the
merchandise before the beginning of the voyage, paying one-half of the freightage, the expense of
stowing and restowing the cargo, and any other damage which for his reason he may cause the other
shippers.
ARTICLE 686. After the vessel has been unloaded and the cargo placed at the disposal of the
consignee, the latter must immediately pay the captain the freightage due and the other expenses for
which said cargo may be liable.
The primage must be paid in the same proportion and at the same time as the freightage, all the
changes and modifications to which the latter should be subject also governing the former.
ARTICLE 687. The charterers and shippers may not abandon merchandise damaged on account of
inherent defect or fortuitous event, for the payment of the freightage and other expenses. aisadc
The abandonment shall be proper, however, if the cargo should consist of liquids and they have leaked
out, nothing remaining in the containers but one-fourth part of their contents.
PART 4
Total or Partial Rescission of Charter Parties
ARTICLE 688. A charter party may be rescinded at the request of the charterer:
1. If before loading the vessel he should not agree with that stated in the certificate of tonnage, or if
there should be an error in the statement of the flag under which she sails.
2. If the vessel should not be placed at the disposal of the charterer within the period and in the
manner agreed upon.
3. If after the vessel has put to sea, she should return to the port of departure, on account of risk
from pirates, enemies, or bad weather, and the shippers should agree to unload her.
In the second and third cases the person from whom the vessel was chartered shall indemnify the
charterer for the voyage out.
4. If the charter should have been made by the months, the charterers shall pay the full freightage
for one month, if the voyage is for a port in the same waters, and for two months, if for a port in
different waters.
From one port to another of the Philippines and adjacent islands, the freightage for one month only
shall be paid.
5. If the vessel should make a port during the voyage in order to make urgent repairs, and the
charterers should prefer to dispose of the merchandise.
When the delay does not exceed thirty days, the shippers shall pay the full freightage for the voyage
out.
Should the delay exceed thirty days, they shall only pay the freightage in proportion to the distance
covered by the vessel.
ARTICLE 689. At the request of the person from whom the vessel is chartered the charter party may
be rescinded:
1. If the charterer, at the termination of the extra lay days, does not place the cargo alongside the
vessel.
In such case the charterer must pay half the freight stipulated, besides the demurrage due for the lay
days and extra lay days.
2. If the person from whom the vessel was chartered should sell it before the charterer has begun
to load it, and the purchaser should load it for his own account.
In such case the vendor shall indemnify the charterer for the losses he may suffer.
If the new owner of the vessel should not load it for his own account, the charter party shall be
respected, and the vendor shall indemnify the purchaser if the former did not inform him of the charter
pending at the time of making the sale.
ARTICLE 690. The charter party shall be rescinded and all actions arising therefrom shall be
extinguished, if, before the vessel puts to sea from the port of departure, any of the following cases
should occur:
1. A declaration of war or interdiction of commerce with the power to whose ports the vessel was to
make its voyage.
2. A condition of blockade of the port of destination of said vessel, or the breaking out of an
epidemic after the contract was executed.
3. The prohibition to receive at the said port the merchandise constituting the cargo of the vessel.
4. An indefinite detention, by reason of an embargo of the vessel by order of the government, or for
any other reason independent of the will of the ship agent.
5. The inability of the vessel to navigate, without fault of the captain or ship agent.
The unloading shall be made for the account of the charterer.
ARTICLE 691. If the vessel cannot put to sea on account of the closing of the port of departure or any
other temporary cause, the charter shall remain in force, with neither one of the contracting parties
having a right to claim damages.
The subsistence and wages of the crew shall be considered as general average.
During the interruption, the charterer may at the proper time and for his own account, unload and load
the merchandise, paying demurrage if he delays the reloading after the cause for the detention has
ceased.
ARTICLE 692. A charter party shall be partially rescinded, unless there is an agreement to the
contrary, and the captain shall only be entitled to the freightage for the voyage out, if, by reason of a
declaration of war, closing of ports, or interdiction of commercial relations during the voyage, the
vessel should make the port designated for such a case in the instructions of the charterer.
PART 5
Passengers on Sea Voyages
ARTICLE 693. If the passage price has not been agreed upon, the judge or court shall summarily fix it,
after a declaration of experts.
ARTICLE 694. Should the passenger not arrive on board at the time fixed, or should leave the vessel
without permission from the captain when the latter is ready to leave the port, the captain may
continue the voyage and demand the full passage price.
ARTICLE 695. The right to passage, if issued to a specified person, may not be transferred without the
consent of the captain or of the consignee.
ARTICLE 696. If before beginning the voyage the passenger should die, his heirs shall only be obliged
to pay half of the fare agreed upon.
If the expenses of subsistence are included in the price stipulated, the judge or court, after hearing
experts if he considers it necessary, shall fix the amount which has to be left for the benefit of the
vessel.
Should another passenger be received in the place of the deceased, no payment shall be made by said
heirs.
ARTICLE 697. If before the voyage is begun it is suspended through the exclusive fault of the captain
or ship agent, the passengers shall have the right to a refund of their fares and to recover losses and
damages; but if the suspension is due to fortuitous events, or to force majeure, or to any other cause
independent of the captain or ship agent, the passengers shall only be entitled to the return of the
fare.
ARTICLE 698. In case a voyage already begun should be interrupted, the passengers shall be obliged
to pay the fare in proportion to the distance covered, without right to recover for losses and damages if
the interruption is due to fortuitous event or to force majeure, but with a right to indemnity if the
interruption should have been caused by the captain exclusively. If the interruption should be caused
by the disability of the vessel, and a passenger should agree to await the repairs, he may not be
required to pay any increased price of passage, but his living expenses during the stay shall be for his
own account.
In case of delay in the departure of the vessel, the passengers have the right to remain on board and
to be furnished with food for the account of the vessel unless the delay is due to fortuitous events or to
force majeure. If the delay should exceed ten days, passengers requesting the same shall be entitled
to the return of the fare; and if it is due exclusively to the fault of the captain or ship agent, they may
also demand indemnity for losses and damages.
A vessel exclusively devoted to the transportation of passengers must take them directly to the port or
ports of destination, no matter what the number of passengers may be, making all the stops indicated
in its itinerary.
ARTICLE 699. If the contract is rescinded, before or after the commencement of the voyage, the
captain shall have a right to claim payment of what he may have furnished the passengers.
ARTICLE 700. In all matters pertaining to the preservation of order and discipline on board the vessel
passengers shall be subject to the orders of the captain, without any distinction whatsoever.
ARTICLE 701. The convenience or the interest of the passengers shall not obligate or empowers the
captain to stand in shore or enter places which may take the vessel out of her course, or to remain in
the ports he must or in under necessity of touching for a period longer than that required by the needs
of navigation.
ARTICLE 702. In the absence of an agreement to the contrary, it shall be understood that the
subsistence of the passengers during the voyage is included in the price of the passage; but should it
be for the account of the latter, the captain shall be under obligation, in case of necessity, to furnish
the supply of food necessary for their sustenance at a reasonable price.
ARTICLE 703. A passenger shall be considered a shipper insofar as the goods he carries on board are
concerned, and the captain shall not be responsible for what the former may keep under his
immediate and special custody, unless the damage arises from an act of the captain or of the crew.
ARTICLE 704. The captain, in order to collect the passage-money and expenses of sustenance, may
retain the goods belonging to the passenger, and in case of the sale of the same he shall be given
preference over other creditors acting the same way as in the collection of freightage.
ARTICLE 705. In case of the death of a passenger during the voyage, the captain shall be authorized,
with regard to the body, to take the steps required by the circumstances, and shall carefully take care
of the papers and goods which may be on board belonging to the passenger, observing the provisions
of case No. 10 of Article 612 with regard to members of the crew.
PART 6
Bills of Lading
ARTICLE 706. The captain of the vessel and the shipper shall have the obligation of drawing up the
bill of lading in which shall be stated:
1. The name, registry, and tonnage of the vessel.
2. The name of the captain and his domicile.
3. The port of loading and that of unloading.
4. The name of the shipper.
5. The name of the consignee, if the bill of lading is issued in the name of a specified person.
6. The quantity, quality, number of packages and marks of the merchandise.
7. The freightage and the primage stipulated.
The bill of lading may be issued to bearer, to order, or in the name of a specified person, and must be
signed within twenty-four hours after the cargo has been received on board, the shipper being entitled
to demand the unloading at the expense of the captain should the latter not sign it, and, in every case,
the losses and damages suffered thereby. cdasia
ARTICLE 707. Four true copies of the original bill of lading shall be made, and all of them shall be
signed by the captain and the shipper. Of these, the shipper shall keep one and send another to the
consignee; the captain shall take two, one for himself and another for the ship agent.
There may also be drawn up as many copies of the bill of lading as may be considered necessary by
the person interested; but when they are issued to order or to bearer, they shall be stated in all the
copies, be they the first four or the subsequent ones, the destination of each one, stating whether it is
for the agent, for the captain, for the shipper, or for the consignee. If the copy sent to the latter should
have a duplicate, this circumstance and the fact that it is not valid except in default of the first one
must be stated therein.
ARTICLE 708. Bills of lading issued to bearer and sent to the consignee shall be transferable by
actual delivery of the instrument; and those issued to order, by virtue of an indorsement.
In either case, the person to whom the bill of lading is transferred shall acquire all the rights and
actions of the transferor or indorser with regard to the merchandise mentioned in the same.
ARTICLE 709. A bill of lading drawn up in accordance with the provisions of this title shall be proof as
between all those interested in the cargo and between the latter and the insurers, proof to the contrary
being reserved for the latter.
ARTICLE 710. If the bills of lading do not agree, and no change or erasure can be observed in any of
them, those possessed by the shipper or consignee signed by the captain shall be proof against the
captain or ship agent in favor of the consignee or shipper; and those possessed by the captain or ship
agent signed by the shipper shall be proof against the shipper or consignee in favor of the captain or
ship agent.
ARTICLE 711. The legitimate holder of a bill of lading who fails to present it to the captain of the
vessel before the unloading obliging the latter thereby to unload it and place it in deposit, shall be
responsible for the expenses of warehousing and other expenses arising therefrom.
ARTICLE 712. The captain may not by himself change the destination of the merchandise. In
admitting this change at the instance of the shipper, he must first take up the bill of lading which he
may have issued, under pain of being liable for the cargo to the legitimate holder of the same.
ARTICLE 713. If before the delivery of the cargo a new bill of lading should be demanded of the
captain, on the allegation that the failure to present the previous ones is due to their loss or to any
other just cause, he shall be obliged to issue it, provided that security for the value of the cargo is
given to his satisfaction, but without changing the consignment, and stating therein the circumstances
prescribed in the last paragraph of Article 707, under penalty, should he not so state, of being held
liable for said cargo if improperly delivered through his fault.
ARTICLE 714. If before the vessel puts to sea the captain should die or should cease to hold his
position through any cause, the shippers shall have the right to demand of the new captain the
ratification of the first bills of lading, and the latter must do so, provided that all the copies previously
issued be presented or returned to him, and it should appear from all examination of the cargo that
they are correct.
The expenses arising from the examination of the cargo shall be defrayed by the ship agent, without
prejudice to the right of action of the latter against the first captain if he ceased to be such through his
own fault. Should said examination not be made, it shall be understood that the new captain accepts
the cargo as it appears from the bills of lading issued.
ARTICLE 715. Bills of lading will give rise to a most summary action or to judicial,
compulsion (“accion sumarisima o de apremios”), according to the case, for the delivery of the cargo
and the payment of the freightage and the expenses thereby incurred.
ARTICLE 716. If several persons should present bills of lading issued to bearer or to order, indorsed
in their favor, demanding the same merchandise, the captain shall prefer, in making delivery the
person who presents the copy first issued, except when the latter one was issued on proof of the loss
of the first, and both are presented by different persons.
In such case, as well as when only second subsequent copies, issued without this proof, are presented,
the captain shall apply to the judge or court, so that he may order the deposit of the merchandise and
their delivery, through him, to the proper person.
ARTICLE 717. The delivery of the bill of lading shall effect the cancellation of all the provisional
receipts of prior date given by the captain or his subordinates for partial deliveries of the cargo which
may have been made.
ARTICLE 718. After the cargo has been delivered the bill of lading which the captain signed, or at
least the copy by reason of which the delivery is made, shall be returned to him, with the receipt for
the merchandise mentioned therein.
The delay on the part of the consignee shall make him liable for the damages which such delay may
cause the captain.
SECTION TWO
Loans on Bottomry and Respondentia
ARTICLE 719. A loan in which under any condition whatever, the repayment of the sum loaned and of
the premium stipulated depends upon the safe arrival in port of the goods on which it is made, or of
the price they may receive in case of accident, shall be considered a loan on bottomry or respondentia.
ARTICLE 720. Loans on bottomry or respondentia may be executed:
1. By means of a public instrument.
2. By means of a policy signed by the contracting parties and the broker taking part therein. cdt
3. By means of a private instrument.
Under whichever of these forms the contract is executed, it shall be entered in the certificate of the
registry of the vessel and shall be recorded in the registry of vessels, without which requisites the
credits of this kind shall not have, with regard to other credits, the preference which, according to their
nature, they should have, although the obligation shall be valid between the contracting parties.
The contracts made during a voyage shall be governed by the provisions of Articles 583 and 611, and
shall be effective with regard to third persons from the date of their execution, if they should be
recorded in the registry of vessels of the port of registry of the vessel before the lapse of eight days
following its arrival. If said eight days should elapse without the record having been made in the
corresponding registry, the contracts made during the voyage of a vessel shall produce no effect with
regard to third persons, except from the day and date of their inscription.
In order that the policy of the contracts executed in accordance with No. 2 may have binding force,
they must conform to the registry of the broker who took part therein. With respect to those executed
in accordance with No. 3 the acknowledgment of the signature shall be required.
Contracts which are not reduced to writing shall not give rise to judicial action.
ARTICLE 721. In a contract on bottomry or respondentia the following must be stated:
1. The kind, name, and registry of the vessel.
2. The name, surname, and domicile of the captain.
3. The names, surnames, and domiciles of the person giving and the person receiving the loan.
4. The amount of the loan and the premium stipulated.
5. The time for repayment.
6. The goods pledged to secure repayment.
7. The voyage during which the risk is run.
ARTICLE 722. The contract may be made to order, in which case they shall be transferable by
indorsement, and the indorsee shall acquire all the rights and shall incur all the risks corresponding to
the indorser.
ARTICLE 723. Loans may be made in goods and in merchandise, fixing their value in order to
determine the principal of the loan.
ARTICLE 724. The loans may be constituted jointly or separately:
1. On the hull of the vessel.
2. On the rigging.
3. On the equipment, provisions, and fuel.
4. On the engine, if the vessel is a steamer.
5. On the merchandise loaded.
If the loan in constituted on the hull of the vessel, the rigging, equipment and other goods, provisions,
fuel, steam engines, and the freightage earned during the voyage on which the loan is made shall also
be considered as included in the liability for the loan. cdta
If the loan is made on the cargo, all that which constitutes the same shall be subject to the repayment;
and if on a particular object of the vessel or of the cargo, only the object concretely and specifically
mentioned shall be liable.
ARTICLE 725. No loans on bottomry may be made on the salaries of the crew or on the profits
expected.
ARTICLE 726. If the lender should prove that he loaned an amount larger than the value of the object
liable for the bottomry loan, on account of fraudulent measures employed by the borrower, the loan
shall be valid only for the amount at which said object is appraised by experts.
The surplus principal shall be returned with legal interests for the entire time required for repayment.
ARTICLE 727. If the full amount of the loan contracted in order to load the vessel should not be used
for the cargo, the balance shall be returned before clearing.
The same procedure shall be observed with regard to the goods taken as loan, if they were not loaded.
ARTICLE 728. The loan which the captain takes at the point of residence of the owners of the vessel
shall only affect that part thereof which belongs to the captain, if the other owners or their agents
should not have given their express authorization therefor or should not have taken part in the
transaction.
If one or more of the owners should be requested to furnish the amount necessary to repair or
provision the vessel, and they should not do so within twenty-four hours, the interest which the parties
in default may have in the vessel shall be liable for the loan in the proper proportion.
Outside of the residence of the owners the captain may contract loans in accordance with the
provisions of Articles 583 and 611.
ARTICLE 729. Should the goods on which money is taken not be subjected to risk, the contract shall
be considered a simple loan, with the obligation on the part of the borrower to return the principal and
interest at the legal rate, if that agreed upon should not be lower.
ARTICLE 730. Loans made during the voyage shall have preference over those made before the
clearing of the vessel, and they shall be graduated in the inverse order of their dates.
The loans for the last voyage shall have preference over prior ones.
Should several loans have been made at the same port of arrival under stress and for the same
purpose, all of them shall be paid pro rata.
ARTICLE 731. The actions pertaining to the lender shall be extinguished by the absolute loss of the
goods on which the loan was made, if it arose from an accident of the sea at the time and during the
voyage designated in the contract, and it is proven that the cargo was on board; but this shall not take
place if the loss was caused by the inherent defect of the thing, or through the fault or malice, of the
borrower, or barratry on the part of the captain, or if it was caused by damages suffered by the vessel
as a consequence of being engaged in contraband, or if it arose from having loaded the merchandise
on a vessel different from that designated in the contract, unless this change should have been made
by reason of force majeure.
Proof of the loss as well as of the existence in the vessel of the goods declared to the lender as the
object of the loan is incumbent upon him who received the loan.
ARTICLE 732. Lenders on bottomry or respondentia shall suffer, in proportion to their respective
interest, the general average which may take place in the goods on which the loan is made.
In particular averages, in the absence of an express agreement between the contracting parties, the
lender on bottomry or respondentia shall also contribute in proportion to his respective interest, should
it not belong to the kind of risks excepted in the foregoing article.
ARTICLE 733. Should the period during which the lender shall run the risk not have been stated in
the contract, it shall last, with regard to the vessel, engines, rigging, and equipment, from the moment
said vessel puts to sea until she drops anchor in the port of destination; and with regard to the
merchandise, from the time they are loaded at the shore or wharf of the port of shipment until they are
unloaded in the port of consignment. aisadc
ARTICLE 734. In case of shipwreck, the amount liable for the payment of the loan shall be reduced to
the proceeds of the goods saved, after deducting the costs of the salvage.
If the loan should be on the vessel or any of its parts, the freightage earned during the voyage for
which said loan was contracted shall also be liable for its payment, as far as it may reach.
ARTICLE 735. If the same vessel or cargo should be the object of a loan on bottomry or respondentia
and marine insurance, the value of what may be saved in case of shipwreck shall be divided between
the lender and the insurer, in proportion to the legitimate interest of each one, taking into
consideration, for this purpose only, the principal with respect to the loan, and without prejudice to the
right of preference of other creditors in accordance with Article 580.
ARTICLE 736. If there should be delay in repayment of the principal and premiums of the loan, only
the former shall bear of legal interest.
SECTION THREE
Marine Insurance
PART 1
Form of Contract
[ARTICLE 737. In order that a marine insurance contract be valid, it must be reduced to writing in a
policy signed by the contracting parties.
This policy shall be drafted and signed in duplicate, one copy being kept by each of the contracting
parties.
[ARTICLE 738. The policy of the insurance contract shall contain, besides the conditions
unrestrictedly established by the persons interested, the following requisites:
1. Date of the contract, stating the time it is consummated.
2. Names, surnames, and domiciles of the underwriter and of the insured.
3. Capacity in which the insured acts, stating whether for himself or for the account of another.
In the latter case the name, surname, and domicile of the person in whose name he takes out the
insurance.
4. Name, port, flag, and registry of the vessel insured, or of the vessel carrying the goods insured.
5. Name, surname, and domicile of the captain.
6. Port or roadstead where the merchandise insured has been or is to be loaded.
7. Port whence the vessel left or is to leave.
8. Ports or roadsteads where the vessel is to load, unload, or stop for any reason whatsoever.
9. Nature and kind of the goods insured.
10. Number of bales or packages, of whatsoever claim, and their marks, should they have any.
11. Time of the beginning and conclusion of the risk.
12. Amount insured.
13. Price agreed upon for the insurance, and place, time, and manner of payment thereof.
14. Amount of the premium corresponding to the voyage out, and amount to the return voyage, if
the insurance were for the round trip.
15. Obligation of the underwriter to pay the damage caused to the goods insured.
16. The place, period, and manner in which payment is to be made.
[ARTICLE 739. Insurance contracts and policies authorized by consular agents aboard, if the
contracting parties or any of them should be Spaniards, shall have the same legal value as though
they were drafted with the intervention of a broker. aLtoam
[ARTICLE 740. There may be included in the same contract and policy the insurance of the vessel and
that of the cargo fixing the value of either and mentioning the amount of insurance on each object,
without which statement the insurance shall be null.
Different premiums for each article insured may be fixed in the policy.
Several underwriters may sign the same policy.
[ARTICLE 741. In the insurance of merchandise the specific declaration of the same may be omitted,
as well as of the vessel to carry it, when these details are not known by the insured.
If the vessel in such case should suffer an accident on the seas, the insured shall be under the
obligation to prove, besides the loss of the vessel, her departure from the port of loading, the shipment
for his account of the goods insured, and the value thereof, to demand indemnity.
[ARTICLE 742. The insurance policies may be issued to the order of the insured, in which case they
shall be negotiable.]
PART 2
Goods Which Can Be Insured and Their Appraisement
[ARTICLE 743. The following can be the subject of marine insurance:
1. The hull of a vessel in ballast or loaded, in a port or on a voyage.
2. The rigging.
3. The engine, should the vessel be a steamer.
4. All the equipment and articles which constitute the fittings.
5. Provisions and fuel.
6. The amounts secured on bottomry or respondentia.
7. The amount of the freights and the probable profit.
8. All the commercial goods subject to the risk of navigation the value of which can be specifically
fixed.
[ARTICLE 744. All or a part of the goods mentioned in the foregoing article may be insured jointly or
separately, in time of peace or during war, for a voyage or for a definite time, for a single voyage or for
a round trip, on good or bad advices.
[ARTICLE 745. If it should be generally stated in the policy that the insurance is taken on the vessel,
there shall be understood therein the engines, rigging, equipment, and all that belongs to the vessel;
but her cargo shall not be included even thought it belongs to the shipowner.
In a general insurance of merchandise, there shall not be included therein coined metals, or metals in
ingots, precious stones, nor munitions of war.
[ARTICLE 746. The insurance of the freight may be taken by the shipper, by the ship owner, or by the
captain, but the latter can not insure the advance they may have received on account of their freight
unless they have expressly stipulated that, in case the freight is not earned by reason of shipwreck or
loss of the cargo, they shall return the amount received.
[ARTICLE 747. In freight insurance the amount thereof must be stated, which can not exceed the
amount appearing in the agreement.
[ARTICLE 748. The insurance of profits shall be governed by the stipulations agreed to by the
contracting parties, but there shall be stated in the policy:
1. The specific amount at which the insurer fixes the profit, after the cargo has arrived safely and
been sold at the port of destination.
2. The obligation of reducing the insurance if, comparing the amount obtained at the sale, after
discounting the expenses and freights, with the purchase price, it should appear less than that fixed in
the insurance.
[ARTICLE 749. The underwriter may have the goods insured by him reinsured by others, in whole or
in part, with the same or with a different premium. The insured may likewise insure the cost of the
insurance and the risk he may run in collecting the insurance from the first underwriter.
[ARTICLE 750. If the captain should take out the insurance, or the owner of the goods insured should
be on the same vessel which carries them, 10 per cent shall always be left to his risk should there be
no agreement to the contrary.
[ARTICLE 751. In the insurance of a vessel there shall always be understood that the insurance only
covers four-fifths of her value, and that the insured runs the risk for the remaining fifth, unless an
express agreement to the contrary is included in the policy.
In such case, and in that of the foregoing article, there shall be discounted from the insurance the
amount of the loans taken on bottomry or respondentia.
[ARTICLE 752. The signing of the policy shall constitute a legal presumption that the underwriters
accepted the appraisement made therein of the goods insured as correct, excepting cases of malice or
fraud.
If the appraisement should appear to be exaggerated, the proceedings shall be according to the cases,
viz:
1. If the exaggeration should have arisen from error, and not from malice imputable to the insured,
the insurance shall be reduced to its true value, fixed by the contracting parties by common consent,
or through an expert opinion. The insurer shall return the excess of the premium received, retaining,
however, one-half per cent of said excess.
2. If the exaggeration should have been fraudulent on the part of the insured, and the underwriter
proves it, the insurance shall be null for the insured, and the underwriter shall gain the premium
without prejudice to the criminal action which he may bring.
[ARTICLE 753. Reduction to the value of the national currency, if the value were fixed in foreign
money, shall be made at the current rate at the place and on the day on which the policy was signed.
[ARTICLE 754. If, at the time of making the contract, the value of the goods insured has not been
specifically fixed, it shall be determined:
1. By the invoices of consignment.
2. By a statement of brokers or experts, who shall act, taking as a basis of their judgment the price
of the goods in the port of
departure, adding thereto the expenses of shipment, freight, and customs.
If the insurance is on goods returning from a country where commerce is only exchange, the value
shall be fixed according to that of the goods exchanged in the port of departure, with all the
expenses.]
PART 3
Obligations of the Underwriter and of the Insured
[ARTICLE 755. The underwriters shall indemnify the loss and damage which the articles insured may
suffer for any of the following causes:
1. Stranding or embayment of the vessel, with or without breakage.
2. Gales.
3. Shipwreck.
4. Accidental collision.
5. Change of course during the voyage of the vessel.
 6. Jettison.
7. Fire or explosion, if it occurs in merchandise, whether on board or on land, provided it has been
removed by order of a competent authority to repair the vessel or to benefit the cargo, or, fire by
reason of spontaneous combustion in the coal bunkers of the vessel.
8. Capture.
9. Spoliation.
10. Declaration of war.
11. Embargo by order of the government.
12. Retention by order of a foreign power.
13. Reprisals.
14. Any other accidents of the sea or risks.
The contracting parties may stipulate the exceptions they may deem proper, mentioning them in the
policy, without which requisite they shall have no effect.
[ARTICLE 756. The underwriters shall not be liable for the loss and damage suffered by goods insured
by reason of any of the
following causes, unless they have been excluded in the policy:
1. Voluntary change in the voyage or in the vessel, without the express consent of the underwriters.
2. Voluntary separation from a convoy, when it was stipulated that she would travel with one.
3. Extension of the voyage to a port farther off than that designated in the insurance.
4. Arbitrary provisions and contrary to the charter party or to the bill of lading, adopted by order of
the shipowner, freighters or charterers.
5. Barratry on the part of the master, unless it is the object of insurance.
6. Waste, leakage, and expenses arising from the nature of the goods insured.
7. Absence of the instruments prescribed in this Code, in the marine ordinances and regulations, or
those of navigation, or omissions of any other class whatsoever on the part of the captain, in
contravention to administrative provisions, unless the barratry of the master should have been taken
for the account of the underwriter.
In any of these cases the underwriters shall collect the premium, provided they began to run the risk.
[ARTICLE 757. In the insurance of cargo taken for a round trip, if the insured should not find any
freight for the return voyage or should only be able to get less than two-thirds the return premium
shall be reduced in proportion to the cargo brought, the underwriter being furthermore granted one-
half per cent for the part he does not carry.
However, no reduction shall be allowed if the cargo was lost on the voyage out, unless there is a
special agreement modifying the provisions of this article.
[ARTICLE 758. If the cargo should have been insured by several underwriters for different amounts,
but without specifically mentioning the objects of the insurance, indemnification shall be paid, in case
of loss or damage, by all the underwriters in proportion to the amount insured by each one.
[ARTICLE 759. If different vessels should be designated to carry the goods insured, but without
stating the amount to be shipped on each vessel, the insured may distribute the cargo as may be most
convenient for him, or ship it on one vessel, only, the liability of the underwriter not being annulled
thereby. But if express mention should have been made of the amount insured on each vessel, and the
cargo should be put on board in different amounts to those fixed for each one, the underwriter shall
not have any further liability than that he may have contracted for each vessel. However, he shall
charge one-half per cent of the excess over the amount stipulated which may have been loaded
thereon.
If a vessel should be left without any cargo, the insurance with regard to the same shall be understood
as annulled by means of the aforementioned payment of one-half per cent on the excess shipped by
the other ones.
[ARTICLE 760. If by reason of the disability of the vessel before leaving the port, the cargo should be
transferred to another one, the underwriters shall be allowed to choose between continuing or
annulling the contract and paying the damages which may have occurred; but if the disability should
take place after the beginning of the voyage, the underwriters shall run the risk, even though the
vessel should have a different tonnage and flag than that designated in the policy.
[ARTICLE 761. If the time during which the risks are to run for the account of the underwriter is not
fixed in the policy, the provisions of Article 733 with regard to loans on bottomry and respondentia
shall be observed.
[ARTICLE 762. In insurance for a fixed period, the liability of the underwriter shall cease at the time
the period fixed expires.
[ARTICLE 763. If for the convenience of the insured the merchandise should be unloaded at a port
closer than that designated as the destination of the voyage, the underwriter shall collect the premium
stipulated without any reduction.
[ARTICLE 764. There shall be understood as included in the insurance, if not expressly excluded in
the policy, the stopping places which it is required to make for the preservation of the vessels or of her
cargo.
[ARTICLE 765. The insured shall communicate to the underwriter by the first mail following that by
which he receives them, and by telegraph, should there be one, the notices referring to the course of
the navigation of the vessel insured, and the damages or losses suffered by the goods insured, and
shall answer for the losses and damages which may arise through his omission.
[ARTICLE 766. If merchandise insured for the account of the certain who commands the vessel on
which it was loaded should be lost, the former must prove its purchase to the underwriters by means
of the invoices of the vendors; and the shipment and transportation on the vessel, by means of a
certificate of the Spanish consul, or competent authority, where there is one, of the port where it was
loaded, and by means of the other documents of entry and clearance of the custom-houses.
The insured who carry their own merchandise shall have the same obligations, unless there is an
agreement to the contrary.
[ARTICLE 767. If an increase in the premium in case of war should have been stipulated, and said
increase should not have been fixed, the latter shall be determined in the absence of agreement
between the parties interested by experts appointed in the manner established in the law of civil
procedure, taking the circumstances of the insurance and the risks run into considerations.
[ARTICLE 768. The gratuitous restitution of the vessel or of the cargo to the captain by the captures
shall redound to the benefit of the respective owners without the obligation on the part of the
underwriters to pay the amounts they insured.
[ARTICLE 769. All claims arising from insurance contracts must be accompanied with the documents
proving:
1. The voyage of the vessel, with the oath of the captain or a certified copy of the log book.
2. The shipment of the goods insured, with the invoice and documents of discharge of the custom-
house.
3. The insurance contract, with the policy.
4. The loss of the goods insured, with the documents of No. 1, and a statement of the crew, if
necessary.
The discount of the goods insured shall furthermore be fixed after an examination by experts.
The underwriters may contradict the claim and they shall be permitted to adduce proof in court.
[ARTICLE 770. After the said documents have been presented, the underwriter shall, if he finds them
correct and the loss proven, pay the insured the indemnity within the period stipulated in the policy,
and in the absence of any fixed period, within ten days after the claim.
But if the underwriter should deny the claim and judicially contest it, he may deposit the amount
appearing from the proofs, or deliver it to the insured on giving sufficient security, either being decided
by the judge or court according to the cases.
[ARTICLE 771. If the vessel insured should suffer damage by reason of an accident at sea, the
underwriter shall pay only two-thirds of the expenses of repairing, should they be made or not. In the
first case, the amount of the expenses shall be proven by the means recognized in law, and in the
second case it shall be appraised by experts.
Only the agent or captain authorized therefor may decide not to repair the vessel.
[ARTICLE 772. If by reason of the repair the value of the vessel should be increased by more than
one-third of that fixed in the insurance, the underwriter shall pay two-thirds of the cost of repairs,
discounting the greatest value which the latter may have given the vessel.
But if the insured should prove that the greater value of the vessel does not arise from the repairs, but
because the vessel is a new one and the damage occurred on the first voyage, or that the engines or
rigging and equipment were broken, the deduction of the increase in value shall not be made, and the
underwriter shall pay the two-thirds of the costs of repair, in accordance with Rule 6 of Article 854.
[ARTICLE 773. If the cost of the repairs should exceed three-fourths of the value of the vessel, it shall
be understood that she is disabled to navigate, and her abandonment shall be proper; and should this
declaration not be made the underwriters shall pay the amount of the insurance, after deducting the
value of the vessel damaged or of her remains.
[ARTICLE 774. When indemnity arising from general averages is in question at the termination of the
adjustment, liquidation, and payment of the same, the insured shall turn over to the underwriter all the
accounts and documents proving the same produced to claim the indemnity of the amounts which
may have been due him. The underwriter shall examine the liquidation in his turn, and should he find it
in accordance with the conditions of the policy, he shall be obliged to pay the insured the proper
amount within the period stipulated or, in the absence thereof, within the period of eight days.
The sum due shall earn interest from this date.
If the underwriter should not find the liquidation in accordance with the stipulation of the policy, he
may bring an action before the judge or court of competent jurisdiction within the said period of eight
days, depositing the amount claimed.
[ARTICLE 775. In no case can a claim be brought against the underwriter for a sum higher than the
total amount of insurance, even though the vessel saved, after an arrival under stress for the repair of
damages should be lost, or that the amount to be paid by reason of general average amounts to more
than the insurance, or that the cost of different averages and repairs on one voyage or within the
period of the insurance, exceeds the amount insured.
[ARTICLE 776. In cases of particular average to the merchandise insured, the following rules shall be
observed:
1. All that which may have disappeared by reason of theft, loss, sale on the voyage, deterioration,
or by reason of any of the marine accidents included in the insurance contract, shall be proven in
accordance with the value of the invoice, or in the absence thereof, by the value given the same in the
insurance, and the underwriter shall pay the amount thereof.
2. If the vessel having safely arrived in port, the merchandise should be damaged totally or in part,
the experts shall state the value it would have had if it arrived in good condition, and the value thereof
in its damaged condition.
The difference between both net amounts, after deducting furthermore the customs duties, freights,
and other similar expenses, shall constitute the value or amount of the average, adding thereto the
expenses for the experts and others, should there be any.
If the average should have involved the entire cargo insured the underwriter shall pay the loss
resulting; but if it only involves part, the insured shall be paid in the proper proportion.
If the probable profit of the freighter should have been the object of a special insurance it shall be
liquidated separately.
[ARTICLE 777. After the particular average of the vessel has been fixed by experts, the underwriter
shall justify his right in accordance with the provisions at the end of No. 9 of Article 580, and the
insured shall pay in accordance with the provisions contained in Articles 858 and 859.
[ARTICLE 778. The underwriter can not oblige the insured to sell the object of the insurance in order
to fix its value.
[ARTICLE 779. If the appraisement of the goods insured should be made in a foreign country, the
laws, usages, and customs of the place where it is to be made shall be observed, without prejudice to
submitting to the provisions of this Code for the proof of the facts.
[ARTICLE 780. After the amount underwritten has been paid by the insurer he shall be subrogated in
the place of the insured to all the rights and actions which may be brought against the persons who
may have caused the loss of the goods insured through their malice or fault.]
PART 4
Cases in which Insurance Contracts are Annulled, Rescinded or Modified
[ARTICLE 781. An insurance contract involving the following shall be void:
1. A vessel or merchandise subject to a previous loan on bottomry or respondentia, for their full
value.
If the loan on bottomry or respondentia should be for the full value of the vessel or merchandise, the
insurance with regard to the part over and above the amount of the loan may be allowed to continue in
force.
2. The lives of the crew and passengers.
3. The pay of the crew.
4. Goods of illicit commerce in the country of the flag of the vessel.
5. Vessels customarily dedicated to contraband, the damage or loss arising therefrom, in which
case the underwriter shall be paid one-half per cent of the amount insured.
6. A vessel which, without the occurrence of any force majeure preventing it, does not put to sea
within six months following the date of the policy, in which case, besides the annulment, a payment of
one-half per cent to the underwriter of the sum insured shall be proper.
7. A vessel which does not undertake the voyage contracted for, or goes to a different port from
that stipulated, in which case the payment to the underwriter of one-half per cent of the amount
insured shall be proper.
8. Articles in the appraisement of which intentional fraud was committed.
[ARTICLE 782. If different insurance contracts have been made with regard to the same article
without fraud, the first one only shall be valid, provided it covers the full value thereof.
The underwriters of a subsequent date shall be exempted from all liability and shall receive one-half
per cent of the amount insured.
If the first contract should not cover the full value of the article insured, the liability for the excess shall
be insured by subsequent underwriters in order of dates.
[ARTICLE 783. The insured shall not be exempted from paying the full premium to the different
underwriters if he should not inform the subsequent ones of the rescission of their contracts before the
article insured has arrived at the port of destination.
[ARTICLE 784. An insurance taken out after the loss, average, or safe arrival of the insured article at
the port of destination, shall be void whenever it can be reasonably presumed that one or the other
had arrived to the knowledge of any of the contracting parties.
This presumption shall exist when the notice has been published in a place and the time necessary to
communicate it by mail or by telegraph to the place where the insurance was underwritten has
elapsed, without prejudice to the other proofs which may be brought by the parties.
[ARTICLE 785. An insurance contract on good or bad advices shall not be annulled unless the
knowledge of the occurrence expected or feared by any of the contracting parties at the time of
making the contract is proven.
In case of proving the same the defrauder shall pay the underwriter one-fifth of the amount insured,
without prejudice to the criminal liability which may be proper.
[ARTICLE 786. If the person taking the insurance, with the knowledge of the total or partial loss of the
goods insured, should be acting for the account of another, he shall be personally liable for the act as if
he had acted for his own account, and if, on the contrary, the agent should be innocent of the fraud
committed by the owner insured, all the liabilities shall be incurred by the latter, who shall always be
obliged to pay the underwriters the premium agreed upon.
Similar provisions shall govern with regard to the insurer when he underwrites the insurance through
an agent and has knowledge of the saving of the articles insured.
[ARTICLE 787. If the risk the goods insured is pending and the underwriter or the insured are
declared in bankruptcy, either shall be entitled to demand security, the latter to cover the liability of
the risk and the former to obtain the payment of the premium; and if the receivers should refuse to
give said security within three days following the demand the contract shall be rescinded.
Should an accident occur within said three days without the security having been given, there shall be
no right to the indemnity nor to the premium of the insurance.
[ARTICLE 788. If an insurance has been underwritten fraudulently by several underwriters, and one or
more of the same acted in good faith, the latter shall be entitled to receive the full premium of their
insurance of those who may have acted in bad faith, the insured being exempted from all liability.
Similar procedure shall be observed with regard to the insured with the underwriters, when any of the
former should be guilty of the fraudulent insurance.]
PART 5
Abandonment of Goods Insured
[ARTICLE 789. The insured may abandon for the account of the underwriter the goods insured,
demanding of the underwriter the amount stipulated in the policy:
1. In case of shipwreck.
2. In case of disability of the vessel to navigate, by reason of stranding, break down, or any other
accident of the sea.
3. In case of capture, embargo, or detention by order of the national or a foreign government.
4. In case of the total loss of the goods insured, by such being understood an accident reducing the
value insured by three-quarters.
Other damages shall be considered averages and shall be suffered by the proper persons, according to
the conditions of the insurance and the provisions of this Code.
An abandonment shall not be proper in either of the first two cases when a shipwrecked, stranded, or
disabled vessel was floated and repaired to continue the voyage to the port of destination, unless the
cost of the repair exceeds three-quarters of the value for which said vessel was insured.
[ARTICLE 790. If the vessel should be repaired, the underwriters shall be liable only for the expenses
arising from the grounding or other damage the vessel may have suffered.
[ARTICLE 791. In cases of shipwreck and capture the insured shall be obliged to personally take the
steps advisable under the circumstances, in order to save or recover the goods lost, without prejudice
to the abandonment he may make at the proper time; and the underwriter shall be obliged to
reimburse him for the legitimate expenses caused by the saving, to the value of the goods saved,
which may be attached for nonpayment of said expenses.
[ARTICLE 792. If the vessel should be totally disabled to navigate the insured shall be obliged to
inform the underwriter thereof, by telegraph if possible, and otherwise by the first mail following the
receipt of the news. The persons interested in the cargo who may be present, or in their absence the
captain, shall adopt all the measures possible to take the cargo to the port of destination in
accordance with the provisions of this Code, in which case all the risks and cost of unloading, storage,
reshipment or transfer, excess of freight, and all other expenses, until the goods insured are unloaded
at the point designated in the policy, shall be for the account of the underwriter.
[ARTICLE 793. Without prejudice to the provisions of the foregoing article, the underwriter shall be
allowed a period of six months in which to transport the merchandise to its destination, if the disability
should have occurred in the seas around the Philippines from the ports of China, in the sea of the same
name, to those of the Yellow Sea and Straits of Sunda and Malacca, and one year if it occurred at a
more distant point. Said period shall begin to be counted from the day the insured informed him of the
accident.
[ARTICLE 794. If, notwithstanding the efforts made by the persons interested in the cargo, by the
captain and by the underwriters, to transport the merchandise to the port of its destination, in
accordance with the provisions of the foregoing articles, no vessel should be found on which to
transport it, the owner and insured may abandon the same.
[ARTICLE 795. In case of the interruption of the voyage by reason of embargo or forced detention of
the vessel, the insured shall be obliged to inform the underwriters thereof as soon as he receives
notice of the same, and he can not abandon it until the periods fixed in Article 793 have elapsed.
He shall furthermore be obliged to assist the underwriters, in so far as may be in his power, to obtain
the raising of the embargo, and must personally take all the steps necessary for the purpose, if the
underwriters, being in a remote country, can not act in concurrence with him.
[ARTICLE 796. There shall be understood as abandoned with the vessel the freight of the
merchandise which may be saved, even though paid in advance, it being considered as belonging to
the underwriters, reserving the rights of other creditors in accordance with the provisions of Article
580.
[ARTICLE 797. The notice shall be understood as received for the limitation of the periods fixed in
Article 793, from the time it is made public, either through the newspapers, or as a confirmed rumor
among the merchants of the residence of the insured, or when it can be proven that the latter received
notice of the accident from the captain, consignee, or any correspondent by mail or telegraph.
[ARTICLE 798. The insured shall also have a right to make the abandonment after one year has
elapsed in ordinary voyages and two in long ones without receiving news of the vessel.
In such case he may demand of the underwriter the indemnity for the value of the amount insured
without being obliged to prove the loss, but he must prove the absence of news by means of a
certificate of a consul or marine authority of the port of departure, and another from the consuls or
marine authorities of the ports of destination of the vessel and of her registry, stating that said vessel
has not arrived at said ports during the period fixed.
In order to make use of this action, the period stated in Article 804 shall be allowed, short voyages
being considered those made to the coast of the Philippines and ports of China in the China Sea,
stopping places in the Yellow Sea, and ports in the Strait of Malacca, Indian Ocean, Red Sea, Europe,
and the European islands.
[ARTICLE 799. If the insurance should have been taken for a limited period, a legal presumption that
the loss took place within the period agreed upon shall exist, unless proof is adduced by the
underwriter to the effect that the loss took place after his liability had terminated.
[ARTICLE 800. The insured, at the time of making the abandonment, must declare all the insurances
taken out on the goods abandoned, as well as of the loans on respondentia made on the same, and
until this declaration has been made the period within which he is to be reimbursed for the value of the
goods shall not begin to be counted.
Should he commit fraud in this declaration, he shall lose all the rights he may have to the insurance,
and shall be liable for the loans he may have secured on the goods insured, notwithstanding their loss.
[ARTICLE 801. In case of the capture of the vessel, and should the insured not have time to act in
concurrence with the underwriter, nor to await instructions from him, he in person, or the captain, in
his absence, may redeem the goods insured, informing the underwriter at his first opportunity.
The latter may or may not accept the agreement made by the insured or by the captain,
communicating his decision within the twenty-four hours following the notification of the agreement.
Should he accept it, he shall immediately deliver the amount agreed upon as redemption, and the
subsequent risks of the voyage shall be for his account, in accordance with the stipulations of the
policy. Should he not accept it, he shall pay the insurance, losing all rights to the goods redeemed; and
if within the period fixed he does not render his decision, it shall be understood that he refuses to
accept the agreement.
[ARTICLE 802. If by reason of the recapture of the vessel the insured should regain possession of his
goods, all the costs and damages caused by the loss shall be considered average, and shall be
suffered by the underwriters; and if, by reason of the recapture, the goods insured should pass into the
possession of a third person, the insured may make use of the right of abandonment.
[ARTICLE 803. After the abandonment has been admitted or declared admissible in a suit, the
ownership of the goods abandoned, with the increase or deterioration suffered by the same from the
time of abandonment, shall be vested in the underwriter, without being exempted from the payment of
the repair of the vessel legally abandoned.
[ARTICLE 804. Abandonment shall not be admissible:
1. If the loss should have taken place before the beginning of the voyage.
2. If the abandonment is made in a partial or conditional manner, without including therein all the
goods insured.
3. If the intention of abandonment is not brought to the notice of the underwriters within four
months following the day on which the insured may have had knowledge of the loss, and if the
abandonment is not effected within ten months, counted in the same manner with regard to accidents
occurring in the ports of the Philippines, China, China Sea, stopping places in the Yellow Sea and ports
in the Straits of Malacca, Indian Ocean, Red Sea, and in Europe and the European island.
4. If it does not take place through the owner himself, or by a person specially authorized by him, or
by the one authorized to take out the insurance.
[ARTICLE 805. In case of abandonment the underwriter shall be obliged to pay the amount of the
insurance within the period fixed in the policy, and should no period have been stated therein, within
sixty days from the admission of the abandonment, or from the date of the declaration mentioned in
Article 803.]

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-two/maritime-

commerce/title-three-special-contracts-of-maritime-commerce/>

• TITLE FOUR – Risks, Damages and Accidents of Maritime Commerce

SECTION ONE
Averages
ARTICLE 806. For the purposes of this code the following shall be considered averages:
1. All extraordinary or accidental expenses which may be incurred during the voyage in order to
preserve the vessel, the cargo, or both.
2. Any damages or deteriorations which the vessel may suffer from the time it puts to sea from the
port of departure until it casts anchor in the port of destination, and those suffered by the merchandise
from the time they are loaded in the port of shipment until they are unloaded in the port of their
consignment.
ARTICLE 807. The petty and ordinary expenses incident to navigation, such as those of pilotage of
coasts and ports, those of lighterage and towage, anchorage, inspection, health, quarantine, lazaretto,
and other so-called port expenses, costs of barges and unloading until the merchandise is placed on
the wharf, and any other usual expenses of navigation, shall be considered ordinary expenses to be
defrayed by the shipowner, unless there is an express agreement to the contrary.
ARTICLE 808. Averages shall be:
1. Simple or particular.
2. General or gross.
ARTICLE 809. As a general rule, simple or particular averages shall include all the expenses and
damages caused to the vessel or to her cargo which have not inured to the common benefit and profit
of all the persons interested in the vessel and her cargo, and especially the following:
1. The losses suffered by the cargo from the time of its embarkation until it is unloaded, either on
account of inherent defect of the goods or by reason of an accident of the sea or force majeure, and
the expenses incurred to avoid and repair the same.
2. The losses and expenses suffered by the vessel in its hull, rigging, arms, and equipment, for the
same causes and reasons, from the time it puts to sea from the port of departure until it anchors and
lands in the port of destination.
3. The losses suffered by the merchandise loaded on deck, except in coastwise navigation, if the
marine ordinances allow it.
4. The wages and victuals of the crew when the vessel is detained or embargoed by legitimate
order or force majeure, if the charter has been contracted for a fixed sum for the voyage.
5. The necessary expenses on arrival at a port, in order to make repairs or secure provisions.
6. The lowest value of the goods sold by the captain in arrivals under stress for the payment of
provisions and in order to save the crew, or to meet any other need of the vessel, against which the
proper amount shall be charged.
7. The victuals and wages of the crew while the vessel is in quarantine.
8. The loss inflicted upon the vessel or cargo by reason of an impact or collision with another, if it is
accidental and unavoidable.
If the accident should occur through the fault or negligence of the captain, the latter shall be liable for
all the losses caused.
9. Any loss suffered by the cargo through the fault, negligence, or barratry of the captain or of the
crew, without prejudice to the right of the owner to recover the corresponding indemnity from the
captain, the vessel, and the freightage.
ARTICLE 810. The owner of the goods which gave rise to the expense or suffered the damage shall
bear the simple or particular averages. cd
ARTICLE 811. As a general rule, general or gross averages shall include all the damages and
expenses which are deliberately caused in order to save the vessel, its cargo, or both at the same
time, from a real and known risk, and particularly the following:
1. The goods or cash invested in the redemption of the vessel or of the cargo captured by enemies,
privateers, or pirates, and the provisions, wages, and expenses of the vessel detained during the time
the settlement or redemption is being made.
2. The goods jettisoned to lighten the vessel, whether they belong to the cargo, to the vessel, or to
the crew, and the damage suffered through said act by the goods which are kept on board.
3. The cables and masts which are cut or rendered useless, the anchors and the chains which are
abandoned, in order to save the cargo, the vessel, or both.
4. The expenses of removing or transferring a portion of the cargo in order to lighten the vessel
and place it in condition to enter a port or roadstead, and the damage resulting therefrom to the goods
removed or transferred.
5. The damage suffered by the goods of the cargo by the opening made in the vessel in order to
drain it and prevent its sinking.
6. The expenses caused in order to float a vessel intentionally stranded for the purpose of saying
it.
7. The damage caused to the vessel which had to be opened, scuttled or broken in order to save
the cargo.
8. The expenses for the treatment and subsistence of the members of the crew who may have
been wounded or crippled in defending or saying the vessel.
9. The wages of any member of the crew held as hostage by enemies, privateers, or pirates, and
the necessary expenses which he may incur in his imprisonment, until he is returned to the vessel or
to his domicile, should he prefer it.
10. The wages and victuals of the crew of a vessel chartered by the month, during the time that it is
embargoed or detained by force majeure or by order of the government, or in order to repair the
damage caused for the common benefit.
11. The depreciation resulting in the value of the goods sold at arrival under stress in order to
repair the vessel by reason of gross average.
12. The expenses of the liquidation of the average.
ARTICLE 812. In order to satisfy the amount of the gross or general averages, all the persons having
an interest in the vessel and cargo therein at the time of the occurrence of the average shall
contribute.
ARTICLE 813. In order to incur the expenses and cause the damages corresponding to gross
average, there must be a resolution of the captain, adopted after deliberation with the sailing mate
and other officers of the vessel, and after hearing the persons interested in the cargo who may be
present.
If the latter shall object, and the captain and officers or a majority of them, or the captain, if opposed
to the majority, should consider certain measures necessary, they may be executed under his
responsibility, without prejudice to the right of the shippers to proceed against the captain before the
competent judge or court, if they can prove that he acted with malice, lack of skill, or negligence.
If the persons interested in the cargo, being on board the vessel, have not been heard, they shall not
contribute to the gross average, their share being chargeable against the captain, unless the urgency
of the case should be such that the time necessary for previous deliberations was wanting.
ARTICLE 814. The resolution adopted to cause the damages which constitute general average must
necessarily be entered in the log book, stating the motives and reasons for the dissent, should there
be any, and the irresistible and urgent causes which impelled the captain if he acted of his own accord.
In the first case the minutes shall be signed by all the persons present who could do so before taking
action, if possible; and if not, at the first opportunity. In the second case, it shall be signed by the
captain and by the officers of the vessel.
In the minutes, and after the resolution, shall be stated in detail all the goods jettisoned, and mention
shall be made of the injuries caused to those kept on board. The captain shall be obliged to deliver one
copy of these minutes to the maritime judicial authority of the first port he may make, within twenty-
four hours after his arrival, and to ratify it immediately under oath.
ARTICLE 815. The captain shall direct the jettison, and shall order the goods cast overboard in the
following order:
1. Those which are on deck, beginning with those which embarrass the maneuver or damage of the
vessel, preferring, if possible, the heaviest ones with the least utility and value. cda
2. Those which are below the upper deck, always beginning with those of the greatest weight and
smallest value, to the amount and number absolutely indispensable.
ARTICLE 816. In order that the goods jettisoned may be included in the gross average and the owners
thereof be entitled to indemnity, it shall be necessary insofar as the cargo is concerned that their
existence on board be proven by means of the bill of lading; and with regard to those belonging to the
vessel, by means of the inventory prepared before the departure in accordance with the first
paragraph of Article 812.
ARTICLE 817. If in lightening a vessel on account of a storm, in order to facilitate its entry into a port
or roadstead, part of the cargo should be transferred to lighters or barges and be lost, the owner of
said part shall be entitled to indemnity, as if the loss had originated from a gross average, the amount
thereof being distributed between the vessel and cargo from which it came.
If, on the contrary, the merchandise transferred should be saved and the vessel should be lost, no
liability may be demanded of the salvage.
ARTICLE 818. If, as a necessary measure to extinguish a fire in a port, roadstead, creek, or bay, it
should be decided to sink any vessel, this loss shall be considered gross average, to which the vessels
saved shall contribute.
SECTION TWO
Arrivals Under Stress
ARTICLE 819. If during the voyage the captain should believe that the vessel can not continue the
trip to the port of destination on account of the lack of provisions, well-founded fear of seizure,
privateers, or pirates, or by reason of any accident of the sea disabling it to navigate, he shall
assemble the officers and shall summon the persons interested in the cargo who may be present, and
who may attend the meeting without the right to vote; and if, after examining the circumstances of the
case, the reason should be considered well-founded, the arrival at the nearest and most convenient
port shall be agreed upon, drafting and entering the proper minutes, which shall be signed by all, in
the log book.
The captain shall have the deciding vote, and the persons interested in the cargo, may make the
objections and protests they may deem proper, which shall be entered in the minutes in order that
they may make use thereof in the manner they may consider advisable.
ARTICLE 820. An arrival shall not be considered lawful in the following cases:
1. If the lack of provisions should arise from the failure to take the necessary provisions for the
voyage according to usage and customs, or if they should have been rendered useless or lost through
bad stowage or negligence in their care.
2. If the risk of enemies, privateers, or pirates should not have been well known, manifest, and
based on positive and provable facts.
3. If the defect of the vessel should have arisen from the fact that it was not repaired, rigged,
equipped, and prepared in a manner suitable for the voyage, or from some erroneous order of the
captain.
4. When malice, negligence, want of foresight, or lack of skill on the part of the captain exists in the
act causing the damage.
ARTICLE 821. The expenses of an arrival under stress shall always be for the account of the
shipowner or agent, but they shall not be liable for the damages which may be caused the shippers by
reason of the arrival provided the latter is legitimate.
Otherwise, the ship agent and the captain shall be jointly liable.
ARTICLE 822. If in order to make repairs to the vessel or because there is danger that the cargo may
suffer damage, it should be necessary to unload, the captain must request authorization from the
competent judge or court for the removal, and carry it out with the knowledge of the person interested
in the cargo, or his representative, should there be any.
In a foreign port, it shall be the duty, of the Philippine Consul, where there is one, to give the
authorization.
In the first case, the expenses shall be for the account of the ship agent or owner, and in the second,
they shall be chargeable against the owners of the merchandise for whose benefit the act was
performed.
If the unloading should take place for both reasons, the expenses shall be divided proportionately
between the value of the vessel and that of the cargo.
ARTICLE 823. The custody and preservation of the cargo which has been unloaded shall be intrusted
to the captain, who shall be responsible for the same, except in cases of force majeure.
ARTICLE 824. If the entire cargo or part thereof should appear to be damaged, or there should be
imminent danger of its being damaged, the captain may request of the competent judge or court, or of
the consul in a proper case, the sale of all or of part of the former, and the person taking cognizance of
the matter shall authorize it, after an examination and declaration of experts, advertisements, and
other formalities required by the case, and an entry in the book, in accordance with the provisions of
Article 624.
The captain shall, in a proper case, justify the legality of his conduct, under the penalty of answering to
the shipper for the price the merchandise would have brought if they had arrived in good condition at
the port of destination.
ARTICLE 825. The captain shall be responsible for the damages caused by his delay, if after the cause
of the arrival under stress has ceased, he should not continue the voyage.
If the cause of arrival should have been the fear of enemies, privateers, or pirates, a deliberation and
resolution in a meeting of the officers of the vessel and persons interested in the cargo who may be
present, in accordance with the provisions contained in Article 819, shall precede the departure.
SECTION THREE
Collisions
ARTICLE 826. If a vessel should collide with another, through or the fault, negligence, or lack of skill
of the captain, sailing mate, or any other member of the complement, the owner of the vessel at fault
shall indemnify the losses and damages suffered, after an expert appraisal. aisadc
ARTICLE 827. If the collision is imputable to both vessels, each one shall suffer its own damages, and
both shall be solidarily responsible for the losses and damages occasioned to their cargoes.
ARTICLE 828. The provisions of the preceding article are applicable to the use in which it cannot be
determined which of the two vessels has caused the collision.
ARTICLE 829. In the cases above mentioned the civil action of the owner against the person causing
the injury as well as the criminal liabilities, which may be proper, are reserved.
ARTICLE 830. If a vessel should collide with another, through fortuitous event or force majeure, each
vessel and its cargo shall bear its own damages.
ARTICLE 831. If a vessel should be forced by a third vessel to collide with another, the owner of the
third vessel shall indemnify the losses and damages caused, the captain thereof being civilly liable to
said owner.
ARTICLE 832. If by reason of a storm or other cause of force majeure, a vessel which is properly
anchored and moored should collide with those nearby, causing them damages, the injury occasioned
shall be considered as particular average of the vessel run into.
ARTICLE 833. A vessel which, upon being run into, sinks immediately, as well as that which, having
been obliged to make a port to repair the damages caused by the collision, is lost during the voyage or
is obliged to be stranded in order to be saved, shall be presumed as lost by reason of collision.
ARTICLE 834. If the vessels colliding with each other should have pilots on board discharging their
duties at the time of the collision, their presence shall not exempt the captains from the liabilities they
incur, but the latter shall have the right to be indemnified by the pilots, without prejudice to the
criminal liability which the latter may incur.
ARTICLE 835. The action for the recovery of losses and damages arising from collisions cannot be
admitted if a protest or declaration is not presented within twenty-four hours before the competent
authority of the point where the collision took place, or that of the first port of arrival of the vessel, if in
Philippine territory, and to the consul of the Republic of the Philippines if it occurred in a foreign
country.
ARTICLE 836. With respect to damages caused to persons or to the cargo, the absence of protest
may not prejudice the persons interested who were not on board or were not in a condition to make
known their wishes.
ARTICLE 837. The civil liability incurred by the shipowners in the case prescribed in this section, shall
be understood as limited to the value of the vessel with all its appurtenances and freightage earned
during the voyage.
ARTICLE 838. When the value of the vessel and her appurtenances should not be sufficient to cover
all the liabilities, the indemnity due by reason of the death or injury of persons shall have preference.
ARTICLE 839. If the collision should take place between Philippine vessels in foreign waters, or if
having taken place in the open seas, and the vessels should make a foreign port, the Consul of the
Republic of the Philippines in said port shall hold a summary investigation of the accident, forwarding
the proceedings to the Secretary of the Department of Foreign Affairs for continuation and conclusion.
SECTION FOUR
Shipwrecks
ARTICLE 840. The losses and deteriorations suffered by a vessel and her cargo by reason of
shipwreck or stranding shall be individually for the account of the owners, the part which may be
saved belonging to them in the same proportion.
ARTICLE 841. If the wreck or stranding should be caused by the malice, negligence, or lack of skill of
the captain, or because the vessel put to sea was insufficiently repaired and equipped, the ship agent
or the shippers may demand indemnity of the captain for the damages caused to the vessel or to the
cargo by the accident, in accordance with the provisions contained in Articles 610, 612, 614, and 621.
ARTICLE 842. The goods saved from the wreck shall be specially bound for the payment of the
expenses of the respective salvage, and the amount thereof must be paid by the owners of the former
before they are delivered to them, and with preference over any other obligation if the merchandise
should be sold.
ARTICLE 843. If several vessels sail under convoy, and any of them should be wrecked, the cargo
saved shall be distributed among the rest in proportion to the amount which each one is able to take.
If any captain should refuse, without sufficient cause, to receive what may correspond to him, the
captain of the wrecked vessel shall enter a protest against him, before two sea officials, of the losses
and damages resulting therefrom, ratifying the protest within twenty-four hours after arrival at the first
port, and including it in the proceedings he must institute in accordance with the provisions contained
in Article 612.
If it is not possible to transfer to the other vessels the entire cargo of the vessel wrecked, the goods of
the highest value and smallest volume shall be saved first, the designation thereof to be made by the
captain with the concurrence of the officers of his vessel.
ARTICLE 844. A captain who may have taken on board the goods saved from the wreck shall continue
his course to the port of destination, and on arrival shall deposit the same, with judicial the
intervention, at the disposal of their legitimate owners.
In case he changes his course, if he can unload them at the port of which they were consigned, the
captain may make said port if the shippers or supercargoes present and the officers and passengers of
the vessel consent thereto; but he may not do so, even with said consent, in time of war or when the
port is difficult and dangerous to make.
The owners of the cargo shall defray all the expenses of this arrival as well as the payment of the
freightage which, after taking into consideration the circumstances of the case, may be fixed by
agreement or by a judicial decision.
ARTICLE 845. If on the vessel there should be no person interested in the cargo who can pay the
expenses and freightage corresponding to the salvage, the competent judge or court may order the
sale of the part necessary to cover the same. This shall also be done when its preservation is
dangerous, or when in a period of one year it should not have been possible to ascertain who are its
legitimate owners.
In both cases the proceedings shall be with the publicity and formalities prescribed in Article 579, and
the net proceeds of the sale shall be safely deposited, in the discretion of the judge or court, so that
they may be delivered to the legitimate owner thereof.

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-two/maritime-

commerce/title-four-risks-damages-and-accidents-of-maritime-commerce/>

• TITLE FIVE – Proof and Liquidation of Averages

SECTION ONE
Provisions Common to All Kinds of Averages
ARTICLE 846. Those interested in the proof and liquidation of averages may mutually agree and bind
themselves at any time with regard to the liability, liquidation, and payment thereof.
In the absence of agreements, the following rules shall be observed:
1. The proof of the average shall take place in the port where the repairs are made, should any be
necessary, or in the port of unloading.
2. The liquidation shall be made in the port of unloading, if it is a Philippine port.
3. If the average occurred outside of the jurisdictional waters of the Philippines, or the cargo has
been sold in a foreign port by reason of an arrival under stress, the liquidation shall be made in the
port of arrival.
4. If the average has occurred near the port of destination, so that said port can be made, the
proceedings mentioned in Rules 1 and 2 shall be held there.
ARTICLE 847. In the case where the liquidation of the averages is made privately by virtue of
agreement, as well as when a judicial authority intervened at the request of any of the parties
interested who do not agree thereto, all of them shall be cited, and heard, should they not have
renounced this right.
Should they not be present or should the have no legal representative, the liquidation shall be made
by the Consul in a foreign port, and where there is none, by the competent judge or court, according to
the laws of the country and for the account of the proper party.
When the representative is a person well known in the place where the liquidation is made, his
intervention shall be admitted and shall produce legal effects, even though he be authorized only by a
letter of the ship agent, the shipper, or the insurer.
ARTICLE 848. Claims for averages shall not be admitted if they do not exceed 5 per cent of the
interest which the claimant may have in the vessel or in the cargo if it be gross average and 1 per cent
of the goods damaged if particular average, deducting in both cases the expenses of appraisal, unless
there is an agreement to the country.
ARTICLE 849. The damages, averages, loans on bottomry and respondentia and their premiums and
any other losses, shall not earn interest by reason of delay until after the lapse of the period of three-
days, to be counted from the day on which the liquidation may have been concluded and
communicated to the persons interested in the vessel, in the cargo, or in both at the same time.
ARTICLE 850. If by reason of one or more accidents of the sea, particular and gross averages of the
vessel, of the cargo, or of both, should take place on the same voyage, the expenses and damages
corresponding to each average shall be determined separately in the port where the repairs are made,
or where the merchandise are discharged, sold, or utilized.
For this purpose the captains shall be obliged to demand of the expert appraisers and of the
contractors making the repairs, as well as of those appraising and taking part in the unloading, repair,
sale, or utilization of the merchandise, that in their appraisements or estimates and accounts they set
down separately and accurately the expenses and damages pertaining to each average, and in those
of each average those corresponding to the vessel and to the cargo, also stating separately whether or
not there are damages proceeding from inherent defect of the thing and not from accident of the sea;
and in case there should be expenses common to the different averages and to the vessel and its
cargo, the amount corresponding to each must be estimated and stated distinctly.
SECTION TWO
Liquidation of Gross Averages
ARTICLE 851. At the instance of the captain, the adjustment, liquidation, and distribution of gross
averages shall be held privately, with the consent of all the parties in interest.
For this purpose, within forty-eight hours following the arrival of the vessel at the port, the captain
shall convene all the person interested in order that they may decide as to whether the adjustment or
liquidation of the gross average is to be made by experts and liquidators appointed by themselves, in
which case it shall so done if the interested parties agree.
If an agreement is not possible, the captain shall apply to the competent judge or court, who shall be
the one in the port where these proceedings are to be held in accordance with the provisions of this
code, or to the consul of the Republic of the Philippines should there be one, and should there be none,
to the local authority when they are to be held in a foreign port.
ARTICLE 852. If the captain does not comply with the provisions of the preceding article, the ship
agent or the shippers shall demand the liquidation without prejudice to the action they may bring to
demand indemnity from him.
ARTICLE 853. After the experts have been appointed by the persons interested, or by the court, and
after the acceptance, they shall proceed to the examination of the vessel and of the repairs required
and to the appraisal of their cost, separating these losses and damages from those arising from the
inherent defect of the things.
The experts shall also declare whether the repairs may be made immediately, or whether it is
necessary to unload the vessel in order to examine and repair it.
With regard to the merchandise, if the average should be visible at a mere glance, the examination
thereof must be made before they are delivered. Should it not be visible at the time of unloading, said
examination may be made after the delivery, provided that it is done within forty-eight hours from the
unloading and without prejudice to the other proofs which the experts may deem proper.
ARTICLE 854. The valuation of the objects which are to contribute to the gross average, and that of
those which constitute the average, shall be subject to the following rules:
1. The merchandise saved which are to contribute to the payment of the gross average shall be
valued at the current price at the port of unloading, deducting the freightage, customs duties, and
expenses of unloading, as may appear from a material inspection of the same, without taking the bills
of lading into consideration unless there is an agreement to the contrary.
 2. If the liquidation is to be made in the port of departure, the value of the merchandise loaded shall
be determined by the purchase price, including the expenses until they are placed on board, the
insurance premium excluded.
3. If the merchandise should be damaged, they shall be appraised at their true value.
4. If the voyage having been interrupted, the merchandise should have been sold in a foreign port,
and the average cannot be estimated, the value of the merchandise in the port of arrival, or the net
proceeds obtained at the sale thereof, shall be taken as the contributing capital.
5. Merchandise lost, which constitute the gross average, shall be appraised at the value which
merchandise of its kind may have in the port of unloading, provided that its kind and quality appear in
the bill of lading; and should they not appear, the value shall be that stated in the invoices of the
purchase issued in the port of shipment, adding thereto the expenses and freightage subsequently
arising.
6. The masts cut down, the sails, cables, and other equipment of the vessel rendered useless for
the purpose of saying it, shall be appraised at the current value, deducting one-third by reason of the
difference between new and old. This deduction shall not be made with respect to anchors and chains.
7. The vessel shall be appraised at its true value in the condition in which it is found.
8. The freightage shall represent 50 per cent by way of contributing capital.
ARTICLE 855. The merchandise loaded on the upper deck of the vessel shall contribute to the gross
average should they be saved; but there shall be no right to indemnity if they should be lost by reason
of having been jettisoned for common safety, except when the marine ordinances allow their shipment
in this manner in coastwise navigation.
The same shall take place with that which is on board and is not included in the bills of lading or
inventories, according to the cases.
In any case the shipowner and the captain shall be liable to the shippers for the damages from the
jettison, if the storage on the upper deck was made without the consent of the latter.
ARTICLE 856. Provisions and munitions of war which the vessel may have on board, and the clothing
used by the captain, officers, and crew, shall not contribute to the gross average.
The clothing used by the shipper, supercargoes, and passenger who may be on board at the time of
the jettison, shall also be accepted.
Neither shall the goods jettisoned contribute to the payment of the gross averages which may occur to
the merchandise saved to a different and subsequent risk.
ARTICLE 857. After the appraisement of the goods saved and of those lost which constitute the gross
average, has been concluded by the experts, the repairs, if any, made on the vessel, and in this case,
the accounts of the same approved by the persons interested or by the judge or court, the entire
record shall be turn over to the liquidator appointed, in order that he may proceed with the distribution
of the average.
ARTICLE 858. In order to effect the liquidation, the liquidator shall examine the protest of the
captain, comparing it, if necessary, with the log book, and all the contracts which may have been
made among the persons interested in the average, the appraisements, expert examinations, and
accounts of repairs made. If, as a result of this examination, he should find any defect in the procedure
which might injure the rights of the person interested or affect the liability of the captain, he shall call
attention thereof in order that it may be corrected, if possible, and otherwise he shall include it in the
exordial of the liquidation.
Immediately thereafter he shall proceed with the distribution of the amount of the average, for which
purpose he shall fix:
1. The contributing capital, which he shall determine by the value of the cargo, in accordance with
the rules established in Article 854.
2. That of the vessel in her actual condition, according to the statement of experts.
3. The 50 per cent of the amount of the freightage, deducting the remaining 50 per cent for wages
and maintenance of the crew.
After the amount of the gross average has been determined in accordance with the provisions of this
Code, it shall be distributed pro rata among the goods which are to cover the same.
ARTICLE 859. The insurers of the vessel of the freightage and of the cargo shall be obliged to pay for
the indemnification of the gross average, insofar as is required of each one of the objects respectively.
ARTICLE 860. If, notwithstanding the jettison of merchandise, breakage of masts, ropes, and
equipment, the vessel shall be lost running the same risk, no contribution whatsoever by jettison of
gross average shall be proper.
The owners of the goods saved shall not be liable for the indemnification of those jettisoned, lost, or
damaged.
ARTICLE 861. If, after the vessel has been saved from the risk which gave rise to the jettison, it
should be lost through another accident taking place during the voyage, the goods saved and existing
 from the first risk shall continue liable to contribution by reason of the gross average according to their
value in the condition in which they may be found, deducting the expenses incurred in saving them.
ARTICLE 862. If, in spite of having saved the vessel and the cargo in consequence of the cutting
down of masts or of any other damage deliberately done to the vessel for said purpose, the
merchandise should subsequently be lost or stolen, the captain can not demand of the shippers or
consignees that they contribute to the indemnity for the average, unless the loss should occur by
reason of an act of the owner or consignee himself.
ARTICLE 863. If the owner of the jettisoned goods should recover them after having received the
indemnity for gross average, he shall be obliged to return to the captain and to the other persons
interested in the cargo the amount he may have received, deducting the amount of the damage
caused by the jettison and of the expenses incurred in their recovery.
In this case, the amount returned shall be distributed among the vessel and the persons interested in
the cargo in the same proportion in which they contributed to the payment of the average.
ARTICLE 864. If the owner of the goods jettisoned should recover them without having demanded
any indemnity, he shall not be obliged to contribute to the payment of the gross average which may
have been suffered by the rest of the cargo after the jettison.
ARTICLE 865. The distribution of the gross average shall not be final until it has been agreed to, or in
the absence thereof, until it has been approved by the judge or court, after an examination of the
liquidation and a hearing of the persons interested who may be present or of their representatives.
ARTICLE 866. After the liquidation has been approved, it shall be the duty of the captain to collect
the amount of the contributions, and he shall be liable to the owners of the goods averaged for the
damages they may suffer through his delay or negligence.
ARTICLE 867. If the person contributing should not pay the amount of the contribution at the end of
the third day after having been required to do so, the goods saved shall be proceeded against, in the
request of the captain, until payment has been made from their proceeds.
ARTICLE 868. If the person interested in receiving the goods saved should not give security sufficient
to answer for the amount corresponding to the gross average, the captain may defer the delivery
thereof until payment has been made.
SECTION THREE
Liquidation of Ordinary Averages
ARTICLE 869. The experts whom the court or the person interested may appoint, as the case may be,
shall proceed with the examination and appraisement of the averages in the manner prescribed in
Articles 853 and 854, Rules 2 to 7, insofar as they are applicable.

Pasted from <http://www.openlexproject.com/commercial/code-of-commerce/book-two/maritime-

commerce/title-five-proof-and-liquidation-of-averages/>

A.M. No. 00-8-10-SC

Sunday, June 06, 2010
4:26 AM

Changes in the Rules of Procedure on Corporate Rehabilitation: Provisions Applicable to all Proceedings
Published by Atty. Fred February 20th, 2009 in Corporate and Investments.0 Comments
On 2 December 2008, the Supreme Court en banc issued A.M. No. 00-8-10-SC, approving the RULES OF
PROCEDURE ON CORPORATE REHABILITATION (“Rules”). The new Rules took effect on 16 January 2009.
Here are the salient features of the new Rules, in contrast to the old Interim Rules of Procedure on
Corporate Rehabilitation (“Interim Rules). Unless otherwise indicated, the old provisions remain the same.
Effect on pending rehabilitation proceedings. –
Unless the court orders otherwise to prevent manifest injustice, any pending petition for rehabilitation that
has not undergone the initial hearing prescribed under the Interim Rules of Procedure for Corporate
Rehabilitation at the time of the effectivity (16 January 2009) of the new Rules shall be governed by the
Rules. (Rule 9, Sec. 2)
Recognition of foreign proceedings. –
The provisions on Recognition of Foreign Proceedings (Rule 7) are not expressly provided in the Interim
Rules. The procedure will be separately discussed. (Comment: This is a welcome addition because based
on our experience, the absence of express provisions gave rise to many issues that only delayed the
speedy resolution of the proceedings.)
Types of Petition based on the party filing it. –
The Interim Rules only cover rehabilitations that are: (1) Debtor-Rehabilitation; and (2) Creditor-Initiated.
The two are also lumped in a single Rule (Rule 4).
The new Rules add a third type, the Pre-Negotiated Rehabilitation, and distinctly set forth the applicable
provisions for each:
Rule 4 – Debtor-Initiated Rehabilitation
Rule 5 – Creditor-Initiated Rehabilitation
Rule 6 – Pre-Negotiated Rehabilitation
The General Provisions (Rule 3), of course applies to all types. Also, certain provisions on Debtor-Initiated
Rehabilitation (Sections 5-12 of Rule 4) are expressly made applicable to Creditor-Initiated Rehabilitation
(Rule 5).
Each procedure will be separately discussed.
Venue. –
The Interim Rules merely provides that the petition shall be filed in the regional trial court (RTC) which has
jurisdiction over the principal office of the debtor. The new Rules now explicitly provides (Rule 3, Sec. 2):
1. It should be the office specified in its articles of incorporation or partnership.
2. Where the principal office of the corporation, partnership or association is registered in the SEC as
“Metro Manila”, the action must be filed in the RTC of the city or municipality where the head office is
located.
3. A joint petition by a group of companies shall be filed in the RTC which has jurisdiction over the principal
office of the parent company, as specified in its Articles of Incorporation.
Stay Order. –
The new Rules (Rule 3, Sec. 7) expressly provide that the “issuance of a stay order does not affect the
right to commence actions or proceedings insofar as it is necessary to preserve a claim against the
debtor.”
The following are also added to the required contents of the Stay Order:
1. Sub-paragraph (b) in the Interim Rules simply provides that the court shall issue an order “staying
enforcement of all claims, whether for money or otherwise and whether such enforcement is by court
action or otherwise, against the debtor, its guarantors and persons not solidarily liable with the debtor”,
but the new Rules add a proviso that “the stay order shall not cover claims against letters of credit and
similar security arrangements issued by a third party to secure the payment of the debtor’s obligations;
provided, further, that the stay order shall not cover foreclosure by a creditor of property not belonging to
a debtor under corporate rehabilitation; provided, however, that where the owner of such property sought
to be foreclosed is also a guarantor or one who is not solidarily liable, said owner shall be entitled to the
benefit of excussion as such guarantor”.
2. Sub-paragraph (b) in the Interim Rules simply provides that the order shall prohibit the debtor from
making any payment of its liabilities “as of the date of the petition”, but this phrase was deleted and
substituted with: “except as provided in items (e), (f) and (g) of this Section or when ordered by the court
pursuant to Section 10 of Rule 3.”
3. This provision was added as sub-paragraph (g): “directing the payment of new loans or other forms of
credit accommodations obtained for the rehabilitation of the debtor with prior court approval”.
4. This provision was also added as sub-paragraph (j): “directing the petitioner to furnish a copy of the
petition and its annexes, as well as the stay order, to the creditors named in the petition and the
appropriate regulatory agencies such as, but not limited to, the Securities and Exchange Commission, the
Bangko Sentral ng Pilipinas, the Insurance Commission, the National Telecommunications Commission, the
Housing and Land Use Regulatory Board and the Energy Regulatory Commission.”
5. The time to file a verified comment by the creditors was increased to 15 days before the date of the first
initial hearing, from 10 days under the Interim Rules.
Period of Stay Order. —
The new Rules retain the language in the Interim Rules that the “stay order shall be effective from the
date of its issuance until the approval of the rehabilitation plan or the dismissal of the petition” (Rule 3,
Sec. 9), but deleted the proviso in the second paragraph of Rule 4, Sec. 11 of the Interim Rules that the
petition shall be dismissed if no rehabilitation plan is approved after 180 days from the date of the initial
hearing.
Relief from, modification, or termination of Stay Order. —
Another ground was added to the original 3 grounds to terminate, modify, or set conditions for the
continuance of the stay order under the Interim Rules – that “the property covered by the stay order is not
essential or necessary to the rehabilitation and the creditor’s failure to enforce its claim will cause more
damage to the creditor than to the debtor.” (Rule 3, Sec. 10)
Reports. —
The new Rules now indicate that the report “shall include, at the minimum, interim financial statements of
the debtor.” (Rule 3, Sec. 16)
Dismissal of rehabilitation receiver. —
Under the Interim Rules, the court may, motu propio or on its own initiative, dismiss the rehabilitation
receiver. This is deleted under the new Rules. (Rule 3, Sec. 17)
Repayment Period. —
The new Rules now provides that if “the rehabilitation plan extends the period for the debtor to pay its
contractual obligations, the new period should not extend beyond 15 years from the expiration of the
stipulated term existing at the time of filing of the petition.” (Rule 3, Sec. 19)
Termination of proceedings. —
Under the Interim Rules, the court may, motu propio or on its own initiative, terminate the proceedings.
This is deleted under the new Rules. (Rule 3, Sec. 23) Also, the same provision expressly adds the
“dismissal of the petition” in the enumeration of grounds for termination of the proceedings. (Comment:
While this is not included in the enumeration under Rule 4, Sec. 27 of the Interim Rules, this was
understood to be one of the grounds for termination, expressly mentioned in Rule 4, Sec. 11 of the Interim
Rules.)
Prohibited pleadings. –
The following prohibited pleadings are added under Rule 3, Sec. 1 of the new Rules:
1. Motion to hear affirmative defenses; and
2. Any pleading or motion which is similar to or of like effect as any of the foregoing.
On the other hand, the following grounds were removed from the list of prohibited pleadings:
1. Petition for Relief
2. Memorandum
3. Reply or Rejoinder
4. Motion for New Trial or Reconsideration. A party may file a motion for reconsideration of any order
issued by the court prior to the approval of the rehabilitation plan. No relief can be extended to the party
aggrieved by the court’s order on the motion through a special civil action for certiorari under Rule 65 of
the Rules of Court. Such order can only be elevated to the Court of Appeals (CA) as an assigned error in
the petition for review of the decision or order approving or disapproving the rehabilitation plan. An order
issued after the approval of the rehabilitation plan can be reviewed only through a special civil action for
certiorari under Rule 65 of the Rules of Court. (Rule 8, Sec. 1)
Review of decision on Rehabilitation Plan. —
The new Rules now expressly provide that an order approving or disapproving a rehabilitation plan can
only be reviewed through a petition for review to the CA under Rule 43 of the Rules of Court within 15 days
from notice of the decision or order. (Rule 8, Sec. 2) (Comment: Please also refer to A.M. No. 00-8-10-SC
[September 4, 2001] and A.M. No. 04-9-07-SC [September 14, 2004].)
Definitions. –
Under the new Rules, the following terms are expressly defined as follows:
“Administrative Expenses” shall refer to (a) reasonable and necessary expenses that are incurred in
connection with the filing of the petition; (b) expenses incurred in the ordinary course of business after the
issuance of the stay order, excluding interest payable to the creditors for loans and credit accommodations
existing at the time of the issuance of the stay order; and (c) other expenses that are authorized under
these Rules.
“Affiliate” is a corporation that directly or indirectly, through one or more intermediaries, is controlled by,
or is under the common control of another corporation, which thereby becomes its parent corporation.
“Asset” is anything of value that can be in the form of money, such as cash at the bank or amounts owed;
fixed assets such as property or equipment; or intangibles including intellectual property, the book value
of which is shown in the last three audited financial statements immediately preceding the filing of the
petition. In case the debtor is less than three years in operation, it is sufficient that the book value is based
on the audited financial statement/s for the two years or year immediately preceding the filing of the
petition, as the case may be.
“Control” is the power of a parent corporation to direct or govern the financial and operating policies of an
enterprise so as to obtain benefits from its activities. Control is presumed to exist when the parent owns,
directly or indirectly through subsidiaries, more than one–half (1/2) of the voting power of an enterprise
unless, in exceptional circumstances, it can clearly be demonstrated that such ownership does not
constitute control. Control also exists even when the parent owns one-half (1/2) or less of the
voting power of an enterprise when there is power:
(a) Over more than one-half (1/2) of the voting rights by virtue of an agreement with investors;
(b) To direct or govern the financial and operating policies of the enterprise under a statute or an
agreement;
(c) To appoint or remove the majority of the members of the board of directors or equivalent governing
body; or
(d) To cast the majority votes at meetings of the board of directors or equivalent governing body.
“Days” shall refer to calendar days unless otherwise provided in these Rules.
“Foreign court” means a judicial or other authority competent to control or supervise a foreign proceeding.
“Foreign proceeding” means a collective judicial or administrative proceeding in a foreign State, including
an interim proceeding, pursuant to a law relating to insolvency in which proceeding the assets and affairs
of the debtor are subject to control or supervision by a foreign court, for the purpose of rehabilitation or re-
organization.
“Foreign representative” means a person or entity, including one appointed on an interim basis, authorized
in a foreign proceeding to administer the reorganization or rehabilitation of the debtor or to act as a
representative of the foreign proceeding.
“Group of companies” refers to, and can cover only, corporations that are financially related to one
another as parent corporations, subsidiaries and affiliates. When the petition covers a group of companies,
all reference under these Rules to “debtor” shall include and apply to the group of companies.
“Liabilities” shall refer to monetary claims against the debtor, including stockholder’s advances that have
been recorded in the debtor’s audited financial statements as advances for future subscriptions.
“Parent” is a corporation which has control over another corporation directly or indirectly through one or
more intermediaries.
“Rehabilitation” shall mean the restoration of the debtor to a position of successful operation and
solvency, if it is shown that its continuance of operation is economically feasible and its creditors can
recover by way of the present value of payments projected in the plan, more if the corporation continues
as a going concern than if it is immediately liquidated.
“Secured claim” shall refer to any claim whose payment or fulfillment is secured by contract or by law,
including any claim or credit enumerated under Articles 2241 and 2242 of the Civil Code and Article 110,
as amended, of the Labor Code of the Philippines.
“Subsidiary” means a corporation more than fifty percent (50%) of the voting stock of which is owned or
controlled directly or indirectly through one or more intermediaries by another corporation, which thereby
becomes its parent corporation.
“Unsecured claim” shall mean any claim other than a secured claim.

Pasted from <http://jlp-law.com/blog/changes-in-the-rules-of-procedure-on-corporate-rehabilitation-

provisions-applicable-to-all-proceedings/>

A.M. No. 00-8-10-SC December 2, 2008

RULES OF PROCEDURE ON CORPORATE REHABILITATION
RESOLUTION
Acting on the recommendation of the Subcommittee on Special Rules for Special Commercial Courts,
submitting for the consideration and approval of the Court the Resolved to APPROVED the same.
The Rule shall take effect on January 16, 2009 following its publication in two (2) newspapers of general
circulation.
December 2, 2008
RULES OF PROCEDURE ON CORPORATE REHABILITATION (2008)
RULE 1
COVERAGE
Section 1. Scope - These Rules shall apply to petitions for rehabilitation of corporations, partnerships and
associations pursuant to Presidential Decree No. 902-A, as amended.
Section 2. Applicability to Rehabilitation Cases Transferred from the Securities and Exchange
Commission. - Cases for rehabilitation transferred from Securities Exchange Commission to the Regional
Trial Court pursuant to Republic Act No. 8799, otherwise known as The Securities Regulation Code, shall
likewise be governed by these Rules.
RULE 2
DEFINITION OF TERMS AND CONSTRUCTION
Section 1. Definition of Terms. - For purpose of these Rules:
"Administrative Expenses" shall refer to (a) reasonable and necessary expenses that are incurred in
connection with the filing of the petition; (b) expenses incurred in the ordinary course of business after the
issuance of the stay order, excluding interest payable to the creditors for loans and credit accommodations
existing at the time of the issuance of the stay order, and (c) other expenses that are authorized under this
Rules.
"Affidavit of General Financial Condition" shall refer to a verified statement on the general financial
condition of the debtor requiredin Section 2, Rule 4 of these Rules.
"Affiliate" is a corporation that directly or indirectly, through one or more intermediaries, is controlled by,
or is under the common control of another corporation, which thereby becomes its parent corporation.
"Asset" is anything of value that can be in the form of money, such as cash at the bank or amounts owed;
fixed assets such as property or equipment; or intangibles including intellectual property, the book value
of which is shown in the last three audited financial statement immediately preceding the filing of the
petition, In case the debtor is less than three years in operation, it is sufficient that the book value is based
on the audited financial statement\s for the years or year immediately preceding the filing of petition, as
the case may be.
"Board of Directors" shall include the executive committee or the management of partnership or
association
"Claim" shall include all claims or demands of whatever nature or charter against a debtor or its property,
whether for money or otherwise
"Control" is the power of a parent corporation to direct or govern the financial and operating policies of an
enterprise so as to obtain benefits from its activities. Control is presumed to exit when the parent owns,
directly or indirectly though subsidiaries, more than one - half (½) of the voting power of the voting power
of an enterprise unless, unless, in exception circumstances, it can clearly be demonstrated that such own
ship does not constitute control. Control also exits even when the parents owns one-half (1/2) or less of the
voting power of an enterprise when there is power.
(A) Over more than one-half (½) of agreement with investors;
(B) To direct or govern the financial and operating policies of the enterprise under a statute or agreement;
(C) To appoint or remove the majority of the member of the board of directors or equivalent governing
body; or
(D) To cast the majority votes at meeting of the board of directors or equivalent governing body.
"Creditor" shall mean any holder or a Chain
"Court" shall refer to the proper Regional Trial Court designated to hear and decide the cases
contemplated contemplated under these Rules.
"Days" shall refer to calendar days unless otherwise provided in these Rules.
"Debtor" shall mean any corporation, partnership or association or a group of companies, whether
supervised or regulated by the Securities and Exchange Commission or other government agencies, on
whose behalf a petition for rehabilitation has been filed under these rules.
"Foreign count" means a judicial or other authority competent to control or supervise a foreign proceeding.
"Foreign proceeding" means a collective judicial or administrative proceeding in a foreign State, interim
proceeding, pursuant to a law re solvency in which proceeding the assets and affairs of the debtor are
subject to control or supervision by a foreign count, for the purpose of rehabilitation or re-organization
"Foreign Representative" means person or entity, including one appointed on an interim basis, authorized
in a foreign proceeding to administer the reorganization or rehabilitation of the debtor or act as a
representative of the foreign proceeding.
"Group of companies" refers to, and can cover only, corporation that are financially refers to, and can
cover only, corporations that are financially rated to one another as parent corporation, subsidiaries and
affiliates.
When the petition covers a group of companies, all reference under these Rules to "debtor" shall include
and apply include and apply to the group of companies.
"Liabilities" shall refer to monetary claims against the debtor, including stockholders advances that have
been recoded in the debtor's audited financial statements as advances for subscription.
"Parent" is a corporation directly or indirectly though one or more intermediaries.
"Rehabilitation" shall mean the restoration of the debtor to a position of successful operation and solvency,
if it is shown that its continuance of operation is economically feasible and its creditors can recover by way
of the present value of payments projected in the plan more if the corporation continues as a going
concern than if it immediately liquidated.
"Secured claim" shall refer to any clan whose payment or fulfillment is secured by contract or by law,
including any clam or credit enumerated under Articles 2241 and 2242 of the civil Code and Article 110, as
amended, of the Labor code of the Philippines.
"Subsidiary" mean a corporation more than fifty percent (50%) of the voting stock of which is owned or
controlled directly or indirectly though one or more intermediaries by another corporation
"Unsecured clan" shall mean any clan other than a seared claim.
Section 2. Construction - These Rules shall be liberally construed to carry out the objectives of Section
5(d), 6(d) and 6(d) of Presidential Decree No. 902-A, as amended, and to assist the parties in obtaining a
jut, expeditious and inexpensive determination of case. Where applicable, the Rules of Court shall apply
supplementary to proceedings under these Rules.
RULES 3
GENERAL PROVISONS
Section 1. Nature of Proceeding - Any proceeding initiated under these Rules shall be considered in rem.
Jurisdiction over all persons affected by the proceeding shall be considered as acquired upon publication of
the notice of the commencement of the proceedings in any newspaper or general circulation in the
Philippines in the manner prescribed by these rules.
The proceedings shall also be summary and non-adversarial in nature. The following pleading are
prohibited:
(a) Motion to dismiss;
(b) Motion for a bill of particulars:
(c) Petition for relief;
(d) Motion for extension;
(e) Motion for postponement
(f) Third-party complaint;
(g) Intervention;
(h) Motion to hear affirmative defenses; and
(I) Any pleading or motion which is similar to or of like effect as any of the foregoing.
Any pleading, motion, opposition, defense or claim filed by any interested party shall be supported by
verified statements that the affiant has read same and that the factual allegations therein are true and
correct of his personal knowledge or based on authentic records, and correct of his personal knowledge or
based on authentic records, and shall contain as annexes such documents as may be deemed by the party
court may be decide matters on the basis of affidavits and other documentary evidence. Where necessary,
the court shall conduct clarificatory hearings before resolving any matter submitted to it for resolution.
Section 2. Venue. - Petitions for rehabilitation pursuant to these Rules shall be filed in the regional trial
court which has jurisdiction over the principal office of the debtor as specified in its articles of
incorporation or partnership. Where the principal office of the corporation, partnership or association is
registered in the Securities and Exchange Commission as Metro Manila, the action must be filed in the
regional trial court of the city or municipality where the head office is located.
A joint petition by a group of companies shall be filed in the Regional Trial Court which has jurisdiction over
the principal office of the parent company, as specified in its Articles of Incorporation.
Section 3. Service of Pleadings and Documents. - When so authorized by the court, any pleading and/or
document required by these Rules may be filed with the court and/or served upon the other parties by
facsimile transmission (fax) or electronic mail (e-mail). In such cases, the date of transmission shall be
deemed to be the dtae of service. Where the pleading or document is voluminous, the court may, upon
motion, waive the requirement of service; provided that a copy thereof together with all its attachments is
duly filed with the court and is made available for examination and reproduction by any party, and
provided, further, that a notice of such filing and availability is duly served on the parties.
Section 4. Trade Secrets and Other Confidential Information. - Upon motion, the court may issue an order
to protect trade secrets or other confidential research, development or commercial information belonging
to the debtor.
Section 5. Executory Nature of Orders. - Any order issued by the court under these Rules is immediately
executory. A petition to review the order shall not stay the execution of the order unless restrained or
enjoined by the appellate court. Unless otherwise provided in these Rules, the review of any order or
decision of the court or an appeal therefrom shall be in accordance with the Rules of Court; provided,
however, that the reliefs ordered by the trial or appellate courts shall take into account the need for
resolution of proceedings in a just, equitable and speedy manner.
Section 6. Nullification of Illegal Transfers and Preferences. - Upon motion the court may nullify any
transfer of property or any other conveyance, sale, payment or agreement made in violation of its stay
order or in violation of these Rules.
Section 7. Stay Order. - If the court finds the petition to be sufficient in form and substance, it shall; not
later than five (5) working days from the filing of the petition, issue an order: (a) appointing a rehabilitation
receive and fixing his bond; (b) staying enforcement of all claims, whether for money or otherwise and
whether such enforcement is by court action or otherwise, against the debtor, its guarantors and persons
not solidarily liable with the debtor; provided, that the stay order shall not cover claims against letters of
credit and similar security arrangements issued by a third party to secure the payment of the debtor's
obligations; provided, further, that the stay order shall not cover foreclosure by a creditor of property not
belonging to a debtor under corporate rehabilitation; provided, however, that where the owner of such
property sought to be foreclosed is also a guarantor or one who is not solidarily liable, said owner shall be
entitled to the benefit of excussion as such guarantor; (c) prohibiting the debtor from selling, encumbering,
transferring, or disposing in any manner any of its properties except in the ordinary course of business; (d)
prohibiting the debtor from making any payment of its liabilities except as provided in items (e), (f) and (g)
of this Section or when ordered by the court pursuant to Section 10 of Rule 3; (e) prohibiting the debtor's
suppliers of goods or services from withholding supply of goods and services in the ordinary course of
business for as long as the debtor makes payments for the services and goods supplied after the issuance
of the stay order; (f) directing the payment in full of all administrative expenses incurred after the issuance
of the stay order; (g) directing the payment of new loans or other forms of credit accommodations
obtained for the rehabilitation of the debtor with prior court approval; (h) fixing the dates of the initial
hearing on the petition not earlier than forty-five (45) days but not later than sixty (60) days from the filing
thereof; (I) directing the petitioner to publish the Order in a newspaper of general circulation in the
Philippines once a week for two (2) consecutive weeks; (j) directing the petitioner to furnish a copy of the
petition and its annexes, as well as the stay order, to the creditors named in the petition and the
appropriate regulatory agencies such as, but not limited to, the Securities and Exchange Commission, the
Bangko Sentral ng Pilipinas, the Insurance Commission, the National Telecommunications Commission, the
Housing and Land Use Regulatory Board and the Energy Regulatory Commission; (k) directing the
petitioner that foreign creditors with no known addresses in the Philippines be individually given a copy of
the stay order at their foreign addresses; (l) directing all creditors and all interested parties (including the
regulatory agencies concerned) to file and serve on the debtor a verified comment on or opposition to the
petition, with supporting affidavits and documents, not later than fifteen (15) days before the date of the
first initial hearing and putting them on notice that their failure to do so will bar them from participating in
the proceedings; and (m) directing the creditors and interested parties to secure from the court copies of
the petition and its annexes within such time as to enable themselves to file their comment on or
opposition to the petition and to prepare for the initial hearing of the petition.
The issuance of a stay order does not affect the right to commence actions or proceedings insofar as it is
necessary to preserve a claim against the debtor.
Section 8. Service of Stay Order on Rehabilitation Receiver. - The petitioner shall immediately serve a
copy of the stay order on the rehabilitation receiver appointed by the court, who shall manifest his
acceptance or non-acceptance of his appointment not later than ten (10) days from receipt of the order.
Section 9. Period of Stay Order. - The stay order shall be effective from the date of its issuance until the
approval of the rehabilitation plan or the dismissal of the petition.
Section 10. Relief from, Modification, or Termination of Stay Order. -
(a) The court may, upon motion, terminate, modify, or set conditions for the continuance of the stay order,
or relieve a claim from the coverage thereof upon showing that (1) any of the allegations in the petition, or
any of the contents of any attachment, or the verification thereof has ceased to be true; (2) a creditor does
not have adequate protection over property securing its claims; (3) the debtor's secured obligation is more
than the fair market value of the property subject of the stay and such property is not necessary for the
rehabilitation of the debtor; or (4) the property covered by the stay order is not essential or necessary to
the rehabilitation and the creditor's failure to enforce its claim will cause more damage to the creditor than
to the debtor.
(b) For purposes of this Section, the creditor lacks adequate protection if it can be shown that:
(1) The debtor fails or refuses to honor a pre-existing agreement with the to keep the property insured;
(2) The debtor fails or refuses to take commercially reasonable steps to maintain the property; or
(3) The property has depreciated to an extent that the creditor is undersecured
(c) Upon showing the creditor's lack of adequate protection, the court shall order the rehabilitation receiver
to (1) make arrangements to provide for the insurance or maintenance of the property, or (2) to make
payments or otherwise provide additional or replacement security such as that the obligation is fully
secured. If such arrangements are not feasible, the court shall modify the stay order to allow the secured
creditor lacking adequate protection to enforce its claim against the debtor; provided, however, that the
court may deny the creditor the remedies in this paragraph if such remedies would prevent the
continuation of the debtor as a going concern or otherwise prevent the approval and implementation of a
rehabilitation plan.
Section 11. Qualifications of Rehabilitation Receiver. -
(a) In the appointment of the rehabilitation receiver, the following qualifications shall be taken into
consideration by the court:
(1) Expertise and acumen to manage and operate a business similar in size and complexity to that of the
debtor;
(2) Knowledge in management, finance and rehabilitation of distressed companies;
(3) General familiarity with the rights of creditors in suspension of payments or rehabilitation and general
understanding of the duties and obligations of a rehabilitation receiver;
(4) Good moral character, independence and integrity;
(5) Lack of conflict of interest as defined in this Section; and
(6) Willingness and ability to file a bond in such amount as may be determined by the court.
(b) Without limiting the generality of the following, a rehabilitation receiver may be deemed to have a
conflict of interest if:
(1) He is creditor or stockholder of the debtor;
(2) He is engaged in a line of business which competes with the debtor;
(3) He is, or was within two (2) years from the filing of the petition, a director, officer, or employee or the
auditor or accountant of the debtor;
(4) He is or was within two (2) years from the filing of the petition, an underwriter of the outstanding
securities of the debtor;
(5) He is related by consanguinity or affinity within the fourth civil degree to any creditor, stockholder,
director, officer, employee, or underwriter of the debtor; or
(6) He has any other direct or indirect material interest in the debtor or any creditor.
Section 12. Powers and Functions of Rehabilitation Receiver. - The rehabilitation receiver shall not take
over the management and control of the debtor but shall closely oversee and monitor the operations of
the debtor during the pendency of the proceedings. For this purpose, the rehabilitation receiver shall have
the powers, duties and functions of a receiver under Presidential Decree No. 902-A, as amended, and the
Rules of Court.
The rehabilitation receiver shall be considered as an officer of the court. He shall be primarily tasked to
study the best way to rehabilitate the debtor and to ensure that the value of the debtor's property is
reasonably maintained pending the determination of whether or not the debtor should be rehabilitated, as
well as implement the rehabilitation plan after its approval. Accordingly, he shall have the following powers
and functions:
(a) To verify the accuracy of the petition, including its annexes such as the Schedule of Debts and
Liabilities and the Inventory of Assets submitted in support to the petition;
(b) To accept and incorporate, when justified, amendments to the Schedule of Debts and Liabilities;
(c) To recommend to the court the disallowance of claims and rejection of amendments t the Schedule of
Debts and Liabilities that lack sufficient proof and justification;
(d) To submit to the court and make available for review by the creditors, a revised Schedule of Debts and
Liabilities;
(e) To investigate the acts, conduct, properties, liabilities and financial condition of the debtor, the
operation of its business and the desirability of the continuance thereof; and, any other matter relevant to
the proceeding or to the formulation of a rehabilitation plan;
(f) To examine under oath the directors and officers of the debtor and any other witnesses that he may
deem appropriate;
(g) To make available to the creditors documents and notices necessary for them to follow and participate
in the proceedings;
(h) To report to the court any fact ascertained by him pertaining to the causes of the debtor's problems,
fraud, preferences, dispositions, encumbrances, misconduct, mismanagement and irregularities committed
by the stockholders, directors, management,, or any other person against the debtor;
(i) To employ such person or persons such as lawyers, accountants, appraisers and staff are necessary in
performing his functions and duties as rehabilitation receiver;
(j) To monitor the operations of the debtor and to immediately report to the court any material adverse
change in the debtor's business;
(k) To evaluate the existing assets and liabilities, earnings and operations of the debtor;
(l) To determine and recommend to the court the best way to salvage and protect the interests of the
creditors, stockholders and the general public;
(m) To study the rehabilitation plan proposed by the debtor or any rehabilitation plan submitted during the
proceedings, together with any comments made thereon;
(n) To prohibit and report to the court any encumbrance, transfer or disposition of the debtor's property
outside of the ordinary course of business or what is allowed by the court;
(o) To prohibit and report to the court any payments outside of the ordinary course of business;
(p) To have unlimited access to the debtor's employees, premises, books, records and financial documents
during business hours;
(q) To inspect, copy, photocopy or photograph any document, paper, book, account or letter, whether in
the possession of the debtor or other persons;
(r) To gain entry into any property for the purpose of inspecting, measuring, surveying or photographing it
or any designated relevant object or operation thereon;
(s) To take possession, control and custody of the debtor's assets;
(t) To notify counterparties and the court as to contracts that the debtor has decided to continue to
perform the breach;
(u) To be notified of and to attend all meetings of the board of directors and stockholder of the debtor;
(v) To recommend any modification of an approved rehabilitation plan as he may deem appropriate;
(w) To bring to the attention of the court any material change affecting the debtor's ability to meet the
obligations under the rehabilitation plan;
(x) To recommend the appointment of a management committee in the cases provided for under
Presidential Decree No. 902-A, as amended;
(y) To recommend the termination of the proceedings and the dissolution of the debtor if he determines
that the continuance in business of such entity is no longer feasible or profitable or no longer works to the
best interest of the stockholders, parties-litigants, creditors or the general public;
(z) To apply to the court for any order or directive that he may deem necessary or desirable to aid him in
the exercise of his powers and performance of his duties and functions; and
(aa) To exercise such other powers as may from time to time be conferred upon him by the court.
Section 13. Oath and Bond. - Before entering upon his powers, duties and functions, the rehabilitation
receiver must be sworn in to perform them faithfully, and must post a bond executed in favor of the debtor
in such sum as the court may direct, to guarantee that he will faithfully discharge his duties and obey the
orders of the court. If necessary, he shall also declare under oath that he will perform the duties of a
trustee of the assets of the debtor, will act honestly and in good faith, and deal with the assets of the
debtor on a commercially reasonable manner.
Section 14. Fees and Expenses. - The rehabilitation receiver and the persons hired by him shall be
entitled to reasonable professional fees and reimbursement of expenses which shall be considered as
administrative expenses.
Section 15. Immunity from Suit. - The rehabilitation receiver shall not be subject to any action, claim or
demand in connection with any act done or omitted by him in good faith in the exercise of his functions
and powers herein conferred.
Section 16. Reports. - The rehabilitation receiver shall file a written report every three (3) months to the
court or as often as the court may require on the general condition of the debtor. The report shall include,
at the minimum, interim financial statements of the debtor.
Section 17. Dismissal of Rehabilitation Receiver. - A rehabilitation receiver may, upon motion, be
dismissed by the court on the following grounds: (a) if he fails, without just cause, to perform any of his
powers and functions under these Rules; or (b) on any of the grounds for removing a trustee under the
general principles of trusts.
Section 18. Rehabilitation Plan. - The rehabilitation plan shall include (a) the desired business targets or
goals and the duration and coverage of the rehabilitation; (b) the terms and conditions of such
rehabilitation which shall include the manner of its implementation, giving due regard to the interests of
secured creditors such as, but not limited, to the non-impairment of their security liens or interests; (c) the
material financial commitments to support the rehabilitation plan; (d) the means for the execution of the
rehabilitation plan, which may include debt to equity conversion, restructuring of the debts, dacion en
pago or sale exchange or any disposition of assets or of the interest of shareholders, partners or members;
(e) a liquidation analysis setting out for each creditor that the present value of payments it would receive
under the plan is more than that which it would receive if the assets of the debtor were sold by a liquidator
within a six-month period from the estimated date of filing of the petition; and (f) such other relevant
information to enable a reasonable investor to make an informed decision on the feasibility of the
rehabilitation plan.
Section 19. Repayment Period. - If the rehabilitation plan extends the period for the debtor to pay its
contractual obligations, the new period should not extend beyond fifteen (15) years from the expiration of
the stipulated term existing at the time of filing of the petition.
Section 20. Effects of Rehabilitation Plan. - The approval of the rehabilitation plan by the court shall result
in the following:
(a) The plan and its provisions shall be binding upon the debtor and all persons who may be affected
thereby, including the creditors, whether or not such persons have participated in the proceedings or
opposed the plan or whether or not their claims have been scheduled;
(b) The debtor shall comply with the provisions of the plan and shall take all actions necessary to carry out
the plan;
(c) Payments shall be made to the creditors in accordance with the provisions of the plan;
(d) Contracts and other arrangements between the debtor and its creditors shall be interpreted as
continuing to apply to the extent that they do not conflict with the provisions of the plan; and
(e) Any compromises on amounts or rescheduling of timing of payments by the debtor shall be binding on
creditors regardless of whether or not the plan is successfully implemented.
Section 21. Revocation of Rehabilitation Plan on Grounds of Fraud. - Upon motion, within ninety (90) days
from the approval of the rehabilitation plan, and after notice and hearing, the court may revoke the
approval thereof on the ground that the same was secured through fraud.
Section 22. Alteration or Modification of Rehabilitation Plan. - An approved rehabilitation plan may, upon
motion, be altered or modified if, in the judgement of the court, such alteration or modification is
necessary to achieve the desired targets or goals set forth therein.
Section 23. Termination of Proceedings. - The court shall, upon motion or upon recommendation of the
rehabilitation receiver, terminate the proceeding in any of the following cases:
(a) Dismissal of the petition;
(b) Failure of the debtor to submit the rehabilitation plan;
(c) Disapproval of the rehabilitation plan by the court;
(d) Failure to achieve the desired targets or goals as set forth in the rehabilitation plan;
(e) Failure of the debtor to perform its obligations under the plan;
(f) Determination that the rehabilitation plan may no longer be implemented in accordance with its terms,
conditions, restrictions or assumptions; or
(g) Successful implementation of the rehabilitation plan.
Section 24. Discharge of Rehabilitation Receiver. - Upon termination of the rehabilitation proceedings, the
rehabilitation receiver shall submit his final report and accounting with such period of time as the court will
allow him. Upon approval of his report and accounting, the court shall order his discharge.
RULE 4
DEBTOR-INITIATED REHABILITATION
Section 1. Who May Petition. - Any debtor who foresees the impossibility of meeting its debts when they
respectively fall due, may petition the proper regional trial court for rehabilitation.
A group of companies may jointly file a petition for rehabilitation under these Rules when one or more of
its constituent corporations foresee the impossibility of meeting debts when they respectively fall due, and
the financial distress would likely adversely affect the financial condition and/or operations of the other
member companies of the group is essential under the terms and conditions of the proposed rehabilitation
plan.
Section 2. Contents of Petition. -
(a) The petition filed by the debtor must be verified and must set forth with sufficient particularity all the
following material facts: (1) the name and business of the debtor; (2) the nature of the business of the
debtor; (3) the history of the debtor; (4) the cause of its inability to pay its debts; (5) all the pending
actions or proceedings known to the debtor and the courts or tribunals where they are pending; (6) threats
or demands to enforce claims or liens against the debtor; and (7) the manner by which the debtor may be
rehabilitated and how such rehabilitation may benefit the general body of creditors, employees and
stockholders.
(b) The petition shall be accompanied by the following documents:
(1) An audited financial statement of the debtor at the end of its last fiscal year;
(2) Interim financial statements as of the end of the month prior to the filing of the petition;
(3) A Schedule of Debts and Liabilities which lists all the creditors of the debtor, indicating the name and
last address of record of each creditor; the amount of each claim as to principal, interest, or penalties due
as of the date of filing; the nature of the claim; and any pledge, lien, mortgage judgement or other security
given for the payment thereof;
(4) An Inventory of Assets which must list with reasonable specificity all the assets of the debtor, stating
the nature of each asset, the location and condition thereof, the book value or market value of the asset,
and attaching the corresponding certificate of title thereof in case of real property, or the evidence of title
or ownership in case of movable property, the encumbrances, liens or claims thereon, if any, and the
identities and addresses of the lienholders and claimants. The Inventory shall include a Schedule of
Accounts Receivable which must indicate the amount of each, the persons from who due, the date of
maturity and the degree of collectibility categorizing them as highly collectible to remotely collectible;
(5) A rehabilitation plan which conforms with the minimal requirements set out in Section 18 of Rule 3;
(6) A Schedule of Payments and Disposition of Assets which the debtor may have effected within three (3)
months immediately preceding the filing of the petition;
(7) A Schedule of Cash Flow of the debtor for three (3) months immediately preceding the filing of the
petition, and a detailed schedule of the projected cash flow for the succeeding three (3) months;
(8) A Statement of Possible Claims by or against the debtor which must contain a brief statement of the
facts which might give rise to the claim and an estimate of the probable amount thereof;
(9) An Affidavit of General Financial Condition which shall contain answers to the questions or matters
prescribed in Annex "A" hereof;
(10) At least three (3) nominees for the position of rehabilitation receiver as well as their qualifications and
addresses, including but not limited to their telephone numbers, fax numbers and e-mail address; and
(11) A certificate attesting under oath that (i) the filing of the petition has been duly authorized; and (ii)
the directors and stockholders of the debtor have irrevocably approved and/or consented to, in accordance
with existing laws, all actions or matters necessary and desirable to rehabilitate the debtor including, but
not limited to, amendments to the articles of incorporation and by-laws or articles of partnership; increase
or decrease in the authorized capital stock; issuance of bonded indebtedness; alienation, transfer, or
encumbrance of assets of the debtor; and modification of shareholders' rights.
(c) Five (5) copies of the petition shall be filed with the court.
Section 3. Verification by Debtor. - The petition filed by the debtor must be verified by an affidavit of a
responsible officer of the debtor and shall be in a form substantially as follows:
"I, ___________________, (position) of (name of petitioner), do solemnly swear that the petitioner has
been duly authorized to file the petition and that the stockholders and board of directors (or
governing body) have approved and/or consented to, accordance with law, all actions or matters
necessary or desirable to rehabilitate the debtor. The petition is being filed to protect the interests of
the debtor, the stockholders, the inventors and the creditors of the debtor, which warrant the
appointment of a rehabilitation receiver. There is no petition for insolvency filed with any other body,
court of tribunal affecting the petitioner. The Inventory of Assets and the Schedule of Debts and
Liabilities contains a full, correct and true description of all debts and liabilities and of all goods,
effects, estate and property of whatever kind of class belonging to petitioner. The Inventory also
contains a full, correct and true statement of all debts owing or due to petitioner, or to any person or
persons in trust for petitioner and of all securities and contracts whereby any money may hereafter
become due or payable to petitioner or by or through which any benefit or advantage may accrue to
petitioner. The petition contains a concise statement of the facts giving rise, or which might give rise,
to any cause of action in favor of petitioner. Petitioner has no land, money, stock, expectancy, or
property of any kind, except those set forth in the Inventory of Assets. Petitioner has, in no instance,
created or acknowledged a debt for a greater sum than the true and correct amount. Petitioner, its
officers, directors and stockholders have not, directly or indirectly, concealed, fraudulently sold or
otherwise fraudulently disposed of, any part of petitioner's real or personal property, estate, effects
or rights of action, and petitioner, its officers, directors and stockholders have not in any way
compounded with any of its creditors in order to give preference to such creditors, or to receive or to
accept any profit or advantage therefrom, or to defraud or deceive in any manner any creditor to
whom petitioner is indebted. Petitioner, its officers, directors, and stockholders have been acting in
good faith and with due diligence.
Section 4. Opposition to or Comment on Petition. - Every creditor of the debtor or any interested party
shall file his verified opposition to or comment on the petition not later than fifteen (15) days before the
date of the initial hearing fixed in the stay order. After such time, no creditor or interested party shall be
allowed to file any comment thereon or opposition thereto without leave of court.
If the Schedule of Debts and Liabilities omits a claim or liability, the creditor concerned shall attach to its
comment or opposition a verified statement of the obligations allegedly due it.
Section 5. Initial Hearing. -
(a) On or before the initial hearing set in the order mentioned in Section 7 of Rule 3, the petitioner shall file
a publisher's affidavit showing that the publication requirements and a petitioner's affidavit showing that
the notification requirement for foreign creditors had been complied with, as required in the stay order.
(b) Before proceeding with the initial hearing, the court shall determine whether the jurisdictional
requirements set forth above had been complied with. After finding that such requirements are met, the
court shall ensure that the parties consider in detail all of the following:
(1) Amendments to the rehabilitation plan proposed by the debtor;
(2) Simplification of the issues;
(3) The possibility of obtaining stipulations and admission of facts and documents, including resort to
request for admission under Rule 26 of the Rule of Court;
(4) The possibility of amicably agreeing on any issue brought up in the comments on, or opposition to, the
petition;
(5) Referral of any accounting, financial and other technical issues to an expert;
(6) The possibility of submitting the petition for decision on the basis of the comments, opposition, affidavit
and other documents on record;
(7) The possibility of a new rehabilitation plan voluntarily agreed upon by the debtor and its creditors; and
(8) Such other matters as may aid in the speedy and summary disposition of the case.
Section 6. Additional Hearings. - The court may hold additional hearings as part of the initial hearing
contemplated in these Rules but the initial hearing must be concluded not later than ninety (90) days from
the initial date of the initial hearing fixed in the stay order.
Section 7. Order After Initial Hearing. -
(a) Within twenty (20) days after the last hearing, the court shall issue an order which shall:
(1) Give due course to the petition and immediately refer the petition and its annexes to the rehabilitation
receiver who shall evaluate the rehabilitation plan and submit his recommendations to the court not later
than ninety (90) days from the date of the last initial hearing, if the court is satisfied that there is merit to
the petition, otherwise the court shall immediately dismiss the petition; and
(2) Recite in detail the matters taken up in the initial hearing and the action taken thereon, including a
substitute rehabilitation plan contemplated in Sections 5 (b)(7) and (8) of this Rule;
(b) If the debtor and creditors agree on a new rehabilitation plan pursuant to Section 5 (b)(7) of this Rule,
the order shall so state the fact and require the rehabilitation receiver to supply the details of the plan and
submit it for the approval of the court not later than sixty (6) days from the date of the last initial hearing.
The court shall approve the new rehabilitation plan not later than ninety (90) days from the date of the last
initial hearing upon concurrence of the following:
(1) Approval or endorsement of creditors holding at least two-thirds (2/3) of the total liabilities of the
debtor including secured creditors holding more than fifty percent (50%) of the total secured claims of the
debtor and unsecured creditors holding more than fifty percent (50%) of the total unsecured claims of the
debtor;
(2) The rehabilitation plan complies with the requirements specified in Section 18 of Rule 3;
(3) The rehabilitation plan would provide the objecting class of creditors with payments whose present
value projected in the plan would be greater than that which they would have received if the assets of the
debtor were sold by a liquidator within a six (6) month period from the date of filing of the petition; and
(4) The rehabilitation receiver has recommended approval of the plan.
The approval by the court of the new rehabilitation plan shall have the same effect as approval of a
rehabilitation plan under Section 20 of Rule 3.
Section 8. Creditors' Meetings. - If no new rehabilitation plan is agreed upon by the debtor and the
creditors, the rehabilitation receiver, at any time before he submits his evaluation on the debtor-proposed
rehabilitation plan to the court as prescribed in Section 7(a)(1) of this Rule, shall, either alone or with the
debtor, meet with the creditors or any interested party t discuss the plan with a view to clarifying or
resolving any matter connected therewith.
Section 9. Comments on or Opposition to Rehabilitation Plan. - Any creditor or interested party of record
may file comments on or opposition to the proposed rehabilitation plan, with a copy given to the
rehabilitation receiver, not later than sixty (60) days from the date of the last initial hearing. The court
shall conduct summary and non-adversarial proceedings to receive evidence, if necessary, in hearing the
comments on and opposition to the plan.
Section 10. modification of Proposed Rehabilitation Plan. - The debtor may modify its rehabilitation plan
in the light of the comments of the rehabilitation receiver and creditors or any interested party and submit
a revised or substitute rehabilitation plan for the final approval of the court. Such rehabilitation plan must
be submitted to the court not later than ten (10) moths from the date of filing of the petition.
Section 11. Approval of Rehabilitation Plan. - The court may approve a rehabilitation plan even over the
opposition of creditors of the debtor if, in its judgement, the rehabilitation of the debtor is feasible and the
opposition of the creditors is manifestly unreasonable if the following are present:
(a) The rehabilitation plan complies with the requirements specified in Section 18 of Rule 3;
(b) The rehabilitation plan would provide the objecting class of creditors with payments whose present
value projected in the plan would be greater than that which they would have received if the assets of the
debtor were sold by a liquidator within a six (6)-month period from the date of filing of the petition; and
(c) The rehabilitation receiver has recommended approval of the plan.
In approving the rehabilitation plan, the court shall ensure that the rights of the secured creditors are not
impaired. The court shall also issue the necessary orders or processes for its immediate and successful
implementation. it may impose such terms, conditions, or restrictions as the effective implementation and
monitoring thereof may reasonably require, or for the protection and preservation of the interests of the
creditors should the plan fall.
Section 12. Period to Decide Petition. - The court shall decide the petition within one (1) year from the
date of filing of the petition, unless the court, for good cause shown, is able to secure an extension of the
period from the Supreme Court.
RULE 5
CREDITOR-INITIATED REHABILITATION
Section 1. Who May Petition. - Any creditor or creditors holding at least twenty percent (20%) of the
debtor's total liabilities may file a petition with the proper regional trial court for rehabilitation of a debtor
that cannot meet its debts as they respectively fall due.
Section 2. Requirements for Creditor-Initiated Petitions. - Where the petition is filed by a creditor or
creditors under this Rule, it is sufficient that the petition is accompanied by a rehabilitation plan and a list
of at least three (3) nominees to the position of rehabilitation receiver and verified by a sworn statement
that the affiant has read the petition and that its contents are true and correct of his personal knowledge
or based on authentic records and that the petition is being filed to protect the interests of the debtor, the
stockholders, the investors and the creditors of the debtor.
Section 3. Applicability of Provisions Relating to Debtor-Initiated Rehabilitation. - The provisions of
Sections 5 to 12 of Rule 4 shall apply to rehabilitation under this Rule.
RULE 6
PRE-NEGOTIATED REHABILITATION
Section 1. Pre-negotiated Rehabilitation Plan. - A debtor that foresees the impossibility of meeting its
debts as they fall due may, by itself or jointly with any of its creditors, file a verified petition for the
approval of a pre-negotiated rehabilitation plan. The petition shall comply with Section 2 of Rule 4 and be
supported by an affidavit showing the written approval or endorsement of creditors holding at least two-
thirds (2/3) of the total liabilities of the debtor, including secured creditors holding more than fifty percent
(50%) of the total secured claims of the debtor and unsecured creditors holding more than fifty percent
(50%) of the total unsecured claims of the debtor.
Section 2. Issuance of Order. - If the court finds the petition sufficient in form and substance, it shall, not
later than five (5) working days from the filing of the petition, issue an order which shall:
(a) Identify the debtor, its principal business or activity/ies and its principal place of business;
(b) Direct the publication of the order in a newspaper of general circulation once a week for at least two (2)
consecutive weeks, with the first publication to be made within seven (7) days from the time of its
issuance;
(c) Direct the service by personal delivery of a copy of the petition on each creditor who is not a petitioner
holding at least five percent (5%) of the total liabilities of the debtor, as determined in the schedule
attached to the petition, within three (3) days;
(d) Direct the petitioner to furnish a copy of the petition and its annexes, as well as the stay order, to the
relevant regulatory agency;
(e) State that copies of the petition and the rehabilitation plan are available for examination and copying
by any interested party;
(f) Direct creditors and other parties interested (including the Securities and Exchange Commission and
the relevant regulatory agencies such as, but not limited to, the Bangko Sentral ng Pilipinas, the Insurance
Commission, the National Telecommunications Commission, the Housing and Land Use Regulatory Board
and the Energy Regulatory Commission) in opposing the petition or rehabilitation plan to file their verified
objections thereto or comments thereon within a period of not later than twenty (20) days from the second
publication of the order, with a warning that failure to do so will bar them from participating in the
proceedings;
(g) Appoint the rehabilitation receiver named in the plan, unless the court finds that he is not qualified
under these Rules in which case it may appoint a qualified rehabilitation receiver of its choice;
(h) Stay enforcement of all claims, whether for money or otherwise and whether such enforcement is by
court action or otherwise, against the debtor, its guarantors and persons not solidarily liable with the
debtor; provided, that the stay order shall not cover claims against letters of credit and similar security
arrangements issued by a third party to secure the payment of the debtor's obligations; provided further,
that the stay order shall not cover foreclosure by a creditor of property not belonging to a debtor under
corporate rehabilitation; provided, however, that where the owner of such property sought to be foreclosed
is also a guarantor or one who is not solidarily liable, said owner shall be entitled to be benefit of excussion
as such guarantor;
(i) Prohibit the debtor from selling, encumbering, transferring, or disposing in any manner any of its
properties except in the ordinary course of business;
(j) Prohibit the debtor from making any payment of its liabilities outstanding as of the date of filing of the
petition;
(k) Prohibit the debtor's suppliers of goods or services from withholding supply of goods and services in the
ordinary course of business for as long as the debtor makes payments for the services and goods supplied
after the issuance of the stay order;
(l) Direct the payment in full of all administrative expenses incurred after the issuance of the stay order;
and
(m) Direct the payment of new loans or other forms of credit accommodations obtained for the
rehabilitation of the debtor with prior court approval.
Section 3. Approval of Plan. - Within ten (10) days from the date of the second publication of the order
referred to in Section 2 of this Rule, the court shall approve the rehabilitation plan unless a creditor or
other interested party submits a verified objection to it in accordance with the next succeeding section.
Section 4. Objection to Petition or Rehabilitation Plan. - Any creditor or other interested party may submit
to the court a verified objection to the petition or the rehabilitation plan. The objection shall be limited to
the following:
(a) The petition or the rehabilitation plan or their attachments contain material omissions or are materially
false or misleading;
(b) The terms of rehabilitation are unattainable; or
(c) The approval or endorsement of creditors required under Section 1 of this Rule has not been obtained
Copies of any objection to the petition or the rehabilitation plan shall be served on the petitioning debtor
and/or creditors.
Section 5. Hearing on Objections. - The court shall set the case for hearing not earlier than ten (10) days
and no longer than twenty (20) days from the date of the second publication of the order mentioned in
Section 2 of this Rule on the objections is in accordance with the immediately preceding section, it shall
direct the petitioner to cure the defect within a period fifteen (15) days from receipt of the order.
Section 6. Period for Approval of Rehabilitation Plan. - The court shall decide the petition not later than
one hundred twenty (120) days from the date of the filing of the petition. If the court fails to do so within
said period, the rehabilitation plan shall be deemed approved.
Section 7. Effects of Approval of Rehabilitation Plan. - Approval of the rehabilitation plan under this Rule
shall have the same legal effect as approval of a rehabilitation plan under Section 20 of Rule 3.
Section 8. Revocation of Approved Rehabilitation Plan. - Not later than thirty (30) days from the approval
of a rehabilitation plan under this Rule, the plan may, upon motion and after notice and hearing, be
revoked on the ground that the approval was secured by fraud or that the petitioner has failed to cure the
defect ordered by the court pursuant to Section 5 of this Rule.
Section 9. Effect of Rule on Pending Petitions. - Any pending petition for rehabilitation that has not
undergone the initial hearing prescribed under the Interim Rules of Procedure for Corporate Rehabilitation
at the time of the effectivity of these Rules may be converted into a rehabilitation proceeding under this
Rule.
RULE 7
RECOGNITION OF FOREIGN PROCEEDINGS
Section 1. Scope of Application. - This Rule applies where (a) assistance is sought in a Philippine court by
a foreign court or a foreign representative in connection with a foreign proceeding; (b) assistance is sought
in a foreign State in connection with a domestic proceeding governed by these Rules; or (c) a foreign
proceeding and a domestic proceeding are concurrently taking place.
The sole fact that a petition is filed pursuant to this Rule does not subject the foreign representative or the
foreign assets and affairs of the debtor to the jurisdiction of the local courts for any purpose other than the
petition.
Section 2. Non-Recognition of Foreign Proceeding. - Nothing in this Rule prevents the court from refusing
to take an action governed by this Rule if (a) the action would be manifestly contrary to the public policy of
the Philippines; and (b) if the court finds that the country of which the petitioner is a national does not
grant recognition to a Philippine rehabilitation proceeding in a manner substantially in accordance with this
Rule.
Section 3. Petition for Recognition of Foreign Proceeding. - A foreign representative may apply with the
Regional Trial Court where the debtor resides for recognition of the foreign proceeding in which the foreign
representative has been appointed.
A petition for recognition shall be accompanied by:
(a) A certified copy of the decision commencing the foreign proceeding and appointing the foreign
representative; or
(b) A certificate from the foreign court affirming the existence of the foreign proceeding and of the
appointment of the foreign representative; or
(c) In the absence of evidence referred to in subparagraph (a) and (b), any other evidence acceptable to
the court of the existence of the foreign proceeding and of the appointment of the foreign representative.
Section 4. Recognition of Foreign Proceeding. - A foreign proceeding shall be recognized if:
(a) The proceeding is a foreign proceeding as defined herein;
(b) The person or body applying for recognition is a foreign representative as defined herein; and
(c) The petition meets the requirements of Section 3 of this Rule;
Section 5. Period to Recognize Foreign Proceeding. - A petition for recognition of a foreign proceeding
shall be decided within thirty (30) days from the filing thereof.
Section 6. Notification to Court. - From the time of filing the petition for recognition f the foreign
proceeding, the foreign representative shall inform the court promptly of:
(a) Any substantial change in the status of the foreign proceeding or the status of the foreign
representative's appointment; and
(b) Any other foreign proceeding regarding the same debtor that becomes known to the foreign
representative.
Section 7. Provisional Relief that May be Granted upon Application for Recognition of Foreign
Proceeding. - From the time of filing a petition for recognition until the same is decided upon, the court
may, upon motion of the foreign representative where relief is urgently needed to protect the assets of the
debtor or the interests of the creditors, grant relief of a provisional nature, including:
(a) Staying execution against the debtor's assets;
(b) Entrusting the administration or realization of all or part of the debtor's assets located in the Philippines
to the foreign representative or another person designated by the court in order to protect and preserve
the value of assets that, by their nature or because of other circumstances, are perishable, susceptible to
devaluation or otherwise in jeopardy;
(c) Any relief mentioned in Section 9(a)(1), (2) and (7) of this Rule.
Section 8. Effects of Recognition of Foreign Proceeding. - Upon recognition of a foreign proceeding:
(a) Commencement or continuation of individual actions or individual proceedings concerning the debtor's
assets, rights, obligations or liabilities is stayed; provided, that such stay does not affect the right to
commence individual actions or proceedings to the extent necessary to preserve a claim against the
debtor.
(b) Execution against the debtor's assets is stayed; and
(c) The right to transfer, encumber or otherwise dispose of any assets of the debtor is suspended.
Section 9. Relief That May be Granted After Recognition of Foreign Proceeding. -
(a) Upon recognition of a foreign proceeding, where necessary to protect the assets of the debtor or the
interests of the creditors, the court may, upon motion of the foreign representative, grant any appropriate
relief including:
(1) Staying the commencement or continuation of individual actions or individual proceedings concerning
the debtor's assets, rights, obligations or liabilities to the extent they have not been stayed under Section
8(a) of this Rule;
(2) Staying execution against the debtor's assets to the extent it has not been stayed under Section 8(b) of
this Rule;
(3) Suspending the right to transfer, encumber or otherwise dispose of any assets of the debtor to the
extent this right has not been suspended under Section 8(c) of this Rule;
(4) Providing for the examination of witnesses, the taking of evidence or the delivery of information
concerning the debtor's assets, affairs, rights, obligations or liabilities;
(5) Entrusting the administration or realization of all or part of the debtor's assets located in the Philippines
to the foreign representative or another person designated by the court;
(6) Extending the relief granted under Section 7 of this Rule;
(7) Granting any additional relief that may be available to the rehabilitation receiver under these laws.
(b) Upon recognition of a foreign proceeding, the court may, at the request of the foreign representative,
entrust the distribution of all or part of the debtor's assets located in the Philippines to the foreign
representative or another person designated by the court; provided that the court is satisfied that the
interests of local creditors are adequately protected.
Section 10. Protection of Creditors and Other Interested Persons. -
(a) In granting or denying relief under this Rule or in modifying or terminating the relief under paragraph
(c) of this Section, the court must be satisfied that the interests of the creditors and other interested
persons, including the debtor, are adequately protected.
(b) The court may subject the relief granted under Section 7 or Section 9. Of this Rule to conditions it
considers appropriate.
(c) The court may, upon motion of the foreign representative or a person affected by the relief granted
under Section 7 or Section 9 of this Rule, or on its own motion, modify or terminate such relief.
Section 11. Actions to Avoid Acts Detrimental to Creditors. - Upon recognition of a foreign proceeding, the
foreign representative acquires the standing to initiate actions to avoid or otherwise render ineffective acts
detrimental to creditors that are available under these Rules.
Section 12. Intervention by Foreign Representative in Philippine Proceedings. - Upon recognition of a
foreign proceeding, the foreign representative may intervene in any action or proceeding in the Philippines
in which the debtor is a party.
Section 13. Cooperation and Direct Communication with Foreign Courts and Foreign Representatives. - In
matters covered by this Rule, the court shall cooperate to the maximum extent possible with foreign
courts or foreign representatives.
The court is entitled to communicate directly with, or request information or assistance directly from,
foreign courts or foreign representatives.
Section 14. Forms of Cooperation. - Cooperation may be implemented by any appropriate means,
including but not limited to the following:
(a) Appointment of a person or body to act at the discretion of the court;
(b) Communication of information by any means considered appropriate by the court;
(c) Coordination of the administration and supervision of the debtor's assets and affairs;
(d) Approval or implementation by courts of agreements concerning the coordination of proceedings;
(e) Coordination of concurrent proceedings regarding the same debtor;
(f) Suspension of proceedings against the debtor;
(g) Limiting the relief of assets that should be administered in a foreign proceeding pending in a
jurisdiction other than the place where the debtor has its principal place of business (foreign non-main
proceeding) or information required in that proceeding; and
(h) Implementation of rehabilitation or re-organization plan for the debtor.
Nothing in this Rule limits the power of the court to provide additional assistance to the foreign
representative under other applicable laws.
Section 15. Commencement of Local Proceeding after Recognition of Foreign Proceeding. - After the
recognition of a foreign proceeding, a local proceeding under these Rules may be commenced only if the
debtor is doing business in the Philippines, the effects of the proceedings shall be restricted to the assets
of the debtor located in the country and, to the extent necessary to implement cooperation and
coordination under Sections 13 and 14 of this Rule, to the other assets of the debtor that, under local laws,
must be administered in that proceeding.
Section 16. Local and Foreign Proceedings. - Where a foreign proceeding and a local proceeding are
taking place concurrently regarding the same debtor, the court shall seek cooperation and coordination
under Section 13 and 14 of this Rule. Any relief granted to the foreign proceeding must be made
consistent with the relief granted in the local proceeding.
RULE 8
PROCEDURAL REMEDIES
Section 1. Motion for Reconsideration. - A party may file a motion for reconsideration of any order issued
by the court prior to the approval of the rehabilitation plan. No relief can be extended to the party
aggrieved by the court's order on the motion through a special civil action for certiorari under Rule 65 of
the rules of Court. Such order can only be elevated to the Court of Appeals as an assigned error in the
petition for review of the decision or order approving or disapproving the rehabilitation plan.
An order issued after the approval of the rehabilitation plan can de reviewed only through a special civil
action for certiorari under Rule 65 of the Rules of Court.
Section 2. Review of Decision or Order on Rehabilitation Plan. - an order approving or disapproving a
rehabilitation plan can only be reviewed through a petition for review to the Court of Appeals under Rule
43 of the Rules of Court within fifteen (15) days from notice of the decision or order.
RULE 9
FINAL PROVISIONS
Section 1. Severability. - If any provision or section of these Rules is held invalid, the other provisions or
sections shall not be affected thereby.
Section 2. Transitory Provision. - Unless the court orders otherwise to prevent manifest injustice, any
pending petition for rehabilitation that has not undergone the initial hearing prescribed under the Interim
Rules of Procedure for Corporate Rehabilitation at the time of the effectivity of these Rules shall be
governed by these rules.
Section 3. Effectivity. - These Rules shall take affect on 16 January 2009 following its publication in two
(2) newspapers of general circulation in the Philippines.
ANNEX "A"
AFFIDAVIT OF GENERAL FINANCIAL CONDITION
(1) Are you an officer of the debtor referred to in these proceedings?
(2) What is your full name and what position do you hold in the debtor?
(3) What is the full name of the debtor and what is the address of its head office?
(4) When was it formed or incorporated?
(5) When did the debtor commence business?
(6) What is the nature of its business? What is the market share of the debtor in the industry in which it is
engaged?
(7) Who are the parties, members, or stockholders? How many employees?
(8) What is the capital of the debtor?
(9) What is the capital contribution and what is the amount of the capital, paid and unpaid, of each of the
partners or shareholders?
(10) Do any of these people hold the shares in trust for others?
(11) Who are the directors and officers of the debtors?
(12) Has the debtor any subsidiary corporation? If so, give particulars?
(13) Has the debtor properly maintained its books and are they updated?
(14) Were the books audited annually?
(15) If so, what is the name of the auditor and when was the last audited statement drawn up?
(16) Have all proper returns been made to the various government agencies requiring same?
(17) When did the debtor first become aware of its problems?
(18) Has the debtor within the twelve months preceding the filing of the petition:
(a) made any payments, returned any goods or delivered any property to any of its creditors, except in the
normal course of business?
(b) executed any mortgage, pledge, or security over any of its properties in favor of any creditor?
(c) transferred or disposed of any of its properties in payment of any debt?
(d) sold, disposed of, or removed any of its property except in the ordinary course of business?
(e) sold any merchandise at less than fair market value or purchased merchandise or services at more
than fair market value?
(f) made or been a party to any settlement of property in favor of any person?
If, so, give particulars.
(19) Has the debtor recorded all sales or dispositions of assets?
(20) What were the sales for the last three years and what percentage of the sales represented the profit
or markup?
(21) What were the profits or losses for the debtor for the last three years?
(22) What are the causes of the problems of the debtor? Please provide particulars?
(23) When did you first notice these problems and what actions did the debtor take to rectify them?
(24) How much do you estimate is needed to rehabilitate the debtor?
(25) Has any person expressed interest in investing new money into the debtor?
(26) Are there any pending and threatened legal actions against the debtor? If so, please provide
particulars.
(27) Has the debtor discussed any restructuring or repayment plan with any of the creditors? Please
provide status and details.
(28) Has any creditor expressed interest in restructuring the debts of the debtor? If so, please give
particulars.
(29) Have employees' wages and salaries been kept current? If not, how much are in arrears and what
time period do the arrears represent?
(30) Have obligation to the government and its agencies been kept current? If not, how much are in
arrears and what time period do the arrears represent?

Pasted from <http://www.lawphil.net/courts/supreme/am/am_00_8_10_sc_2008.html>

Sunday, June 06, 2010

4:28 AM

[A.M. NO. 00-8-10-SC 2000-11-21]

INTERIM RULES OF PROCEDURE FOR INTRA-CORPORATE CONTROVERSIES

RULE I

GENERAL PROVISIONS

SECTION 1. (a) Cases covered. - These Rules shall govern the procedure to be observed in civil cases
involving the following:

(1) Devices or schemes employed by, or any act of, the board of directors, business associates,
officers or partners, amounting to fraud or misrepresentation which may be detrimental to the
interest of the public and/or of the stockholders, partners, or members of any corporation,
partnership, or association;

(2) Controversies arising out of intra-corporate, partnership, or association relations, between and
among stockholders, members, or associates; and between, any or all of them and the corporation,
partnership, or association of which they are stockholders, members, or associates, respectively;

(3) Controversies in the election or appointment of directors, trustees, officers, or managers of

corporations, partnerships, or associations;

(4) Derivative suits; and

 (5) Inspection of corporate books.

(b) Prohibition against nuisance and harassment suits. - Nuisance and harassment suits are prohibited. In
determining whether a suit is a nuisance or harassment suit, the court shall consider, among others, the
following:

(1) The extent of the shareholding or interest of the initiating stockholder or member;

(2) Subject matter of the suit;

(3) Legal and factual basis of the complaint;

(4) Availability of appraisal rights for the act or acts complained of; and

(5) Prejudice or damage to the corporation, partnership, or association in relation to the relief sought.

In case of nuisance or harassment suits, the court may, motu proprio or upon motion, forthwith dismiss the
case.

SEC. 2. Suppletory application of the Rules of Court. - The Rules of Court, in so far as they may be
applicable and are not inconsistent with these Rules, are hereby adopted to form an integral part of these
Rules.

SEC. 3. Construction. - These Rules shall be liberally construed in order to promote their objective of
securing a just, summary, speedy and inexpensive determination of every action or proceeding.

SEC. 4. Executory nature of decisions and orders. - All decisions and orders issued under these Rules shall
immediately be executory. No appeal or petition taken therefrom shall stay the enforcement or
implementation of the decision or order, unless restrained by an appellate court. Interlocutory orders shall
not be subject to appeal.

SEC. 5. Venue. - All actions covered by these Rules shall be commenced and tried in the Regional Trial
Court which has jurisdiction over the principal office of the corporation, partnership, or association
concerned. Where the principal office of the corporation, partnership or association is registered in the
Securities and Exchange Commission as Metro Manila, the action must be filed in the city or municipality
where the head office is located.

SEC. 6. Service of pleadings. - When so authorized by the court, any pleading and/or document required by
these Rules may be filed with the court and/or served upon the other parties by facsimile transmission
(fax) or electronic mail (e-mail). In such cases, the date of transmission shall be deemed to be prima facie
the date of service.

SEC. 7. Signing of pleadings, motions and other papers. - Every pleading, motion, and other paper of a
party represented by an attorney shall be signed by at least one attorney of record in the attorney’s
individual name, whose address shall be stated. A party who is not represented by an attorney shall sign
the pleading, motion, or other paper and state his address.

The signature of an attorney or party constitutes a certification by the signer that he has read the
pleading, motion, or other paper; that to the best of his knowledge, information, and belief formed after
reasonable inquiry, it is well grounded in fact and is warranted by existing law or a good faith argument for
the extension, modification, or reversal of existing jurisprudence; and that it is not interposed for any
improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of
litigation.

If a pleading, motion, or other paper is not signed, it shall be stricken off the record unless it is promptly
signed by the pleader or movant, after he is notified of the omission.

SEC. 8. Prohibited pleadings. - The following pleadings are prohibited:

(1) Motion to dismiss;

 (2) Motion for a bill of particulars;

(3) Motion for new trial, or for reconsideration of judgment or order, or for re-opening of trial;

(4) Motion for extension of time to file pleadings, affidavits or any other paper, except those filed due
to clearly compelling reasons. Such motion must be verified and under oath; and

(5) Motion for postponement and other motions of similar intent, except those filed due to clearly
compelling reasons. Such motion must be verified and under oath.

SEC. 9. Assignment of cases. - All cases filed under these Rules shall be tried by judges designated by the
Supreme Court to hear and decide cases transferred from the Securities and Exchange Commission to the
Regional Trial Courts and filed directly with said courts pursuant to Republic Act No. 8799, otherwise
known as the Securities and Regulation Code.

RULE 2

COMMENCEMENT OF ACTION
AND PLEADINGS

SECTION 1. Commencement of action. - An action under these Rules is commenced by the filing of a
verified complaint with the proper Regional Trial Court.

SEC. 2. Pleadings allowed. - The only pleadings allowed to be filed under these Rules are the complaint,
answer, compulsory counterclaims or cross-claims pleaded in the answer, and the answer to the
counterclaims or cross-claims.

SEC. 3. Verification. - The complaint and the answer shall be verified by an affidavit stating that the affiant
has read the pleading and the allegations therein are true and correct based on his own personal
knowledge or on authentic records.

SEC. 4. Complaint. - The complaint shall state or contain:

(1) the names, addresses, and other relevant personal or juridical circumstances of the parties;

(2) all facts material and relevant to the plaintiff’s cause or causes of action, which shall be supported
by affidavits of the plaintiff or his witnesses and copies of documentary and other evidence
supportive of such cause or causes of action;

(3) the law, rule, or regulation relied upon, violated, or sought to be enforced;

(4) a certification that (a) the plaintiff has not theretofore commenced any action or filed any claim
involving the same issues in any court, tribunal or quasi-judicial agency, and, to the best of his
knowledge, no such other action or claim is pending therein; (b) if there is such other action or claim,
a complete statement of the present status thereof; and (c) if he should thereafter learn that the
same or similar action or claim has been filed or is pending, he shall report that fact within five (5)
days therefrom to the court; and

(5) the relief sought.

SEC. 5. Summons. - The summons and the complaint shall be served together not later than five (5) days
from the date of filing of the complaint.

(a) Service upon domestic private juridical entities. - If the defendant is a domestic corporation, service
shall be deemed adequate if made upon any of the statutory or corporate officers as fixed by the by-laws
or their respective secretaries. If the defendant is a partnership, service shall be deemed adequate if made
upon any of the managing or general partners or upon their respective secretaries. If the defendant is an
association, service shall be deemed adequate if made upon any of its officers or their respective
secretaries.

(b) Service upon foreign private juridical entity. - When the defendant is a foreign private juridical entity
which is transacting or has transacted business in the Philippines, service may be made on its resident
agent designated in accordance with law for that purpose, or, if there be no such agent, on the
government official designated by law to that effect, or on any of its officers or agents within the
Philippines.

SEC. 6. Answer. - The defendant shall file his answer to the complaint, serving a copy thereof on the
plaintiff, within fifteen (15) days from service of summons.

In the answer, the defendant shall:

(1) Specify each material allegation of fact the truth of which he admits;

(2) Specify each material allegation of fact the truth of which he does not admit. Where the
defendant desires to deny only a part of an averment, he shall specify so much of it as true and
material and shall deny only the remainder;

(3) Specify each material allegation of fact as to which truth he has no knowledge or information
sufficient to form a belief, and this shall have the effect of a denial;

(4) State the defenses, including grounds for a motion to dismiss under the Rules of Court;

(5) State the law, rule, or regulation relied upon;

(6) Address each of the causes of action stated in the complaint;

(7) State the facts upon which he relies for his defense, including affidavits of witnesses and copies of
documentary and other evidence supportive of such cause or causes of action;

(8) State any compulsory counterclaim/s and cross-claim/s; and

(9) State the relief sought.

The answer to counterclaims or cross-claims shall be filed within ten (10) days from service of the answer
in which they are pleaded.

SEC. 7. Effect of failure to answer. - If the defendant fails to answer within the period above provided, he
shall be considered in default. Upon motion or motu proprio, the court shall render judgment either
dismissing the complaint or granting the relief prayed for as the records may warrant. In no case shall the
court award a relief beyond or different from that prayed for.

SEC. 8. Affidavits, documentary and other evidence. - Affidavits shall be based on personal knowledge,
shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant
is competent to testify on the matters stated therein. The affidavits shall be in question and answer form,
and shall comply with the rules on admissibility of evidence.

Affidavits of witnesses as well as documentary and other evidence shall be attached to the appropriate
pleading; Provided, however, that affidavits, documentary and other evidence not so submitted may be
attached to the pre-trial brief required under these Rules. Affidavits and other evidence not so submitted
shall not be admitted in evidence, except in the following cases:

(1) Testimony of unwilling, hostile, or adverse party witnesses. A witness is presumed prima facie
hostile if he fails or refuses to execute an affidavit after a written request therefor;

(2) If the failure to submit the evidence is for meritorious and compelling reasons; and
 (3) Newly discovered evidence.

In case of (2) and (3) above, the affidavit and evidence must be submitted not later than five (5) days prior
to its introduction in evidence.

RULE 3

MODES OF DISCOVERY

SECTION 1. In general. - A party can only avail of any of the modes of discovery not later than fifteen (15)
days from the joinder of issues.

SEC. 2. Objections. - Any mode of discovery such as interrogatories, request for admission, production or
inspection of documents or things, may be objected to within ten (10) days from receipt of the discovery
device and only on the ground that the matter requested is patently incompetent, immaterial, irrelevant or
privileged in nature.

The court shall rule on the objections not later than fifteen (15) days from the filing thereof.

SEC. 3. Compliance. - Compliance with any mode of discovery shall be made within ten (10) days from
receipt of the discovery device, or if there are objections, from receipt of the ruling of the court.

SEC. 4. Sanctions. - The sanctions prescribed in the Rules of Court for failure to avail of, or refusal to
comply with, the modes of discovery shall apply. In addition, the court may, upon motion, declare a party
non-suited or as in default, as the case may be, if the refusal to comply with a mode of discovery is
patently unjustified.

RULE 4

PRE-TRIAL

SECTION 1. Pre-trial conference; mandatory nature. - Within five (5) days after the period for availment of,
and compliance with, the modes of discovery prescribed in Rule 3 hereof, whichever comes later, the court
shall issue and serve an order immediately setting the case for pre-trial conference and directing the
parties to submit their respective pre-trial briefs. The parties shall file with the court and furnish each other
copies of their respective pre-trial brief in such manner as to ensure its receipt by the court and the other
party at least five (5) days before the date set for the pre-trial.

The parties shall set forth in their pre-trial briefs, among other matters, the following:

(1) Brief statement of the nature of the case, which shall summarize the theory or theories of the
party in clear and concise language;

(2) Allegations expressly admitted by either or both parties;

(3) Allegations deemed admitted by either or both parties;

(4) Documents not specifically denied under oath by either or both parties;

(5) Amendments to the pleadings;

(6) Statement of the issues, which shall separately summarize the factual and legal issues involved in
the case;
 (7) Names of witnesses to be presented and the summary of their testimony as contained in their
affidavits supporting their positions on each of the issues;

(8) All other pieces of evidence, whether documentary or otherwise and their respective purposes;

(9) Specific proposals for an amicable settlement;

(10) Possibility of referral to mediation or other alternative modes of dispute resolution;

(11) Proposed schedule of hearings; and

(12) Such other matters as may aid in the just and speedy disposition of the case.

SEC. 2. Nature and purpose of pre-trial conference. - During the pre-trial conference, the court shall, with
its active participation, ensure that the parties consider in detail all of the following:

(1) The possibility of an amicable settlement;

(2) Referral of the dispute to mediation or other forms of dispute resolution;

(3) Facts that need not be proven, either because they are matters of judicial notice or expressly or
deemed admitted;

(4) Amendments to the pleadings;

(5) The possibility of obtaining stipulations and admissions of facts and documents;

(6) Objections to the admissibility of testimonial, documentary and other evidence;

(7) Objections to the form or substance of any affidavit, or part thereof;

(8) Simplification of the issues;

(9) The possibility of submitting the case for decision on the basis of position papers, affidavits,
documentary and real evidence;

(10) A complete schedule of hearing dates; and

(11) Such other matters as may aid in the speedy and summary disposition of the case.

SEC. 3. Termination. - The preliminary conference shall be terminated not later than ten (10) days after its
commencement, whether or not the parties have agreed to settle amicably.

SEC. 4. Judgment before pre-trial. - If, after submission of the pre-trial briefs, the court determines that,
upon consideration of the pleadings, the affidavits and other evidence submitted by the parties, a
judgment may be rendered, the court may order the parties to file simultaneously their respective
memoranda within a non-extendible period of twenty (20) days from receipt of the order. Thereafter, the
court shall render judgment, either full or otherwise, not later than ninety (90) days from the expiration of
the period to file the memoranda.

SEC. 5. Pre-trial order; judgment after pre-trial. - The proceedings in the pre-trial shall be recorded. Within
ten (10) days after the termination of the pre-trial, the court shall issue an order which shall recite in detail
the matters taken up in the conference, the actions taken thereon, the amendments allowed in the
pleadings, and the agreements or admissions made by the parties as to any of the matters considered.
The court shall rule on all objections to or comments on the admissibility of any documentary or other
evidence, including any affidavit or any part thereof. Should the action proceed to trial, the order shall
explicitly define and limit the issues to be tried and shall strictly follow the form set forth in Annex “A” of
these Rules.
The contents of the order shall control the subsequent course of the action, unless modified before trial to
prevent manifest injustice.

After the pre-trial, the court may render judgment, either full or partial, as the evidence presented during
the pre-trial may warrant.

RULE 5

TRIAL

SECTION 1. Witnesses. - If the court deems necessary to hold hearings to determine specific factual
matters before rendering judgment, it shall, in the pre-trial order, set the case for trial on the dates agreed
upon by the parties.

Only persons whose affidavits were submitted may be presented as witnesses, except in cases specified in
section 8, Rule 2 of these Rules. The affidavits of the witnesses shall serve as their direct testimonies,
subject to cross-examination in accordance with existing rules on evidence.

SEC. 2. Trial schedule. - Unless judgment is rendered pursuant to Rule 4 of these Rules, the initial hearing
shall be held not later than thirty (30) days from the date of the pre-trial order. The hearings shall be
completed not later than sixty (60) days from the date of the initial hearing, thirty (30) days of which shall
be allotted to the plaintiffs and thirty (30) days to the defendants in the manner prescribed in the pre-trial
order. The failure of a party to present a witness on a scheduled hearing date shall be deemed a waiver of
such hearing date. However, a party may present such witness or witnesses within his remaining allotted
hearing dates.

SEC. 3. Written offer of evidence. - Evidence not otherwise admitted by the parties or ruled upon by the
court during the pre-trial conference shall be offered in writing not later than five (5) days from the
completion of the presentation of evidence of the party concerned. The opposing party shall have five (5)
days from receipt of the offer to file his comments or objections. The court shall make its ruling on the
offer within five (5) days from the expiration of the period to file comments or objections.

SEC. 4. Memoranda. - Immediately after ruling on the last offer of evidence, the court shall order the
parties to simultaneously file, within thirty (30) days from receipt of the order, their respective
memoranda. The memoranda shall contain the following:

(1) A “Statement of the Case,” which is a clear and concise statement of the nature of the action and
a summary of the proceedings;

(2) A “Statement of the Facts,” which is a clear and concise statement in narrative form of the
established facts, with reference to the testimonial, documentary or other evidence in support
thereof;

(3) A “Statement of the Issues,” which is a clear and concise statement of the issues presented to the
court for resolution;

(4) The “Arguments,” which is a clear and concise presentation of the argument in support of each
issue; and

(5) The “Relief,” which is a specification of the order or judgment which the party seeks to obtain.

No reply memorandum shall be allowed.

SEC. 5. Decision after trial. - The court shall render a decision not later than (90) days from the lapse of the
period to file the memoranda, with or without said pleading having been filed.

RULE 6
ELECTION CONTESTS

SECTION 1. Cases covered. - The provisions of this rule shall apply to election contests in stock and non-
stock corporations.

SEC. 2. Definition. - An election contest refers to any controversy or dispute involving title or claim to any
elective office in a stock or non-stock corporation, the validation of proxies, the manner and validity of
elections, and the qualifications of candidates, including the proclamation of winners, to the office of
director, trustee or other officer directly elected by the stockholders in a close corporation or by members
of a non-stock corporation where the articles of incorporation or by-laws so provide.

SEC. 3. Complaint. - In addition to the requirements in section 4, Rule 2 of these Rules, the complaint in an
election contest must state the following:

(1) The case was filed within fifteen (15) days from the date of the election if the by-laws of the
corporation do not provide for a procedure for resolution of the controversy, or within fifteen (15)
days from the resolution of the controversy by the corporation as provided in its by-laws; and

(2) The plaintiff has exhausted all intra-corporate remedies in election cases as provided for in the
by-laws of the corporation.

SEC. 4. Duty of the court upon the filing of the complaint. - Within two (2) days from the filing of the
complaint, the court, upon a consideration of the allegations thereof, may dismiss the complaint outright if
it is not sufficient in form and substance, or, if it is sufficient, order the issuance of summons which shall
be served, together with a copy of the complaint, on the defendant within two (2) days from its issuance.

SEC. 5. Answer. - The defendant shall file his answer to the complaint, serving a copy thereof on the
plaintiff, within ten (10) days from service of summons and the complaint. The answer shall contain the
matters required in section 6, Rule 2 of these Rules.

SEC. 6. Affidavits, documentary and other evidence. - The parties shall attach to the complaint and answer
the affidavits of witnesses, documentary and other evidence in support thereof, if any.

SEC. 7. Effect of failure to answer. - If the defendant fails to file an answer within the period above
provided, the court shall, within ten (10) days from the lapse of said period, motu proprio or on motion,
render judgment as may be warranted by the allegations of the complaint, as well as the affidavits,
documentary and other evidence on record. In no case shall the court award a relief beyond or different
from that prayed for.

SEC. 8. Trial. - If the court deems it necessary to hold a hearing to clarify specific factual matters before
rendering judgment, it shall, within ten (10) days from the filing of the last pleading, issue an order setting
the case for hearing for the purpose. The order shall, in clear and concise terms, specify the factual
matters the court desires to be clarified and the witnesses, whose affidavits have been submitted, who will
give the necessary clarification.

The hearing shall be set on a date not later than ten (10) days from the date of the order, and shall be
completed not later than fifteen (15) days from the date of the first hearing. The affidavit of a witness who
fails to appear for clarificatory questions of the court shall be ordered stricken off the record.

SEC. 9. Decision. - The Court shall render a decision within fifteen (15) days from receipt of the last
pleading, or from the date of the last hearing as the case may be. The decision shall be based on the
pleadings, affidavits, documentary and other evidence attached thereto and the answers of the witnesses
to the clarificatory questions of the court given during the hearings.

RULE 7

INSPECTION OF CORPORATE BOOKS AND RECORDS

SECTION 1. Cases covered. - The provisions of this Rule shall apply to disputes exclusively involving the
rights of stockholders or members to inspect the books and records and/or to be furnished with the
financial statements of a corporation, under sections 74 and 75 of Batas Pambansa Blg. 68, otherwise
known as the Corporation Code of the Philippines.

SEC. 2. Complaint. – In addition to the requirements in section 4, Rule 2 of these Rules, the complaint must
state the following:

(1) The case is for the enforcement of plaintiff’s right of inspection of corporate orders or records
and/or to be furnished with financial statements under sections 74 and 75 of the Corporation Code of
the Philippines;

(2) A demand for inspection and copying of books and records and/or to be furnished with financial
statements made by the plaintiff upon defendant;

(3) The refusal of defendant to grant the demands of the plaintiff and the reasons given for such
refusal, if any; and

(4) The reasons why the refusal of defendant to grant the demands of the plaintiff is unjustified and
illegal, stating the law and jurisprudence in support thereof.

SEC. 3. Duty of the court upon the filing of the complaint. - Within two (2) days from the filing of the
complaint, the court, upon a consideration of the allegations thereof, may dismiss the complaint outright if
it is not sufficient in form and substance, or, if it is sufficient, order the issuance of summons which shall
be served, together with a copy of the complaint, on the defendant within two (2) days from its issuance.

SEC. 4. Answer. – The defendant shall file his answer to the complaint, serving a copy thereof on the
plaintiff, within ten (10) days from service of summons and the complaint. In addition to the requirements
in section 6, Rule 2 of these Rules, the answer must state the following:

(1) The grounds for the refusal of defendant to grant the demands of the plaintiff, stating the law and
jurisprudence in support thereof;

(2) The conditions or limitations on the exercise of the right to inspect which should be imposed by
the court; and

(3) The cost of inspection, including manpower and photocopying expenses, if the right to inspect is
granted.

SEC. 5. Affidavits, documentary and other evidence. – The parties shall attach to the complaint and answer
the affidavits of witnesses, documentary and other evidence in support thereof, if any.

SEC. 6. Effect of failure to answer. – If the defendant fails to file an answer within the period above
provided, the court, within ten (10) days from the lapse of the said period, motu proprio or upon motion,
shall render judgment as warranted by the allegations of the complaint, as well as the affidavits,
documentary and other evidence on record. In no case shall the court award a relief beyond or different
from that prayed for.

SEC. 7. Decision. – The court shall render a decision based on the pleadings, affidavits and documentary
and other evidence attached thereto within fifteen (15) days from receipt of the last pleading. A decision
ordering defendants to allow the inspection of books and records and/or to furnish copies thereof shall also
order the plaintiff to deposit the estimated cost of the manpower necessary to produce the books and
records and the cost of copying, and state, in clear and categorical terms, the limitations and conditions to
the exercise of the right allowed or enforced.

RULE 8
DERIVATIVE SUITS

SECTION 1. Derivative action. - A stockholder or member may bring an action in the name of a corporation
or association, as the case may be, provided, that:

(1) He was a stockholder or member at the time the acts or transactions subject of the action
occurred and at the time the action was filed;

(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to
exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing
the corporation or partnership to obtain the relief he desires;

(3) No appraisal rights are available for the act or acts complained of; and

(4) The suit is not a nuisance or harassment suit.

In case of nuisance or harassment suit, the court shall forthwith dismiss the case.

SEC. 2. Discontinuance. - A derivative action shall not be discontinued, compromised or settled without
approval of the court. During the pendency of the action, any sale of shares of the complaining stockholder
shall be approved by the court. If the court determines that the interest of the stockholders or members
will be substantially affected by the discontinuance, compromise or settlement, the court may direct that
notice, by publication or otherwise, be given to the stockholders or members whose interests it determines
will be so affected.

RULE 9

MANAGEMENT COMMITTEE

SECTION 1. Creation of a management committee. - As an incident to any of the cases filed under these
Rules or the Interim Rules on Corporate Rehabilitation, a party may apply for the appointment of a
management committee for the corporation, partnership or association, when there is imminent danger of:

(1) Dissipation, loss, wastage or destruction of assets or other properties; and

(2) Paralyzation of its business operations which may be prejudicial to the interest of the minority
stockholders, parties-litigants or the general public.

SEC. 2. Receiver. - In the event the court finds the application to be sufficient in form and substance, the
court shall issue an order: (a) appointing a receiver of known probity, integrity and competence and
without any conflict of interest as hereunder defined to immediately take over the corporation, partnership
or association, specifying such powers as it may deem appropriate under the circumstances, including any
of the powers specified in section 5 of this Rule; (b) fixing the bond of the receiver; (c) directing the
receiver to make a report as to the affairs of the entity under receivership and on other relevant matters
within sixty (60) days from the time he assumes office; (d) prohibiting the incumbent management of the
company, partnership or association from selling, encumbering, transferring or disposing in any manner
any of its properties except in the ordinary course of business; and (e) directing the payment in full of all
administrative expenses incurred after the issuance of the order.

SEC. 3. Receiver and management committee as officers of the court. - The receiver and the members of
the management committee in the exercise of their powers and performance of their duties are considered
officers of the court and shall be under its control and supervision.

SEC. 4. Composition of the management committee. - After due notice and hearing, the court may appoint
a management committee composed of three (3) members chosen by the court. In the appointment of the
members of the management committee, the following qualifications shall be taken into consideration by
the court:
 (1) Expertise and acumen to manage and operate a business similar in size and complexity as that of
the corporation, association or partnership sought to be put under management committee;

(2) Knowledge in management and finance;

(3) Good moral character, independence and integrity;

(4) A lack of a conflict of interest as defined in these Rules; and

(5) Willingness and ability to file a bond in such amount as may be determined by the court.

Without limiting the generality of the following, a member of a management committee may be deemed to
have a conflict of interest if:

(1) He is engaged in a line of business which competes with the corporation, association or
partnership sought to be placed under management;

(2) He is a director, officer or stockholder charged with mismanagement, dissipation or wastage of

the properties of the entity under management; or

(3) He is related by consanguinity or affinity within the fourth civil degree to any director, officer or
stockholder charged with mismanagement, dissipation or wastage of the properties of the entity
under management.

SEC. 5. Powers and functions of the management committee. - Upon assumption to office of the
management committee, the receiver shall immediately render a report and turn over the management
and control of the entity under his receivership to the management committee.

The management committee shall have the power to take custody of and control all assets and properties
owned or possessed by the entity under management. It shall take the place of the management and
board of directors of the entity under management, assume their rights and responsibilities, and preserve
the entity’s assets and properties in its possession.

Without limiting the generality of the foregoing, the management committee shall exercise the following
powers and functions:

(1) To investigate the acts, conduct, properties, liabilities, and financial condition of the corporation,
association or partnership under management;

(2) To examine under oath the directors and officers of the entity and any other witnesses that it may
deem appropriate;

(3) To report to the court any fact ascertained by it pertaining to the causes of the problems, fraud,
misconduct, mismanagement and irregularities committed by the stockholders, directors,
management or any other person;

(4) To employ such person or persons such as lawyers, accountants, auditors, appraisers and staff as
are necessary in performing its functions and duties as management committee;

(5) To report to the court any material adverse change in the business of the corporation, association
or partnership under management;

(6) To evaluate the existing assets and liabilities, earnings and operations of the corporation,
association or partnership under management;

(7) To determine and recommend to the court the best way to salvage and protect the interest of the
creditors, stockholders and the general public, including the rehabilitation of the corporation,
association or partnership under management;
 (8) To prohibit and report to the court any encumbrance, transfer, or disposition of the debtor’s
property outside of the ordinary course of business or what is allowed by the court;

(9) To prohibit and report to the court any payments made outside of the ordinary course of business;

(10) To have unlimited access to the employees, premises, books, records and financial documents
during business hours;

(11) To inspect, copy, photocopy or photograph any document, paper, book, account or letter,
whether in the possession of the corporation, association or partnership or other persons;

(12) To gain entry into any property for the purposes of inspecting, measuring, surveying, or
photographing it or any designated relevant object or operation thereon;

(13) To bring to the attention of the court any material change affecting the entity’s ability to meet
its obligations;

(14) To revoke resolutions passed by the Executive Committee or Board of Directors/Trustees or any
governing body of the entity under management and pass resolution in substitution of the same to
enable it to more effectively exercise its powers and functions;

(15) To modify, nullify or revoke transactions coming to its knowledge which it deems detrimental or
prejudicial to the interest of the entity under management;

(16) To recommend the termination of the proceedings and the dissolution of the entity if it
determines that the continuance in business of such entity is no longer feasible or profitable or no
longer works to the best interest of the stockholders, parties-litigants, creditors or the general public;

(17) To apply to the court for any order or directive that it may deem necessary or desirable to aid it
in the exercise of its powers and performance of its duties and functions; and

(18) To exercise such other powers as may, from time to time, be conferred upon it by the court.

SEC. 6. Action by management committee. - A majority of its members shall be necessary for the
management committee to act or make a decision. The chairman of the management committee shall be
chosen by the members from among themselves. The committee may delegate its management functions
as may be necessary to operate the business of the entity under management and preserve its assets.

SEC. 7. Transactions deemed to be in bad faith. - All transactions made by the previous management and
directors shall be deemed fraudulent and are rescissible if made within thirty (30) days prior to the
appointment of the receiver or management committee or during their incumbency as receiver or
management committee.

SEC. 8. Fees and expenses. - The receiver or the management committee and the persons hired by it shall
be entitled to reasonable professional fees and reimbursement of expenses which shall be considered as
administrative expenses.

SEC. 9. Immunity from suit. - The receiver and members of the management committee and the persons
employed by them shall not be subject to any action, claim or demand in connection with any act done or
omitted by them in good faith in the exercise of their functions and powers. All official acts and
transactions of the receiver or management committee duly approved or ratified by the court shall render
them immune from any suit in connection with such act or transaction.

SEC. 10. Reports. - Within a period of sixty (60) days from the appointment of its members, the
management committee shall make a report to the court on the state of the corporation, partnership or
association under management. Thereafter, the management committee shall report every three (3)
months to the court or as often as the court may require on the general condition of the entity under
management.
SEC. 11. Removal and replacement of a member of the management committee. - A member of the
management committee is deemed removed upon appointment by the court of his replacement chosen in
accordance with section 4 of this Rule.

SEC. 12. Discharge of the management committee. - The management committee shall be discharged and
dissolved under the following circumstances:

(1) Whenever the court, on motion or motu proprio, has determined that the necessity for the
management committee no longer exists;

(2) By agreement of the parties; and

(3) Upon termination of the proceedings.

Upon its discharge and dissolution, the management committee shall submit its final report and render an
accounting of its management within such reasonable time as the court may allow.

RULE 10

PROVISIONAL REMEDIES

SECTION 1. Provisional remedies. - A party may apply for any of the provisional remedies provided in the
Rules of Court as may be available for the purposes. However, no temporary restraining order or status
quo order shall be issued save in exceptional cases and only after hearing the parties and the posting of a
bond.

RULE 11

SANCTIONS

SECTION 1. Sanctions on the parties or counsel. - In any of the following cases, the court may, upon motion
or motu proprio, impose appropriate sanctions:

(1) In case the court determines in the course of the proceeding that the action is a nuisance or
harassment suit;

(2) In case a pleading, motion or other paper is filed in violation of section 7, Rule 1 of these Rules;

(3) In case a party omits or violates the certification required under section 4, Rule 2 of these Rules;

(4) In case of unwarranted denials in the answer to the complaint;

(5) In case of willful concealment or non-disclosure of material facts or evidence;

The sanctions may include an order to pay the other party or parties the amount of the reasonable
expenses incurred because of the act complained of, including reasonable attorney’s fees.

SEC. 2. Disciplinary sanctions on the judge. - The presiding judge may, upon a verified complaint filed with
the Office of the Court Administrator, be subject to disciplinary action under any of the following cases:

(1) Failure to observe the special summary procedures prescribed in these Rules; or

(2) Failure to issue a pre-trial order in the form prescribed in these Rules.
RULE 12

FINAL PROVISIONS

SECTION 1. Severability. - If any provision or section of these Rules is held invalid, the remaining provisions
or sections shall not be affected thereby.

SEC. 2. Effectivity. - These Rules shall take effect on 1 April 2001 following its publication in two (2)
newspapers of general circulation in the Philippines.

Annex “A”

Republic of the Philippines

_______ Judicial Region
Regional Trial Court
Branch ___

NAME(s) OF PLAINTIFF/S,
Plaintiff/s
- versus - Case No. __________
NAME(s) OF DEFENDANT/S,
Defendant/s.
x———————————x

PRE-TRIAL ORDER

I. Summary of the Case

II. Preliminary Matters

A. Amendments allowed in the pleadings

B. Rulings on all objections to or comments on admissibility of any documentary or other evidence
C. Other matters taken up in conference not covered by the subsequent items and actions taken
thereon.

III. Statement of the Facts

A. Admitted
B. Disputed

1. Version of the Plaintiff

 2. Version of the Defendant

IV. Issues to be Resolved

A. Factual
B. Legal

V. Applicable Laws

VI. Evidence for the Parties

All evidence to be adduced and presented by both parties shall be limited to those identified below. All
documentary evidence have already been pre-marked and copies thereof, after comparison with the
original, have been given the other party or such party has been given an opportunity to examine the
same in cases when generating copies proves impractical. The testimonies of the witnesses have all been
reduced to affidavit form in accordance with these Rules and copies thereof given to the other party.

No other evidence shall be allowed other than those indicated below except in accordance with section 8,
Rule 2 of the Interim Rules of Procedure for Intra-Corporate Controversies.

A. Evidence of the Plaintiff

1. Documentary Evidence
a) Document No. 1 (Exh. ___ )
1. Name/Type
2. Pre-Marking Number
3. Summary
4. Purpose

b) Document No. 2 (Exh. ___ )

1. Name/Type
2. Pre-Marking Number
3. Summary
4. Purpose

(Additional documentary evidence shall be similarly presented)

2. Testimonial Evidence
a) Name of First Witness
1. Purpose of the testimony
2. Estimated length of testimony
b) Name of Second Witness
1. Purpose of the testimony
2. Estimated length of testimony

(Additional witnesses shall be similarly presented)

3. Other Evidence

B. Evidence of the Defendant

1. Documentary Evidence

a) Document No. 1 (Exh. ___ )

1. Name/Type
2. Pre-Marking Number
3. Summary
4. Purpose
b) Document No. 2 (Exh. ___
• Name/Type
• Pre-Marking Number
 • Summary
• Purpose
(Additional documentary evidence shall be similarly presented)
2. Testimonial Evidence

a) Name of First Witness

1. Purpose of the testimony
2. Estimated length of testimony

b) Name of Second Witness

3. Purpose of the testimony
4. Estimated length of testimony

(Additional witnesses shall be similarly presented)

3. Other Evidence

VII. Hearing Dates

(These hearing dates, which should be scheduled not later than thirty (30) days from the completion at the
pre-trial, shall be strictly followed and all postponements by either party shall be deducted from such
party’s allotted time to present evidence.)

A. Schedule of Plaintiff’s Presentation of Evidence

B. Schedule of Defendant’s Presentation of Evidence

Pasted from <http://elibrary.judiciary.gov.ph/index6.php?doctype=Amendments%20to%20the%20Rules

%20of%20Court&docid=a45475a11ec72b843d74959b60fd7bd64564752c22555>

Alemar's vs. Elbinias (1990)

Sunday, June 06, 2010
4:31 AM

G.R. No. 75414 June 4, 1990

ALEMAR'S SIBAL & SONS, INC., petitioner,
vs.
HONORABLE JESUS M. ELBINIAS, in his capacity as the Presiding Judge of Regional Trial Court,
National Capital Region, Branch CXLI (141), Makati, and G.A. YUPANGCO & CO.,
INC., respondents.
Ledesma, Saludo & Associates for petitioner.
Rudy B. Canal for private respondent.

FERNAN, C.J.:
Assailed in this petition for certiorari with prayer for preliminary mandatory injunction is the order dated
May 15, 1986 issued by respondent Regional Trial Court, Branch 141 (Makati) denying petitioner's motion
to discharge the writ of execution despite an earlier order suspending proceedings in said court.
On December 11, 1984, private respondent G.A. Yupangco and Co. Inc. (G.A. Yupangco) filed an action
with respondent trial court for collection of a sum of money with prayer for damages and preliminary
attachment against Alemar's Bookstore, a business entity owned and managed by petitioner Alemar's
Sibal & Sons, Inc. (Alemar's). 1
On August 30, 1985, respondent court rendered its decision, to wit:
Wherefore, finding plaintiffs claim to be substantiated, the Court hereby renders judgment by default,
ordering defendant, Alemar's Book Store, to pay G.A. Yupangco & Co., Inc., the following:
1) P 39,502.57 representing defendant's unpaid obligation, plus 2% per month interest beginning
December 11, 1984, until fully paid;
2) the stipulated 25% of the recoverable amount as attorney's fees; and
3) cost of suit. 2
Subsequently, on September 23, 1985, Ledesma, Saludo and Associates, as intervenor-movant, filed an
omnibus motion informing the respondent trial court that the petitioner Alemar's has been placed under
rehabilitation receivership by the Securities and Exchange Commission and that movant has been
appointed as its receiver. It prayed that it be allowed to intervene, that the decision of August 30, 1985 be
set aside and that further proceedings in this case be suspended. 3 Attached to its motion is the order of
the Securities and Exchange Commission dated August 1, 1984 which states in part:
Therefore, pursuant to Presidential Decree No. 902-A, as amended, the Securities and Exchange
Commission hereby appoints as Rehabilitation Receiver, Ledesma, Saludo & Associates ... in order to meet
the imminent danger of dissipation, loss, wastage or destruction of the assets and other properties and
deterioration of vital financial ratios ... of said corporation and to ensure the orderly payment of claims
against the said corporation.
All actions for claims against the corporation pending before any court, tribunal, board or body are
suspended accordingly.
No disbursements or expenditures of funds shall be made other than what is usual in the ordinary course
of the business operations of the corporation. All withdrawals against the accounts of the corporation shag
be signed or authorized by any partner designated by the Rehabilitation Receiver. Resolutions of the Board
of Directors of Alemar's Sibal & Sons, Inc. pertaining to check signatories shall be made subject to the
foregoing conditions.4
In its opposition, G.A. Yupangco maintained that it received notice of the receivership only on January 10,
1985 or after one month after the collection suit. It further averred that the motion to intervene by the
receiver was not seasonably made. Accordingly, on October 29, 1985, respondent court issued an order,
the dispositive portion of which reads:
Wherefore, on the ground raised by plaintiff that movant now is barred from its present action, the court
hereby denies the motion for intervention, and the motion to set the aforesaid judgment by default;
however, movant's motion to suspend the proceedings in this Court is granted as plaintiff may present said
judgment by default to the receiver as the basis for the settlement of its claim defendant. 5
In a motion dated January 7, 1986, G.A. Yupangco urged the issuance of a writ of execution to implement
the August 30, 1985 default judgment which had become final and executory, there being no motion for
reconsideration or appeal. The corresponding writ was issued on January 15, 1986. 6
Petitioner Alemar's moved for the discharge of the writ on the ground that its issuance was improper since
the proceedings in Civil Case No. 9252 have been suspended pursuant to the October 29, 1985 order.
Respondent court, however, held the resolution of the motion in abeyance.
On January 31, 1986, the branch manager of the Bank of the Philippine Islands, after having previously
stopped payment of the cashier's check issued to satisfy the August 30, 1985 money judgment, allowed
the encashment of said check in the amount of P62,240.00. And in compliance with a subsequent order of
the respondent court, BPI also compensated G.A. Yupangco for the delay in payment in an amount
equivalent to the interest of P62,240.00 from January 17, 1986 to January 31, 1986 or a total of 14 days. 7
Contending that the payment of P 62,240.00 to G.A. Yupangco through the BPI has defeated the purpose
for which petitioner has been placed under receivership, petitioner filed a supplement to its motion to
discharge the writ of execution praying that the aforesaid payment be returned to petitioner or to its
account with the BPI.
On May 15, 1986, respondent court issued the questioned order denying petitioner's motions to discharge
the writ of execution. It reasoned:
... To discharge the writ would only cause undue delay in plaintiffs effort at satisfying its claim under the
judgment by default that had become final and executory. The fact that defendant is under receivership
presupposes that it has been declared insolvent, and the receiver is supposed to have brought into its
custody all available assets in defendant's name. The continuing effectivity of the writ of execution will not
prejudice defendant unless some assets of defendant have been improperly left out beyond reach of the
receiver and/or creditors. On the other hand, to discharge the writ will leave plaintiff with no recourse to
enforce the judgment in its favor.... 8
Hence this petition which raises the issue of whether or not respondent court can validly proceed with the
execution of a final decision for the payment of a sum of money despite the fact that the judgment debtor
has been placed under receivership.
It is the general rule that once a decision becomes final and executory, its enforcement becomes the
ministerial duty of the court. Equally settled is that the rule admits of certain exceptions, one of which is
where it becomes imperative in the higher interest of justice to direct the deferment of execution. In the
instant case, the stay of execution is warranted by the fact that petitioner Alemar's has been placed under
"rehabilitation receivership".
What are the legal consequences of such a receivership? For one thing, the SEC has expressly decreed
that "all actions for claims against the corporation pending before any court ... are suspended
accordingly". Respondent court apparently demurred to the SEC action when it granted petitioner's motion
to suspend its own proceedings. It even went as far as to suggest to the creditor to present the "judgment
by default to the receiver as the basis for settlement of its claim against defendant". So when respondent
court ordered the execution of its August 30, 1985 judgment, it assumed a rather myopic view of its own
suspension order. Verily, the proceedings sought to be suspended by the order of October 29, 1985
necessarily includes the issuance of the writ of execution.
The cases of Central Bank vs. Morfe, 9 and Lipana vs. Development Bank of Rizal, 10 are most
enlightening on why an execution in this particular instance could be legally held in abeyance despite a
final judgment. In both cases, there was an attempt by a creditor to enforce payment against a bank
(which was either declared insolvent or placed under receivership) by obtaining a favorable judgment in
the regular court and insisting upon its execution on the ground that the courts cannot validly obstruct the
enforcement of judgments that have become final and executory.
The rationale behind the Court's imprimatur of the stay of execution in the aforementioned cases is
squarely applicable to the instant petition even if Alemar's is obviously not a banking institution.
It must be stressed that the SEC had earlier ordered the suspension of all actions for claims against
Alemar's in order that all the assets of said petitioner could be inventoried and kept intact for the purpose
of ascertaining an equitable scheme of distribution among its creditors.
During rehabilitation receivership, the assets are held in trust for the equal benefit of all creditors to
preclude one from obtaining an advantage or preference over another by the expediency of an
attachment, execution or otherwise. For what would prevent an alert creditor, upon learning of the
receivership, from rushing posthaste to the courts to secure judgments for the satisfaction of its claims to
the prejudice of the less alert creditors.
As between creditors, the key phrase is "equality is equity." 11 When a corporation threatened by
bankruptcy is taken over by a receiver, all the creditors should stand on an equal footing. Not anyone of
them should be given any preference by paying one or some of them ahead of the others. This is precisely
the reason for the suspension of all pending claims against the corporation under receivership. Instead of
creditors vexing the courts with suits against the distressed firm, they are directed to file their claims with
the receiver who is a duly appointed officer of the SEC.
When respondent court ruled in favor of G.A. Yupangco in the collection case, it only determined the exact
extent of petitioner's indebtedness and in no way gave G.A. Yupangco a priority over the other creditors.
However, it clearly exceeded its jurisdiction when it allowed G.A. Yupangco to encash the check of P
62,240.00 pursuant to the writ of execution. In so doing, respondent court gave G.A. Yupangco an undue
preference by reducing the assets of the petitioner corporation for its sole benefit to the grave damage
and prejudice of the other creditors, and thus frustrating the very purpose for which petitioner has been
placed under receivership.
WHEREFORE, the writ is granted. The questioned order of respondent court dated May 15, 1986 denying
petitioner's motion to discharge the writ of execution in Civil Case No. 9252 is hereby reversed and set
aside. All proceedings in connection with the aforesaid case are declared suspended. Private respondent
G.A. Yupangco is ordered to return to petitioner Alemar's the amount it had actually received through the
Bank of the Philippine Islands. This decision is immediately executory. No costs.
SO ORDERED.
Gutierrez, Jr. and Bidin, JJ., concur.
Feliciano and Cortes, JJ., is on leave.

Footnotes
1 Civil Case No. 9252.
2 Annex E, Rollo, p. 23.
3 Annex F, Rollo, pp. 24-27.
4 Annex H, Rollo, pp. 36-37.
5 Annex I, Rollo, p. 39.
6 Annex L, Rollo, pp. 5, 43
7 Annex O, Rollo, p. 43.
8 Rollo, p. 17.
9 G.R. No. L-34827, March 12, 1975,63 SCRA 114.
10 G.R No. 73884, September 24,1987, 154 SCRA 257.
11 Central Bank vs. Morfe, supra, citing Ramisch vs. Fulton, 41 Ohio App. 443, 180 N.E. 735.

Pasted from <http://www.lawphil.net/judjuris/juri1990/jun1990/gr_75414_1990.html>

Pryce Corp vs. CA (2008)

Sunday, June 06, 2010
4:34 AM

G.R. No. 172302 February 4, 2008

PRYCE CORPORATION, petitioner,
vs.
THE COURT OF APPEALS and CHINA BANKING CORPORATION, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is a petition for review on certiorari seeking to reverse the Decision1 of the Court of
Appeals (Seventh Division) dated July 28, 2005 in CA-G.R. SP No. 88479.
Pryce Corporation, petitioner, was incorporated under Philippine laws on September 7, 1989. Its primary
purpose was to develop real estate in Mindanao. It engaged in the development of memorial parks,
operated a major hotel in Cagayan de Oro City, and produced industrial gases.
The 1997 Asian financial crisis, however, badly affected petitioner’s operations, resulting in heavy losses. It
could not meet its obligations as they became due. It incurred losses of P943.09 million in 2001, P479.05
million in 2002, and P125.86 million in 2003.
Thus, on July 12, 2004, petitioner filed with the Regional Trial Court (RTC), Branch 138, Makati City, acting
as Commercial Court, a petition for rehabilitation,2 docketed as Special Proceedings No. M-5901. Petitioner
prayed for the appointment of a Rehabilitation Receiver from among the nominees named therein and the
staying of the enforcement of all claims, monetary or otherwise against it. Petitioner also prayed that after
due hearing, its proposed Rehabilitation Plan be approved. The salient features of the proposed
Rehabilitation Plan3 are:
[1] the bank creditors will be paid through dacion en pago of assets already mortgaged to them, to the
extent sufficient to pay off the outstanding obligations. The excess assets, if any, will be freed from liens
and encumbrances and released to the petitioner.
[2] in case the value of the mortgaged assets for dacion is less than the amount of the obligation to be
paid, the deficiency shall be settled by way of dacion of memorial park lots owned by the petitioner.
[3] pricing of the assets for dacion shall be based on the average of two valuation appraisals from
independent third-party appraisers accredited with the Bangko Sentral ng Pilipinas (BSP) to be chosen by
the creditors and acceptable to the petitioner, except for memorial park lots which shall be valued
atP16,000 per lot.
[4] all penalties shall be waived by the creditors.
[5] interest on the loans shall be accrued only up to June 30, 2003.
[6] titles of properties and sales documents held by the bank as additional security but without actual
mortgage on the properties will also be released to the petitioner after the dacion.
[7] memorial park mother titles mortgaged to a creditor bank shall be priced based on the value of
individual memorial lots comprising those titles, the mother titles shall be released to the petitioner.
[8] for purpose of the dacion, the foreign currency loan from China Banking Corporation, the only US
Dollar-denominated obligation, will be converted to peso based on the average exchange rate for the year
2003 (P54.2033 to US$1.00), being the mean of 12 monthly averages, as quoted on the statistics web
page of the Bangko Sentral ng Pilipinas.
[9] the bank creditors will avail of the tax exemption and benefits offered under the Special Purpose
Vehicle (SPV) Law or R.A. No. 9182 to minimize the dacion-related costs for all parties concerned. Any
concerned bank or financial institution which does not avail of said tax exemption through its own fault will
shoulder the applicable taxes and related fees for the dacion transaction.
[10] trade creditors will be paid through dacion of memorial park lots.
[11] any other debt not covered by mortgaged (sic) of assets or not falling under the aforementioned
categories shall be paid through dacion of memorial park lots.
On July 13, 2004, the RTC issued a "Stay Order"4 directing that: all claims against petitioner be deferred;
the initial hearing of the petition for rehabilitation be set on September 1, 2004; and all creditors and
interested parties should file their respective comments/oppositions to the petition. In the same Order, the
RTC then appointed Gener T. Mendoza as Rehabilitation Receiver.
The petition was opposed by petitioner’s bank-creditors. The Bank of the Philippine Islands claimed that
the petition and the proposed Rehabilitation Plan are coercive and violative of the contract. The Land Bank
of the Philippines contended, among others, that the petition is unacceptable because of the unrealistic
valuation of the properties subject of the dacion en pago.
The China Banking Corporation, respondent herein, alleged in its opposition that petitioner is solvent and
that it filed the petition to force its creditors to accept dacion payments. In effect, petitioner passed on to
the creditors the burden of marketing and financing unwanted memorial lots, while exempting it
(petitioner) from paying interests and penalties.
On September 13, 2004, the RTC issued an Order,5 the dispositive portion of which reads:
WHEREFORE, the Petition is given due course. Let the Rehabilitation Plan, Annex J, Petition, be referred to
Mr. Gener Mendoza, Rehabilitation Receiver, for evaluation and recommendation to be submitted not later
than December 15, 2004.
SO ORDERED.
On December 6, 2004, the Rehabilitation Receiver, in compliance with the above Order, submitted an
Amended Rehabilitation Plan, recommending the following:
1. Payment of all bank loans and long-term commercial papers (LTCP) through dacion en pago of PC’s real
estate assets;
2. Payment of all non-bank, trade and other payables amounting to at least P500,000 each through
adacion of memorial park lots; and
3. Payment in cash over a three-year period, without interest, of all non-bank, trade and other payables
amounting to less than P500,000 each. There are 290 of these creditors but their aggregate exposure to
PC is only P7.64 million.
The Rehabilitation Receiver further proposed the following amendments with respect to
the dacion payments to petitioner’s bank creditors:
1. The asset base from which the creditors may choose to be paid has been broadened. Each creditor will
no longer be limited to assets already mortgaged to it and may elect to be paid from the many other
assets of the company, including even those mortgaged to other creditors. Any secured creditor, however,
shall have priority to acquire the assets mortgaged to it.
2. A third appraiser has been added to the two proposed by PC to undertake valuation of assets earmarked
for dacion. With three appraisers, more representative values are likely to be obtained.
3. Valuation of the memorial lots has been configured to dovetail with values approved in the corporate
rehabilitation of Pryce Gases, Inc. (PGI), a subsidiary of PC. Thus, any memorial lot ceded to secured
creditors shall be valued at P13,125 per lot, and P17,500/lot for unsecured creditors.
On January 17, 2005, the RTC issued an Order approving the Amended Rehabilitation Plan and finding
petitioner eligible to be placed in a state of corporate rehabilitation; and directing that its assets shall be
held and disposed of and its liabilities paid and liquidated in the manner specified in the said Order.
Consequently, on February 23, 2005, respondent filed with the Court of Appeals a petition for review,
docketed as CA-G.R. SP No. 88479. Respondent alleged that in approving the Amended Rehabilitation Plan,
the RTC impaired the obligations of contracts, voided contractual stipulation and contravened the "avowed
policy of the State" to maintain a competitive financial system.
On July 28, 2005, the Court of Appeals rendered its Decision granting respondent’s petition and reversing
the assailed Orders of the RTC, thus:
WHEREFORE, premises considered, petition is hereby GRANTED. The assailed July 13, 2004, September 13,
2004 and January 17, 2005 Orders of the Regional Trial Court of Makati City, Branch 138, are hereby
REVERSED and SET ASIDE.
SO ORDERED.
Petitioner herein seasonably filed a motion for reconsideration but it was denied by the appellate court in
its Resolution dated April 12, 2006.
Hence, the instant recourse raising the sole issue of whether the Court of Appeals erred in denying the
petition for rehabilitation of petitioner Pryce Corporation.
Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation6 provides:
SEC. 6. Stay Order.— If the court finds the petition to be sufficient in form and substance, it shall, not later
than five (5) days from the filing of the petition, issue an Order (a) appointing a Rehabilitation Receiver
and fixing his bond; (b) staying enforcement of all claims, whether for money or otherwise and whether
such enforcement is by court action or otherwise, against the debtor, its guarantors and sureties not
solidarily liable with the debtor; (c) prohibiting the debtor from selling, encumbering, transferring, or
disposing in any manner any of its properties except in the ordinary course of business; (d) prohibiting the
debtor from making any payment of its liabilities outstanding as of the date of filing of the petition; (e)
prohibiting the debtor’s suppliers of goods or services from withholding supply of goods and services in the
ordinary course of business for as long as the debtor makes payments for the services and goods supplied
after the issuance of the stay order; (f) directing the payment in full of all administrative expenses incurred
after the issuance of the stay order; (g) fixing the initial hearing on the petition not earlier than
forty five (45) days but not later than sixty (60) days from the filing thereof; (h) directing the
petitioner to publish the Order in a newspaper of general circulation in the Philippines once a week for two
(2) consecutive weeks; (i) directing all creditors and all interested parties (including the Securities and
Exchange Commission) to file and serve on the debtor a verified comment on or opposition to the
petition, with supporting affidavits and documents, not later than ten (10) days before the date of the
initial hearing and putting them on notice that their failure to do so will bar them from participating in the
proceedings; and (j)directing the creditors and interested parties to secure from the court copies
of the petition and its annexes within such time as to enable themselves to file their comment on or
opposition to the petition and to prepare for the initial hearing of the petition.
Section 6 provides that the petition must be "sufficient in form and substance." In Rizal Commercial
Banking Corporation v. Intermediate Appellate Court,7 this Court held that under Section 6(c) of P.D. No.
902-A,8receivers may be appointed whenever: (1) necessary in order to preserve the rights of
the parties-litigants; and/or (2) protect the interest of the investing public and creditors. The
situations contemplated in these instances are serious in nature. There must exist a clear and
imminent danger of losing the corporate assets if a receiver is not appointed. Absent such
danger, such as where there are sufficient assets to sustain the rehabilitation plan and both investors and
creditors are amply protected, the need for appointing a receiver does not exist. Simply put, the
purpose of the law in directing the appointment of receivers is to protect the interests of the
corporate investors and creditors.
We agree with the Court of Appeals that the petition for rehabilitation does not allege that there is a clear
and imminent danger that petitioner will lose its corporate assets if a receiver is not appointed. In other
words, the "serious situation test" laid down by Rizal Commercial Banking Corporation has not
been met or at least substantially complied with. Significantly, the Stay Order dated July 13, 2004 issued
by the RTC does not state any serious situation affecting petitioner’s corporate assets. We observe that in
appointing Mr. Gener T. Mendoza as Rehabilitation Receiver, the only basis of the lower court was its
finding that "the petition is sufficient in form and substance." However, it did not specify any
reason or ground to sustain such finding. Clearly, thepetition failed to comply with the "serious
situation test."
As aptly held by the Court of Appeals:
There are serious requirements before rehabilitation can be ordered. That is why this stay order is issued
only after a management committee or receiver is appointed. Before a management committee or
receiver is appointed, the law expressly states the serious requirements that must first exist: (1) an
imminent danger (National Development Company and New Agrix, Inc. v. Philippine Veterans Bank, G.R.
Nos. 84132-33, December 10, 1990, 192 SCRA 257) of dissipation, loss, wastage or destruction of assets or
of paralization of business operations of the liquid corporation which may be prejudicial to the interest of
minority stockholders, parties-litigants or to the general public, or (2) there is a necessity to preserve the
rights and interests of the parties-litigants, of the investing public and of creditors.
In the case at bench, when the commercial court appointed a rehabilitation receiver, the very next day
after the filing of the Petition for Rehabilitation, it is highly doubtful and well-nigh impossible,
that, without any hearing yet held, the commercial court could have already gathered enough
evidence before it to determine whether there was any imminent danger of dissipation of
assets or of paralization of business operations to warrant the appointment of a rehabilitation
receiver.9
In determining whether petitioner’s financial situation is serious and whether there is a clear and imminent
danger that it will lose its corporate assets, the RTC, acting as commercial court, should conduct a hearing
wherein both parties can present their respective evidence. Hence, a remand of the records of this case to
the RTC is imperative.
WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals in CA-G.R. SP No.
88479 isAFFIRMED with the modification discussed above. Let the records of this case be REMANDED to
the RTC, Branch 138, Makati City, sitting as Commercial Court, for further proceedings with dispatch to
determine the merits of the petition for rehabilitation. No costs.
SO ORDERED.
Puno, C.J., Chairperson, Corona, Azcuna, Leonardo-de Castro, JJ., concur.
Footnotes
1 Rollo, Vol. I, pp. 55-70. Penned by Associate Justice Vicente Q. Roxas and concurred in by Associate
Justices Portia Aliño-Hormachuelos and Juan Q. Enriquez.
2 Rollo, Vol. II, pp. 1105-1119.
3 As summarized by the trial court in its Order dated September 13, 2004. See Rollo, Vol. I, p. 154.
4 Rollo, Vol. I, pp. 135-136.
5 Id.¸ pp. 153-155.
6 A.M. No. 00-8-10-SC which took effect on December 15, 2000.
7 G.R. No. 74851, December 9, 1999, 320 SCRA 279.
8 Entitled "Reorganization of the Securities and Exchange Commission with Additional Powers and Placing
Said Agency Under the Administrative Supervision of the Office of the President." The Decree was
subsequently amended by Presidential Decree Nos. 1653, 1758, and 1799, and by Republic Act No. 8799
(The Securities Regulation Code of 2000), which transferred jurisdiction over rehabilitation cases from the
SEC to Regional Trial Courts sitting as Commercial Courts.
9 Rollo, pp. 66-67.

Pasted from <http://www.lawphil.net/judjuris/juri2008/feb2008/gr_172302_2008.html>

Rosario vs. Ca (2008)

Sunday, June 06, 2010
4:36 AM

FIRST DIVISION

[G.R. No. 133608, August 26, 2008]

TIONG ROSARIO, PETITIONER, VS. ALFONSO CO, RESPONDENT.

DECISION

AZCUNA, J.:
This is a Petition for Review on Certiorari under Rule 45, in relation to Section 2(c) of Rule 41 of the Rules
of Court, assailing the Resolution[1] dated April 6, 1998, issued by the Regional Trial Court (RTC), Branch
161, Pasig City, in SCA No. 1259.

Petitioner Tiong Rosario is the proprietor of TR Mercantile (TRM), a single proprietorship engaged in the
business of selling and trading paper products and supplies of various kinds; while respondent Alfonso Co
is the Chairman and President of Modern Paper Products, Inc. (MPPI). In the course of its business, MPPI
purchased from TRM a variety of paper products on credit.[2] As payment for his purchases, respondent
issued the following China Banking Corporation checks in favor of TRM:

Check Date Amount

No.

BO3210 February 15, P3,000,000

1 1995

BO3212 February 27, P6,000,000

2 1995

BO3213 March 6, 1995 P1,900,000

8
Subsequently, on presentment for payment, Check Nos. B032101,[3] B032138[4] and B032122[5] were
dishonored by the drawee bank on May 11, 1995, April 6, 1995, and April 28, 1995, respectively, for the
reason that the payment was either stopped or that the checks were drawn against insufficient funds.[6]

In a letter[7] dated June 27, 1995, TRM demanded that respondent make good the checks and pay MPPI's
outstanding obligations within five banking days from receipt of the letter, otherwise, it would be
constrained to file both criminal and civil actions to protect its interest. Respondent, however, failed to
heed the demand.

Thus, on July 21, 1995, petitioner filed a complaint against respondent for violation of Batas Pambansa
(B.P.) Blg. 22 with the Office of the City Prosecutor, Pasig City. On November 6, 1995, finding probable
cause against respondent, the investigating prosecutor filed three separate informations against him for
violation of B.P. Blg. 22 before the Metropolitan Trial Court (MeTC), Pasig City, later docketed as Criminal
Case Nos. 18521, 18522 and 18523.[8]
Prior thereto, or on May 12, 1995, MPPI and its principal stockholders, the Spouses Alfredo and Elizabeth
Co filed before the Securities and Exchange Commission (SEC), under P.D. No. 902-A, a Petition for
Suspension of Payments for Rehabilitation Purposes with prayer for the creation of a management
committee and for a temporary restraining order and/or preliminary injunction, docketed as SEC Case No.
05-95-5054.

On October 3, 1995, the SEC issued an Omnibus Order creating a Management Committee and
consequently suspending all actions for claims against MPPI pending before any court, tribunal, branch or
body.[9]

Meanwhile, in the criminal cases pending before the MeTC, respondent was arraigned, and the cases were
set for trial.[10]

Prior to initial trial, respondent filed a Motion to Suspend Proceedings.[11] In support of his motion,
movant relied on the following grounds:
I.

A corporation under suspension of payments and corporate rehabilitation pursuant to P.D. No. 902-A,
as amended, may not be validly charged for violation of B.P. Blg. 22, when demand on said
corporation for dishonored checks was made subsequent to the filing of said petition for suspension
of payments.

II.

Pursuant to Sec. 6 (c) of P.D. 902-A, as amended, and in view of the pendency of SEC Case No. 05-95-
5054, as well as of the issuance of by the SEC of an order creating a management committee to
oversee the operations of the corporation and suspending all actions for claims against the
corporation, the suspension of the proceedings in the instant suit is warranted.

III.

Pendency of SEC Case No. 05-95-5054 presents a prejudicial question within the scope of Sections 5
and 6, Rule 111, New Rules of Criminal Procedure, and therefore warrants the suspension of the
instant proceedings.[12]
Respondent prayed that the proceedings in the MeTC be suspended during the pendency of the SEC
proceedings for rehabilitation and suspension of payments of MPPI.[13] Petitioner opposed said motion.
[14]

Corollarilly, in an Order dated March 19, 1996, the SEC granted respondent's Motion to Compel Compliance
and For Issuance of Orders of Suspension in the Criminal Cases. In said order, the SEC directed the
creditors of MPPI, including TRM, to desist from filing and/or prosecuting cases for violations of B.P. Blg. 22,
Estafa or other criminal cases against respondent and/or the officers of MPPI pursuant to its order dated
October 3, 1995 and Sec. 6 (c) of P.D. No. 902-A.[15]

On September 3, 1996, the MeTC issued an Order[16] denying respondent's motion to suspend
proceedings. It held that the issue raised in SEC Case No. 05-95-5054 is not similar or intimately related to
the issue involved in the criminal cases before it and therefore the elements of a prejudicial question do
not exist. Respondent filed a Motion for Reconsideration[17] but it was denied in the Order[18] dated
October 30, 1996.

Aggrieved, respondent filed on December 19, 1996 a petition for certiorari[19] before the RTC questioning
the above orders, later docketed as SCA No. 1259.

In his petition, respondent admitted that he issued the subject checks as a corporate officer of MPPI as
payment for purchases made from TRM. He further claimed that he did not make good the checks upon
demand because MPPI had already filed a petition for suspension of payments before the SEC which
ordered that all actions for claims against MPPI be suspended.

On February 26, 1997, the RTC enjoined the MeTC from further proceeding with Criminal Case Nos. 18521-
23 during the pendency of the action before it.[20] On April 17, 1997, petitioner filed a Motion for Partial
Reconsideration.[21] However, upon agreement of the parties, resolution on the motion was held in
abeyance awaiting the RTC resolution in the main case, the issues raised being identical.[22]

On April 6, 1998, the RTC issued the assailed Resolution[23] the decretal portion of which reads as follows:
IN VIEW OF THE FOREGOING, Respondent Court is directed to suspend the proceedings in Criminal
Cases Nos. 18521-3 during the pendency of the petition in SEC Case No. 05-95-5054.[24]
In granting the petition, the RTC ratiocinated that from the time MPPI placed itself under the operation of
P.D. No. 902-A on May 12, 1995, it was temporarily legally restricted to pay the holder of the subject
checks or make arrangements for payment in full by the drawee. To hold otherwise would lead to the
inevitable conclusion that respondent, so as to avoid being criminally sued for the returned checks, would
personally make good the same.[25]

Hence, this petition assigning the following errors:

I

THE REGIONAL TRIAL COURT ERRED IN ORDERING THE SUSPENSION OF THE CRIMINAL PROCEEDINGS
AGAINST RESPONDENT CO, IN THAT:
A. THERE IS NO LAW WHICH AUTHORIZES THE SUSPENSION OF CRIMINAL PROCEEDINGS
AGAINST A CORPORATE OFFICER FOR VIOLATION OF B.P. 22 ON ACCOUNT OF THE PENDENCY
OF A PETITION FOR SUSPENSION OF PAYMENTS FILED BY HIS CORPORATION.
B. CRIMINAL PROSECUTION CANNOT BE ENJOINED.
C. IN SEEKING SUSPENSION OF THE CRIMINAL PROCEEDINGS AGAINST HIM IN VIEW ALONE OF
THE PENDENCY OF HIS CORPORATION'S PETITION FOR SUSPENSION OF PAYMENTS,
RESPONDENT CO IN EFFECT PLEADS FINANCIAL HARDSHIPS AS A DEFENSE TO A B.P. 22
PROSECUTION, WHICH, HOWEVER, IS NOT RECOGNIZED.
II

IT WAS ERROR FOR THE REGIONAL TRIAL COURT, AS A CIVIL COURT IN A CIVIL PROCEEDING, TO TAKE
COGNIZANCE OF MATTERS OF DEFENSE WHICH COULD BE RAISED ONLY AT THE TRIAL IN THE
CRIMINAL CASE BEFORE THE METROPOLITAN TRIAL COURT. [26]
The issue is:
WHETHER A CRIMINAL CASE AGAINST A CORPORATE OFFICER FOR VIOLATION OF BP 22 COULD BE
SUSPENDED ON ACCOUNT OF THE PENDENCY OF A PETITION FOR SUSPENSION OF PAYMENTS FILED
BY THAT OFFICER'S CORPORATION WITH THE SECURITIES AND EXCHANGE COMMISSION.[27]
Petitioner argues that nowhere in the Insolvency Law or P.D. No. 902-A is it provided that criminal
prosecution of a corporate officer for violation of B.P. Blg. 22 shall be suspended on account of the
pendency of a petition for suspension of payments. Under the Insolvency Law, the filing of a petition for
suspension of payments will only result in the suspension of any execution pending against the debtor,
and only upon request by the debtor to this effect, and that, generally, from the time of filing of the
petition, no creditor may sue to collect his claim against the debtor.[28]

Petitioner adds that under P.D. No. 902-A, the appointment of a management committee, rehabilitation
receiver, board or body in a petition for suspension of payments would only have the effect of suspending
"all actions for claims" against the corporation, partnership, or association under management or
receivership. Prosecution for violation of B.P. Blg. 22 is not an "action for claim" against a corporation but a
criminal proceeding brought by the State against a violator of the law.[29]

To buttress her claim, petitioner contends that criminal prosecution of the respondent is specifically
mandated by law considering that B.P. Blg. 22 states that where a check is drawn by a corporation,
company or entity, the person or persons who actually signed the check in behalf of such drawer shall be
liable.[30] Further, P.D. No. 902-A was never intended to suspend criminal proceedings for violation of B.P.
Blg. 22.

Petitioner further argues that the general rule is that injunction or prohibition does not lie to restrain a
criminal prosecution subject to well-defined exceptions which do not include the instant case.[31]

Petitioner maintains that a petition for suspension of payments is founded on the inability to pay a debt
when it falls due which cannot stand as a ground to suspend criminal prosecution, especially where the
individual defendant is not the party seeking suspension of payment but a corporation.[32]
Finally, petitioner contends that respondent's petition before the RTC presented an issue of whether his
prosecution in the MeTC should be enjoined due to the pendency of MPPI's petition for suspension of
payments in the SEC. However, the RTC, sitting in a civil court in a civil proceeding under Rule 65 of the
Rules of Court, went beyond this issue and took cognizance of, and passed upon, an issue which could only
be raised in the MeTC as a matter of defense.[33]

For his part, respondent posits that the filing and pendency of SEC Case No. 05-95-5054 prevented him
from making good the subject checks. He maintains that while he could have funded the checks when
demand was made by the petitioner, he could not legally do so. Had he made arrangements for the
payment of the checks notwithstanding the pendency of the SEC case, such act would have had the effect
of the corporation paying a creditor and giving it undue preference over the others, which is disallowed by
law.[34]

The petition is meritorious.

Stripped of the non-essentials, the issue before this Court is the propriety of the suspension of Criminal
Case Nos. 18521, 18522, and 18523 during the pendency of SEC Case No. 05-95-5054. Considering that
the rehabilitation proceedings result in the suspension of all claims against a corporation, the issue of
whether or not the suspension includes the criminal cases against the respondent must be resolved.

The resolution of the above issues hinges on the determination of the following: (1) the meaning of
"actions for claims" against the distressed corporation; and (2) the effectivity of the suspension.

Section 6 (c) of P.D. No. 902-A, as amended, provides:

Section 6. In order to effectively exercise such jurisdiction, the Commission shall possess the
following powers:

xxx

c) To appoint one or more receivers of the property, real or personal, which is the subject of the
action pending before the Commission in accordance with the pertinent provisions of the Rules of
Court in such other cases whenever necessary in order to preserve the rights of the parties-litigants
and/or protect the interest of the investing public and creditors: ... Provided, finally, That upon
appointment of a management committee, the rehabilitation receiver, board or body, pursuant to
this Decree, all actions for claims against corporations, partnerships, or associations under
management or receivership pending before any court, tribunal, board or body shall be suspended
accordingly.(italics supplied)
As early as Finasia Investment and Finance Corp. v. Court of Appeals,[35] this Court clarified that the word
"claim" used in Sec. 6 (c) of P.D. No. 902-A, as amended, refers to debts or demands of a pecuniary nature
and the assertion of a right to have money paid. It is used in special proceedings like those before AN
administrative court on insolvency.[36] In Arranza v. B.F. Homes, Inc.,[37] "claim" was defined as an action
involving monetary considerations. Clearly, the suspension contemplated under Sec. 6 (c) of P.D. No. 902-
A refers only to claims involving actions which are pecuniary in nature.

The purpose of suspending the proceedings under P.D. No. 902-A is to prevent a creditor from obtaining an
advantage or preference over another and to protect and preserve the rights of party litigants as well as
the interest of the investing public or creditors.[38] It is intended to give enough breathing space for the
management committee or rehabilitation receiver to make the business viable again, without having to
divert attention and resources to litigations in various fora.[39] The suspension would enable the
management committee or rehabilitation receiver to effectively exercise its/his powers free from any
judicial or extrajudicial interference that might unduly hinder or prevent the "rescue" of the debtor
company. To allow such other action to continue would only add to the burden of the management
committee or rehabilitation receiver, whose time, effort and resources would be wasted in defending
claims against the corporation instead of being directed toward its restructuring and rehabilitation.[40]

Whereas, the gravamen of the offense punished by B.P. Blg. 22 is the act of making and issuing a
worthless check; that is, a check that is dishonored upon its presentation for payment.[41] It is designed
to prevent damage to trade, commerce, and banking caused by worthless checks. In Lozano v. Martinez,
[42] this Court declared that it is not the nonpayment of an obligation which the law punishes. The law is
not intended or designed to coerce a debtor to pay his debt. The thrust of the law is to prohibit, under
pain of penal sanctions, the making and circulation of worthless checks. Because of its deleterious effects
on the public interest, the practice is proscribed by the law. The law punishes the act not as an offense
against property, but an offense against public order. The prime purpose of the criminal action is to punish
the offender in order to deter him and others from committing the same or similar offense, to isolate him
from society, to reform and rehabilitate him or, in general, to maintain social order.[43] Hence, the
criminal prosecution is designed to promote the public welfare by punishing offenders and deterring
others.

Consequently, the filing of the case for violation of B.P. Blg. 22 is not a "claim" that can be enjoined within
the purview of P.D. No. 902-A. True, although conviction of the accused for the alleged crime could result
in the restitution, reparation or indemnification of the private offended party for the damage or injury he
sustained by reason of the felonious act of the accused, nevertheless, prosecution for violation of B.P. Blg.
22 is a criminal action.

A criminal action has a dual purpose, namely, the punishment of the offender and indemnity to the
offended party. The dominant and primordial objective of the criminal action is the punishment of the
offender. The civil action is merely incidental to and consequent to the conviction of the accused. The
reason for this is that criminal actions are primarily intended to vindicate an outrage against the
sovereignty of the state and to impose the appropriate penalty for the vindication of the disturbance to the
social order caused by the offender. On the other hand, the action between the private complainant and
the accused is intended solely to indemnify the former.[44]

As to when the suspension commences, as held in Rizal Commercial Banking Corporation v. Intermediate
Appellate Court[45]:
1. All claims against corporations, partnerships, or associations that are pending before any
court, tribunal, or board, without distinction as to whether or not a creditor is secured or
unsecured, shall be suspended effective upon the appointment of a management committee,
rehabilitation receiver, board, or bodyin accordance with the provisions of Presidential Decree
No. 902-A.[46] (italics supplied)
Otherwise stated, from the time a management committee, rehabilitation receiver, board or body is duly
appointed pursuant to P.D. No. 902-A, all actions for claims against a distressed corporation pending
before any court, tribunal, board or body shall be suspended accordingly. As rationalized in RCBC:
It is thus adequately clear that suspension of claims against a corporation under rehabilitation is
counted or figured up only upon the appointment of a management committee or a rehabilitation
receiver. The holding that suspension of actions for claims against a corporation under rehabilitation
takes effect as soon as the application or a petition for rehabilitation is filed with the SEC -- may, to
some, be more logical and wise but unfortunately, such is incongruent with the clear language of the
law. To insist on such ruling, no matter how practical and noble, would be to encroach upon
legislative prerogative to define the wisdom of the law -- plainly judicial legislation.[47]
From the sequence of events, it is apparent that Check Nos. B032101, B032138, and B032122 were
dishonored on May 11, 1995, April 6, 1995, and April 28, 1995, respectively. Respondent was formally
notified of the dishonor when petitioner, in a letter dated June 27, 1995, demanded that he make good the
checks and pay MPPI's outstanding obligations within five banking days from receipt. Yet, it was only on
October 3, 1995, or more than three months after, that the SEC issued the omnibus order creating the
Management Committee and ordering the suspension of all pending actions for claims against MPPI.
Respondent was, thus, not precluded from making good the checks during that three-month gap when he
received the letter and when the SEC issued the order.

It must be emphasized at this point that as far as the criminal aspect of the cases is concerned, the
provisions of Sec. 6 (c) of P.D. No. 902-A should not interfere with the prosecution of a case for violation of
B.P. Blg. 22, even if restitution, reparation or indemnification could be ordered, because an absurdity
would result, i.e., one who has engaged in criminal conduct could escape punishment by the mere filing of
a petition for rehabilitation by the corporation of which he is an officer. At any rate, should the court deem
it fit to award indemnification, such award would now fall under the category of a claim under Sec. 6 (c) of
P.D. No. 902-A, considering that it is already one for monetary or pecuniary consideration. Only to this
extent can the order of suspension be considered obligatory upon any court, tribunal, branch or body
where there are pending actions for claims against the distressed corporation.

The trend is towards vesting administrative bodies like the SEC with the power to adjudicate matters
coming under their particular specialization, to ensure a more knowledgeable solution of the problems
submitted to them. This would also relieve the regular courts of a substantial number of cases that would
otherwise swell their already clogged dockets. But as expedient as this policy may be, it should not deprive
the courts of justice of their power to decide criminal cases. Otherwise, the creeping take-over by the
administrative agencies of the judicial power vested in the courts would render the judiciary virtually
impotent in the discharge of the duties assigned to it by the Constitution.[48]

WHEREFORE, the Petition is hereby GRANTED. The Resolution of the Regional Trial Court, Branch 161,
Pasig City in SCA No. 1259, dated April 6, 1998, is REVERSED andSET ASIDE. The Metropolitan Trial
Court, Pasig City, is ordered to proceed with Criminal Case Nos. 18521, 18522 and 18523.

No costs.

SO ORDERED.

Puno, C.J., (Chairperson), Carpio, Corona, and Leonardo-De Castro, JJ., concur.

[1] Rollo, pp. 195-208.

[2] Id. at 3.

[3] Id. at 25-26.

[4] Id. at 29-30.

[5] Id. at 27-28.

[6] Id. at 4.

[7] Id. at 31-32.

[8] Id. at 6.

[9] Id. at 232-233.

[10] Id. at 7.

[11] Id. at 41-52.

[12] Id. at 43.

[13] Id. at 52.

[14] Id. at 54-63.

[15] Id. at 233-234.

[16] Id. at 72.

[17] Id. at 73-80.

[18] Id. at 84.

[19] Id. at 85-108.

[20] Id. at 135-136.

[21] Id. at 137-147.

[22] Id. at 12.

[23] Supra, note 1.

[24] Id. at 208.

[25] Id. at 207.

[26] Id. at 14-15.

[27] Id. at 14.

[28] Id. at 16.

[29] Id. at 17.

[30] Id.

[31] Id. at 18-19.

[32] Id. at 18.

[33] Id. at 19.

[34] Id. at 240-242.

[35] G.R. No. 107002, October 7, 1994, 237 SCRA 446.

[36] Id. at 450, citing Sibal, PHIL. LEGAL ENCYCLOPEDIA, p. 132, 1986 ed.

[37] 389 Phil. 318 (2000).

[38] Supra, note 35 at 450-451.

[39] Rubberworld (Phils.), Inc. v. NLRC, 365 Phil. 273, 276-277 (1999).

[40] Sobrejuanite v. ASB Development Corporation, G.R. No. 165675, September 30, 2005, 471 SCRA 763, 771.

[41] Ricaforte v. Jurado, G.R. No. 154438, September 25, 2007, 532 SCRA 317, 330,citing Ngo v. People of the Philippines, G.R. No. 155815, July 14, 2004, 434 SCRA 522, 530-

531, citing Recuerdo v. People of the Philippines, 443 Phil. 770, 777 (2003).

[42] Lozano v. Martinez, 230 Phil. 406, 421 (1986).

[43] Quinto v. Andres, G.R. No. 155791, March 16, 2005, 453 SCRA 511, 519.

[44] Salazar v. People, G.R. No. 151931, September 23, 2003, 411 SCRA 598, 605.

[45] G.R. No. 74851, December 9, 1999, 320 SCRA 279.

[46] Id. at 293.

[47] Id. at 288-289.

[48] Saura v. Saura, Jr., G.R. No. 136159, September 1, 1999, 313 SCRA 465, 474,citing Macapalan v. Katalbas-Moscardon, G.R. No. 101711, October 1, 1993, 227 SCRA 49, 54-55.

Pasted from <http://elibrary.judiciary.gov.ph/decisions.php?doctype=Decisions%20/%20Signed

%20Resolutions&docid=1220495146630512108>

Provident Int'l Co vs. Venus (2008)

Sunday, June 06, 2010
4:37 AM
G.R. No. 167041 June 17, 2008
PROVIDENT INTERNATIONAL RESOURCES CORPORATION, represented by Edward T. Marcelo,
Constancio D. Francisco, Anna Melinda Marcelo-Revilla, Lydia J. Chuanico, Daniel T. Pascual,
Linda J. Marcelo, John Marcelo, Celia C. Caburnay and Celedonio P. Escaño, Jr., and CELEDONIO
ESCAÑO, JR.,petitioners,
vs.
JOAQUIN T. VENUS, JOSE MA. CARLOS L. ZUMEL, ALFREDO D. ROA III, LAZARO L. MADARA and
SANTIAGO ALVAREZ, JR., respondents.
DECISION
QUISUMBING, J.:
For review on certiorari are the Decision1 dated December 13, 2004 and Resolution2 dated February 3,
2005 of the Court of Appeals in CA-G.R. SP No. 77672, which set aside the Order3 dated May 27, 2003, of
the Securities and Exchange Commission (SEC) En Banc in CRMD-AA-Case No. 04-03-22.
The pertinent facts are as follows:
Petitioner Provident International Resources Corporation (PIRC) is a corporation duly organized under
Philippine law. It was registered with the SEC on September 20, 1979. Edward T. Marcelo, Constancio D.
Francisco, Lydia J. Chuanico, Daniel T. Pascual, and Jose A. Lazaro, collectively known as the Marcelo
group, were its incorporators, original stockholders, and directors.4
Another group, known as the Asistio group, composed of Luis A. Asistio, Lazaro L. Madara, Alfredo D. Roa
III, Joaquin T. Venus, and Jose Ma. Carlos L. Zumel, claimed that the Marcelo group acquired shares in
PIRC as mere trustees for the Asistio group. The Marcelo group allegedly executed a waiver of pre-
emptive right, blank deeds of assignment, and blank deeds of transfer; endorsed in blank their respective
stock certificates over all of the outstanding capital stock registered in their names; and completed the
blank deeds in 2002 to effect transfers to the Asistio group.
On August 6, 2002, the Company Registration and Monitoring Department (CRMD) of the SEC issued a
certification5 stating that verification made on the available records of PIRC showed failure to register its
stock and transfer book (STB). It also appears that on April 21, 1998, the Supervision and Monitoring
Department of the SEC had issued a show cause letter6 to PIRC for its supposed failure to register its STB.
On August 7, 2002, the Asistio group registered PIRC's STB. Upon learning of this, PIRC's assistant
corporate secretary, Celedonio Escaño, Jr., requested the SEC for a certification of the registration in 1979
of PIRC's STB. Escaño presented the 1979-registered STB bearing the SEC stamp and the signature of the
officer in charge of book registration.
Meanwhile, on October 17, 2002, the Asistio group filed in the Regional Trial Court (RTC) of Muntinlupa
City, a complaint7 docketed as Civil Case No. 02-238 against the Marcelo group. The Asistio group prayed
that the Marcelo group be enjoined from acting as directors of PIRC, from physically holding office at
PIRC's office, and from taking custody of PIRC's corporate records.
Then, on October 30, 2002, the CRMD of the SEC issued a letter8 recalling the certification it had issued
on August 6, 2002 and canceling the 2002-registered STB. However, one Kennedy B. Sarmiento
requested the SEC not to cancel the 2002-registered STB. The SEC thus scheduled a conference to
determine which of the two STBs is valid. The parties were ordered to file their respective position papers.
On February 12, 2003, the hearing officer ruled:
WHEREFORE, premises considered and finding the 1979 stock and transfer book authentic and duly
executed, the Commission hereby recall the certification issued on 6 August 2002 and cancel the stock
and transfer book registered on October 2002. Accordingly, the stock and transfer book registered on 25
September 1979 shall remain valid.
SO ORDERED.9
The Asistio group appealed to the SEC Board of Commissioners. They claimed that the issue of which of
the two STBs is valid is intra-corporate in nature; hence, the RTC, not the SEC, has jurisdiction.
The SEC, in its assailed order, denied the appeal. The SEC ratiocinated that the determination of which of
the two STBs is valid calls for regulatory, not judicial power and is therefore within its exclusive
jurisdiction.
The Asistio group elevated the case to the Court of Appeals, which ruled in their favor. The Court of
Appeals held that the issue of which of the two STBs is valid is intra-corporate and thus subject to the
jurisdiction of the RTC. The appellate court reversed the SEC ruling, to wit:
WHEREFORE, premises considered, the instant petition is hereby GRANTED. The Order of the
Commissionen banc dated May 27, 2003, is hereby ANNULLED and SET ASIDE.
SO ORDERED.10
The motion for reconsideration of the aforequoted decision was denied for lack of merit. Aggrieved, the
Marcelo group filed the instant petition for review on certiorari raising the sole issue
WHETHER OR NOT THE SEC HAS THE JURISDICTION TO RECALL AND CANCEL A STOCK AND TRANSFER
BOOK WHICH IT ISSUED IN 2002 BECAUSE OF ITS MISTAKEN ASSUMPTION THAT NO STOCK AND
TRANSFER BOOK HAD BEEN PREVIOUSLY ISSUED IN 1979.11
Petitioners, consisting of the Marcelo group, contend that the Court of Appeals erred in ruling that the SEC
has no jurisdiction over the case. Petitioners insist the issue in this case is not an intra-corporate dispute,
but one that calls for the exercise of the SEC's regulatory power over corporations. Petitioners maintain
that the recall and cancellation of the 2002-registered STB does not conflict with the proceedings in the
civil case so as to violate thesub judice rule. Petitioners point out that a judgment has, in fact, been
promulgated in the said civil case.
Respondents, composed of the Asistio group, counter that in resolving the question of which of the two
STBs is valid, the issues of (1) falsification by corporate officers of corporate records and (2) the
acquisition of shares by the Asistio group, must first be settled. Respondents thus claim that the real
issue is intra-corporate and that whether the 2002-registered STB should be recalled is a mere
consequence of the real controversies that should be heard by a regular court.
To resolve the issue of jurisdiction, it would be good to look at the powers and functions of the SEC.
The Securities Regulation Code (Republic Act No. 8799) provides:
Sec. 5. Powers and Functions of the Commission.- 5.1. The Commission shall act with transparency and
shall have the powers and functions provided by this Code, Presidential Decree No. 902-A, the
Corporation Code, . . . . Pursuant thereto the Commission shall have, among others, the following powers
and functions:
(a) Have jurisdiction and supervision over all corporations, partnerships or associations who are the
grantees of primary franchises and /or a license or permit issued by the Government;
(b) Formulate policies and recommendations in issues concerning the securities market, advise Congress
and other government agencies on all aspects of the securities market and propose legislation and
amendments thereto;
(c) Approve, reject, suspend, revoke or require amendments to registration statements, and registration
and licensing applications;
(d) Regulate, investigate or supervise the activities of persons to ensure compliance;
(e) Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and other
SROs;
(f) Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant
thereto;
(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide
guidance on and supervise compliance with such rules, regulations and order;
(h) Enlist the aid and support of and/or deputize any and all enforcement agencies of the Government,
civil or military as well as any private institution, corporation, firm, association or person in the
implementation of its powers and functions under this Code;
(i) Issue cease and desist orders to prevent fraud or injury to the investing public;
(j) Punish for contempt of the Commission, both direct and indirect, in accordance with the pertinent
provisions of and penalties prescribed by the Rules of Court;
(k) Compel the officers of any registered corporation or association to call meetings of stockholders or
members thereof under its supervision;
(l) Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission
and in appropriate cases, order the examination, search and seizure of all documents, papers, files and
records, tax returns, and books of accounts of any entity or person under investigation as may be
necessary for the proper disposition of the cases before it, subject to the provisions of existing laws;
(m) Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of
corporations, partnerships or associations, upon any of the grounds provided by law; and
(n) Exercise such other powers as may be provided by law as well as those which may be implied from, or
which are necessary or incidental to the carrying out of, the express powers granted the Commission to
achieve the objectives and purposes of these laws. (Italics supplied.)
From the above, it can be said that the SEC's regulatory authority over private corporations encompasses
a wide margin of areas, touching nearly all of a corporation's concerns.12 This authority more vividly
springs from the fact that a corporation owes its existence to the concession of its corporate franchise
from the state.13 Under its regulatory responsibilities, the SEC may pass upon applications for, or may
suspend or revoke (after due notice and hearing), certificates of registration of corporations, partnerships
and associations (excluding cooperatives, homeowners' association, and labor unions); compel legal and
regulatory compliances; conduct inspections; and impose fines or other penalties for violations of the
Revised Securities Act, as well as implementing rules and directives of the SEC, such as may be
warranted.14
Considering that the SEC, after due notice and hearing, has the regulatory power to revoke the corporate
franchise -- from which a corporation owes its legal existence -- the SEC must likewise have the lesser
power of merely recalling and canceling a STB that was erroneously registered.
Going to the particular facts of the instant case, we find that the SEC has the primary competence and
means to determine and verify whether the subject 1979 STB presented by the incumbent assistant
corporate secretary was indeed authentic, and duly registered by the SEC as early as September 1979. As
the administrative agency responsible for the registration and monitoring of STBs, it is the body cognizant
of the STB registration procedures, and in possession of the pertinent files, records and specimen
signatures of authorized officers relating to the registration of STBs. The evaluation of whether a STB was
authorized by the SEC primarily requires an examination of the STB itself and the SEC files. This function
necessarily belongs to the SEC as part of its regulatory jurisdiction. Contrary to the allegations of
respondents, the issues involved in this case can be resolved without going into the intra-corporate
controversies brought up by respondents.
As the regulatory body, it is the SEC's duty to ensure that there is only one set of STB for each
corporation. The determination of whether or not the 1979-registered STB is valid and of whether to
cancel and revoke the August 6, 2002 certification and the registration of the 2002 STB on the ground
that there already is an existing STB is impliedly and necessarily within the regulatory jurisdiction of the
SEC.
Under the circumstances of the instant case, we find no error in the exercise of jurisdiction by the SEC. All
that the SEC was tasked to do, and which it actually did, was to evaluate the 1979 STB presented to it. In
ruling that the 1979 STB was validly registered the SEC Hearing Officer explained and ruled thus:
After careful examination of the 1979 stock and transfer book, it has been observed that subject book
was properly presented and stamped received by the then SEC employee in charge of registration. It is
worthy to note that the signature of Ms. Nelly C. Gabriel appears to be genuine and validly executed on
25 September 1979 after comparing with Ms. Gabriel's signature on the available records on file with the
Commission, existing stock and transfer books and other public documents.
This fact was further certified and attested by Ms. Angeli G. Villanueva, daughter of Ms. Nelly C. Gabriel,
who is currently working with the Commission that the signature appearing in the 1979 stock and transfer
book is unquestionably the signature of Ms. Gabriel.
xxxx
WHEREFORE, premises considered and finding the 1979 stock and transfer book authentic and duly
executed, the Commission hereby recall the certification issued on 6 August 2002 and cancel the stock
and transfer book registered on October 2002. Accordingly, the stock and transfer book registered on 25
September 1979 shall remain valid.
SO ORDERED.15
We find the above ruling proper and within the SEC's jurisdiction to make.
Noteworthy, during the pendency of the instant petition, a decision16 in the civil case was rendered by
the RTC. On April 23, 2005, the RTC of Muntinlupa City, Branch 276, dismissed the claim of the Asistio
group and declared the Marcelo group the duly constituted officers of PIRC, thus upholding the validity of
the 1979-registered STB.
WHEREFORE, the petition is GRANTED. The assailed Decision dated December 13, 2004 and Resolution
dated February 3, 2005 of the Court of Appeals in CA-G.R. SP No. 77672, are REVERSED and SET ASIDE;
the Order dated May 27, 2003, of the Securities and Exchange Commission (SEC) En Banc in CRMD-AA-
Case No. 04-03-22 is AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
LEONARDO A. QUISUMBING
Associate Justice
WE CONCUR:

DANTE O. TINGA
Associate Justice
* RUBEN T. REYES ** TERESITA J. LEONARDO-DE CASTRO
Associate Justice Associate Justice
ARTURO D. BRION
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.
 LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, it is
hereby certified that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.
REYNATO S. PUNO
Chief Justice
Footnotes
* Additional member in place of Associate Justice Presbitero J. Velasco, Jr. who is on official leave.
** Additional member in place of Associate Justice Conchita Carpio Morales who is on official leave.
1 Rollo, pp. 43-50. Penned by Associate Justice Juan Q. Enriquez, Jr., with Associate Justices Salvador J.
Valdez, Jr. and Vicente Q. Roxas concurring.
2 Id. at 52-53.
3 Id. at 412-415.
4 Id. at 54-60.
5 Id. at 588.
6 Id. at 348.
7 Records, folder 17, pp. 143-149.
8 Rollo, pp. 276-277.
9 Id. at 359.
10 Id. at 50.
11 Id. at 660.
12 Philippine Stock Exchange, Inc. v. The Honorable Court of Appeals, G.R. No. 125469, October 27, 1997,
281 SCRA 232, 246.
13 Id.
14 Securities and Exchange Commission v. Court of Appeals, G.R. Nos. 106425 & 106431-32, July 21,
1995, 246 SCRA 738, 740.
15 Rollo, pp. 358-359.
16 Records, folder 17, pp. 44-80.

Pasted from <http://www.lawphil.net/judjuris/juri2008/jun2008/gr_167041_2008.html>

Garcia vs. Eastelcom (2009)

Sunday, June 06, 2010
4:39 AM

G.R. No. 173115 April 16, 2009

ATTY. VIRGILIO R. GARCIA, Petitioner,
vs.
EASTERN TELECOMMUNICATIONS PHILIPPINES, INC. and ATTY. SALVADOR C.
HIZON, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. Nos. 173163-64 April 16, 2009
EASTERN TELECOMMUNICATIONS PHILIPPINES, INC. and ATTY. SALVADOR C.
HIZON, Petitioners,
vs.
ATTY. VIRGILIO R. GARCIA, Respondent.
DECISION
CHICO-NAZARIO, J.:
Assailed before Us via consolidated petitions for certiorari under Rule 45 of the Rules of Court is the
Decision1 of the Court of Appeals in CA-G.R. SP No. 88887 and No. 89066 dated 24 March 2006, which
dismissed the petitions for certiorari questioning the Decision2 of the National Labor Relations
Commission (NLRC) dated 21 March 2003, docketed as NLRC NCR CA No. 028901-01. The NLRC reversed
the decision of the Labor Arbiter dated 30 September 2002, finding the preventive suspension and
dismissal of Atty. Virgilio R. Garcia illegal, and dismissed the case for lack of jurisdiction.
The facts are not disputed.
Atty. Virgilio R. Garcia was the Vice President and Head of Business Support Services and Human
Resource Departments of the Eastern Telecommunications Philippines, Inc. (ETPI).
ETPI is a corporation duly organized and existing under the laws of the Republic of the Philippines.
Atty. Salvador C. Hizon is the President/Chief Executive Officer of ETPI.
On 16 January 2000, Atty. Garcia was placed under preventive suspension based on three complaints for
sexual harassment filed by Atty. Maria Larrie Alinsunurin, former manager of ETPI’s Office of the Legal
Counsel; Ms. Emma Valeros-Cruz, Assistant Vice President of ETPI and former secretary of Atty. Garcia;
and Dr. Mercedita M. Macalintal, medical retainer/company physician of ETPI. In response to the
complaints, the Human Resources Department constituted a Committee on Decorum to investigate the
complaints. By reason of said complaints, Atty. Garcia was placed in preventive suspension. The
committee conducted an investigation where Atty. Garcia was given copies of affidavits of the witnesses
against him and a chance to defend himself and to submit affidavits of his witnesses. The Committee
submitted a report which recommended his dismissal.3 In a letter dated 14 April 2000, Atty. Hizon
advised Atty. Garcia that his employment with ETPI was, per recommendation of the Committee,
terminated effective 16 April 2000.
A complaint-affidavit for illegal dismissal with prayer for full backwages4 and recovery of moral and
exemplary damages was filed on 11 July 2000 by Atty. Virgilio R. Garcia against ETPI and Atty. Salvador C.
Hizon.5 The case, docketed as NLRC NCR-30-07-02787-00, was assigned to Labor Arbiter Patricio P. Libo-
on. The parties submitted their respective position papers,6 reply position papers7 and rejoinders.8 Per
agreement of the parties, ETPI and Atty. Hizon filed a sur-rejoinder on 6 March 2001.9 Atty. Garcia
manifested that he was no longer submitting a sur-rejoinder and was submitting the case for resolution.
On 15 April 2001, Atty. Garcia filed a Motion to Inhibit, praying that Labor Arbiter Libo-on inhibit himself
from further proceeding with the case, on the ground that he was a fraternity brother of Atty.
Hizon.10 Atty. Garcia thereafter filed a second Motion to Inhibit11 on 10 May 2001. ETPI and Atty. Hizon
opposed said motion, arguing that the reason on which it was grounded was not one of those provided by
law.12 In an Order dated 13 June 2001, said motions were denied.13 Atty. Garcia appealed said order
before the NLRC via a Memorandum on Appeal dated 4 July 2001,14 to which ETPI and Atty. Hizon filed an
Answer.15
The NLRC, in its decision dated 20 December 2001, set aside the order of Labor Arbiter Libo-on and
ordered the re-raffling of the case.16 ETPI and Atty. Hizon moved for the reconsideration17 of the
decision, but the same was denied.18 Consequently, the case was re-raffled to Labor Arbiter Ramon
Valentin C. Reyes.19
The parties were directed to submit their respective memoranda.20 Atty. Garcia filed his
memorandum21 on 9 July 2002 while ETPI and Atty. Hizon submitted their memorandum22 on 22 July
2002. On 16 August 2002, with leave of court, ETPI and Atty. Hizon filed a Reply Memorandum, raising for
the first time the issue of lack of jurisdiction.
In his decision dated 30 September 2002, Labor Arbiter Reyes found the preventive suspension and
subsequent dismissal of Atty. Garcia illegal. The dispositive portion of the decision reads:
WHEREFORE, premises all considered, judgment is hereby rendered, finding the preventive suspension
and the dismissal illegal and ordering the respondents to:
1. Reinstate complainant to his former position without loss of seniority rights and other benefits
appurtenant to the position that complainant received prior to the illegal dismissal;
2. Pay complainant his backwages which for purpose of appeal is computed to the amount
of P4,200,000.00 (P150,000 x 28);
3. Pay complainant Moral damages in the amount of P1,000,000.00 and Exemplary damages in the
amount of P500,000.00.23
On 14 November 2002, Atty. Garcia filed an Ex-Parte Motion for the Issuance of a Writ of Execution.24 On
20 November 2002, Labor Arbiter Reyes issued a Writ of Execution insofar as the reinstatement aspect of
the decision was concerned.25 ETPI and Atty. Hizon filed a Very Urgent Motion to Lift/Quash Writ of
Execution on 28 November 2002.26 Per Sheriff’s Return on the Writ of Execution, said writ remained
unsatisfied because ETPI and Atty. Hizon refused to reinstate Atty. Garcia to his former position.27
On 29 November 2002, Atty. Garcia filed an Ex-Parte Motion for the Issuance of an Alias Writ of Execution
praying that said writ be issued ordering the sheriff to enforce the decision by garnishing the amount
of P450,000.00 representing his monthly salaries for two months and 13th month pay from any of ETPI’s
bank accounts.28 Atty. Garcia manifested that he was no longer filing any responsive pleading to the
Very Urgent Motion to Lift/Quash Writ of Execution because the Labor Arbiter lost jurisdiction over the
case when an appeal had been perfected.29In an Order dated 10 December 2002, Labor Arbiter Reyes
denied the Very Urgent Motion to Lift/Quash Writ of Execution, explaining that it still had jurisdiction over
the reinstatement aspect of the decision, notwithstanding the appeal taken, and that the grounds relied
upon for the lifting or quashing of the writ were not valid grounds.30Labor Arbiter Reyes subsequently
issued a 1st Alias Writ of Execution dated 11 December 2002 ordering the sheriff to proceed to the
premises of ETPI to reinstate Atty. Garcia and/or garnish the amounts prayed for.31 Per Sheriff’s Return
dated 17 January 2003, the 1st Alias Writ of Execution was satisfied with the amount ofP450,000.00 being
released for proper disposition to Atty. Garcia.32
ETPI and Atty. Hizon appealed the decision to the NLRC, filing a Notice of Appeal and Memorandum of
Appeal,33which appeal was opposed by Atty. Garcia.34 The appeal was docketed as NLRC NCR CA Case
No. 028901-01. ETPI and Atty. Hizon filed a Supplemental Appeal Memorandum dated 23 January 2003
(With Very Urgent Motion for Issuance of Temporary Restraining Order).35 In a Manifestation ad
Cautelam dated 28 January 2003, without waiving their right to continue to question the jurisdiction of the
Labor Arbiter, they informed the Labor Arbiter that they had filed a Supplemental Appeal Memorandum
before the NLRC and asked that all processes relating to the implementation of the reinstatement order
be held in abeyance so as not to render moot the reliefs prayed for in said Supplemental Appeal
Memorandum.36 They likewise filed on 31 January 2003 a Very Urgent Motion to Lift/Quash Order of
Garnishment ad Cautelam, praying that the notice of garnishment on ETPI’s bank account with
Metrobank, Dela Costa Branch, or with other banks with which ETPI maintained an account and which
received said notice of garnishment be immediately lifted/quashed.37 On 12 February 2003, Atty. Garcia
filed his Opposition to said Supplemental Appeal Memorandum.38
On 3 February 2003, Atty. Garcia filed an Ex-Parte Motion for the Issuance of a 2nd Alias Writ of
Execution.39 In an Order dated 5 February 2003, Labor Arbiter Reyes lifted the notice of garnishment on
ETPI’s bank account with Metrobank, Dela Costa Branch.40 On 10 February 2003, Labor Arbiter Reyes
issued a 2nd Writ of Execution.41
In a Manifestation ad Cautelam42 dated 10 February 2003, ETPI and Atty. Hizon said that they filed with
the NLRC on 7 February 2003 an Urgent Petition (for Preliminary Injunction With Issuance of Temporary
Restraining Order)43 which prayed, inter alia, for the issuance of a temporary restraining order to restrain
the execution pending appeal of the order of reinstatement and to enjoin the Labor Arbiter from issuing
writs of execution or other processes implementing the decision dated 30 September 2002. They added
that they also filed on 7 February 2003 a Notice to Withdraw44 their Supplemental Appeal Memorandum
dated 23 January 2003.
ETPI and Atty. Hizon, without waiving their right to continue to question the jurisdiction of the Labor
Arbiter over the case, filed on 18 February 2003 a Motion to Inhibit, seeking the inhibition of Labor Arbiter
Reyes for allegedly evident partiality in favor of the complainant in issuing writs of execution in
connection with the order of reinstatement contained in his decision dated 30 September 2002, despite
the pendency of an Urgent Petition (for Preliminary Injunction With Prayer for the Issuance of Temporary
Restraining Order) with the NLRC, which sought the restraining of the execution pending appeal of the
order of reinstatement.45 The petition for injunction was docketed as NLRC NCR IC No. 0001193-02. Atty.
Garcia filed an opposition,46 to which ETPI and Atty. Hizon filed a reply.47 Said motion to inhibit was
subsequently granted by Labor Arbiter Reyes.48 The case was re-raffled to Labor Arbiter Elias H.
Salinas.49
In an Order dated 26 February 2003, the NLRC, in NLRC NCR IC No. 0001193-02, issued a temporary
restraining order (TRO) enjoining Labor Arbiter Reyes from executing pending appeal the order of
reinstatement contained in his decision dated 30 September 2002, and from issuing similar writs of
execution pending resolution of the petition for preliminary injunction. It directed ETPI and Atty. Hizon to
post a bond in the amount of P30,000.00 to answer for any damage which Atty. Garcia may suffer by
reason of the issuance of the TRO.50
On 21 March 2003, the NLRC rendered its decision in NLRC NCR CA Case No. 028901-01 reversing the
decision of Labor Arbiter Reyes and dismissing the case for lack of jurisdiction. The decretal portion of the
decision reads:
WHEREFORE, the decision appealed from is REVERSED, and the instant case DISMISSED for lack of
jurisdiction.51
The Commission ruled that the dismissal of Atty. Garcia, being ETPI’s Vice President, partook of the
nature of an intra-corporate dispute cognizable by Regional Trial Courts and not by Labor Arbiters. It
added that ETPI and Atty. Hizon were not barred by estoppel from challenging the jurisdiction of the Labor
Arbiter over the instant case.
Atty. Garcia moved for the reconsideration52 of the decision, which ETPI and Atty. Hizon opposed.53 In a
resolution dated 16 December 2003, the motion for reconsideration was denied for lack of merit.54
On 26 March 2003, Atty. Garcia filed a Motion to Inhibit, requesting Associate Commissioner Angelita A.
Gacutan to inhibit herself from further participating in the deliberation and resolution of the case for
manifest bias and partiality in favor of ETPI and Atty. Hizon. The motion was later withdrawn.55
On 3 April 2003, the NLRC made permanent the TRO it issued pursuant to its ruling in NLRC NCR CA Case
No. 028901-01, that since the Labor Arbiter had no jurisdiction over the case, the decision of the Labor
Arbiter dated 30 September 2002 was void.56
On 6 March 2004, the resolution dated 16 December 2003 became final and executory. Consequently, on
14 June 2004, an entry of judgment was made recording said resolution in the Book of Entries of
Judgments.57
On 18 June 2004, ETPI and Atty. Hizon filed a Motion to Discharge and/or Release the Appeal Bond58 in
the amount of P5,700,000.00 that they had posted. 59
On 9 July 2004, Atty. Garcia filed a Motion to Set Aside Finality of Judgment With Opposition to Motion to
Discharge Appeal Bond,60 claiming that he did not receive the resolution dated 16 December 2003 of the
NLRC, the same having been sent to his former address at 9 Isidora St., Don Antonio Heights, Diliman,
Quezon City, and not to his new address at 4 Pele St., Filinvest 2, Batasan Hills, Quezon City, where he
had been receiving all pleadings, Resolutions, Orders and Decisions pertaining to the instant case since
April 2001. On 19 July 2004, ETPI and Atty. Hizon filed their opposition thereto. On 23 August 2004, the
NLRC, admitting that it missent the resolution dated 16 December 2003 denying Atty. Garcia’s motion for
reconsideration, issued an order granting the motion. It recalled and set aside the Entry of Judgment
dated 14 June 2004 and denied the Motion to Discharge and/or Release the Appeal Bond.61
In its Motion for Reconsideration dated 17 September 2004, ETPI and Atty. Hizon argued that the NLRC
correctly sent the resolution of 16 December 2003 to counsel’s allegedly old address, considering that
same was counsel’s address of record, there being no formal notice filed with the NLRC informing it of a
change of address. They contended that the aforesaid resolution had become final and executory, and
that Atty. Garcia should bear the consequences of his inequitable conduct and/or gross negligence.62 On
10 January 2005, the NLRC denied the motion for reconsideration.63
On 14 March 2005, Atty. Garcia appealed to the Court of Appeals via a Petition for Certiorari. It prayed
that the Decision dated 21 March 2003 and resolution dated 16 December 2003 of the NLRC be annulled
and set aside, and that the decision of the Labor Arbiter dated 30 September 2002 be reinstated.64 The
appeal was docketed as CA-G.R. SP No. 88887.
On 28 March 2005, ETPI and Atty. Hizon likewise filed a Petition for Certiorari asking that the Orders dated
23 August 2004 and 10 January 2005 of the NLRC be set aside; that its resolution dated 16 December
2003 be declared final and executory; and that the NLRC be directed to discharge and/or release
Supersedeas Bond No. JCL (15) 00823 SICI Bond No. 75069 dated 18 November 2002 posted by
them.65 The appeal was docketed as CA-G.R. SP No. 89066.
Upon motion of Atty. Garcia, the two petitions for certiorari were consolidated.66
On 24 March 2006, the assailed decision of the Court of Appeals was rendered, the dispositive portion
reading:
UPON THE VIEW WE TAKE OF THIS CASE, THUS, the consolidated petitions are hereby DISMISSED for lack
of merit. Without costs in both instances.67
The appellate court, on ETPI and Atty. Hizon’s argument that Atty. Garcia’s petition for certiorari was filed
out of time, ruled that the NLRC did not commit grave abuse of discretion in liberally applying the rules
regarding changes in the address of counsel. It likewise ruled that Atty. Garcia, being the Vice President
for Business Support Services and Human Resource Departments of ETPI, was a corporate officer at the
time he was removed. Being a corporate officer, his removal was a corporate act and/or an intra-
corporate controversy, the jurisdiction of which rested with the Securities and Exchange Commission
(now with the Regional Trial Court), and not the Labor Arbiter and the NLRC. It added that ETPI and Atty.
Hizon were not estopped from questioning the jurisdiction of the Labor Arbiter before the NLRC on appeal,
inasmuch as said issue was seasonably raised by ETPI and Atty. Hizon in their reply memorandum before
the Labor Arbiter.
On 18 April 2006, Atty. Garcia filed his Motion for Reconsideration.68 On 20 April 2006, ETPI and Atty.
Hizon filed a Motion for Partial Reconsideration.69 The parties filed their respective comments
thereon.70 On 14 June 2006, the Court of Appeals denied the motions for reconsideration.71
Atty. Garcia is now before us via a Petition for Review, which he filed on 3 August 2006.72 The petition
was docketed as G.R. No. 173115. On 8 August 2006, he filed an Amended Petition for Review.73 He
prays that the decision of the NLRC dated 21 March 2003 and its resolution dated 16 December 2003,
and the decision of the Court of Appeals dated 24 March 2006 and its resolution dated 14 June 2006, be
reconsidered and set aside and that the decision of the Labor Arbiter dated 30 September 2002 be
affirmed and reinstated.
ETPI and Atty. Hizon are also before us by way of a Petition for Certiorari.74 The petition which was filed
on 6 July 2006 was docketed as G.R. Nos. 173163-64.
In our resolution dated 30 August 2006, G.R. Nos. 173163-64 were consolidated with G.R. No. 173115,
and the parties were required to comment on the petitions within ten days from notice. 75 Atty. Garcia
filed his comment on 13 November 2006,76 while ETPI and Atty. Hizon filed theirs on 29 November
2006.77
On 15 January 2007, we noted the comments filed by the parties and required them to file their Replies to
said comments.78 ETPI and Atty. Hizon79 filed their Reply on 26 February 2007, with Atty. Garcia filing
his on 2 March 2007.80
On 26 March 2007, we gave due course to the petitions and required the parties to submit the respective
memoranda within 30 days from notice.81 Atty. Garcia submitted his Memorandum82 on 12 June 2007
and ETPI and Atty. Hizon filed theirs on 13 July 2007.83 With leave of court, ETPI and Atty. Hizon filed a
reply memorandum.84
Atty. Garcia raises the lone issue:
WHETHER THE QUESTION OF LEGALITY OR ILLEGALITY OF THE REMOVAL OR TERMINATION OF
EMPLOYMENT OF AN OFFICER OF A CORPORATION IS AN INTRA-CORPORATE CONTROVERSY THAT FALLS
UNDER THE ORIGINAL EXCLUSIVE JURISDICTION OF THE REGIONAL TRIAL COURTS?85
ETPI and Atty. Hizon argue that the Court of Appeals, in ruling that the NLRC did not commit grave abuse
of discretion amounting to lack or excess of jurisdiction in issuing its order dated 23 August 2004 and its
resolution dated 10 January 2005, committed grave reversible error and decided questions of substance
in a way not in accordance with law and applicable decisions of the Honorable Court, and departed from
the accepted and usual course of judicial proceedings, necessitating the Honorable Court’s exercise of its
power of supervision.
I
THE RESOLUTION DATED 16 DECEMBER 2003 ISSUED BY THE NATIONAL LABOR RELATIONS
COMMISSION (SECOND DIVISION) HAS ALREADY BECOME FINAL AND EXECUTORY AND HAS VESTED
UPON PETITIONERS ETPI, ET AL. A RIGHT RECOGNIZED AND PROTECTED UNDER THE LAW
CONSIDERING THAT:
A. RESPONDENT’S COPY OF SAID RESOLUTION WAS PROPERLY SENT TO HIS ADDRESS OF RECORD,
AT THE LATEST ON 15 JANUARY 2004, IN ACCORDANCE WITH WELL ESTABLISHED JURISPRUDENCE.
HENCE, RESPONDENT GARCIA HAD ONLY UNTIL 15 MARCH 2004 WITHIN WHICH TO FILE HIS
PETITION FOR CERTIORARI WITH THE COURT OF APPEALS. RESPONDENT GARCIA FAILED TO FILE HIS
PETITION FOR CERTIORARI BY SAID DATE.
B. NOTWITHSTANDING THE FOREGOING, RESPONDENT GARCIA HAD ACTUAL NOTICE OF THE
ISSUANCE OF THE SAME AS OF 24 JUNE 2004. HENCE RESPONDENT GARCIA HAD ONLY UNTIL 23
AUGUST 2004 WITHIN WHICH TO FILE HIS PETITION FOR CERTIORARI WITH THE COURT OF APPEALS.
RESPONDENT GARCIA FAILED TO FILE HIS PETITION FOR CERTIORARI BY SAID DATE.
C. EVEN IF THE DATE OF RECEIPT IS RECKONED FROM 15 SEPTEMBER 2005, THE DATE RESPONDENT
GARCIA ADMITTED IN HIS PETITION FOR CERTIORARI TO BE THE DATE OF HIS RECEIPT OF THE COPY
OF THE RESOLUTION DATED 16 DECEMBER 2003 AT HIS ALLEGED NEW ADDRESS, RESPONDENT
GARCIA HAD ONLY UNTIL 15 NOVEMBER 2005 TO FILE HIS PETITION FOR CERTIORARI DATED 11
MARCH 2005. RESPONDENT GARCIA FAILED TO FILE HIS PETITION FOR CERTIORARI BY SAID DATE.
II
THE COURT OF APPEALS ERRED IN AFFIRMING THE NLRC’S LIBERAL APPLICATION OF RULES
CONSIDERING THAT A LIBERAL APPLICATION OF RULES CANNOT BE USED TO DEPRIVE A RIGHT THAT
HAS ALREADY IPSO FACTO VESTED ON PETITIONERS ETPI, ET AL.
III
THE COURT OF APPEALS ERRED IN RULING THAT THE NLRC DID NOT COMMIT GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ISSUING ITS ORDER DATED 23
AUGUST 2004 AND RESOLUTION DATED 10 JANUARY 2005 CONSIDERING THAT RESPONDENT
GARCIA MAY NOT ASSAIL THE FINALITY OF RESOLUTION DATED 16 DECEMBER 2003 THROUGH A
MERE MOTION.
IV
THE COURT OF APPEALS ERRED IN FAILING TO RULE ON PETITIONERS’ COUNTER-MOTION TO CITE
RESPONDENT GARCIA IN CONTEMPT OF COURT DESPITE ITS PREVIOUS RESOLUTION DATED 30 MAY
2005 STATING THAT IT SHALL ADDRESS THE SAME IN THE DECISION ON THE MERITS OF THE
CASE.86
The issue raised by Atty. Garcia – whether the termination or removal of an officer of a corporation is an
intra-corporate controversy that falls under the original exclusive jurisdiction of the regional trial courts –
is not novel. The Supreme Court, in a long line of cases, has decreed that a corporate officer’s dismissal
or removal is always a corporate act and/or an intra-corporate controversy, over which the Securities and
Exchange Commission [SEC] (now the Regional Trial Court)87 has original and exclusive jurisdiction.88
We have ruled that an intra-corporate controversy is one which pertains to any of the following
relationships: (1) between the corporation, partnership or association and the public; (2) between the
corporation, partnership or association and the State insofar as the former’s franchise, permit or license
to operate is concerned; (3) between the corporation, partnership or association and its stockholders,
partners, members or officers; and (4) among the stockholders, partners or associates themselves.89 In
Lozon v. National Labor Relations Commission,90 we declared that Presidential Decree No. 902-A confers
on the SEC original and exclusive jurisdiction to hear and decide controversies and cases involving intra-
corporate and partnership relations between or among the corporation, officers and stockholders and
partners, including their elections or appointments x x x.
Before a dismissal or removal could properly fall within the jurisdiction of the SEC, it has to be first
established that the person removed or dismissed was a corporate officer.91 "Corporate officers" in the
context of Presidential Decree No. 902-A92 are those officers of the corporation who are given that
character by the Corporation Code or by the corporation’s by-laws.93 There are three specific officers
whom a corporation must have under Section 25 of the Corporation Code.94 These are the president,
secretary and the treasurer. The number of officers is not limited to these three. A corporation may have
such other officers as may be provided for by its by-laws like, but not limited to, the vice-president,
cashier, auditor or general manager. The number of corporate officers is thus limited by law and by the
corporation’s by-laws.1avvphi1
In the case before us, the by-laws of ETPI provide:
ARTICLE V
Officers
Section 1. Number. – The officers of the Company shall be a Chairman of the Board, a President, one or
more Vice-Presidents, a Treasurer, a Secretary, an Assistant Secretary, and such other officers as may be
from time to time be elected or appointed by the Board of Directors. One person may hold any two
compatible offices.95
Atty. Garcia tries to deny he is an officer of ETPI. Not being a corporate officer, he argues that the Labor
Arbiter has jurisdiction over the case. One of the corporate officers provided for in the by-laws of ETPI is
the Vice-President. It can be gathered from Atty. Garcia’s complaint-affidavit that he was Vice President
for Business Support Services and Human Resource Departments of ETPI when his employment was
terminated effective 16 April 2000. It is therefore clear from the by-laws and from Atty. Garcia himself
that he is a corporate officer. One who is included in the by-laws of a corporation in its roster of corporate
officers is an officer of said corporation and not a mere employee.96 Being a corporate officer, his
removal is deemed to be an intra-corporate dispute cognizable by the SEC and not by the Labor Arbiter.
We agree with both the NLRC and the Court of Appeals that Atty. Garcia’s ouster as Vice-President, who is
a corporate officer of ETPI, partakes of the nature of an intra-corporate controversy, jurisdiction over
which is vested in the SEC (now the RTC). The Labor Arbiter thus erred in assuming jurisdiction over the
case filed by Atty. Garcia, because he had no jurisdiction over the subject matter of the controversy.
Having ruled which body has jurisdiction over the instant case, we find it unnecessary, due to mootness,
to further discuss and rule on the issues raised by ETPI and Atty. Hizon regarding the NLRC order dated
23 August 2004 granting Atty. Garcia’s Motion to Set Aside Finality of Judgment with Opposition to Motion
to Discharge Appeal Bond, and its resolution dated 10 January 2005 denying their motion for
reconsideration thereon. The decision of the Labor Arbiter, who had jurisdiction over the case, was
properly dismissed by the NLRC. Consequently, Supersedeas Bond No. JCL (15) 00823 SICI Bond No.
75069 dated 18 November 2002, posted by ETPI as a requirement for the filing of an appeal before the
NLRC, is ordered discharged.
WHEREFORE, premises considered, the petition for certiorari of Atty. Garcia in G.R. No. 173115 is hereby
DENIED. The petition for review on certiorari of ETPI and Atty. Hizon in G.R. Nos. 173163-64 is PARTIALLY
GRANTED insofar as the discharge of Supersedeas Bond No. JCL (15) 00823 SICI Bond No. 75069 dated 18
November 2002 is concerned. This ruling is without prejudice to Atty. Garcia’s taking recourse to and
seeking relief through the appropriate remedy in the proper forum.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MA. ALICIA AUSTRIA- ANTONIO EDUARDO B. NACHURA
MARTINEZ Associate Justice
Associate Justice
DIOSDADO M. PERALTA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, it is
hereby certified that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1 Penned by Associate Justice Renato C. Dacudao with Associate Justices Lucas P. Bersamin and
Magdangal M. de Leon, concurring; rollo (G.R. No. 173115), pp. 169-192.
2 Penned by Associate Commissioner Angelita A. Gacutan with Presiding Commissioner Raul T. Aquino
and Associate Commissioner Victoriano R. Calaycay, concurring; rollo (G.R. No. 173115), pp. 158-167.
3 Records, Vol. 1, pp. 320-347.
4 Reinstatement was not prayed for in the Complaint-Affidavit. The same was asked for only in the
Position Paper.
5 Records, Vol. 1, pp. 2-5.
6 Id. at 31-45, 61-129
7 Id. at 440-445, 467-497.
8 Id. at 504-529. 530-535.
9 Id. at 536-549.
10 Id. at 564-565.
11 Id. at 577.
12 Id. at 558-563.
13 Id. at 579-582.
14 Id. at 585-590.
15 Records, Vol. 2, pp. 5-17.
16 Records, Vol. 1, pp. 592-601.
17 Id. at 603-616.
18 Id. at 620-621.
19 Id. at 623.
20 Id. at 625.
21 Records, Vol. 3, pp. 1-48.
22 Id. at 49-56.
23 Rollo (G.R. No. 173115), p. 157.
24 Records, Vol. 4, pp. 1-3.
25 Id. at 8-9.
26 Id. at 10-19.
27 Id. at 7.
28 Id. at 32-34.
29 Id. at 35-36.
30 Id. at 49-52.
31 Id. at 52Q-52R.
32 Id. at 61.
33 Records, Vol. 3, pp. 142-242.
34 Id. at 315-369.
35 Id. at 370-387.
36 Records, Vol. 4, pp. 64-66.
37 Id. at 98-102.
38 Records, Vol. 3, pp. 414-418.
39 Records, Vol. 4, pp. 144-146.
40 Id. at 244.
41 Id. at 244-A.
42 Records, Vol. 4, pp. 160-163.
43 Id. at 164-182.
44 Records, Vol. 3, pp. 401-405.
45 Id. at 421-427.
46 Records, Vol. 4, p. 269.
47 Id. at 270-274.
48 Id. at 275-277.
49 Id. at 284.
50 Id. at 256-258.
51 Rollo (G.R. No. 173115), p. 166.
52 Records, Vol. 3, pp. 480-486.
53 Id. at 501-513.
54 Id. at 584-585.
55 Records, Vol. 4, pp. 331-332.
56 Id. at 328-330.
57 Records, Vol. 3, p. 588.
58 Id. at 590-593.
59 Supersedeas Bond No. JCL (15) 00823 SICI Bond No. 75069 dated 18 November 2002; records, Vol. 3,
p. 268.
60 Records, Vol. 3, pp. 612-615.
61 Id. at 622-624.
62 Id. at 756-768.
63 Id. at 769-771.
64 CA rollo (CA-G.R. SP No. 88887), pp. 2-81.
65 CA rollo (CA-G.R. SP No. 89066), pp. 1-50.
66 Id. at 590 and 698.
67 Rollo (G.R. No. 173115), p. 74.
68 CA rollo (CA-G.R. SP No. 88887), pp. 1124-1136.
69 Id. at 1142-1159.
70 Id. at 1166-1172; 1173-1190.
71 Id. at 1192-1193.
72 Rollo (G.R. No. 173115), pp. 7-16.
73 Id. at 124-134.
74 Rollo (G.R. No. 173163-64), pp. 7-16.
75 Rollo (G.R. No. 173115), p. 244.
76 Id. at 246-253.
77 Id. at 257-288.
78 Id. at 289.
79 Id. at 290-305.
80 Id. at 306-311.
81 Id. at 312-313.
82 Id. at 314-335.
83 Id. at 336-398.
84 Id. at 403-435, 436.
85 Id. at 129.
86 Rollo (G.R. No. 173163-64), pp. 42-44.
87 Under Republic Act No. 8799, otherwise known as "The Securities Regulation Code" which took effect
on August 8, 2000, the jurisdiction of the SEC over intra-corporate controversies and other cases
enumerated in Section 5 of P.D. No. 902-A has been transferred to the courts of general jurisdiction, or
the appropriate RTC. Pursuant thereto, the Supreme Court issued a Resolution dated November 21, 2000
in A.M. No. 00-11-03-SC designating certain branches of the RTC to try and decide cases enumerated in
Section 5 of P.D. No. 902-A. On March 13, 2001, the Supreme Court approved the Interim Rules of
Procedure Governing Intra-Corporate Controversies under R.A. No. 8799 which took effect on April 1,
2001. (Yujuico v. Quiambao, G.R. No. 168639, 29 January 2007, 513 SCRA 243, 255-256).
88 Union Motors Corporation v. National Labor Relations Commission, 373 Phil. 310, 319 (1999); Tabang
v. National Labor Relations Commission, 334 Phil. 424, 428 (1997); De Rossi v. National Labor Relations
Commission, 373 Phil. 17, 24 (1999); Ongkingco v. National Labor Relations Commission, 337 Phil. 299,
304-305 (1997); Easycall Communications Phils., Inc. v. King, G.R. No. 145901, 15 December 2005, 478
SCRA 102, 109; Espino v. National Labor Relations Commission, 310 Phil. 60, 70-71 (1995); Lozon v.
National Labor Relations Commission, 310 Phil. 1, 9 (1995); Cagayan de Oro Coliseum, Inc v. Office of the
MOLE, G.R. No. 71589, 17 December 1990, 192 SCRA 315, 318; Dy v. National Labor Relations
Commission, 229 Phil. 234, 244 (1986); Philippine School of Business Administration v. Leano, 212 Phil.
716, 721 (1984).
89 Yujuico v. Quiambao, supra note 87; Embassy Farms, Inc. v. Court of Appeals, G.R. No. 80682, 13
August 1990, 188 SCRA 492, 499; Union Glass & Container Corporation v. Securities and Exchange
Commission, 211 Phil. 222, 230-231 (1983); Mainland Construction Co., Inc. v. Movilla, G.R. No. 118088,
23 November 1995, 250 SCRA 290, 294.
90 Supra note 88 at 8.
91 Easycall Communications Phils., Inc. v. King, supra note 88 at 109.
 92 The Revised Securities Act.
93 Easycall Communications Phils., Inc. v. King, supra note 88.
94 Sec. 25. Corporate officers, quorum. – Immediately after their election, the directors of a corporation
must formally organize by the election of a president, who shall be a director, a treasurer who may or
may not be a director, a secretary who shall be a resident and citizen of the Philippines, and such other
officers as may be provided for in the by-laws. Any two (2) or more positions may be held concurrently by
the same person, except that no one shall act as president and secretary or as president and treasurer at
the same time.
95 Rollo (G.R. No. 173115), pp. 184-185.
96 Union Motors Corporation v. National Labor Relations Commission, supra note 88.

Pasted from <http://www.lawphil.net/judjuris/juri2009/apr2009/gr_173115_2009.html>

GSIS vs. CA (2009)

Sunday, June 06, 2010
4:40 AM

G.R. No. 183905 April 16, 2009

GOVERNMENT SERVICE, INSURANCE SYSTEM, Petitioner,
vs.
THE HON. COURT OF APPEALS, (8TH DIVISION), ANTHONY V. ROSETE, MANUEL M. LOPEZ,
FELIPE B. ALFONSO, JESUS F. FRANCISCO, CHRISTIAN S. MONSOD, ELPIDIO L. IBAÑEZ, and
FRANCIS GILES PUNO,Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 184275 April 16, 2009
SECURITIES AND EXCHANGE COMMISSION, COMMISSIONER JESUS ENRIQUE G. MARTINEZ IN
HIS CAPACITY AS OFFICER-IN-CHARGE OF THE SECURITIES AND EXCHANGE COMMISSION and
HUBERT G. GUEVARA IN HIS CAPACITY AS DIRECTOR OF THE COMPLIANCE AND ENFORCEMENT
DEPT. OF SECURITIES Petitioners,
vs.
ANTHONY V. ROSETE, MANUEL M. LOPEZ, FELIPE B. ALFONSO, JESUS F. FRANCISCO,
CHRISTIAN S. MONSOD, ELPIDIO L. IBAÑEZ, and FRANCIS GILES Respondents.
DECISION
TINGA, J.:
These are the undisputed facts.
The annual stockholders’ meeting (annual meeting) of the Manila Electric Company (Meralco) was
scheduled on 27 May 2008.1 In connection with the annual meeting, proxies2 were required to be
submitted on or before 17 May 2008, and the proxy validation was slated for five days later, or 22 May.3
In view of the resignation of Camilo Quiason,4 the position of corporate secretary of Meralco became
vacant.5 On 15 May 2008, the board of directors of Meralco designated Jose Vitug6 to act as corporate
secretary for the annual meeting.7 However, when the proxy validation began on 22 May, the
proceedings were presided over by respondent Anthony Rosete (Rosete), assistant corporate secretary
and in-house chief legal counsel of Meralco.8Private respondents nonetheless argue that Rosete was the
acting corporate secretary of Meralco.9 Petitioner Government Service Insurance System (GSIS), a major
shareholder in Meralco, was distressed over the proxy validation proceedings, and the resulting
certification of proxies in favor of the Meralco management.10
On 23 May 2008, GSIS filed a complaint with the Regional Trial Court (RTC) of Pasay City, docketed as R-
PSY-08-05777-C4 seeking the declaration of certain proxies as invalid.11 Three days
later, on 26 May, GSIS filed a Notice with the RTC manifesting the dismissal of the complaint.12 On the
same day, GSIS filed an Urgent Petition13 with the Securities and Exchange Commission (SEC) seeking to
restrain Rosete from "recognizing, counting and tabulating, directly or indirectly, notionally or actually or
in whatever way, form, manner or means, or otherwise honoring the shares covered by" the proxies in
favor of respondents Manuel Lopez,14 Felipe Alfonso,15 Jesus Francisco,16 Oscar Lopez, Christian
Monsod,17 Elpidio Ibañez,18 Francisco Giles-Puno19 "or any officer representing MERALCO Management,"
and to annul and declare invalid said proxies.20 GSIS also prayed for the issuance of a Cease and Desist
Order (CDO) to restrain the use of said proxies during the annual meeting scheduled for the following
day.21 A CDO22 to that effect signed by SEC Commissioner Jesus Martinez was issued on 26 May 2008,
the same day the complaint was filed. During the annual meeting held on the following day, Rosete
announced that the meeting would push through, expressing the opinion that the CDO is null and void.23
On 28 May 2008, the SEC issued a Show Cause Order (SCO)24 against private respondents, ordering
them to appear before the Commission on 30 May 2008 and explain why they should not be cited in
contempt. On 29 May 2008, respondents filed a petition for certiorari with prohibition25 with the Court of
Appeals, praying that the CDO and the SCO be annulled. The petition was docketed as CA-G.R. SP No.
103692.
Many developments involving the Court of Appeals’ handling of CA-G.R. SP No. 103692 and the conduct of
several of its individual justices are recounted in our Resolution dated 9 September 2008 in A.M. No. 08-8-
11-CA (Re: Letter Of Presiding Justice Conrado M. Vasquez, Jr. On CA-G.R. SP No. 103692).26 On 23 July
2008, the Court of Appeals Eighth Division promulgated a decision in the case with the following
dispositive portion:
WHEREFORE, premises considered, the May 26, 2008 complaint filed by GSIS in the SEC is hereby
DISMISSED due to SEC’s lack of jurisdiction, due to forum shopping by respondent GSIS, and due to
splitting of causes of action by respondent GSIS. Consequently, the SEC’s undated cease and desist order
and the SEC’s May 28, 2008 show cause order are hereby DECLARED VOID AB INITIO and without legal
effect and their implementation are hereby permanently restrained.
The May 26, 2008 complaint filed by GSIS in the SEC is hereby barred from being considered, out of
equitable considerations, as an election contest in the RTC, because the prescriptive period of 15 days
from the May 27, 2008 Meralco election to file an election contest in the RTC had already run its course,
pursuant to Sec. 3, Rule 6 of the interim Rules of Procedure Governing Intra-Corporate Controversies
under R.A. No. 8799, due to deliberate act of GSIS in filing a complaint in the SEC instead of the RTC.
Let seventeen (17) copies of this decision be officially TRANSMITTED to the Office of the Chief Justice and
three (3) copies to the Office of the Court Administrator:
(1) for sanction by the Supreme Court against the "GSIS LAW OFFICE" for unauthorized practice of law,
(2) for sanction and discipline by the Supreme Court of GSIS lawyers led by Atty. Estrella Elamparo-Tayag,
Atty. Marcial C. Pimentel, Atty. Enrique L. Tandan III, and other GSIS lawyers for violation of Sec. 27 of
Rule 138 of the Revised Rules of Court, pursuant to Santayana v. Alampay, A.C. No. 5878, March 21, 2005
454 SCRA 1, and pursuant to Land Bank of the Philippines v. Raymunda Martinez, G.R. No. 169008,
August 14, 2007:
(a) for violating express provisions of law and defying public policy in deliberately displacing the Office of
the Government Corporate Counsel (OGCC) from its duty as the exclusive lawyer of GSIS, a government
owned and controlled corporation (GOCC), by admittedly filing and defending cases as well as appearing
as counsel for GSIS, without authority to do so, the authority belonging exclusively to the OGCC;
(b) for violating the lawyer’s oath for failing in their duty to act as faithful officers of the court by engaging
in forum shopping;
(c) for violating express provisions of law most especially those on jurisdiction which are mandatory; and
(d) for violating Sec. 3, Rule 2 of the 1997 Rules of Civil Procedure by deliberately splitting causes of
action in order to file multiple complaints: (i) in the RTC of Pasay City and (ii) in the SEC, in order to
ensure a favorable order.27
The promulgation of the said decision provoked a searing controversy, as detailed in our Resolution in
A.M. No. 08-8-11-CA. Nonetheless, the appellate court’s decision spawned three different actions
docketed with their own case numbers before this Court. One of them, G.R. No. 183933, was initiated by
a Motion for Extension of Time to File Petition for Review filed by the Office of the Solicitor General (OSG)
in behalf of the SEC, Commissioner Martinez in his capacity as officer-in-charge of the SEC, and Hubert
Guevarra in his capacity as Director of the Compliance and Enforcement Department of the
SEC.28 However, the OSG did not follow through with the filing of the petition for review adverted to;
thus, on 19 January 2009, the Court resolved to declare G.R. No. 183933 closed and terminated.29
The two remaining cases before us are docketed as G.R. No. 183905 and 184275. G.R. No. 183905
pertains to a petition for certiorari and prohibition filed by GSIS, against the Court of Appeals, and
respondents Rosete, Lopez, Alfonso, Francisco, Monsod, Ibañez and Puno, all of whom serve in different
corporate capacities with Meralco or First Philippines Holdings Corporation, a major stockholder of
Meralco and an affiliate of the Lopez Group of Companies. This petition seeks of the Court to declare the
23 July 2008 decision of the Court of Appeals null and void, affirm the SEC’s jurisdiction over the petition
filed before it by GSIS, and pronounce that the CDO and the SCO orders are valid. This petition was filed
in behalf of GSIS by the "GSIS Law Office;" it was signed by the Chief Legal Counsel and Assistant Legal
Counsel of GSIS, and three self-identified "Attorney[s]," presumably holding lawyer positions in GSIS.30
The OSG also filed the other petition, docketed as G.R. No. 184275. It identifies as its petitioners the SEC,
Commissioner Martinez in his capacity as OIC of the SEC, and Hubert Guevarra in his capacity as Director
of the Compliance and Enforcement Department of the SEC – the same petitioners in the aborted petition
for review initially docketed as G.R. No. 183933. Unlike what was adverted to in the motion for extension
filed by the same petitioners in G.R. No. 183933, the petition in G.R. No. 184275 is one for certiorari
under Rule 65 as indicated on page 3 thereof,31 and not a petition for review. Interestingly, save for the
first page which leaves the docket number blank, all 86 pages of this petition for certiorari carry a header
wrongly identifying the pleading as the non-existent petition for review under G.R. No. 183933. This
petition seeks the "reversal" of the assailed decision of the Court of Appeals, the recognition of the
jurisdiction of the SEC over the petition of GSIS, and the affirmation of the CDO and SCO.
II.
Private respondents seek the expunction of the petition filed by the SEC in G.R. No. 184275. We agree
that the petitioners therein, namely: the SEC, Commissioner Marquez and Guevarra, are not real parties-
in-interest to the dispute and thus bereft of capacity to file the petition. By way of simple illustration, to
argue otherwise is to say that the trial court judge, the National Labor Relations Commission, or any
quasi-judicial agency has the right to seek the review of an appellate court decision reversing any of their
rulings. That prospect, as any serious student of remedial law knows, is zero.
The Court, through the Resolution of the Third Division dated 2 September 2008, had resolved to treat the
petition in G.R. No. 184275 as a petition for review on certiorari, but withheld giving due course to
it.32 Under Section 1 of Rule 45, which governs appeals by certiorari, the right to file the appeal is
restricted to "a party," meaning that only the real parties-in-interest who litigated the petition for
certiorari before the Court of Appeals are entitled to appeal the same under Rule 45. The SEC and its two
officers may have been designated as respondents in the petition for certiorari filed with the Court of
Appeals, but under Section 5 of Rule 65 they are not entitled to be classified as real parties-in-interest.
Under the provision, the judge, court, quasi-judicial agency, tribunal, corporation, board, officer or person
to whom grave abuse of discretion is imputed (the SEC and its two officers in this case) are denominated
only as public respondents. The provision further states that "public respondents shall not appear in or
file an answer or comment to the petition or any pleading therein."33 Justice Regalado explains:
[R]ule 65 involves an original special civil action specifically directed against the person, court, agency or
party a quo which had committed not only a mistake of judgment but an error of jurisdiction, hence
should be made public respondents in that action brought to nullify their invalid acts. It shall, however be
the duty of the party litigant, whether in an appeal under Rule 45 or in a special civil action in Rule 65, to
defend in his behalf and the party whose adjudication is assailed, as he is the one interested in sustaining
the correctness of the disposition or the validity of the proceedings.
xxx The party interested in sustaining the proceedings in the lower court must be joined as a co-
respondent and he has the duty to defend in his own behalf and in behalf of the court which rendered the
questioned order. While there is nothing in the Rules that prohibit the presiding judge of the court
involved from filing his own answer and defending his questioned order, the Supreme Court has
reminded judges of the lower courts to refrain from doing so unless ordered by the Supreme
Court.34 The judicial norm or mode of conduct to be observed in trial and appellate courts is
now prescribed in the second paragraph of this section.
xxx
A person not a party to the proceedings in the trial court or in the Court of Appeals cannot
maintain an action for certiorari in the Supreme Court to have the judgment reviewed.35
Rule 65 does recognize that the SEC and its officers should have been designated as public respondents
in the petition for certiorari filed with the Court of Appeals. Yet their involvement in the instant petition is
not as original party-litigants, but as the quasi-judicial agency and officers exercising the adjudicative
functions over the dispute between the two contending factions within Meralco. From the onset, neither
the SEC nor Martinez or Guevarra has been considered as a real party-in-interest. Section 2, Rule 3 of the
1997 Rules of Civil Procedure provides that every action must be prosecuted or defended in the name of
the real party in interest, that is "the party who stands to be benefited or injured by the judgment in the
suit, or the party entitled to the avails of the suit." It would be facetious to assume that the SEC had any
real interest or stake in the intra-corporate dispute within Meralco.
We find our ruling in Hon. Santiago v. Court of Appeals36 quite apposite to the question at hand.
Petitioner therein, a trial court judge, had presided over an expropriation case. The litigants had arrived at
an amicable settlement, but the judge refused to approve the same, even declaring it invalid. The matter
was elevated to the Court of Appeals, which promptly reversed the trial court and approved the amicable
settlement. The judge took the extraordinary step of filing in his own behalf a petition for review on
certiorari with this Court, assailing the decision of the Court of Appeals which had reversed him. In
disallowing the judge’s petition, the Court explained:
While the issue in the Court of Appeals and that raised by petitioner now is whether the latter abused his
discretion in nullifying the deeds of sale and in proceeding with the expropriation proceeding, that
question is eclipsed by the concern of whether Judge Pedro T. Santiago may file this petition at all.
And the answer must be in the negative, Section 1 of Rule 45 allows a party to appeal by certiorari from a
judgment of the Court of Appeals by filing with this Court a petition for review on certiorari. But petitioner
judge was not a party either in the expropriation proceeding or in the certiorari proceeding in the Court of
Appeals. His being named as respondent in the Court of Appeals was merely to comply with the rule that
in original petitions for certiorari, the court or the judge, in his capacity as such, should be named as
party respondent because the question in such a proceeding is the jurisdiction of the court itself (See
Mayol v. Blanco, 61 Phil. 547 [19351, cited in Comments on the Rules of Court, Moran, Vol. II, 1979 ed., p.
471). "In special proceedings, the judge whose order is under attack is merely a nominal party;
wherefore, a judge in his official capacity, should not be made to appear as a party seeking reversal of a
decision that is unfavorable to the action taken by him. A decent regard for the judicial hierarchy bars a
judge from suing against the adverse opinion of a higher court,. . . ." (Alcasid v. Samson, 102 Phil. 785,
740 [1957])
ACCORDINGLY, this petition is DENIED for lack of legal capacity to sue by the petitioner.37
Justice Isagani Cruz added, in a Concurring Opinion in Santiago: "The judge is not an active combatant in
such proceeding and must leave it to the parties themselves to argue their respective positions and for
the appellate court to rule on the matter without his participation."38
Note that in Santiago, the Court recognized the good faith of the judge, who perceived the amicable
settlement "as a manifestly iniquitous and illegal contract."39 The SEC could have similarly felt in good
faith that the assailed Court of Appeals decision had unduly impaired its prerogatives or caused some
degree of hurt to it. Yet assuming that there are rights or prerogatives peculiar to the SEC itself that the
appellate court had countermanded, these can be vindicated in the petition for certiorari filed by GSIS,
whose legal capacity to challenge the Court of Appeals decision is without question. There simply is no
plausible reason for this Court to deviate from a time-honored rule that preserves the purity of our judicial
and quasi-judicial offices to accommodate the SEC’s distrust and resentment of the appellate court’s
decision. The expunction of the petition in G.R. No. 184275 is accordingly in order.
At this point, only one petition remains—the petition for certiorari filed by GSIS in G.R. No. 183905.
Casting off the uncritical and unimportant aspects, the two main issues for adjudication are as follows: (1)
whether the SEC has jurisdiction over the petition filed by GSIS against private respondents; and (2)
whether the CDO and SCO issued by the SEC are valid.
II.
It is our resolute inclination that this case, which raises interesting questions of law, be decided solely on
the merits, without regard to the personalities involved or the well-reported drama preceding the petition.
To that end, the Court has taken note of reports in the media that GSIS and the Lopez group have taken
positive steps to divest or significantly reduce their respective interests in Meralco.40 These are
developments that certainly ease the tension surrounding this case, not to mention reason enough for the
two groups to make an internal reassessment of their respective positions and interests in relation to this
case. Still, the key legal questions raised in the petition do not depend at all on the identity of any of the
parties, and would obtain the same denouement even if this case was lodged by unknowns as petitioners
against similarly obscure respondents.
With the objective to resolve the key questions of law raised in the petition, some of the issues raised
diminish as peripheral. For example, petitioners raise arguments tied to the behavior of individual justices
of the Court of Appeals, particularly former Justice Vicente Roxas, in relation to this case as it was
pending before the appellate court. The Court takes cognizance of our Resolution in A.M. No. 08-8-11-CA
dated 9 September 2008, which duly recited the various anomalous or unbecoming acts in relation to this
case performed by two of the justices who decided the case in behalf of the Court of Appeals—former
Justice Roxas (the ponente) and Justice Bienvenido L. Reyes (the Chairman of the 8th Division) – as well
as three other members of the Court of Appeals. At the same time, the consensus of the Court as it
deliberated on A.M. No. 08-8-11-CA was to reserve comment or conclusion on the assailed decision of the
Court of Appeals, in recognition of the reality that however stigmatized the actions and motivations of
Justice Roxas are, the decision is still the product of the Court of Appeals as a collegial judicial body, and
not of one or some rogue justices. The penalties levied by the Court on these appellate court justices, in
our estimation, redress the unwholesome acts which they had committed. At the same time, given the
jurisprudential importance of the questions of law raised in the petition, any result reached without
squarely addressing such questions would be unsatisfactory, perhaps derelict even.
III.
We now examine whether the SEC has jurisdiction over the petition filed by GSIS. To recall, SEC has
sought to enjoin the use and annul the validation, of the proxies issued in favor of several of the private
respondents, particularly in connection with the annual meeting.
A.
Jurisdiction is conferred by no other source but law. Both sides have relied upon provisions of Rep. Act No.
8799, otherwise known as the Securities Regulation Code (SRC), its implementing rules (Amended
Implementing Rules or AIRR-SRC), and other related rules to support their competing contentions that
either the SEC or the trial courts has exclusive original jurisdiction over the dispute.
GSIS primarily anchors its argument on two correlated provisions of the SRC. These are Section 53.1 and
Section 20.1, which we cite:
SEC. 53. Investigations, Injunctions and Prosecution of Offenses . - 53.1. The Commission may, in its
discretion,make such investigations as it deems necessary to determine whether any person
has violated or is about to violate any provision of this Code, any rule, regulation or order
thereunder, or any rule of an Exchange, registered securities association, clearing agency,
other self-regulatory organization, and may require or permit any person to file with it a statement in
writing, under oath or otherwise, as the Commission shall determine, as to all facts and circumstances
concerning the matter to be investigated. The Commission may publish information concerning any such
violations, and to investigate any fact, condition, practice or matter which it may deem
necessary or proper to aid in the enforcement of the provisions of this Code, in the
prescribing of rules and regulations thereunder, or in securing information to serve as a basis
for recommending further legislation concerning the matters to which this Code relates: xxx
(emphasis supplied)
SEC. 20. Proxy Solicitations. – 20.1. Proxies must be issued and proxy solicitation must be made in
accordance with rules and regulations to be issued by the Commission;
The argument, stripped of extravagance, is that since proxy solicitations following Section 20.1 have to
be made in accordance with rules and regulations issued by the SEC, it is the SEC under Section 53.1 that
has the jurisdiction to investigate alleged violations of the rules on proxy solicitations. The GSIS petition
invoked AIRR-AIRR-SRC Rule 20, otherwise known as "The Proxy Rule," which enumerates the
requirements as to form of proxy and delivery of information to security holders. According to GSIS, the
information statement Meralco had filed with the SEC in connection with the annual meeting did not
contain any proxy form as required under AIRR-SRC Rule 20.
On the other hand, private respondents argue before us that under Section 5.2 of the SRC, the SEC’s
jurisdiction over all cases enumerated in Section 5 of Presidential Decree No. 902-A was transferred to the
courts of general jurisdiction or the appropriate regional trial court. The two particular classes of cases in
the enumeration under Section 5 of Presidential Decree No. 902-A which private respondents especially
refer to are as follows:
xxx
(2) Controversies arising out of intra-corporate, partnership, or association relations, between and among
stockholders, members, or associates; or association of which they are stockholders, members, or
associates, respectively;
3) Controversies in the election or appointment of directors, trustees, officers or managers of
corporations, partnerships, or associations;
xxx
In addition, private respondents cite the Interim Rules on Intra-Corporate Controversies (Interim Rules)
promulgated by this Court in 2001, most pertinently, Section 2 of Rule 6 (on Election Contests), which
defines "election contests" as follows:
SEC. 2. Definition. – An election contest refers to any controversy or dispute involving title or claim to any
elective office in a stock or nonstock corporation, the validation of proxies, the manner and validity of
elections and the qualifications of candidates, including the proclamation of winners, to the office of
director, trustee or other officer directly elected by the stockholders in a close corporation or by members
of a nonstock corporation where the articles of incorporation or bylaws so provide. (emphasis supplied)
The correct answer is not clear-cut, but there is one. In private respondents’ favor, the provisions of law
they cite pertain directly and exclusively to the statutory jurisdiction of trial courts acquired by virtue of
the transfer of jurisdiction following the passage of the SRC. In contrast, the SRC provisions relied upon by
GSIS do not immediately or directly establish that body’s jurisdiction over the petition, since it
necessitates the linkage of Section 20 to Section 53.1 of the SRC before the point can bear on us.
On the other hand, the distinction between "proxy solicitation" and "proxy validation" cannot be
dismissed offhand. The right of a stockholder to vote by proxy is generally established by the
Corporation Code,41 but it is the SRC which specifically regulates the form and use of proxies, more
particularly the procedure of proxy solicitation, primarily through Section 20.42 AIRR-SRC Rule 20 defines
the terms solicitand solicitation:
The terms solicit and solicitation include:
A. any request for a proxy whether or not accompanied by or included in a form of proxy
B. any request to execute or not to execute, or to revoke, a proxy; or
C. the furnishing of a form of proxy or other communication to security holders under circumstance
reasonably calculated to result in the procurement, withholding or revocation of a proxy.
It is plain that proxy solicitation is a procedure that antecedes proxy validation. The former involves the
securing and submission of proxies, while the latter concerns the validation of such secured and
submitted proxies. GSIS raises the sensible point that there was no election yet at the time it filed its
petition with the SEC, hence no proper election contest or controversy yet over which the regular courts
may have jurisdiction. And the point ties its cause of action to alleged irregularities in the proxy
solicitation procedure, a process that precedes either the validation of proxies or the annual meeting
itself.
Under Section 20.1, the solicitation of proxies must be in accordance with rules and regulations issued by
the SEC, such as AIRR-SRC Rule 4. And by virtue of Section 53.1, the SEC has the discretion "to make
such investigations as it deems necessary to determine whether any person has violated" any rule issued
by it, such as AIRR-SRC Rule 4. The investigatory power of the SEC established by Section 53.1 is central
to its regulatory authority, most crucial to the public interest especially as it may pertain to corporations
with publicly traded shares. For that reason, we are not keen on pursuing private respondents’ insistence
that the GSIS complaint be viewed as rooted in an intra-corporate controversy solely within the
jurisdiction of the trial courts to decide. It is possible that an intra-corporate controversy may animate a
disgruntled shareholder to complain to the SEC a corporation’s violations of SEC rules and regulations,
but that motive alone should not be sufficient to deprive the SEC of its investigatory and regulatory
powers, especially so since such powers are exercisable on a motu proprio basis.
At the same time, Meralco raises the substantial point that nothing in the SRC empowers the SEC to annul
or invalidate improper proxies issued in contravention of Section 20. It cites that the penalties defined by
the SEC itself for violation of Section 20 or AIRR-SRC Rule 20 are limited to a reprimand/warning for the
first offense, and pecuniary fines for succeeding offenses.43 Indeed, if the SEC does not have the power
to invalidate proxies solicited in violation of its promulgated rules, serious questions may be raised
whether it has the power to adjudicate claims of violation in the first place, since the relief it may extend
does not directly redress the cause of action of the complainant seeking the exclusion of the proxies.
There is an interesting point, which neither party raises, and it concerns Section 6(g) of Presidential
Decree No. 902-A, which states:
SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following
powers:
xxx
(g) To pass upon the validity of the issuance and use of proxies and voting trust agreements for absent
stockholders or members;
xxx
As promulgated then, the provision would confer on the SEC the power to adjudicate controversies
relating not only to proxy solicitation, but also to proxy validation. Should the proposition hold true up to
the present, the position of GSIS would have merit, especially since Section 6 of Presidential Decree No.
902-A was not expressly repealed or abrogated by the SRC.44
Yet a closer reading of the provision indicates that such power of the SEC then was incidental or ancillary
to the "exercise of such jurisdiction." Note that Section 6 is immediately preceded by Section 5, which
originally conferred on the SEC "original and exclusive jurisdiction to hear and decide cases" involving
"controversies in the election or appointments of directors, trustees, officers or managers of such
corporations, partnerships or associations." The cases referred to in Section 5 were transferred from the
jurisdiction of the SEC to the regular courts with the passage of the SRC, specifically Section 5.2. Thus,
the SEC’s power to pass upon the validity of proxies in relation to election controversies has effectively
been withdrawn, tied as it is to its abrogated jurisdictional powers.
Based on the foregoing, it is evident that the linchpin in deciding the question is whether or not the cause
of action of GSIS before the SEC is intimately tied to an election controversy, as defined under Section
5(c) of Presidential Decree No. 902-A. To answer that, we need to properly ascertain the scope of the
power of trial courts to resolve controversies in corporate elections.
B.
Shares of stock in corporations may be divided into voting shares and non-voting shares, which are
generally issued as "preferred" or "redeemable" shares.45 Voting rights are exercised during regular or
special meetings of stockholders; regular meetings to be held annually on a fixed date, while special
meetings may be held at any time necessary or as provided in the by-laws, upon due notice.46 The
Corporation Code provides for a whole range of matters which can be voted upon by stockholders,
including a limited set on which even non-voting stockholders are entitled to vote on.47 On any of these
matters which may be voted upon by stockholders, the proxy device is generally available.48
Under Section 5(c) of Presidential Decree No. 902-A, in relation to the SRC, the jurisdiction of the regular
trial courts with respect to election-related controversies is specifically confined to "controversies in the
election or appointment of directors, trustees, officers or managers of corporations, partnerships, or
associations." Evidently, the jurisdiction of the regular courts over so-called election contests or
controversies under Section 5(c) does not extend to every potential subject that may be voted on by
shareholders, but only to the election of directors or trustees, in which stockholders are authorized to
participate under Section 24 of the Corporation Code.49
This qualification allows for a useful distinction that gives due effect to the statutory right of the SEC to
regulate proxy solicitation, and the statutory jurisdiction of regular courts over election contests or
controversies. The power of the SEC to investigate violations of its rules on proxy solicitation is
unquestioned when proxies are obtained to vote on matters unrelated to the cases enumerated under
Section 5 of Presidential Decree No. 902-A. However, when proxies are solicited in relation to the election
of corporate directors, the resulting controversy, even if it ostensibly raised the violation of the SEC rules
on proxy solicitation, should be properly seen as an election controversy within the original and exclusive
jurisdiction of the trial courts by virtue of Section 5.2 of the SRC in relation to Section 5(c) of Presidential
Decree No. 902-A.
The conferment of original and exclusive jurisdiction on the regular courts over such controversies in the
election of corporate directors must be seen as intended to confine to one body the adjudication of all
related claims and controversy arising from the election of such directors. For that reason, the
aforequoted Section 2, Rule 6 of the Interim Rules broadly defines the term "election contest" as
encompassing all plausible incidents arising from the election of corporate directors, including: (1) any
controversy or dispute involving title or claim to any elective office in a stock or nonstock corporation,
(2) the validation of proxies, (3) the manner and validity of elections and (4) the qualifications of
candidates, including the proclamation of winners. If all matters anteceding the holding of such election
which affect its manner and conduct, such as the proxy solicitation process, are deemed within the
original and exclusive jurisdiction of the SEC, then the prospect of overlapping and competing
jurisdictions between that body and the regular courts becomes frighteningly real. From the language of
Section 5(c) of Presidential Decree No. 902-A, it is indubitable that controversies as to the qualification of
voting shares, or the validity of votes cast in favor of a candidate for election to the board of directors are
properly cognizable and adjudicable by the regular courts exercising original and exclusive jurisdiction
over election cases. Questions relating to the proper solicitation of proxies used in such election are
indisputably related to such issues, yet if the position of GSIS were to be upheld, they would be resolved
by the SEC and not the regular courts, even if they fall within "controversies in the election" of directors.
The Court recognizes that GSIS’s position flirts with the abhorrent evil of split jurisdiction,50 allowing as it
does both the SEC and the regular courts to assert jurisdiction over the same controversies surrounding
an election contest. Should the argument of GSIS be sustained, we would be perpetually confronted with
the spectacle of election controversies being heard and adjudicated by both the SEC and the regular
courts, made possible through a mere allegation that the anteceding proxy solicitation process was
errant, but the competing cases filed with one objective in mind – to affect the outcome of the election of
the board of directors. There is no definitive statutory provision that expressly mandates so untidy a
framework, and we are disinclined to construe the SRC in such a manner as to pave the way for the
splitting of jurisdiction.
Unlike either Section 20.1 or Section 53.1, which merely alludes to the rule-making or investigatory power
of the SEC, Section 5 of Pres. Decree No. 902-A sets forth a definitive rule on jurisdiction, expressly
granting as it does "original and exclusive jurisdiction" first to the SEC, and now to the regular courts. The
fact that the jurisdiction of the regular courts under Section 5(c) is confined to the voting on election of
officers, and not on all matters which may be voted upon by stockholders, elucidates that the power of
the SEC to regulate proxies remains extant and could very well be exercised when stockholders vote on
matters other than the election of directors.
That the proxy challenge raised by GSIS relates to the election of the directors of Meralco is undisputed.
The controversy was engendered by the looming annual meeting, during which the stockholders of
Meralco were to elect the directors of the corporation. GSIS very well knew of that fact. On 17 March
2008, the Meralco board of directors adopted a board resolution stating:
RESOLVED that the board of directors of the Manila Electric Company (MERALCO) delegate, as it hereby
delegates to the Nomination & Governance Committee the authority to approve and adopt appropriate
rules on: (1) nomination of candidates for election to the board of directors; (2) appreciation of
ballots during the election of members of the board of directors; and (3) validation of proxies for
regular or special meetings of the stockholders.51
In addition, the Information Statement/Proxy form filed by First Philippine Holdings Corporation with the
SEC pursuant to Section 20 of the SRC, states:
REASON FOR SOLICITATION OF VOTES
The Solicitor is soliciting proxies from stockholders of the Company for the purpose of electing the
directors named under the subject headed ‘Directors’ in this Statement as well as to vote the
matters in the agenda of the meeting as provided for in the Information Statement of the Company. All of
the nominees are current directors of the Company.52
Under the circumstances, we do not see it feasible for GSIS to posit that its challenge to the solicitation or
validation of proxies bore no relation at all to the scheduled election of the board of directors of Meralco
during the annual meeting. GSIS very well knew that the controversy falls within the contemplation of an
election controversy properly within the jurisdiction of the regular courts. Otherwise, it would have never
filed its original petition with the RTC of Pasay. GSIS may have withdrawn its petition with the RTC on a
new assessment made in good faith that the controversy falls within the jurisdiction of the SEC, yet the
reality is that the reassessment is precisely wrong as a matter of law.
IV.
The lack of jurisdiction of the SEC over the subject matter of GSIS’s petition necessarily invalidates the
CDO and SDO issued by that body. However, especially with respect to the CDO, there is need for this
Court to squarely rule on the question pertaining to its validity, if only for jurisprudential value and for the
guidance of the SEC.
To recount the facts surrounding the issuance of the CDO, GSIS filed its petition with the SEC on 26 May
2008. The CDO, six (6) pages in all with three (3) pages devoted to the tenability of granting the
injunctive relief, was issued on the very same day, 26 May 2008, without notice or hearing. The CDO bore
the signature of Commissioner Jesus Martinez, identified therein as "Officer-in-Charge," and nobody
else’s.
The provisions of the SRC relevant to the issuance of a CDO are as follows:
SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission shall act with transparency and
shall have the powers and functions provided by this Code, Presidential Decree No. 902-A,
the Corporation Code, theInvestment Houses Law, the Financing Company Act and other existing laws.
Pursuant thereto the Commission shall have, among others, the following powers and functions:
xxx
(i) Issue cease and desist orders to prevent fraud or injury to the investing public;
xxx
[SEC.] 53.3. Whenever it shall appear to the Commission that any person has engaged or is about to
engage in any act or practice constituting a violation of any provision of this Code, any rule, regulation or
order thereunder, or any rule of an Exchange, registered securities association, clearing agency or other
self-regulatory organization, it may issue an order to such person to desist from committing such act or
practice: Provided, however, That the Commission shall not charge any person with violation of the rules
of an Exchange or other self regulatory organization unless it appears to the Commission that such
Exchange or other self-regulatory organization is unable or unwilling to take action against such person.
After finding that such person has engaged in any such act or practice and that there is a reasonable
likelihood of continuing, further or future violations by such person, the Commission may issue ex-parte a
cease and desist order for a maximum period of ten (10) days, enjoining the violation and compelling
compliance with such provision. The Commission may transmit such evidence as may be available
concerning any violation of any provision of this Code, or any rule, regulation or order thereunder, to the
Department of Justice, which may institute the appropriate criminal proceedings under this Code.
SEC. 64. Cease and Desist Order. – 64.1. The Commission, after proper investigation or verification, motu
proprio, or upon verified complaint by any aggrieved party, may issue a cease and desist order without
the necessity of a prior hearing if in its judgment the act or practice, unless restrained, will operate as a
fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing
public.
64.2. Until the Commission issues a cease and desist order, the fact that an investigation has been
initiated or that a complaint has been filed, including the contents of the complaint, shall be confidential.
Upon issuance of a cease and desist order, the Commission shall make public such order and a copy
thereof shall be immediately furnished to each person subject to the order.
64.3. Any person against whom a cease and desist order was issued may, within five (5) days from
receipt of the order, file a formal request for a lifting thereof. Said request shall be set for hearing by the
Commission not later than fifteen (15) days from its filing and the resolution thereof shall be made not
later than ten (10) days from the termination of the hearing. If the Commission fails to resolve the request
within the time herein prescribed, the cease and desist order shall automatically be lifted.
There are three distinct bases for the issuance by the SEC of the CDO. The first, allocated by Section 5(i),
is predicated on a necessity "to prevent fraud or injury to the investing public". No other requisite or
detail is tied to this CDO authorized under Section 5(i).
The second basis, found in Section 53.3, involves a determination by the SEC that "any person has
engaged or is about to engage in any act or practice constituting a violation of any provision of this Code,
any rule, regulation or order thereunder, or any rule of an Exchange, registered securities association,
clearing agency or other self-regulatory organization." The provision additionally requires a finding that
"there is a reasonable likelihood of continuing [or engaging in] further or future violations by such
person." The maximum duration of the CDO issued under Section 53.3 is ten (10) days.
The third basis for the issuance of a CDO is Section 64. This CDO is founded on a determination of an act
or practice, which unless restrained, "will operate as a fraud on investors or is otherwise likely to cause
grave or irreparable injury or prejudice to the investing public". Section 64.1 plainly provides three
segregate instances upon which the SEC may issue the CDO under this provision: (1) after proper
investigation or verification, (2) motu proprio, or (3) upon verified complaint by any aggrieved party.
While no lifetime is expressly specified for the CDO under Section 64, the respondent to the CDO may file
a formal request for the lifting thereof, which the SEC must hear within fifteen (15) days from filing and
decide within ten (10) days from the hearing.
It appears that the CDO under Section 5(i) is similar to the CDO under Section 64.1. Both require a
common finding of a need to prevent fraud or injury to the investing public. At the same time, no mention
is made whether the CDO defined under Section 5(i) may be issued ex-parte, while the CDO under
Section 64.1 requires "grave and irreparable" injury, language absent in Section 5(i). Notwithstanding the
similarities between Section 5(i) and Section 64.1, it remains clear that the CDO issued under Section
53.3 is a distinct creation from that under Section 64.
The Court of Appeals cited the CDO as having been issued in violation of the constitutional provision on
due process, which requires both prior notice and prior hearing.53 Yet interestingly, the CDO as
contemplated in Section 53.3 or in Section 64, may be issued "ex-parte" (under Section 53.3) or "without
necessity of hearing" (under Section 64.1). Nothing in these provisions impose a requisite hearing before
the CDO may be issued thereunder. Nonetheless, there are identifiable requisite actions on the part of the
SEC that must be undertaken before the CDO may be issued either under Section 53.3 or Section 64. In
the case of Section 53.3, the SEC must make two findings: (1) that such person has engaged in any such
act or practice, and (2) that there is a reasonable likelihood of continuing, (or engaging in) further or
future violations by such person. In the case of Section 64, the SEC must adjudge that the act, unless
restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or
prejudice to the investing public."
Noticeably, the CDO is not precisely clear whether it was issued on the basis of Section 5.1, Section 53.3
or Section 64 of the SRC. The CDO actually refers and cites all three provisions, yet it is apparent that a
singular CDO could not be founded on Section 5.1, Section 53.3 and Section 64 collectively. At the very
least, the CDO under Section 53.3 and under Section 64 have their respective requisites and terms.
GSIS was similarly cagey in its petition before the SEC, it demurring to state whether it was seeking the
CDO under Section 5.1, Section 53.3, or Section 64. Considering that injunctive relief generally avails
upon the showing of a clear legal right to such relief, the inability or unwillingness to lay bare the precise
statutory basis for the prayer for injunction is an obvious impediment to a successful
application. Nonetheless, the error of the SEC in granting the CDO without stating which kind of CDO it
was issuing is more unpardonable, as it is an act that contravenes due process of law.
We have particularly required, in administrative proceedings, that the body or tribunal "in all controversial
questions, render its decision in such a manner that the parties to the proceeding can know the various
issues involved, and the reason for the decision rendered."54 This requirement is vital, as its fulfillment
would afford the adverse party the opportunity to interpose a reasoned and intelligent appeal that is
responsive to the grounds cited against it. The CDO extended by the SEC fails to provide the needed
reasonable clarity of the rationale behind its issuance.
The subject CDO first refers to Section 64, citing its provisions, then stating: "[p]rescinding from the
aforequoted, there can be no doubt whatsoever that the Commission is in fact mandated to take up, if
expeditiously, any verified complaint praying for the provisional remedy of a cease and desist
order."55 The CDO then discusses the nature of the right of GSIS to obtain the CDO, as well as "the
urgent and paramount necessity to prevent serious damage because the stockholders’ meeting is
scheduled on May 28, 2008 x x x" Had the CDO stopped there, the unequivocal impression would have
been that the order is based on Section 64.
But the CDO goes on to cite Section 5.1, quoting paragraphs (i) and (n) in full, ratiocinating that under
these provisions, the SEC had "the power to issue cease and desist orders to prevent fraud or injury to
the public and such other measures necessary to carry out the Commission’s role as
regulator."56 Immediately thence, the CDO cites Section 53.3 as providing "that whenever it shall appear
to the Commission that nay person has engaged or is about to engage in any act or practice constituting
a violation of any provision, any rule, regulation or order thereunder, the Commission may issue ex-parte
a cease and desist order for a maximum period of ten (10) days, enjoining the violation and compelling
compliance therewith."57
The citation in the CDO of Section 5.1, Section 53.3 and Section 64 together may leave the impression
that it is grounded on all three provisions, and that may very well have been the intention of the SEC.
Assuming that is so, it is legally impermissible for the SEC to have utilized both Section 53.3 and Section
64 as basis for the CDO at the same time. The CDO under Section 53.3 is premised on distinctly different
requisites than the CDO under Section 64. Even more crucially, the lifetime of the CDO under Section 53.3
is confined to a definite span of ten (10) days, which is not the case with the CDO under Section 64. This
CDO under Section 64 may be the object of a formal request for lifting within five (5) days from its
issuance, a remedy not expressly afforded to the CDO under Section 53.3.
Any respondent to a CDO which cites both Section 53.3 and Section 64 would not have an intelligent or
adequate basis to respond to the same. Such respondent would not know whether the CDO would have a
determinate lifespan of ten (10) days, as in Section 53.3, or would necessitate a formal request for lifting
within five (5) days, as required under Section 64.1. This lack of clarity is to the obvious prejudice of the
respondent, and is in clear defiance of the constitutional right to due process of law. Indeed, the veritable
mélange that the assailed CDO is, with its jumbled mixture of premises and conclusions, the antithesis of
due process.
Had the CDO issued by the SEC expressed the length of its term, perhaps greater clarity would have been
offered on what Section of the SRC it is based. However, the CDO is precisely silent as to its lifetime,
thereby precluding much needed clarification. In view of the statutory differences among the three CDOs
under the SRC, it is essential that the SEC, in issuing such injunctive relief, identify the exact provision of
the SRC on which the CDO is founded. Only by doing so could the adversely affected party be able to
properly evaluate whatever his responses under the law.
To make matters worse for the SEC, the fact that the CDO was signed, much less apparently deliberated
upon, by only by one commissioner likewise renders the order fatally infirm.
The SEC is a collegial body composed of a Chairperson and four (4) Commissioners.58 In order to
constitute a quorum to conduct business, the presence of at least three (3) Commissioners is
required.59 In the leading case of GMCR v. Bell,60 we definitively explained the nature of a collegial body,
and how the act of one member of such body, even if the head, could not be considered as that of the
entire body itself. Thus:
We hereby declare that the NTC is a collegial body requiring a majority vote out of the three members of
the commission in order to validly decide a case or any incident therein. Corollarily, the vote alone of the
chairman of the commission, as in this case, the vote of Commissioner Kintanar, absent the required
concurring vote coming from the rest of the membership of the commission to at least arrive at a majority
decision, is not sufficient to legally render an NTC order, resolution or decision.
Simply put, Commissioner Kintanar is not the National Telecommunications Commission. He alone does
not speak for and in behalf of the NTC. The NTC acts through a three-man body, and the three members
of the commission each has one vote to cast in every deliberation concerning a case or any incident
therein that is subject to the jurisdiction of the NTC. When we consider the historical milieu in which the
NTC evolved into the quasi-judicial agency it is now under Executive Order No. 146 which organized the
NTC as a three-man commission and expose the illegality of all memorandum circulars negating the
collegial nature of the NTC under Executive Order No. 146, we are left with only one logical conclusion:
the NTC is a collegial body and was a collegial body even during the time when it was acting as a one-
man regime.61
We can adopt a virtually word-for-word observation with respect to former Commissioner Martinez and
the SEC. Simply put, Commissioner Martinez is not the SEC. He alone does not speak for and in behalf of
the SEC. The SEC acts through a five-person body, and the five members of the commission each has one
vote to cast in every deliberation concerning a case or any incident therein that is subject to the
jurisdiction of the SEC.
GSIS attempts to defend former Commissioner Martinez’s action, but its argument is without merit. It
cites SEC Order No. 169, Series of 2008, whereby Martinez was designated as "Officer-in-Charge of the
Commission for the duration of the official travel of the Chairperson to Paris, France, to attend the 33rd
Annual Conference of the [IOSCO] from May 26-30, 2008."62 As officer-in-charge (OIC), Martinez was
"authorized to sign all documents and papers and perform all other acts and deeds as may be necessary
in the day-to-day operation of the Commission".1avvphi1
It is clear that Martinez was designated as OIC because of the official travel of only one member,
Chairperson Fe Barin. Martinez was not commissioned to act as the SEC itself. At most, he was to act in
place of Chairperson Barin in the exercise of her duties as Chairperson of the SEC. Under Section 4.3 of
the SRC, the Chairperson is the chief executive officer of the SEC, and thus empowered to "execute and
administer the policies, decisions, orders and resolutions approved by the Commission," as well as to
"have the
general executive direction and supervision of the work and operation of the Commission."63 It is in
relation to the exercise of these duties of the Chairperson, and not to the functions of the Commission,
that Martinez was "authorized to sign all documents and papers and perform all other acts and deeds as
may be necessary in the day-to-day operation of the Commission."
GSIS likewise cites, as authority for Martinez’s unilateral issuance of the CDO, Section 4.6 of the SRC,
which states that the SEC "may, for purposes of efficiency, delegate any of its functions to any
department or office of the Commission, an individual Commissioner or staff member of the Commission
except its review or appellate authority and its power to adopt, alter and supplement any rule or
regulation." Reliance on this provision is inappropriate. First, there is no convincing demonstration that
the SEC had delegated to Martinez the authority to issue the CDO. The SEC Order designating Martinez as
OIC only authorized him to exercise the functions of the absent Chairperson, and not of the Commission.
If the Order is read as enabling Martinez to issue the CDO in behalf of the Commission, it would be akin to
conceding that the SEC Chairperson, acting alone, can issue the CDO in behalf of the SEC itself. That
again contravenes our holding in GMCR v. Bell.
In addition, it is clear under Section 4.6 that the ability to delegate functions to a single commissioner
does not extend to the exercise of the review or appellate authority of the SEC. The issuance of the CDO
is an act of the SEC itself done in the exercise of its original jurisdiction to review actual cases or
controversies. If it has not been clear to the SEC before, it should be clear now that its power to issue a
CDO can not, under the SRC, be delegated to an individual commissioner.
V.
In the end, even assuming that the events narrated in our Resolution in A.M. No. 08-8-11-CA constitute
sufficient basis to nullify the assailed decision of the Court of Appeals, still it remains clear that the reliefs
GSIS seeks of this Court have no basis in law. Notwithstanding the black mark that stains the appellate
court’s decision, the first paragraph of its fallo, to the extent that it dismissed the complaint of GSIS with
the SEC for lack of jurisdiction and consequently nullified the CDO and SDO, defies unbiased scrutiny and
deserves affirmation.
A.
In its dispositive portion, the Court of Appeals likewise pronounced that the complaint filed by GSIS with
the SEC should be barred from being considered "as an election contest in the RTC", given that the fifteen
(15) day prescriptive period to file an election contest with the RTC, under Section 3, Rule 6 of the Interim
Rules, had already run its course.64 Yet no such relief was requested by private respondents in their
petition for certiorari filed with the Court of Appeals65 . Without disputing the legal predicates
surrounding this pronouncement, we note that its tenor, if not the text, unduly suggests an unwholesome
pre-emptive strike. Given our observations in A.M. No. 08-8-11-CA of the "undue interest" exhibited by
the author of the appellate court decision, such declaration is best deleted. Nonetheless, we do trust that
any court or tribunal that may be confronted with that premise adverted to by the Court of Appeals would
know how to properly treat the same.
B.
Finally, we turn to the sanction on the lawyers of GSIS imposed by the Court of Appeals.
Nonetheless, we find that as a matter of law the sanctions are unwarranted. The charter of GSIS66 is
unique among government owned or controlled corporations with original charter in that it allocates a
role for its internal legal counsel that is in conjunction with or complementary to the Office of the
Government Corporate Counsel (OGCC), which is the statutory legal counsel for GOCCs. Section 47 of
GSIS charter reads:
SEC. 47. Legal Counsel.—The Government Corporate Counsel shall be the legal adviser and consultant of
GSIS, but GSIS may assign to the Office of the Government Corporate Counsel (OGCC) cases for legal
action or trial, issues for legal opinions, preparation and review of contracts/agreements and others, as
GSIS may decide or determine from time to time: Provided, however, That the present legal services
group in GSIS shall serve as its in-house legal counsel.
The GSIS may, subject to approval by the proper court, deputize any personnel of the legal service group
to act as special sheriff in the enforcement of writs and processes issued by the court, quasi-judicial
agencies or administrative bodies in cases involving GSIS.67
The designation of the OGCC as the legal counsel for GOCCs is set forth by statute, initially by Rep. Act
No. 3838, then reiterated by the Administrative Code of 1987.68 Given that the designation is statutory in
nature, there is no impediment for Congress to impose a different role for the OGCC with respect to
particular GOCCs it may charter. Congress appears to have done so with respect to GSIS, designating the
OGCC as a "legal adviser and consultant," rather than as counsel to GSIS. Further, the law clearly vests
unto GSIS the discretion, rather than the duty, to assign cases to the OGCC for legal action, while
designating the present legal services group of GSIS as "in-house legal counsel." This situates GSIS
differently from the Land Bank of the Philippines, whose own in-house lawyers have persistently argued
before this Court to no avail on their alleged right
to file petitions before us instead of the OGCC.69 Nothing in the Land Bank charter70 vested it with the
discretion to choose when to assign
cases to the OGCC, notwithstanding the establishment of its own Legal Department.71
Congress is not bound to retain the OGCC as the primary or exclusive legal counsel of GSIS even if it
performs such a role for other GOCCs. To bind Congress to perform in that manner would be akin to
elevating the OGCC’s statutory role to irrepealable status, and it is basic that Congress is barred from
passing irrepealable laws.72
C.
We close by acknowledging that the surrounding circumstances behind these petitions are unfortunate,
given the events as narrated in A.M. No. 08-8-11-CA. While due punishment has been meted on the errant
magistrates, the corporate world may very well be reminded that the members of the judiciary are not to
be viewed or treated as
mere pawns or puppets in the internecine fights businessmen and their associates wage against other
businessmen in the quest for corporate dominance. In the end, the petitions did afford this Court to clarify
consequential points of law, points rooted in principles which will endure long after the names of the
participants in these cases have been forgotten.
WHEREFORE, the petition in G.R. No. 184275 is EXPUNGED for lack of capacity of the petitioner to bring
forth the suit.
The petition in G.R. No. 183905 is DISMISSED for lack of merit except that the second and third
paragraphs of the fallo of the assailed decision dated 23 July 2008 of the Court of Appeals, including
subparagraphs (1), (2), 2(a), 2(b), 2(c) and 2(d) under the second paragraph, are hereby DELETED.
No pronouncements as to costs.
SO ORDERED.
DANTE O. TINGA
Associate Justice
WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice
Chairman
CONCHITA CARPIO MORALES PRESBITERO J. VELASCO, JR.
Associate Justice Associate Justice
ARTURO D. BRION
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairman, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairman’s Attestation, it is
hereby certified that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1 Rollo (G.R. No. 183905) (hereinafter, "rollo"), pp. 24, 884.
2 See Corporation Code, Sec. 58.
3 Rollo, pp. 24, 889.
4 Retired Associate Justice of the Supreme Court.
5 Rollo, pp. 24, 886.
6 Also a retired Associate Justice of this Court.
7 Rollo, pp. 24, 886.
8 Id. at 24, 893. Petitioner alleges that Justice Vitug had tendered his resignation on the previous day, 21
May 2008, see id. at 24, but that this was not formally accepted by the Meralco board of directors until 26
May 2008, see id. at 25.
9 Id. at 893.
10 Id. at 25-26, 893-896.
11 Id. at 26, 896.
12 Id. at 159-160, 899.
13 The records do not show that the petition was given a docket number.
14 Chairman of the Board of Directors and Chief Executive Officer of Meralco. See rollo, p. 20.
15 Identified by GSIS in its petition as President and Chief Operating Officer of Meralco, and also a
member of the Meralco board of directors. See id.
16 Also identified by GSIS in its petition as President and Chief Operating Officer of Meralco, and also a
member of the Meralco board of directors. See id.
17 A member of the board of directors of Meralco. See id. at 21.
18 President and Chief Operating Office of First Philippine Holdings Corporation. See id.
19 Chief Finance Officer, Treasurer, and Executive Vice President, First Philippine Holdings Corporation.
See id.
20 Id. at 182-183. The available records do not indicate that the petition filed with the SEC was ever
supplied its own case number.
21 Id. at 193.
22 Id. at 185-191.
23 Id. at 28, 903-905.
24 Id. at 192-193.
25 Id. at 194-251.
26 See http://sc.judiciary.gov.ph/jurisprudence/2008/october2008/08-8-11-CA.htm for Resolution as
published in the Supreme Court website.
27 Rollo, pp. 141-142.
28 See id. at 2200.
29 Id. at 2201.
30 Id. at 80.
31 "This is a petition for certiorari under Rule 65 of the Revised Rules of Court x x x." Rollo (G.R. No.
184275), p. 4.
32 Id. at 377.
33 See Rule 65, Sec. 5.
34 Citing Turquenza v. Hernando, et al., G.R. No. 51626, 30 April 1980.
35 F. Regalado, I Remedial Law Compendium (1999 ed.) at 723-724.
36 G.R. No. 46845, 27 April 1990, 184 SCRA 690.
37 Id. at 692-693.
38 Id. at 693, J. Cruz, concurring.
39 Id. at 692.
40 See e.g., Philippine Star’s and Daily Inquirer’s issues of 28 October 2008, reporting that GSIS had sold
its remaining 27% stake in Meralco to San Miguel Corp. for P30 billion, and issues of 14 March 2009
reporting that the PLDT Group had acquired a 20% stake of the Lopez Group in Meralco for P20.07 billion
increasing the former’s stake to 30.17% and reducing the latter’s stake to 13.4%.
41 See Corporation Code, Sec. 24, which reads in part: "xxx In stock corporations, every stockholder
entitled to vote shall have the right to vote in person or by proxy the number of shares of stock standing
xxx," and Section 58, which states: "Proxies.—Stockholders and members may vote in person or by proxy
in all meetings of stockholders or members. Proxies shall be in writing, signed by the stockholder or
member and field before the scheduled meeting with the corporate secretary. Unless otherwise provided
in the proxy, it shall be valid only for the meeting for which it is intended. No proxy shall be valid and
effective for a period longer than five (5) years at any one time.
42 The now-abrogated Revised Securities Act had also imposed limitations on the use of proxies. See Sec.
34, Revised Securities Act.
43 Rollo, p. 933; citing SEC Memorandum Circular No. 6, Series of 2005, which may also be found
athttp://www.sec.gov.ph/circulars/cy,2005/sec-memo-6,s2005.pdf (Last visited, 8 April 2009).
44 See SRC, Sec. 76.
45 Corporation Code, Sec. 6.
46 Corporation Code, Sec. 50.
47 See supra note 45.
48 See J. Campos & M. Campos, I Corporation Code of the Philippines (1990 ed.) at 515.
49 This observation should be viewed as confined to Section 5(c) of Pres. Decree No. 902-A alone. We are
cognizant of potential arguments over the use of proxies in relation to non-election related matters voted
upon by the stockholders when such matters concern intra-corporate controversies as defined in Section
5(a) of Pres. Decree No. 902-A. It is apparent that intra-corporate controversies fall within the jurisdiction
of the regular trial courts and that issues related to proxy voting that are intimately related to intra-
corporate controversies would necessarily fall within such jurisdiction as well. Nonetheless, the precise
jurisdictional parameters with respect to Section 5(a) proxy-related issues are not susceptible to
allocation through this case, which involves an election-related dispute under Section 5(c), and best await
a more suitable case or controversy.
50 "[T]he Court has consistently refused to sanction split jurisdiction." Southern Cross Cement
Corporation v. Philcemcor, G.R. No. 158540, 8 July 2004; citing ALU v. Gomez, 125 Phil. 717, 722 (1967).
51 Rollo, p. 884. Emphasis supplied.
52 Id. at 889. Emphasis supplied.
53 Id. at 131.
54 Ang Tibay v. CIR, 69 Phil. 635, 642-644 (1940).
55 Rollo, pp. 186-187.
56 Id. at 187.
57 Id. at 188.
58 See SRC, Sec. 4.1.
59 See SRC, Sec. 4.5.
60 G.R. No. 126496, 30 April 1997, 271 SCRA 790.
61 Id. at 804-805.
62 Rollo, p. 63.
63 SRC, Sec. 4.3.
64 Rollo, p. 141.
65 Id. at 246.
66 P.D. No. 1146, as amended by Rep. Act No. 8291 (1997).
67 P.D. No. 1146, Sec. 47, as amended by Rep. Act No. 8291 (1997).
68 See Phividec v. Capitol Steel, 460 Phil. 493, 500-501 (2003).
69 See e.g., the Resolutions dated 27 April 2005 & 13 July 2005, Land Bank v. Luciano, G.R. No. 165428.
70 Rep. Act No. 3844 (1963).
71 See Section 91, Rep. Act No. 3844 (1963). "SECTION 91. Legal Counsel.—The Secretary of Justice shall
be ex-officio legal adviser of the Bank. Any provision of law to the contrary notwithstanding, the Land
Bank shall have its own Legal Department, the chief and members of which shall be appointed by the
Board of Trustees. The composition, budget and operating expenses of the Office of the Legal Counsel
and the salaries and traveling expenses of its officers and employees shall be fixed by the Board of
Trustees and paid by the Bank."
72 See City of Davao v. Regional Trial Court of Davao City, Branch XII, G.R. No. 127383, 18 August 2005,
467 SCRA 280.

Pasted from <http://www.lawphil.net/judjuris/juri2009/apr2009/gr_183905_2009.html>

Yu vs. Yukayguan (2009)

Sunday, June 06, 2010
4:42 AM

G.R. No. 177549 June 18, 2009

ANTHONY S. YU, ROSITA G. YU and JASON G. YU, Petitioners,
vs.
JOSEPH S. YUKAYGUAN, NANCY L. YUKAYGUAN, JERALD NERWIN L. YUKAYGUAN, and JILL
NESLIE L. YUKAYGUAN, [on their own behalf and on behalf of] WINCHESTER INDUSTRIAL
SUPPLY, INC.,Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, which seeks to
reverse and set aside the Resolutions dated 18 July 20062 and 19 April 20073 of the Court of Appeals in
CA-G.R. SP No. 00185. Upon herein respondents’ motion, the Court of Appeals rendered the assailed
Resolution dated 18 July 2006, reconsidering its Decision4 dated 15 February 2006; and remanding the
case to the Regional Trial Court (RTC) of Cebu City, Branch 11, for necessary proceedings, in effect,
reversing the Decision5 dated 10 November 2004 of the RTC which dismissed respondents’ Complaint in
SRC Case No. 022-CEB. Herein petitioners’ Motion for Reconsideration of the Resolution dated 18 July
2006 was denied by the appellate court in the other assailed Resolution dated 19 April 2007.
Herein petitioners are members of the Yu Family, particularly, the father, Anthony S. Yu (Anthony); the
wife, Rosita G. Yu (Rosita); and their son, Jason G. Yu (Jason).
Herein respondents composed the Yukayguan Family, namely, the father, Joseph S. Yukayguan (Joseph);
the wife, Nancy L. Yukayguan (Nancy); and their children Jerald Nerwin L. Yukayguan (Jerald) and Jill
Neslie Yukayguan (Jill).
Petitioner Anthony is the older half-brother of respondent Joseph.
Petitioners and the respondents were all stockholders of Winchester Industrial Supply, Inc. (Winchester,
Inc.), a domestic corporation engaged in the operation of a general hardware and industrial supply and
equipment business.
On 15 October 2002, respondents filed against petitioners a verified Complaint for Accounting, Inspection
of Corporate Books and Damages through Embezzlement and Falsification of Corporate Records and
Accounts6before the RTC of Cebu. The said Complaint was filed by respondents, in their own behalf and
as a derivative suit on behalf of Winchester, Inc., and was docketed as SRC Case No. 022-CEB. The factual
background of the Complaint was stated in the attached Affidavit executed by respondent Joseph.
According to respondents,7 Winchester, Inc. was established and incorporated on 12 September 1977,
with petitioner Anthony as one of the incorporators, holding 1,000 shares of stock
worth P100,000.00.8 Petitioner Anthony paid for the said shares of stock with respondent Joseph’s
money, thus, making the former a mere trustee of the shares for the latter. On 14 November 1984,
petitioner Anthony ceded 800 of his 1,000 shares of stock in Winchester, Inc. to respondent Joseph, as
well as Yu Kay Guan,9 Siao So Lan, and John S. Yu.10 Petitioner Anthony remained as trustee for
respondent Joseph of the 200 shares of stock in Winchester, Inc., still in petitioner Anthony’s name.
Respondents then alleged that on 30 June 1985, Winchester, Inc. bought from its incorporators, excluding
petitioner Anthony, their accumulated 8,500 shares in the corporation.11 Subsequently, on 7 November
1995, Winchester, Inc. sold the same 8,500 shares to other persons, who included respondents Nancy,
Jerald, and Jill; and petitioners Rosita and Jason.12
Respondents further averred that although respondent Joseph appeared as the Secretary and Treasurer
in the corporate records of Winchester, Inc., petitioners actually controlled and ran the said corporation as
if it were their own family business. Petitioner Rosita handled the money market placements of the
corporation to the exclusion of respondent Joseph, the designated Treasurer of Winchester, Inc.
Petitioners were also misappropriating the funds and properties of Winchester, Inc. by understating the
sales, charging their personal and family expenses to the said corporation, and withdrawing stocks for
their personal use without paying for the same. Respondents attached to the Complaint various
receipts13 to prove the personal and family expenses charged by petitioners to Winchester, Inc.
Respondents, therefore, prayed that respondent Joseph be declared the owner of the 200 shares of stock
in petitioner Anthony’s name. Respondents also prayed that petitioners be ordered to: (1) deposit the
corporate books and records of Winchester, Inc. with the Branch Clerk of Court of the RTC for
respondents’ inspection; (2) render an accounting of all the funds of Winchester, Inc. which petitioners
misappropriated; (3) reimburse the personal and family expenses which petitioners charged to
Winchester, Inc., as well as the properties of the corporation which petitioners withheld without payment;
and (4) pay respondents’ attorney’s fees and litigation expenses. In the meantime, respondents sought
the appointment of a Management Committee and the freezing of all corporate funds by the trial court.
On 13 November 2002, petitioners filed an Answer with Compulsory Counterclaim,14 attached to which
was petitioner Anthony’s Affidavit.15 Petitioners vehemently denied the allegation that petitioner Anthony
was a mere trustee for respondent Joseph of the 1,000 shares of stock in Winchester, Inc. in petitioner
Anthony’s name. For the incorporation of Winchester, Inc., petitioner Anthony contributed P25,000.00
paid-up capital, representing 25% of the total par value of the 1,000 shares he subscribed to, the said
amount being paid out of petitioner Anthony’s personal savings and petitioners Anthony and Rosita’s
conjugal funds. Winchester, Inc. was being co-managed by petitioners and respondents, and the attached
receipts, allegedly evidencing petitioners’ use of corporate funds for personal and family expenses, were
in fact signed and approved by respondent Joseph.
By way of special and affirmative defenses, petitioners contended in their Answer with Compulsory
Counterclaim that respondents had no cause of action against them. Respondents’ Complaint was purely
intended for harassment. It should be dismissed under Section 1(j), Rule 1616 of the Rules of Court for
failure to comply with conditions precedent before its filing. First, there was no allegation in respondents’
Complaint that earnest efforts were exerted to settle the dispute between the parties. Second, since
respondents’ Complaint purportedly constituted a derivative suit, it noticeably failed to allege that
respondents exerted effort to exhaust all available remedies in the Articles of Incorporation and By-Laws
of Winchester, Inc., as well as in the Corporation Code. And third, given that respondents’ Complaint was
also for inspection of corporate books, it lacked the allegation that respondents made a previous demand
upon petitioners to inspect the corporate books but petitioners refused. Prayed for by petitioners, in
addition to the dismissal of respondents’ Complaint, was payment of moral and exemplary damages,
attorney’s fees, litigation expenses, and cost of suit.
On 30 October 2002, the hearing on the application for the appointment of a Management Committee
was commenced. Respondent Joseph submitted therein, as his direct testimony, the same Affidavit that
he executed, which was attached to the respondents’ Complaint. On 4 November 2002, respondent
Joseph was cross-examined by the counsel for petitioners. Thereafter, the continuation of the hearing was
set for 29 November 2002, in order for petitioners to adduce evidence in support of their opposition to the
application for the appointment of a Management Committee.17
During the hearing on 29 November 2002, the parties manifested before the RTC that there was an
ongoing mediation between them, and so the hearing on the appointment of a Management Committee
was reset to another date.
In amicable settlement of their dispute, the petitioners and respondents agreed to a division of the stocks
in trade,18 the real properties, and the other assets of Winchester, Inc. In partial implementation of the
afore-mentioned amicable settlement, the stocks in trade and real properties in the name of Winchester,
Inc. were equally distributed among petitioners and respondents. As a result, the stockholders and
members of the Board of Directors of Winchester, Inc. passed, on 4 January 2003, a unanimous
Resolution19 dissolving the corporation as of said date.
On 22 February 2004, respondents filed their pre-trial brief.20
On 25 June 2004, petitioners filed a Manifestation21 informing the RTC of the existence of their amicable
settlement with respondents. Respondents, however, made their own manifestation before the RTC that
they were repudiating said settlement, in view of the failure of the parties thereto to divide the remaining
assets of Winchester, Inc. Consequently, respondents moved to have SRC Case No. 022-CEB set for pre-
trial.
On 23 August 2004, petitioners filed their pre-trial brief.22
On 26 August 2004, instead of holding a formal pre-trial conference and resuming the hearing on the
application for the appointment of a Management Committee, petitioners and respondents agreed that
the RTC may already render a judgment based on the pleadings. In accordance with the agreement of the
parties, the RTC issued, on even date, an Order23 which stated:
ORDER
During the pre-trial conference held on August 26, 2004, counsels of the parties manifested, agreed
and suggested that a judgment may be rendered by the Court in this case based on the pleadings,
affidavits, and other evidences on record, or to be submitted by them, pursuant to the provision of
Rule 4, Section 4 of the Rule on Intra-Corporate Controversies. The suggestion of counsels was
approved by the Court.
Accordingly, the Court hereby orders the counsels of the parties to file simultaneously their
respective memoranda within a non-extendible period of twenty (20) days from notice hereof.
Thereafter, the instant case will be deemed submitted for resolution.
xxxx
Cebu City, August 26, 2004.
(signed)
SILVESTRE A. MAAMO, JR.
Acting Presiding Judge
Petitioners and respondents duly filed their respective Memoranda,24 discussing the arguments already
set forth in the pleadings they had previously submitted to the RTC. Respondents, though, attached to
their Memorandum a Supplemental Affidavit25 of respondent Joseph, containing assertions that refuted
the allegations in petitioner Anthony’s Affidavit, which was earlier submitted with petitioners’ Answer with
Compulsory Counterclaim. Respondents also appended to their Memorandum additional documentary
evidence,26 consisting of original and duplicate cash invoices and cash disbursement receipts issued by
Winchester, Inc., to further substantiate their claim that petitioners were understating sales and charging
their personal expenses to the corporate funds.
The RTC subsequently promulgated its Decision on 10 November 2004 dismissing SRC Case No. 022-CEB.
The dispositive portion of said Decision reads:
WHEREFORE, in view of the foregoing premises and for lack of merit, this Court hereby renders judgment
in this case DISMISSING the complaint filed by the [herein respondents].
The Court also hereby dismisses the [herein petitioners’] counterclaim because it has not been
indubitably shown that the filing by the [respondents] of the latter’s complaint was done in bad faith and
with malice.27
The RTC declared that respondents failed to show that they had complied with the essential requisites for
filing a derivative suit as set forth in Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate
Controversies:
(1) He was a stockholder or member at the time the acts or transactions subject of the action occurred
and at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust
all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation
or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.
As to respondents’ prayer for the inspection of corporate books and records, the RTC adjudged that they
had likewise failed to comply with the requisites entitling them to the same. Section 2, Rule 7 of the
Interim Rules of Procedure Governing Intra-Corporate Controversies requires that the complaint for
inspection of corporate books or records must state that:
(1) The case is for the enforcement of plaintiff's right of inspection of corporate orders or records and/or
to be furnished with financial statements under Sections 74 and 75 of the Corporation Code of the
Philippines;
(2) A demand for inspection and copying of books and records and/or to be furnished with financial
statements made by the plaintiff upon defendant;
(3) The refusal of defendant to grant the demands of the plaintiff and the reasons given for such refusals,
if any; and
(4) The reasons why the refusal of defendant to grant the demands of the plaintiff is unjustified and
illegal, stating the law and jurisprudence in support thereof.
The RTC further noted that respondent Joseph was the corporate secretary of Winchester, Inc. and, as
such, he was supposed to be the custodian of the corporate books and records; therefore, a court order
for respondents’ inspection of the same was no longer necessary. The RTC similarly denied respondents’
demand for accounting as it was clear that Winchester, Inc. had been engaging the services of an audit
firm. Respondent Joseph himself described the audit firm as competent and independent, and believed
that the audited financial statements the said audit firm prepared were true, faithful, and correct.
Finding the claims of the parties for damages against each other to be unsubstantiated, the RTC thereby
dismissed the same.
Respondents challenged the foregoing RTC Decision before the Court of Appeals via a Petition for Review
under Rule 43 of the Rules of Court, docketed as CA-G.R. SP No. 00185.
On 15 February 2006, the Court of Appeals rendered its Decision, affirming the 10 December 2004
Decision of the RTC. Said the appellate court:
After a careful and judicious scrutiny of the extant records of the case, together with the applicable laws
and jurisprudence, WE see no reason or justification for granting the present appeal.
xxxx
x x x [T]his Court sees that the instant petition would still fail taking into consideration all the pleadings
and evidence of the parties except the supplemental affidavit of [herein respondent] Joseph and its
corresponding annexes appended in [respondents’] memorandum before the Court a quo. The Court a
quo have (sic) outrightly dismissed the complaint for its failure to comply with the mandatory provisions
of the Interim Rules of Procedure for Intra-Corporate Controversies particularly Rule 2, Section 4(3), Rule
8, Section [1(2)] and Rule 7, Section 2 thereof, which reads as follows:
RULE 2
COMMENCEMENT OF ACTION AND PLEADINGS
Sec. 4. Complaint. – The complaint shall state or contain:
xxxx
(3) the law, rule, or regulation relied upon, violated, or sought to be enforced;
xxxx
RULE 8
DERIVATIVE SUITS
Sec. 1. Derivative action. – x x x
xxxx
(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust
all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation
or partnership to obtain the relief he desires.
xxxx
RULE 7
INSPECTION OF CORPORATE BOOKS AND RECORDS
Sec. 2. Complaint – In addition to the requirements in section 4, Rule 2 of these Rules, the complaint must
state the following:
(1) The case is set (sic) for the enforcement of plaintiff’s right of inspection of corporate orders or records
and/or to be furnished with financial statements under Section 74 and 75 of the Corporation Code of the
Philippines;
(2) A demand for inspection and copying of books [and/or] to be furnished with financial statements made
by the plaintiffs upon defendant;
(3) The refusal of the defendant to grant the demands of the plaintiff and the reasons given for such
refusal, if any; and
(4) The reasons why the refusal of defendant to grant the demands of the plaintiff is unjustified and
illegal, stating the law and jurisprudence in support thereof.
xxxx
A perusal of the extant record shows that [herein respondents] have not complied with the above quoted
provisions. [Respondents] should be mindful that in filing their complaint which, as admitted by them, is a
derivative suit, should have first exhausted all available remedies under its (sic) Articles of Incorporation,
or its by-laws, or any laws or rules governing the corporation. The contention of [respondent Joseph] that
he had indeed made several talks to (sic) his brother [herein petitioner Anthony] to settle their
differences is not tantamount to exhaustion of remedies. What the law requires is to bring the grievance
to the Board of Directors or Stockholders for the latter to take the opportunity to settle whatever problem
in its regular meeting or special meeting called for that purpose which [respondents] failed to do. x x x
The requirements laid down by the Interim Rules of Procedure for Intra-Corporate Controversies are
mandatory which cannot be dispensed with by any stockholder of a corporation before filing a derivative
suit.28 (Emphasis ours.)
The Court of Appeals likewise sustained the refusal by the RTC to consider respondent Joseph’s
Supplemental Affidavit and other additional evidence, which respondents belatedly submitted with their
Memorandum to the said trial court. The appellate court ratiocinated that:
With regard to the claim of [herein respondents] that the supplemental affidavit of [respondent] Joseph
and its annexes appended to their memorandum should have been taken into consideration by the Court
a quo to support the reliefs prayed [for] in their complaint. (sic) This Court rules that said supplemental
affidavit and its annexes is (sic) inadmissible.
A second hard look of (sic) the extant records show that during the pre-trial conference conducted on
August 26, 2004, the parties through their respective counsels had come up with an agreement that the
lower court would render judgment based on the pleadings and evidence submitted. This agreement is in
accordance with Rule 4, Sec. 4 of the Interim Rules of Procedure for Intra-Corporate Controversies which
explicitly states:
SECTION. 4. Judgment before pre-trial. – If, after submission of the pre-trial briefs, the court determines
that, upon consideration of the pleadings, the affidavits and other evidence submitted by the parties, a
judgment may be rendered, the court may order the parties to file simultaneously their respective
memoranda within a non-extendible period of twenty (20) days from receipt of the order. Thereafter, the
court shall render judgment, either full or otherwise, not later than ninety (90) days from the expiration of
the period to file the memoranda.
xxxx
Clearly, the supplemental affidavit and its appended documents which were submitted only upon the
filing of the memorandum for the [respondents] were not submitted in the pre-trial briefs for the
stipulation of the parties during the pre-trial, hence, it cannot be accepted pursuant to Rule 2, Sec. 8 of
the same rules which reads as follows:
SEC. 8. Affidavits, documentary and other evidence. – Affidavits shall be based on personal knowledge,
shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant
is competent to testify on the matters stated therein. The affidavits shall be in question and answer form,
and shall comply with the rules on admissibility of evidence.
Affidavits of witnesses as well as documentary and other evidence shall be attached to the appropriate
pleading; Provided, however, that affidavits, documentary and other evidence not so submitted may be
attached to the pre-trial brief required under these Rules. Affidavits and other evidence not so submitted
shall not be admitted in evidence, except in the following cases:
(1) Testimony of unwilling, hostile, or adverse party witnesses. A witness is presumed prima facie hostile
if he fails or refuses to execute an affidavit after a written request therefor;
(2) If the failure to submit the evidence is for meritorious and compelling reasons; and
(3) Newly discovered evidence.
In case of (2) and (3) above, the affidavit and evidence must be submitted not later than five (5) days
prior to its introduction in evidence.
There is no showing in the case at bench that the supplemental affidavit and its annexes falls (sic) within
one of the exceptions of the above quoted proviso, hence, inadmissible.
It must be noted that in the case at bench, like any other civil cases, "the party making an allegation in a
civil case has the burden of proving it by preponderance of evidence." Differently stated, upon the
plaintiff in [a] civil case, the burden of proof never parts. That is, appellants must adduce evidence that
has greater weight or is more convincing that (sic) which is offered to oppose it. In the case at bar, no one
should be blamed for the dismissal of the complaint but the [respondents] themselves for their
lackadaisical attitude in setting forth and appending their defences belatedly. To admit them would be a
denial of due process for the opposite party which this Court cannot allow.29
Ultimately, the Court of Appeals decreed:
WHEREFORE, judgment is hereby rendered DISMISSING the instant petition and the assailed Decision of
the Regional Trial Court (RTC), 7th Judicial Region, Branch II, Cebu City, dated November 10, 2004, in SRC
Case No. 022-CEB is AFFIRMED in toto. Cost against the [herein respondents].30
Unperturbed, respondents filed before the Court of Appeals, on 23 February 2006, a Motion for
Reconsideration and Motion to Set for Oral Arguments the Motion for Reconsideration,31 invoking the
following grounds:
(1) The [herein respondents] have sufficiently exhausted all remedies before filing the present action; and
(2) [The] Honorable Court erred in holding that the supplemental affidavit and its annexes is (sic)
inadmissible because the rules and the lower court expressly allowed the submission of the same in its
order dated August 26, 2004 x x x.32
In a Resolution33 dated 8 March 2006, the Court of Appeals granted respondents’ Motion to Set for Oral
Arguments the Motion for Reconsideration.
On 4 April 2006, the Court of Appeals issued a Resolution34 setting forth the events that transpired
during the oral arguments, which took place on 30 March 2006. Counsels for the parties manifested
before the appellate court that they were submitting respondents’ Motion for Reconsideration for
resolution. Justice Magpale, however, still called on the parties to talk about the possible settlement of the
case considering their familial relationship. Independent of the resolution of respondents’ Motion for
Reconsideration, the parties were agreeable to pursue a settlement for the dissolution of the corporation,
which they had actually already started.
In a Resolution35 dated 11 April 2006, the Court of Appeals ordered the parties to submit, within 10 days
from notice, their intended amicable settlement, since the same would undeniably affect the resolution of
respondents’ pending Motion for Reconsideration. If the said period should lapse without the parties
submitting an amicable settlement, then they were directed by the appellate court to file within 10 days
thereafter their position papers instead.
On 5 May 2006, respondents submitted to the Court of Appeals their Position Paper,36 stating that the
parties did not reach an amicable settlement. Respondents informed the appellate court that prior to the
filing with the Securities and Exchange Commission (SEC) of a petition for dissolution of Winchester, Inc.,
the parties already divided the stocks in trade and the real assets of the corporation among themselves.
Respondents posited, though, that the afore-mentioned distribution of the assets of Winchester, Inc.
among the parties was null and void, as it violated the last paragraph of Section 122 of the Corporation
Code, which provides that, "[e]xcept by a decrease of capital stock and as otherwise allowed by the
Corporation Code, no corporation shall distribute any of its assets or property except upon lawful
dissolution and after payment of all its debts and liabilities." At the same time, however, respondents
brought to the attention of the Court of Appeals that the parties did eventually file with the SEC a petition
for dissolution of Winchester, Inc., which the SEC approved.37
Respondents no longer discussed in their Position Paper the grounds they previously invoked in their
Motion for Reconsideration of the Court of Appeals Decision dated 15 February 2006, affirming in toto the
RTC Decision dated 10 November 2004. They instead argued that the RTC Decision in question was null
and void as it did not clearly state the facts and the law on which it was based. Respondents sought the
remand of the case to the RTC for further proceedings on their derivative suit and completion of the
dissolution of Winchester, Inc., including the legalization of the prior partial distribution among the parties
of the assets of said corporation.
Petitioners filed their Position Paper38 on 23 May 2006, wherein they accused respondents of attempting
to incorporate extraneous matters into the latter’s Motion for Reconsideration. Petitioners pointed out
that the issue before the Court of Appeals was not the dissolution and division of assets of Winchester,
Inc., thus, a remand of the case to the RTC was not necessary.
On 18 July 2006, the Court of Appeals rendered the assailed Resolution, granting respondents’ Motion for
Reconsideration. The Court of Appeals reasoned in this wise:
After a second look and appreciation of the facts of the case, vis-à-vis the issues raised by the [herein
respondents’] motion for reconsideration and in view of the formal dissolution of the corporation which
leaves unresolved up to the present the settlement of the properties and assets which are now in danger
of dissipation due to the unending litigation, this Court finds the need to remand the instant case to the
lower court (commercial court) as the proper forum for the adjudication, disposition, conveyance and
distribution of said properties and assets between and amongst its stockholders as final settlement
pursuant to Sec. 122 of the Corporation Code after payment of all its debts and liabilities as provided for
under the same proviso. This is in accord with the pronouncement of the Supreme Court in the case of
Clemente et. al. vs. Court of Appeals, et. al. where the high court ruled and which WE quote, viz:
"the corporation continues to be a body corporate for three (3) years after its dissolution for purposes of
prosecuting and defending suits by and against it and for enabling it to settle and close its affairs,
culminating in the disposition and distribution of its remaining assets. It may, during the three-year term,
appoint a trustee or a receiver who may act beyond that period. The termination of the life of a juridical
entity does not by itself cause the extinction or diminution of the rights and liabilities of such entity x x x
nor those of its owners and creditors. If the three-year extended life has expired without a trustee or
receiver having been expressly designated by the corporation within that period, the board of directors
(or trustees) xxx may be permitted to so continue as "trustees" by legal implication to complete the
corporate liquidation. Still in the absence of a board of directors or trustees, those having any pecuniary
interest in the assets, including not only the shareholders but likewise the creditors of the corporation,
acting for and in its behalf, might make proper representation with the Securities and Exchange
Commission, which has primary and sufficiently broad jurisdiction in matters of this nature, for working
out a final settlement of the corporate concerns."
In the absence of a trustee or board of director in the case at bar for purposes above mentioned, the
lower court under Republic Act No. [8799] (otherwise known as the Securities and Exchange Commission)
as implemented by A.M. No. 00-8-10-SC (Transfer of Cases from the Securities and Exchange Commission
to the Regional Trial Courts) which took effect on October 1, 2001, is the proper forum for working out the
final settlement of the corporate concern.39
Hence, the Court of Appeals ruled:
WHEREFORE, premises considered, the motion for reconsideration is GRANTED. The order dated February
15, 2006 is hereby SET ASIDE and the instant case is REMANDED to the lower court to take the necessary
proceedings in resolving with deliberate dispatch any and all corporate concerns towards final
settlement.40
Petitioners filed a Motion for Reconsideration41 of the foregoing Resolution, but it was denied by the
Court of Appeals in its other assailed Resolution dated 19 April 2007.
In the Petition at bar, petitioners raise the following issues:
I.
WHETHER OR NOT THE ASSAILED RESOLUTIONS[,] WHICH VIOLATED THE CONSTITUTION OF THE
PHILIPPINES, JURISPRUDENCE AND THE LAW[,] ARE NULL AND VOID[.]
II.
WHETHER OR NOT THE ASSAILED RESOLUTIONS WAS (sic) ISSUED WITHOUT JURISDICTION[.]
III.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN REMANDING THIS
CASE TO THE LOWER COURT FOR THE REASON CITED IN THE ASSAILED RESOLUTIONS, AND
WITHOUT RESOLVING THE GROUNDS FOR THE [RESPONDENTS’] MOTION FOR RECONSIDERATION.
(sic) INASMUCH AS [THE] REASON CITED WAS A NON-ISSUE IN THE CASE.
IV.
WHETHER OR NOT REMANDING THIS CASE TO THE REGIONAL TRIAL COURT VIOLATES THE
SUMMARY PROCEDURE FOR INTRA-CORPORATE CASES.42
The crux of petitioners’ contention is that the Court of Appeals committed grievous error in reconsidering
its Decision dated 15 February 2006 on the basis of extraneous matters, which had not been previously
raised in respondents’ Complaint before the RTC, or in their Petition for Review and Motion for
Reconsideration before the appellate court; i.e., the adjudication, disposition, conveyance, and
distribution of the properties and assets of Winchester, Inc. among its stockholders, allegedly pursuant to
the amicable settlement of the parties. The fact that the parties were able to agree before the Court of
Appeals to submit for resolution respondents’ Motion for Reconsideration of the 15 February 2006
Decision of the same court, independently of any intended settlement between the parties as regards the
dissolution of the corporation and distribution of its assets, only proves the distinction and independence
of these matters from one another. Petitioners also contend that the assailed Resolution dated 18 July
2006 of the Court of Appeals, granting respondents’ Motion for Reconsideration, failed to clearly and
distinctly state the facts and the law on which it was based. Remanding the case to the RTC, petitioners
maintain, will violate the very essence of the summary nature of the Interim Rules of Procedure
Governing Intra-Corporate Controversies, as this will just entail delay, protract litigation, and revert the
case to square one.
The Court finds the instant Petition meritorious.
To recapitulate, the case at bar was initiated before the RTC by respondents as a derivative suit, on their
own behalf and on behalf of Winchester, Inc., primarily in order to compel petitioners to account for and
reimburse to the said corporation the corporate assets and funds which the latter allegedly
misappropriated for their personal benefit. During the pendency of the proceedings before the court a
quo, the parties were able to reach an amicable settlement wherein they agreed to divide the assets of
Winchester, Inc. among themselves. This amicable settlement was already partially implemented by the
parties, when respondents repudiated the same, for which reason the RTC proceeded with the case on its
merits. On 10 November 2004, the RTC promulgated its Decision dismissing respondents’ Complaint for
failure to comply with essential pre-requisites before they could avail themselves of the remedies under
the Interim Rules of Procedure Governing Intra-Corporate Controversies; and for inadequate
substantiation of respondents’ allegations in said Complaint after consideration of the pleadings and
evidence on record.
In its Decision dated 15 February 2006, the Court of Appeals affirmed, on appeal, the findings of the RTC
that respondents did not abide by the requirements for a derivative suit, nor were they able to prove their
case by a preponderance of evidence. Respondents filed a Motion for Reconsideration of said judgment of
the appellate court, insisting that they were able to meet all the conditions for filing a derivative suit.
Pending resolution of respondents’ Motion for Reconsideration, the Court of Appeals urged the parties to
again strive to reach an amicable settlement of their dispute, but the parties were unable to do so. The
parties were not able to submit to the appellate court, within the given period, any amicable settlement;
and filed, instead, their Position Papers. This effectively meant that the parties opted to submit
respondents’ Motion for Reconsideration of the 15 February 2006 Decision of the Court of Appeals, and
petitioners’ opposition to the same, for resolution by the appellate court on the merits.
It was at this point that the case took an unexpected turn.
In accordance with respondents’ allegation in their Position Paper that the parties subsequently filed with
the SEC, and the SEC already approved, a petition for dissolution of Winchester, Inc., the Court of Appeals
remanded the case to the RTC so that all the corporate concerns between the parties regarding
Winchester, Inc. could be resolved towards final settlement.
In one stroke, with the use of sweeping language, which utterly lacked support, the Court of Appeals
converted the derivative suit between the parties into liquidation proceedings.
The general rule is that where a corporation is an injured party, its power to sue is lodged with its board
of directors or trustees. Nonetheless, an individual stockholder is permitted to institute a derivative suit
on behalf of the corporation wherein he holds stocks in order to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to sue, or are the ones to be sued, or hold the control of
the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest. A derivative action is a suit by a shareholder to enforce a
corporate cause of action. The corporation is a necessary party to the suit. And the relief which is granted
is a judgment against a third person in favor of the corporation. Similarly, if a corporation has a defense
to an action against it and is not asserting it, a stockholder may intervene and defend on behalf of the
corporation.43 By virtue of Republic Act No. 8799, otherwise known as the Securities Regulation Code,
jurisdiction over intra-corporate disputes, including derivative suits, is now vested in the Regional Trial
Courts designated by this Court pursuant to A.M. No. 00-11-03-SC promulgated on 21 November 2000.
In contrast, liquidation is a necessary consequence of the dissolution of a corporation. It is specifically
governed by Section 122 of the Corporation Code, which reads:
SEC. 122. Corporate liquidation. – Every corporation whose charter expires by its own limitation or is
annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any
other manner, shall nevertheless be continued as a body corporate for three (3) years after the time
when it 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.
At any time during said three (3) years, said corporation is authorized and empowered to convey all of its
property to trustees for the benefit of stockholders, members, creditors, and other persons in interest.
From and after any such conveyance by the corporation of its property in trust for the benefit of its
stockholders, members, creditors and others in interest, all interest which the corporation had in the
property terminates, the legal interest vests in the trustees, and the beneficial interest in the
stockholders, members, creditors or other persons in interest.
Upon winding up of the corporate affairs, any asset distributable to any creditor or stockholder or member
who is unknown or cannot be found shall be escheated to the city or municipality where such assets are
located.
Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute
any of its assets or property except upon lawful dissolution and after payment of all its debts and
liabilities.
Following the voluntary or involuntary dissolution of a corporation, liquidation is the process of settling
the affairs of said corporation, which consists of adjusting the debts and claims, that is, of collecting all
that is due the corporation, the settlement and adjustment of claims against it and the payment of its just
debts.44 More particularly, it entails the following:
Winding up the affairs of the corporation means the collection of all assets, the payment of all its
creditors, and the distribution of the remaining assets, if any among the stockholders thereof in
accordance with their contracts, or if there be no special contract, on the basis of their respective
interests. The manner of liquidation or winding up may be provided for in the corporate by-laws and this
would prevail unless it is inconsistent with law.45
It may be undertaken by the corporation itself, through its Board of Directors; or by trustees to whom all
corporate assets are conveyed for liquidation; or by a receiver appointed by the SEC upon its decree
dissolving the corporation.46lawphil.net
Glaringly, a derivative suit is fundamentally distinct and independent from liquidation proceedings. They
are neither part of each other nor the necessary consequence of the other. There is totally no justification
for the Court of Appeals to convert what was supposedly a derivative suit instituted by respondents, on
their own behalf and on behalf of Winchester, Inc. against petitioners, to a proceeding for the liquidation
of Winchester, Inc.
While it may be true that the parties earlier reached an amicable settlement, in which they agreed to
already distribute the assets of Winchester, Inc., and in effect liquidate said corporation, it must be
pointed out that respondents themselves repudiated said amicable settlement before the RTC, even after
the same had been partially implemented; and moved that their case be set for pre-trial. Attempts to
again amicably settle the dispute between the parties before the Court of Appeals were unsuccessful.
Moreover, the decree of the Court of Appeals to remand the case to the RTC for the "final settlement of
corporate concerns" was solely grounded on respondents’ allegation in its Position Paper that the parties
had already filed before the SEC, and the SEC approved, the petition to dissolve Winchester, Inc. The
Court notes, however, that there is absolute lack of evidence on record to prove said allegation.
Respondents failed to submit copies of such petition for dissolution of Winchester, Inc. and the SEC
Certification approving the same. It is a basic rule in evidence that each party must prove his affirmative
allegation. Since it was respondents who alleged the voluntary dissolution of Winchester, Inc.,
respondents must, therefore, prove it.47 This respondents failed to do.
Even assuming arguendo that the parties did submit a petition for the dissolution of Winchester, Inc. and
the same was approved by the SEC, the Court of Appeals was still without jurisdiction to order the final
settlement by the RTC of the remaining corporate concerns. It must be remembered that the Complaint
filed by respondents before the RTC essentially prayed for the accounting and reimbursement by
petitioners of the corporate funds and assets which they purportedly misappropriated for their personal
use; surrender by the petitioners of the corporate books for the inspection of respondents; and payment
by petitioners to respondents of damages. There was nothing in respondents’ Complaint which sought the
dissolution and liquidation of Winchester, Inc. Hence, the supposed dissolution of Winchester, Inc. could
not have resulted in the conversion of respondents’ derivative suit to a proceeding for the liquidation of
said corporation, but only in the dismissal of the derivative suit based on either compromise agreement
or mootness of the issues.
Clearly, in issuing its assailed Resolutions dated 18 July 2006 and 19 April 2007, the Court of Appeals
already went beyond the issues raised in respondents’ Motion for Reconsideration. Instead of focusing on
whether it erred in affirming, in its 15 February 2006 Decision, the dismissal by the RTC of respondents’
Complaint due to respondents’ failure to comply with the requirements for a derivative suit and submit
evidence to support their allegations, the Court of Appeals unduly concentrated on respondents’
unsubstantiated allegation that Winchester, Inc. was already dissolved and speciously ordered the
remand of the case to the RTC for proceedings so vitally different from that originally instituted by
respondents.
Despite the foregoing, the Court still deems it appropriate to already look into the merits of respondents’
Motion for Reconsideration of the 15 February 2006 Decision of the Court of Appeals, for the sake of
finally putting an end to the case at bar.
In their said Motion for Reconsideration, respondents argued that: (1) they had sufficiently exhausted all
remedies before filing the derivative suit; and (2) respondent Joseph’s Supplemental Affidavit and its
annexes should have been taken into consideration, since the submission thereof was allowed by the
rules of procedure, as well as by the RTC in its Order dated 26 August 2004.
As regards the first ground of sufficient exhaustion by respondents of all remedies before filing a
derivative suit, the Court subscribes to the ruling to the contrary of the Court of Appeals in its Decision
dated 16 February 2006.1avvphi1
The Court has recognized that a stockholder’s right to institute a derivative suit is not based on any
express provision of the Corporation Code, or even the Securities Regulation Code, but is impliedly
recognized when the said laws make corporate directors or officers liable for damages suffered by the
corporation and its stockholders for violation of their fiduciary duties. Hence, a stockholder may sue for
mismanagement, waste or dissipation of corporate assets because of a special injury to him for which he
is otherwise without redress. In effect, the suit is an action for specific performance of an obligation owed
by the corporation to the stockholders to assist its rights of action when the corporation has been put in
default by the wrongful refusal of the directors or management to make suitable measures for its
protection. The basis of a stockholder’s suit is always one in equity. However, it cannot prosper without
first complying with the legal requisites for its institution.48
Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate Controversies lays down the
following requirements which a stockholder must comply with in filing a derivative suit:
Sec. 1. Derivative action. – A stockholder or member may bring an action in the name of a corporation or
association, as the case may be, provided, that:
(1) He was a stockholder or member at the time the acts or transactions subject of the action occurred
and at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust
all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation
or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.
A perusal of respondents’ Complaint before the RTC would reveal that the same did not allege with
particularity that respondents exerted all reasonable efforts to exhaust all remedies available under the
articles of incorporation, by-laws, laws or rules governing Winchester, Inc. to obtain the relief they desire.
Respondents assert that their compliance with said requirement was contained in respondent Joseph’s
Affidavit, which was attached to respondents’ Complaint. Respondent Joseph averred in his Affidavit that
he tried for a number of times to talk to petitioner Anthony to settle their differences, but the latter would
not listen. Respondents additionally claimed that taking further remedies within the corporation would
have been idle ceremony, considering that Winchester, Inc. was a family corporation and it was
impossible to expect petitioners to take action against themselves who were the ones accused of
wrongdoing.
The Court is not persuaded.
The wordings of Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate
Controversies are simple and do not leave room for statutory construction. The second paragraph thereof
requires that the stockholder filing a derivative suit should have exerted all reasonable efforts to exhaust
all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation
or partnership to obtain the relief he desires; and to allege such fact with particularity in the complaint.
The obvious intent behind the rule is to make the derivative suit the final recourse of the stockholder,
after all other remedies to obtain the relief sought had failed.
The allegation of respondent Joseph in his Affidavit of his repeated attempts to talk to petitioner Anthony
regarding their dispute hardly constitutes "all reasonable efforts to exhaust all remedies available."
Respondents did not refer to or mention at all any other remedy under the articles of incorporation or by-
laws of Winchester, Inc., available for dispute resolution among stockholders, which respondents
unsuccessfully availed themselves of. And the Court is not prepared to conclude that the articles of
incorporation and by-laws of Winchester, Inc. absolutely failed to provide for such remedies.
Neither can this Court accept the reasons proffered by respondents to excuse themselves from complying
with the second requirement under Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-
Corporate Controversies. They are flimsy and insufficient, compared to the seriousness of respondents’
accusations of fraud, misappropriation, and falsification of corporate records against the petitioners. The
fact that Winchester, Inc. is a family corporation should not in any way exempt respondents from
complying with the clear requirements and formalities of the rules for filing a derivative suit. There is
nothing in the pertinent laws or rules supporting the distinction between, and the difference in the
requirements for, family corporations vis-à-vis other types of corporations, in the institution by a
stockholder of a derivative suit.
The Court further notes that, with respect to the third and fourth requirements of Section 1, Rule 8 of the
Interim Rules of Procedure Governing Intra-Corporate Controversies, the respondents’ Complaint failed to
allege, explicitly or otherwise, the fact that there were no appraisal rights available for the acts of
petitioners complained of, as well as a categorical statement that the suit was not a nuisance or a
harassment suit.
As to respondents’ second ground in their Motion for Reconsideration, the Court agrees with the ruling of
the Court of Appeals, in its 15 February 2006 Decision, that respondent Joseph’s Supplemental Affidavit
and additional evidence were inadmissible since they were only appended by respondents to their
Memorandum before the RTC. Section 8, Rule 2 of the Interim Rules of Procedure Governing Intra-
Corporate Controversies is crystal clear that:
Sec. 8. Affidavits, documentary and other evidence. – Affidavits shall be based on personal knowledge,
shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant
is competent to testify on the matters stated therein. The affidavits shall be in question and answer form,
and shall comply with the rules on admissibility of evidence.
Affidavits of witnesses as well as documentary and other evidence shall be attached to the appropriate
pleading, Provided, however, that affidavits, documentary and other evidence not so submitted may be
attached to the pre-trial brief required under these Rules. Affidavits and other evidence not so submitted
shall not be admitted in evidence, except in the following cases:
(1) Testimony of unwilling, hostile, or adverse party witnesses. A witness is presumed prima facie hostile
if he fails or refuses to execute an affidavit after a written request therefor;
(2) If the failure to submit the evidence is for meritorious and compelling reasons; and
(3) Newly discovered evidence.
In case of (2) and (3) above, the affidavit and evidence must be submitted not later than five (5) days
prior to its introduction in evidence. (Emphasis ours.)
According to the afore-quoted provision, the parties should attach the affidavits of witnesses and other
documentary evidence to the appropriate pleading, which generally should mean the complaint for the
plaintiff and the answer for the respondent. Affidavits and documentary evidence not so submitted must
already be attached to the respective pre-trial briefs of the parties. That the parties should have already
identified and submitted to the trial court the affidavits of their witnesses and documentary evidence by
the time of pre-trial is strengthened by the fact that Section 1, Rule 4 of the Interim Rules of Procedure
Governing Intra-Corporate Controversies require that the following matters should already be set forth in
the parties’ pre-trial briefs:
Section 1. Pre-trial conference, mandatory nature. – Within five (5) days after the period for availment of,
and compliance with, the modes of discovery prescribed in Rule 3 hereof, whichever comes later, the
court shall issue and serve an order immediately setting the case for pre-trial conference, and directing
the parties to submit their respective pre-trial briefs. The parties shall file with the court and furnish each
other copies of their respective pre-trial brief in such manner as to ensure its receipt by the court and the
other party at least five (5) days before the date set for the pre-trial.
The parties shall set forth in their pre-trial briefs, among other matters, the following:
xxxx
(4) Documents not specifically denied under oath by either or both parties;
xxxx
(7) Names of witnesses to be presented and the summary of their testimony as contained in their
affidavits supporting their positions on each of the issues;
(8) All other pieces of evidence, whether documentary or otherwise and their respective purposes.
Also, according to Section 2, Rule 4 of the Interim Rules of Procedure Governing Intra-Corporate
Controversies,49it is the duty of the court to ensure during the pre-trial conference that the parties
consider in detail, among other things, objections to the admissibility of testimonial, documentary, and
other evidence, as well as objections to the form or substance of any affidavit, or part thereof.
Obviously, affidavits of witnesses and other documentary evidence are required to be attached to a
party’s pre-trial brief, at the very last instance, so that the opposite party is given the opportunity to
object to the form and substance, or the admissibility thereof. This is, of course, to prevent unfair
surprises and/or to avoid the granting of any undue advantage to the other party to the case.
True, the parties in the present case agreed to submit the case for judgment by the RTC, even before pre-
trial, in accordance with Section 4, Rule 4 of the Interim Rules of Procedure Governing Intra-Corporate
Controversies:
Sec. 4. Judgment before pre-trial. – If after submission of the pre-trial briefs, the court determines that,
upon consideration of the pleadings, the affidavits and other evidence submitted by the parties, a
judgment may be rendered, the court may order the parties to file simultaneously their respective
memoranda within a non-extendible period of twenty (20) days from receipt of the order. Thereafter, the
court shall render judgment, either full or otherwise, not later than ninety (90) days from the expiration of
the period to file the memoranda.
Even then, the afore-quoted provision still requires, before the court makes a determination that it can
render judgment before pre-trial, that the parties had submitted their pre-trial briefs and the court took
into consideration the pleadings, affidavits and other evidence submitted by the parties. Hence, cases
wherein the court can render judgment prior to pre-trial, do not depart from or constitute an exception to
the requisite that affidavits of witnesses and documentary evidence should be submitted, at the latest,
with the parties’ pre-trial briefs. Taking further into account that under Section 4, Rule 4 of the Interim
Rules of Procedure Governing Intra-Corporate Controversies parties are required to file their memoranda
simultaneously, the same would mean that a party would no longer have any opportunity to dispute or
rebut any new affidavit or evidence attached by the other party to its memorandum. To violate the
above-quoted provision would, thus, irrefragably run afoul the former party’s constitutional right to due
process.
In the instant case, therefore, respondent Joseph’s Supplemental Affidavit and the additional
documentary evidence, appended by respondents only to their Memorandum submitted to the RTC, were
correctly adjudged as inadmissible by the Court of Appeals in its 15 February 2006 Decision for having
been belatedly submitted. Respondents neither alleged nor proved that the documents in question fall
under any of the three exceptions to the requirement that affidavits and documentary evidence should be
attached to the appropriate pleading or pre-trial brief of the party, which is particularly recognized under
Section 8, Rule 2 of the Interim Rules of Procedure Governing Intra-Corporate Controversies.
WHEREFORE, premises considered, the Petition for Review under Rule 45 of the Rules of Court is hereby
GRANTED. The assailed Resolutions dated 18 July 2006 and 19 April 2007 of the Court of Appeals in CA-
G.R. SP No. 00185 are hereby REVERSED AND SET ASIDE. The Decision dated 15 February 2006 of the
Court of Appeals is hereby AFFIRMED. No costs.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
PRESBITERO J. VELASCO, JR. ANTONIO EDUARDO B. NACHURA
Associate Justice Associate Justice
DIOSDADO M. PERALTA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, it is
hereby certified that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1 Rollo, pp. 2-18.
2 Penned by Associate Justice Vicente L. Yap with Associate Justices Arsenio J. Magpale and Apolinario D.
Bruselas, Jr., concurring; rollo, pp. 20-23.
3 Penned by Associate Justice Arsenio J. Magpale with Associate Justices Agustin S. Dizon and Francisco P.
Acosta, concurring; rollo, pp. 25-26.
4 Rollo, pp. 32-43.
5 Penned by Judge Silvestre A. Maamo, Jr.; rollo, pp. 27-30.
6 CA rollo, pp. 39-45.
7 Id. at 46-48.
8 The incorporators and their respective numbers of shares were as follows:
Name No. of shares Amount
Eugene Yutankin 3,000 P 300,000.00
Hao Bun Yam 3,000 P 300,000.00
Co To 2,000 P 200,000.00
Vicenta Lo Chiong 1,000 P 100,000.00
Anthony S. Yu 1,000 P 100,000.00
10,000 P1,000,000.00
(Records, p. 14.)
9 Father of petitioner Anthony and respondent Joseph.
10 CA rollo, p. 78.
11 In accordance with the recital of facts in the Complaint, if the 1,000 shares of Anthony Yu were to be
subtracted from the total number of shares issued by Winchester, Inc., the other incorporators would
have a total of 9,000 shares. However, according to the Deed of Sale dated 30 June 1985 (Records, p. 16),
only 8,500 shares were sold to Winchester, Inc. by the following shareholders:
Name No. of shares
Irinea Yutankin 3,000
Hao Bun Yam 3,000
Yu Kim Sing 1,500
Vicenta Lo Chiong 1,000
8,500
12 CA rollo, pp. 56-57.
13 Annexes E to Q; CA rollo, pp. 60-77.
14 CA rollo, pp. 79-86.
15 Id. at 87-91.
16 Rule 16, Section 1(j) of the Rules of Court provides:
 Section 1. Grounds. – Within the time for but before filing the answer to the complaint or pleading
asserting a claim, a motion to dismiss may be made on any of the following grounds:
xxxx
(j) That a condition precedent for filing the claim has not been complied with.
17 Records, p. 52.
18 The Court understood this term to refer to the inventories of the general hardware and industrial
supply and equipment business.
19 CA rollo, p. 214.
20 Records, pp. 225-231.
21 Rollo, pp. 55-56.
22 Records, pp. 234-240.
23 Rollo, p. 62.
24 CA rollo, pp. 177-202, 94-106.
25 Id. at 107-110.
26 Id. at 111-128.
27 Rollo, p. 30.
28 Id. at 37-39.
29 Id. at 39-42.
30 Id. at 43.
31 Id. at 57-61.
32 Id. at 57.
33 CA rollo, pp. 434-435.
34 Rollo, pp. 65-66.
35 Id. at 67-68.
36 CA rollo, pp. 486-494.
37 The certificate of dissolution of respondent Winchester, Inc. was not, however, made part of the
records of the case before the Court of Appeals or this Court.
38 CA rollo, pp. 497-504.
39 Rollo, pp. 21-22.
40 Id. at 22.
41 CA rollo, pp. 512-519.
42 Rollo, pp. 71-72.
43 Chua v. Court of Appeals, G.R. No. 150793, 19 November 2004, 443 SCRA 259, 266-267.
44 See China Banking Corp. v. M. Michelin & Cie, 58 Phil 261, 266 (1933).
45 Campos, The Corporation Code: Comments, Notes and Selected Cases (Vol. 2, 1990 ed.), p. 415.
46 Id. at 415-416.
47 See Genuino Ice Co., Inc. v. Magpantay, G.R. No. 147790, 27 June 2006, 493 SCRA 195, 205.
48 Bitong v. Court of Appeals, 354 Phil. 516, 545 (1998).
49 Section 2, of Rule 4 provides:
Sec. 2. Nature and purpose of pre-trial conference. - During the pre-trial conference, the court shall, with
its active participation, ensure that the parties consider in detail all of the following:
xxxx
(6) Objections to the admissibility of testimonial, documentary and other evidence;
(7) Objections to the form or substance of any affidavit, or part thereof.

Pasted from <http://www.lawphil.net/judjuris/juri2009/jun2009/gr_177549_2009.html>

Baviera vs. Paglinawan (2007)

Sunday, June 06, 2010
4:42 AM

G.R. No. 168380 February 8, 2007

MANUEL V. BAVIERA, Petitioner,
vs.
ESPERANZA PAGLINAWAN, in her capacity as Department of Justice State Prosecutor; LEAH C.
TANODRA-ARMAMENTO, In her capacity as Assistant Chief State Prosecutor and Chairwoman
of Task Force on Business Scam; JOVENCITO R. ZUNO, in his capacity as Department of Justice
Chief State Prosecutor; STANDARD CHARTERED BANK, PAUL SIMON MORRIS, AJAY KANWAL,
SRIDHAR RAMAN, MARIVEL GONZALES, CHONA REYES, MARIA ELLEN VICTOR, and ZENAIDA
IGLESIAS,Respondents.
x-----------------------------x
G.R. No. 170602 February 8, 2007
MANUEL V. BAVIERA, Petitioner,
vs.
STANDARD CHARTERED BANK, BRYAN K. SANDERSON, THE RIGHT HONORABLE LORD
STEWARTBY, EVAN MERVYN DAVIES, MICHAEL BERNARD DENOMA, CHRISTOPHER AVEDIS
KELJIK, RICHARD HENRY MEDDINGS, KAI NARGOLWALA, PETER ALEXANDER SANDS, RONNIE
CHI CHUNG CHAN, SIR CK CHOW, BARRY CLARE, HO KWON PING, RUDOLPH HAROLD PETER
ARKHAM, DAVID GEORGE MOIR, HIGH EDWARD NORTON, SIR RALPH HARRY ROBINS,
ANTHONY WILLIAM PAUL STENHAM (Standard Chartered Bank Chairman, Deputy Chairman,
and Members of the Board), SHERAZAM MAZARI (Group Regional Head for Consumer
Banking), PAUL SIMON MORRIS, AJAY KANWAL, SRIDHAR RAMAN, MARIVEL GONZALES,
CHONA REYES, ELLEN VICTOR, RAMONA H. BERNAD, DOMINGO CARBONELL, JR., and ZENAIDA
IGLESIAS (Standard Chartered Bank-Philippines Branch Heads/Officers), Respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Before us are two consolidated Petitions for Review on Certiorari assailing the Decisions of the Court of
Appeals in CA-G.R. SP No. 873281 and in CA-G.R. SP No. 85078.2
The common factual antecedents of these cases as shown by the records are:
Manuel Baviera, petitioner in these cases, was the former head of the HR Service Delivery and Industrial
Relations of Standard Chartered Bank-Philippines (SCB), one of herein respondents. SCB is a foreign
banking corporation duly licensed to engage in banking, trust, and other fiduciary business in the
Philippines. Pursuant to Resolution No. 1142 dated December 3, 1992 of the Monetary Board of
the Bangko Sentral ng Pilipinas (BSP), the conduct of SCB’s business in this jurisdiction is subject to the
following conditions:
1. At the end of a one-year period from the date the SCB starts its trust functions, at least 25% of its trust
accounts must be for the account of non-residents of the Philippines and that actual foreign exchange
had been remitted into the Philippines to fund such accounts or that the establishment of such accounts
had reduced the indebtedness of residents (individuals or corporations or government agencies) of the
Philippines to non-residents. At the end of the second year, the above ratio shall be 50%, which ratio
must be observed continuously thereafter;
2. The trust operations of SCB shall be subject to all existing laws, rules and regulations applicable to
trust services, particularly the creation of a Trust Committee; and
3. The bank shall inform the appropriate supervising and examining department of the BSP at the start of
its operations.
Apparently, SCB did not comply with the above conditions. Instead, as early as 1996, it acted as a stock
broker, soliciting from local residents foreign securities called "GLOBAL THIRD PARTY MUTUAL FUNDS"
(GTPMF), denominated in US dollars. These securities were not registered with the Securities and
Exchange Commission (SEC). These were then remitted outwardly to SCB-Hong Kong and SCB-Singapore.
SCB’s counsel, Romulo Mabanta Buenaventura Sayoc and Delos Angeles Law Office, advised the bank to
proceed with the selling of the foreign securities although unregistered with the SEC, under the guise of a
"custodianship agreement;" and should it be questioned, it shall invoke Section 723 of the General
Banking Act (Republic Act No.337).4 In sum, SCB was able to sell GTPMF securities worth around P6 billion
to some 645 investors.
However, SCB’s operations did not remain unchallenged. On July 18, 1997, the Investment Capital
Association of the Philippines (ICAP) filed with the SEC a complaint alleging that SCB violated the Revised
Securities Act,5 particularly the provision prohibiting the selling of securities without prior registration
with the SEC; and that its actions are potentially damaging to the local mutual fund industry.
In its answer, SCB denied offering and selling securities, contending that it has been performing a "purely
informational function" without solicitations for any of its investment outlets abroad; that it has a trust
license and the services it renders under the "Custodianship Agreement" for offshore investments are
authorized by Section 726 of the General Banking Act; that its clients were the ones who took the
initiative to invest in securities; and it has been acting merely as an agent or "passive order taker" for
them.
On September 2, 1997, the SEC issued a Cease and Desist Order against SCB, holding that its services
violated Sections 4(a)7 and 198 of the Revised Securities Act.
Meantime, the SEC indorsed ICAP’s complaint and its supporting documents to the BSP.
On October 31, 1997, the SEC informed the Secretary of Finance that it withdrew GTPMF securities from
the market and that it will not sell the same without the necessary clearances from the regulatory
authorities.
Meanwhile, on August 17, 1998, the BSP directed SCB not to include investments in global mutual funds
issued abroad in its trust investments portfolio without prior registration with the SEC.
On August 31, 1998, SCB sent a letter to the BSP confirming that it will withdraw third-party fund products
which could be directly purchased by investors.
However, notwithstanding its commitment and the BSP directive, SCB continued to offer and sell GTPMF
securities in this country. This prompted petitioner to enter into an Investment Trust Agreement with SCB
wherein he purchased US$8,000.00 worth of securities upon the bank’s promise of 40% return on his
investment and a guarantee that his money is safe. After six (6) months, however, petitioner learned that
the value of his investment went down to US$7,000.00. He tried to withdraw his investment but was
persuaded by Antonette de los Reyes of SCB to hold on to it for another six (6) months in view of the
possibility that the market would pick up.
Meanwhile, on November 27, 2000, the BSP found that SCB failed to comply with its directive of August
17, 1998. Consequently, it was fined in the amount of P30,000.00.
The trend in the securities market, however, was bearish and the worth of petitioner’s investment went
down further to only US$3,000.00.
On October 26, 2001, petitioner learned from Marivel Gonzales, head of the SCB Legal and Compliance
Department, that the latter had been prohibited by the BSP to sell GPTMF securities. Petitioner then filed
with the BSP a letter-complaint demanding compensation for his lost investment. But SCB denied his
demand on the ground that his investment is "regular."
On July 15, 2003, petitioner filed with the Department of Justice (DOJ), represented herein by its
prosecutors, public respondents, a complaint charging the above-named officers and members of the SCB
Board of Directors and other SCB officials, private respondents, with syndicated estafa, docketed as I.S.
No. 2003-1059.
For their part, private respondents filed the following as counter-charges against petitioner: (1) blackmail
and extortion, docketed as I.S. No. 2003-1059-A; and blackmail and perjury, docketed as I.S. No. 2003-
1278.
On September 29, 2003, petitioner also filed a complaint for perjury against private respondents Paul
Simon Morris and Marivel Gonzales, docketed as I.S. No. 2003-1278-A.
On December 4, 2003, the SEC issued a Cease and Desist Order against SCB restraining it from further
offering, soliciting, or otherwise selling its securities to the public until these have been registered with
the SEC.
Subsequently, the SEC and SCB reached an amicable settlement.1awphi1.net
On January 20, 2004, the SEC lifted its Cease and Desist Order and approved the P7 million settlement
offered by SCB. Thereupon, SCB made a commitment not to offer or sell securities without prior
compliance with the requirements of the SEC.
On February 7, 2004, petitioner filed with the DOJ a complaint for violation of Section 8.19 of the
Securities Regulation Code against private respondents, docketed as I.S. No. 2004-229.
On February 23, 2004, the DOJ rendered its Joint Resolution10 dismissing petitioner’s complaint for
syndicated estafa in I.S. No. 2003-1059; private respondents’ complaint for blackmail and extortion in I.S.
No. 2003-1059-A; private respondents’ complaint for blackmail and perjury in I.S. No. 2003-1278; and
petitioner’s complaint for perjury against private respondents Morris and Gonzales in I.S. No. 2003-1278-
A.
Meanwhile, in a Resolution11 dated April 4, 2004, the DOJ dismissed petitioner’s complaint in I.S. No.
2004-229 (violation of Securities Regulation Code), holding that it should have been filed with the SEC.
Petitioner’s motions to dismiss his complaints were denied by the DOJ. Thus, he filed with the Court of
Appeals a petition for certiorari, docketed as CA-G.R. SP No. 85078. He alleged that the DOJ acted with
grave abuse of discretion amounting to lack or excess of jurisdiction in dismissing his complaint
for syndicated estafa.
He also filed with the Court of Appeals a separate petition for certiorari assailing the DOJ Resolution
dismissing I.S. No. 2004-229 for violation of the Securities Regulation Code. This petition was docketed as
CA-G.R. SP No. 87328. Petitioner claimed that the DOJ acted with grave abuse of discretion tantamount to
lack or excess of jurisdiction in holding that the complaint should have been filed with the SEC.
On January 7, 2005, the Court of Appeals promulgated its Decision dismissing the petition.1avvphi1.net It
sustained the ruling of the DOJ that the case should have been filed initially with the SEC.
Petitioner filed a motion for reconsideration but it was denied in a Resolution dated May 27, 2005.
Meanwhile, on February 21, 2005, the Court of Appeals rendered its Decision in CA-G.R. SP No. 85078
(involving petitioner’s charges and respondents’ counter charges) dismissing the petition on the ground
that the purpose of a petition for certiorari is not to evaluate and weigh the parties’ evidence but to
determine whether the assailed Resolution of the DOJ was issued with grave abuse of discretion
tantamount to lack of jurisdiction. Again, petitioner moved for a reconsideration but it was denied in a
Resolution of November 22, 2005.
Hence, the instant petitions for review on certiorari.
For our resolution is the fundamental issue of whether the Court of Appeals erred in concluding that the
DOJ did not commit grave abuse of discretion in dismissing petitioner’s complaint in I.S. 2004-229 for
violation of Securities Regulation Code and his complaint in I.S. No. 2003-1059 for syndicated estafa.
G.R. No 168380
Re: I.S. No. 2004-229
For violation of the Securities Regulation Code
Section 53.1 of the Securities Regulation Code provides:
SEC. 53. Investigations, Injunctions and Prosecution of Offenses.–
53. 1. The Commission may, in its discretion, make such investigation as it deems necessary to determine
whether any person has violated or is about to violate any provision of this Code, any rule, regulation or
order thereunder, or any rule of an Exchange, registered securities association, clearing agency, other
self-regulatory organization, and may require or permit any person to file with it a statement in writing,
under oath or otherwise, as the Commission shall determine, as to all facts and circumstances concerning
the matter to be investigated. The Commission may publish information concerning any such violations
and to investigate any fact, condition, practice or matter which it may deem necessary or proper to aid in
the enforcement of the provisions of this Code, in the prescribing of rules and regulations thereunder, or
in securing information to serve as a basis for recommending further legislation concerning the matters to
which this Code relates: Provided, however, That any person requested or subpoenaed to produce
documents or testify in any investigation shall simultaneously be notified in writing of the purpose of such
investigation: Provided, further, That all criminal complaints for violations of this Code and the
implementing rules and regulations enforced or administered by the Commission shall be
referred to the Department of Justice for preliminary investigation and prosecution before the
proper court: Provided, furthermore, That in instances where the law allows independent civil or
criminal proceedings of violations arising from the act, the Commission shall take appropriate action to
implement the same: Provided, finally; That the investigation, prosecution, and trial of such cases shall be
given priority.
The Court of Appeals held that under the above provision, a criminal complaint for violation of any law or
rule administered by the SEC must first be filed with the latter. If the Commission finds that there is
probable cause, then it should refer the case to the DOJ. Since petitioner failed to comply with the
foregoing procedural requirement, the DOJ did not gravely abuse its discretion in dismissing his complaint
in I.S. No. 2004-229.
A criminal charge for violation of the Securities Regulation Code is a specialized dispute. Hence, it must
first be referred to an administrative agency of special competence, i.e., the SEC. Under the doctrine of
primary jurisdiction, courts will not determine a controversy involving a question within the jurisdiction of
the administrative tribunal, where the question demands the exercise of sound administrative discretion
requiring the specialized knowledge and expertise of said administrative tribunal to determine technical
and intricate matters of fact.12 The Securities Regulation Code is a special law. Its enforcement is
particularly vested in the SEC. Hence, all complaints for any violation of the Code and its implementing
rules and regulations should be filed with the SEC. Where the complaint is criminal in nature, the SEC
shall indorse the complaint to the DOJ for preliminary investigation and prosecution as provided in Section
53.1 earlier quoted.
We thus agree with the Court of Appeals that petitioner committed a fatal procedural lapse when he filed
his criminal complaint directly with the DOJ. Verily, no grave abuse of discretion can be ascribed to the
DOJ in dismissing petitioner’s complaint.
G.R. No. 170602
Re: I.S. No. 2003-1059 for
Syndicated Estafa
Section 5, Rule 110 of the 2000 Rules of Criminal Procedure, as amended, provides that all criminal
actions, commenced by either a complaint or an information, shall be prosecuted under the direction and
control of a public prosecutor. This mandate is founded on the theory that a crime is a breach of the
security and peace of the people at large, an outrage against the very sovereignty of the State. It follows
that a representative of the State shall direct and control the prosecution of the offense.13 This
representative of the State is the public prosecutor, whom this Court described in the old case of Suarez
v. Platon,14 as:
[T]he representative not of an ordinary party to a controversy, but of a sovereignty whose obligation to
govern impartially is as compelling as its obligation to govern at all; and whose interest, therefore, in a
criminal prosecution is not that it shall win a case, but that justice shall be done. As such, he is in a
peculiar and very definite sense a servant of the law, the twofold aim of which is that guilt shall not
escape or innocence suffers.
Concomitant with his authority and power to control the prosecution of criminal offenses, the public
prosecutor is vested with the discretionary power to determine whether aprima facie case exists or
not.15 This is done through a preliminary investigation designed to secure the respondent from hasty,
malicious and oppressive prosecution. A preliminary investigation is essentially an inquiry to determine
whether (a) a crime has been committed; and (b) whether there is probable cause that the accused is
guilty thereof.16 In Pontejos v. Office of the Ombudsman,17 probable cause is defined as such facts and
circumstances that would engender a well-founded belief that a crime has been committed and that the
respondent is probably guilty thereof and should be held for trial. It is the public prosecutor who
determines during the preliminary investigation whether probable cause exists. Thus, the decision
whether or not to dismiss the criminal complaint against the accused depends on the sound discretion of
the prosecutor.
Given this latitude and authority granted by law to the investigating prosecutor, the rule in this
jurisdiction is that courts will not interfere with the conduct of preliminary investigations or
reinvestigations or in the determination of what constitutes sufficient probable cause for the
filing of the corresponding information against an offender.18 Courts are not empowered to
substitute their own judgment for that of the executive branch.19 Differently stated, as the matter of
whether to prosecute or not is purely discretionary on his part, courts cannot compel a public prosecutor
to file the corresponding information, upon a complaint, where he finds the evidence before him
insufficient to warrant the filing of an action in court. In sum, the prosecutor’s findings on the
existence of probable cause are not subject to review by the courts, unless these are patently
shown to have been made with grave abuse of discretion.20
Grave abuse of discretion is such capricious and whimsical exercise of judgment on the part of the public
officer concerned which is equivalent to an excess or lack of jurisdiction. The abuse of discretion must be
as patent and gross as to amount to an evasion of a positive duty or a virtual refusal to perform a duty
enjoined by law, or to act at all in contemplation of law, as where the power is exercised in an arbitrary
and despotic manner by reason of passion or hostility.21
In determining whether the DOJ committed grave abuse of discretion, it is expedient to know if
the findings of fact of herein public prosecutors were reached in an arbitrary or despotic manner.
The Court of Appeals held that petitioner’s evidence is insufficient to establish probable cause for
syndicated estafa. There is no showing from the record that private respondents herein did induce
petitioner by false representations to invest in the GTPMF securities. Nor did they act as a syndicate to
misappropriate his money for their own benefit. Rather, they invested it in accordance with his written
instructions. That he lost his investment is not their fault since it was highly speculative.
Records show that public respondents examined petitioner’s evidence with care, well aware of their duty
to prevent material damage to his constitutional right to liberty and fair play. In Suarez previously cited,
this Court made it clear that a public prosecutor’s duty is two-fold. On one hand, he is bound by his oath
of office to prosecute persons where the complainant’s evidence is ample and sufficient to
show prima facie guilt of a crime. Yet, on the other hand, he is likewise duty-bound to protect innocent
persons from groundless, false, or malicious prosecution.22
Hence, we hold that the Court of Appeals was correct in dismissing the petition for review against private
respondents and in concluding that the DOJ did not act with grave abuse of discretion tantamount to lack
or excess of jurisdiction.
On petitioner’s complaint for violation of the Securities Regulation Code, suffice it to state that, as aptly
declared by the Court of Appeals, he should have filed it with the SEC, not the DOJ. Again, there is no
indication here that in dismissing petitioner’s complaint, the DOJ acted capriciously or arbitrarily.
WHEREFORE, we DENY the petitions and AFFIRM the assailed Decisions of the Court of Appeals in CA-
G.R. SP No. 87328 and in CA-G.R. SP No. 85078.
Costs against petitioner.
SO ORDERED.
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson
(On leave) ADOLFO S. AZCUNA
RENATO C. CORONA Asscociate Justice
Associate Justice
CANCIO C. GARCIA
Associate Justice
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the
above Decision were reached in consultation before the case was assigned to the writer of the opinion of
the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1 Rollo, G.R. No. 168380, Vol. I, pp. 48-62. Penned by Associate Justice Remedios A. Salazar-Fernando and
concurred in by Associate Justice Rosemarie D. Carandang and Associate Justice Monina Arevalo-
Zenarosa.
2 Id., G.R. No. 170602, Vol. I, pp. 63-73. Written by Associate Justice Juan Q. Enriquez, Jr., with Associate
Justice Portia Aliño-Hormachuelos and Associate Justice Vicente Q. Roxas, concurring.
3 SEC.72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions
other than building and loan associations may perform the following services:
a) Receive in custody funds, documents and valuable objects, and rent safety deposit boxes for the
safeguarding of such effects;
b) Act as financial agent and buy and sell, by order of and for the account of their customers, shares,
evidences of indebtedness and all other types of securities;
c) Make collections and payments for the account of others and perform such other services for their
customers as are not incompatible with banking business;
d) Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or
administrator of investment management advisory/consultancy accounts.
The banks shall perform the services permitted under subsections (a), (b), and (c) of this section as
depositaries or as agents. Accordingly they shall keep the funds, securities and other effects which they
thus receive duly separated and apart from the banks own assets and liabilities.
The Monetary Board may regulate the operations authorized by this section in order to insure that said
operations do not endanger the interest of the depositors and other creditors of the banks.
4 Now repealed by The General Banking Law of 2000 (Republic Act No. 8791).
5 Batas Pambansa Blg. 178. Now repealed by Republic Act No. 8799 (The Securities Regulation Code),
which took effect on July 19. 2000.
6 Supra at footnote 3.
7 SEC. 4. Requirement of registration of securities. – (a) No securities, except of a class exempt under any
of the provisions of Section five hereof or unless sold in any transaction exempt under any of the
provisions of Section six hereof shall be sold or offered for sale or distribution to the public within the
Philippines unless such securities shall have been registered and permitted to be sold as hereinafter
provided.
8 SEC. 19. Registration of brokers, dealers and salesmen.- No broker, dealer or salesman shall engage in
business in the Philippines as such broker, dealer or salesman or sell any securities, including securities
exempted under this Act, except in exempt transactions, unless he has been registered as a broker,
dealer, or salesman pursuant to the provisions of this Section.
9 Sec. 8. Requirement of Registration of Securities:
8.1. Securities shall not be sold or offered for sale or distribution within the Philippines, without a
registration statement duly filed with and approved by the Commission. Prior to such sale, information on
the securities, in such form and with such substance as the Commission may prescribe, shall be made
available to each prospective purchaser.
10 Vol. I, Rollo, G.R. No. 170602, pp. 451-473.
11 Vol. I, Rollo, G.R. No. 168380, pp. 241-43.
12 Saavedra, Jr. v. Securities and Exchange Commission, G.R. No. 80879, March 21, 1988, 159 SCRA 57,
62, citing Pambujan Sur United Mine Workers v. Samar Mining Co. Inc., 94 Phil. 932 (1954).
13 Tan, Jr. v. Gallardo, G.R. Nos. 41213-14, October 5, 1976, 73 SCRA 306, 310.
14 80 Phil. 556 (1940).
15 Zulueta v. Nicolas, 102 Phil. 944 (1958).
16 Ching v. Secretary of Justice, G.R. No. 164317, February 6, 2006, 481 SCRA 609.
17 G.R. Nos. 158613-14, February 22, 2006, p. 11.
18 Glaxosmithkline Philippines, Inc. v. Malik and Ateeque, G.R. No. 166824, August 17, 2006, p. 5,
citing Punzalan v. Dela Peña and Cagara. 434 SCRA 601 (2004).
19 Alcaraz v. Gonzales, G.R. No. 164715, September 20, 2006, 10, citing Metropolitan Bank and Trust
Company v. Tonda, 392 Phil. 797 (2000).
20 Glaxosmithkline Philippines, Inc. v. Malik and Ateeque, supra, p. 5, citing Cabaling v. People, 376 SCRA
113 (2002).
21 Soria v. Desierto, G.R. Nos. 153524-25, January 31, 2005, 450 SCRA 339. 345, citing Duero v. Court of
Appeals, 373 SCRA 11 (2002), Perez v. Office of the Ombudsman, 429 SCRA 357 (2004).
22 Vda. de Bagatua v. Revilla and Lombos, 104 Phil. 392 (1958).

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Power Homes Unlimited vs. SEC (2008)

Sunday, June 06, 2010
4:58 AM

G.R. No. 164182 February 26, 2008

POWER HOMES UNLIMITED CORPORATION, petitioner,
vs.
SECURITIES AND EXCHANGE COMMISSION AND NOEL MANERO, respondents.
DECISION
PUNO, C.J.:
This petition for review seeks the reversal and setting aside of the July 31, 2003 Decision1 of the Court of
Appeals that affirmed the January 26, 2001 Cease and Desist Order (CDO)2 of public respondent
Securities and Exchange Commission (SEC) enjoining petitioner Power Homes Unlimited Corporation’s
(petitioner) officers, directors, agents, representatives and any and all persons claiming and acting under
their authority, from further engaging in the sale, offer for sale or distribution of securities; and its June
18, 2004 Resolution3 which denied petitioner’s motion for reconsideration.
The facts: Petitioner is a domestic corporation duly registered with public respondent SEC on October 13,
2000 under SEC Reg. No. A200016113. Its primary purpose is:
To engage in the transaction of promoting, acquiring, managing, leasing, obtaining options on,
development, and improvement of real estate properties for subdivision and allied purposes, and in the
purchase, sale and/or exchange of said subdivision and properties through network marketing.4
On October 27, 2000, respondent Noel Manero requested public respondent SEC to investigate
petitioner’s business. He claimed that he attended a seminar conducted by petitioner where the latter
claimed to sell properties that were inexistent and without any broker’s license.
On November 21, 2000, one Romulo E. Munsayac, Jr. inquired from public respondent SEC whether
petitioner’s business involves "legitimate network marketing."
On the bases of the letters of respondent Manero and Munsayac, public respondent SEC held a
conference on December 13, 2000 that was attended by petitioner’s incorporators John Lim, Paul Nicolas
and Leonito Nicolas. The attendees were requested to submit copies of petitioner’s marketing scheme
and list of its members with addresses.
The following day or on December 14, 2000, petitioner submitted to public respondent SEC copies of its
marketing course module and letters of accreditation/authority or confirmation from Crown Asia, Fil-
Estate Network and Pioneer 29 Realty Corporation.
On January 26, 2001, public respondent SEC visited the business premises of petitioner wherein it
gathered documents such as certificates of accreditation to several real estate companies, list of
members with web sites, sample of member mail box, webpages of two (2) members, and lists of
Business Center Owners who are qualified to acquire real estate properties and materials on computer
tutorials.
On the same day, after finding petitioner to be engaged in the sale or offer for sale or distribution of
investment contracts, which are considered securities under Sec. 3.1 (b) of Republic Act (R.A.) No. 8799
(The Securities Regulation Code),5 but failed to register them in violation of Sec. 8.1 of the same
Act,6 public respondent SEC issued a CDO that reads:
WHEREFORE, pursuant to the authority vested in the Commission, POWER HOMES UNLIMITED, CORP., its
officers, directors, agents, representatives and any and all persons claiming and acting under their
authority, are hereby ordered to immediately CEASE AND DESIST from further engaging in the sale, offer
or distribution of the securities upon the receipt of this order.
In accordance with the provisions of Section 64.3 of Republic Act No. 8799, otherwise known as the
Securities Regulation Code, the parties subject of this Cease and Desist Order may file a request for the
lifting thereof within five (5) days from receipt.7
On February 5, 2001, petitioner moved for the lifting of the CDO, which public respondent SEC denied for
lack of merit on February 22, 2001.
Aggrieved, petitioner went to the Court of Appeals imputing grave abuse of discretion amounting to lack
or excess of jurisdiction on public respondent SEC for issuing the order. It also applied for a temporary
restraining order, which the appellate court granted.
On May 23, 2001, the Court of Appeals consolidated petitioner’s case with CA-G.R. [SP] No. 62890
entitledProsperity.Com, Incorporated v. Securities and Exchange Commission (Compliance and
Enforcement Department), Cristina T. De La Cruz, et al.
On June 19, 2001, petitioner filed in the Court of Appeals a Motion for the Issuance of a Writ of Preliminary
Injunction. On July 6, 2001, the motion was heard. On July 12, 2001, public respondent SEC filed its
opposition. On July 13, 2001, the appellate court granted petitioner’s motion, thus:
Considering that the Temporary Restraining Order will expire tomorrow or on July 14, 2001, and it
appearing that this Court cannot resolve the petition immediately because of the issues involved which
require a further study on the matter, and considering further that with the continuous implementation of
the CDO by the SEC would eventually result to the sudden demise of the petitioner’s business to their
prejudice and an irreparable damage that may possibly arise, we hereby resolve to grant the preliminary
injunction.
WHEREFORE, let a writ of preliminary injunction be issued in favor of petitioner, after posting a bond in
the amount of P500,000.00 to answer whatever damages the respondents may suffer should petitioner
be adjudged not entitled to the injunctive relief herein granted.8
On August 8, 2001, public respondent SEC moved for reconsideration, which was not resolved by the
Court of Appeals.
On July 31, 2003, the Court of Appeals issued its Consolidated Decision. The disposition pertinent to
petitioner reads:9
WHEREFORE, x x x x the petition for certiorari and prohibition filed by the other petitioner Powerhomes
Unlimited Corporation is hereby DENIED for lack of merit and the questioned Cease and Desist Order
issued by public respondent against it is accordingly AFFIRMED IN TOTO.
On June 18, 2004, the Court of Appeals denied petitioner’s motion for reconsideration;10 hence, this
petition for review.
The issues for determination are: (1) whether public respondent SEC followed due process in the issuance
of the assailed CDO; and (2) whether petitioner’s business constitutes an investment contract which
should be registered with public respondent SEC before its sale or offer for sale or distribution to the
public.
On the first issue, Sec. 64 of R.A. No. 8799 provides:
Sec. 64. Cease and Desist Order. – 64.1. The Commission, after proper investigation or verification, motu
proprio or upon verified complaint by any aggrieved party, may issue a cease and desist order without
the necessity of a prior hearing if in its judgment the act or practice, unless restrained, will operate as a
fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing
public.
We hold that petitioner was not denied due process. The records reveal that public respondent SEC
properly examined petitioner’s business operations when it (1) called into conference three of petitioner’s
incorporators, (2) requested information from the incorporators regarding the nature of petitioner’s
business operations, (3) asked them to submit documents pertinent thereto, and (4) visited petitioner’s
business premises and gathered information thereat. All these were done before the CDO was issued by
the public respondent SEC. Trite to state, a formal trial or hearing is not necessary to comply with the
requirements of due process. Its essence is simply the opportunity to explain one’s position. Public
respondent SEC abundantly allowed petitioner to prove its side.
The second issue is whether the business of petitioner involves an investment contract that is considered
security11 and thus, must be registered prior to sale or offer for sale or distribution to the public pursuant
to Section 8.1 of R.A. No. 8799, viz:
Section 8. Requirement of Registration of Securities. – 8.1. Securities shall not be sold or offered for sale
or distribution within the Philippines, without a registration statement duly filed with and approved by the
Commission. Prior to such sale, information on the securities, in such form and with such substance as the
Commission may prescribe, shall be made available to each prospective purchaser.
Public respondent SEC found the petitioner "as a marketing company that promotes and facilitates sales
of real properties and other related products of real estate developers through effective leverage
marketing." It also described the conduct of petitioner’s business as follows:
The scheme of the [petitioner] corporation requires an investor to become a Business Center Owner
(BCO) who must fill-up and sign its application form. The Terms and Conditions printed at the back of the
application form indicate that the BCO shall mean an independent representative of Power Homes, who is
enrolled in the company’s referral program and who will ultimately purchase real property from any
accredited real estate developers and as such he is entitled to a referral bonus/commission. Paragraph 5
of the same indicates that there exists no employer/employee relationship between the BCO and the
Power Homes Unlimited, Corp.
The BCO is required to pay US$234 as his enrollment fee. His enrollment entitles him to recruit two
investors who should pay US$234 each and out of which amount he shall receive US$92. In case the two
referrals/enrollees would recruit a minimum of four (4) persons each recruiting two (2) persons who
become his/her own down lines, the BCO will receive a total amount of US$147.20 after deducting the
amount of US$36.80 as property fund from the gross amount of US$184. After recruiting 128 persons in a
period of eight (8) months for each Left and Right business groups or a total of 256 enrollees whether
directly referred by the BCO or through his down lines, the BCO who receives a total amount of
US$11,412.80 after deducting the amount of US$363.20 as property fund from the gross amount of
US$11,776, has now an accumulated amount of US$2,700 constituting as his Property Fund placed in a
Property Fund account with the Chinabank. This accumulated amount of US$2,700 is used as partial/full
down payment for the real property chosen by the BCO from any of [petitioner’s] accredited real estate
developers.12
An investment contract is defined in the Amended Implementing Rules and Regulations of R.A. No. 8799
as a "contract, transaction or scheme (collectively ‘contract’) whereby a person invests his money in a
common enterprise and is led to expect profits primarily from the efforts of others."13
It behooves us to trace the history of the concept of an investment contract under R.A. No. 8799. Our
definition of an investment contract traces its roots from the 1946 United States (US) case of SEC v. W.J.
Howey Co.14 In this case, the US Supreme Court was confronted with the issue of whether
the Howey transaction constituted an "investment contract" under the Securities Act’s definition of
"security."15 The US Supreme Court, recognizing that the term "investment contract" was not defined by
the Act or illumined by any legislative report,16 held that "Congress was using a term whose meaning
had been crystallized"17 under the state’s "blue sky" laws18 in existence prior to the adoption of the
Securities Act.19 Thus, it ruled that the use of the catch-all term "investment contract" indicated a
congressional intent to cover a wide range of investment transactions.20 It established a test to
determine whether a transaction falls within the scope of an "investment contract."21 Known as
the Howey Test, it requires a transaction, contract, or scheme whereby a person (1) makes an
investment of money, (2) in a common enterprise, (3) with the expectation of profits, (4) to be
derived solely from the efforts of others.22Although the proponents must establish all four elements, the
US Supreme Court stressed that the Howey Test "embodies a flexible rather than a static principle, one
that is capable of adaptation to meet the countless and variable schemes devised by those who seek the
use of the money of others on the promise of profits."23Needless to state, any investment contract
covered by the Howey Test must be registered under the Securities Act, regardless of whether its issuer
was engaged in fraudulent practices.
After Howey came the 1973 US case of SEC v. Glenn W. Turner Enterprises, Inc. et al.24 In this case, the
9thCircuit of the US Court of Appeals ruled that the element that profits must come "solely" from the
efforts of others should not be given a strict interpretation. It held that a literal reading of the requirement
"solely" would lead to unrealistic results. It reasoned out that its flexible reading is in accord with the
statutory policy of affording broad protection to the public. Our R.A. No. 8799 appears to follow this
flexible concept for it defines an investment contract as a contract, transaction or scheme (collectively
"contract") whereby a person invests his money in a common enterprise and is led to expect profits
not solely but primarily from the efforts of others. Thus, to be a security subject to regulation by
the SEC, an investment contract in our jurisdiction must be proved to be: (1) an investment of money, (2)
in a common enterprise, (3) with expectation of profits, (4) primarily from efforts of others.
Prescinding from these premises, we affirm the ruling of the public respondent SEC and the Court of
Appeals that the petitioner was engaged in the sale or distribution of an investment contract.
Interestingly, the facts of SEC v. Turner25 are similar to the case at bar. In Turner, the SEC brought a suit
to enjoin the violation of federal securities laws by a company offering to sell to the public contracts
characterized as self-improvement courses. On appeal from a grant of preliminary injunction, the US
Court of Appeals of the 9th Circuit held that self-improvement contracts which primarily offered the buyer
the opportunity of earning commissions on the sale of contracts to others were "investment contracts"
and thus were "securities" within the meaning of the federal securities laws. This is regardless of the fact
that buyers, in addition to investing money needed to purchase the contract, were obliged to contribute
their own efforts in finding prospects and bringing them to sales meetings. The appellate court held:
It is apparent from the record that what is sold is not of the usual "business motivation" type of courses.
Rather, the purchaser is really buying the possibility of deriving money from the sale of the
plansby Dare to individuals whom the purchaser has brought to Dare. The promotional aspects of the
plan, such as seminars, films, and records, are aimed at interesting others in the Plans. Their value for
any other purpose is, to put it mildly, minimal.
Once an individual has purchased a Plan, he turns his efforts toward bringing others into the
organization, for which he will receive a part of what they pay. His task is to bring prospective
purchasers to "Adventure Meetings."
The business scheme of petitioner in the case at bar is essentially similar. An investor enrolls in
petitioner’s program by paying US$234. This entitles him to recruit two (2) investors who pay US$234
each and out of which amount he receives US$92. A minimum recruitment of four (4) investors by these
two (2) recruits, who then recruit at least two (2) each, entitles the principal investor to US$184 and the
pyramid goes on.
We reject petitioner’s claim that the payment of US$234 is for the seminars on leverage marketing and
not for any product. Clearly, the trainings or seminars are merely designed to enhance petitioner’s
business of teaching its investors the know-how of its multi-level marketing business. An investor enrolls
under the scheme of petitioner to be entitled to recruit other investors and to receive commissions from
the investments of those directly recruited by him. Under the scheme, the accumulated amount received
by the investor comes primarily from the efforts of his recruits.
We therefore rule that the business operation or the scheme of petitioner constitutes an investment
contract that is a security under R.A. No. 8799. Thus, it must be registered with public respondent SEC
before its sale or offer for sale or distribution to the public. As petitioner failed to register the same, its
offering to the public was rightfully enjoined by public respondent SEC. The CDO was proper even without
a finding of fraud. As an investment contract that is security under R.A. No. 8799, it must be registered
with public respondent SEC, otherwise the SEC cannot protect the investing public from fraudulent
securities. The strict regulation of securities is founded on the premise that the capital markets depend
on the investing public’s level of confidence in the system.
IN VIEW WHEREOF, the petition is DENIED. The July 31, 2003 Decision of the Court of Appeals,
affirming the January 26, 2001 Cease and Desist Order issued by public respondent Securities and
Exchange Commission against petitioner Power Homes Unlimited Corporation, and its June 18, 2004
Resolution denying petitioner’s Motion for Reconsideration are AFFIRMED. No costs.
SO ORDERED.
REYNATO S. PUNO
Chief Justice
WE CONCUR:

ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
RENATO C. CORONA ADOLFO S. AZCUNA
Associate Justice Associate Justice
TERESITA J. LEONARDO-DE CASTRO
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above decision
had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s
Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1 Penned by Associate Justice Eloy R. Bello, Jr., concurred in by then Presiding Justice Cancio C. Garcia
and Associate Justice Mariano C. Del Castillo; rollo, pp. 104-112.
2 CED Case No. 20-2486, signed by "Order of the Commission" Emilio B. Aquino, Director, Compliance and
Enforcement Department; rollo, pp. 42-52.
3 Ibid., id. at 134-135.
4 Id. at 107.
5 Sec. 3.1. "Securities" are shares, participation or interests in a corporation or in a commercial enterprise
or profit-making venture and evidenced by a certificate, contract, instrument, whether written or
electronic in character. It includes:
xxxx
(b) Investment contracts, x x x x
6 Sec. 8.1. – Securities shall not be sold or offered for sale or distribution within the Philippines, without a
registration statement duly filed with and approved by the Commission. Prior to such sale, information on
the securities, in such form and with such substance as the Commission may prescribe, shall be made
available to each prospective purchaser.
 7 Rollo, pp. 107-108.
8 Id. at 84.
9 See Note 1; the Court shall only discuss the petition of Power Homes Unlimited Corporation as the other
petitioner did not elevate its case before the Supreme Court.
10 See Note 3.
11 See Note 4.
12 Rollo, pp. 33-34.
13 Rule 3, 1 (G), Definition of Terms Used in the Rules and Regulations.
14 328 U.S. 293, 66 S.Ct. 1100, 163 A.L.R. 1043, 90 L.Ed. 1244 (1946), where investment contract was
defined as "a contract, transaction or scheme whereby a person invests money in a common enterprise
expecting profits to accrue solely from the efforts of the promoter or third parties."
15 Id. at 297.
16 Id. at 298.
17 Id.
18 From 1911 to 1931, forty-seven of forty-eight states enacted statutes regulating the sales of
securities. One advocate of the laws purportedly asserted that "securities salesmen were so dishonest
that they would attempt to sell ‘building lots in the blue sky.’" Thus, the statutes came to be known as the
"blue sky" laws. (Paul G. Mahoney, The Origins of the Blue Sky Laws: A Test of Competing Hypotheses, 46
J.L. & Econ. 229 [2003].)
19 See Note 14.
20 Id.
21 Id. at 298-299.
22 Id.
23 Id. at 299.
24 474 F.2d 476, Fed.Sec. L. Rep. P 93, 748.
25 Id.

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Gabionza vs. CA (2008)

Sunday, June 06, 2010
5:00 AM

G.R. No. 112547 July 18, 1994

DENNIS T. GABIONZA, petitioner,
vs.
THE COURT OF APPEALS and ACHIEVERS SALES CORPORATIONS, respondents.
Villanueva, Bernardo & Gabionza for petitioner.
Abella, Lazaro, & Romero Law Office for private respondent.

FELICIANO, J.:
Petitioner Dennis T. Gabionza asks us to reverse and set aside the Decision of
the Court of Appeals which dismissed a Petition for Certiorari and Prohibition for failure to comply with
the requirements of Circular No. 28-91 of the Supreme Court (dated 3 September 1991). This Circular is
entitled: "Additional Requisites for Petitions Filed with the Supreme Court and the Court of Appeals to
Prevent Forum Shopping or Multiple Filing of Petitions and Complaints."
Gabionza was a defendant in a civil case entitled "Achievers Sales Corporation v. Pasvil Liner, Inc., et al."
filed before the Regional Trial Court, Branch 155, of Pasig. Contending that there was no basis for
impleading him as a party-defendant in that case, Gabionza filed a motion to dismiss the complaint as
against himself. The motion was denied by the trial court.
Gabionza then filed a Petition for Certiorari and Prohibition with the Court of Appeals, assailing the
denial of his motion to dismiss. In a one paragraph Resolution, 1 the Court of Appeals disposed of the
Petition in the following manner:
The Court resolved to dismiss the instant petition for certiorari and prohibition with a prayer for the
issuance of a writ of preliminary injunction having failed to indicate in the caption thereof the docket
number of the case in the trial court whose orders are sought to be reviewed (Supreme CourtCircular No.
28-91). (Emphasis supplied)
In the present Petition for Review, Gabionza admits that the docket number of the case before the
trial courtwhose order was sought to be set aside, had not been set forth in the caption of his Petition
for Certiorari and Prohibition with the Court of Appeals. Gabionza, however, maintains that his Petition
should nevertheless not have been dismissed by the Court of Appeals, but rather should have been
deemed in substantial compliance with Circular
No. 28-91, for the reason that the docket number of the case pending before the trial court was in fact set
out in the body of his Petition for Certiorari and Prohibition. Page 2 of his Petition before the
appellate court stated, among other things:
Respondent Honorable Fernando Gerona (hereinafter referred to as the respondent Judge) is the presiding
Judge of Branch 155 of the Regional Trial Court of Pasig to whom Civil Case No. 54984 entitled "Achievers
Sales Corporation v. Pasvil Liner, Inc., et al." is assigned. He may be served with notice at his office at the
Regional Trial Court, Branch 155, Pasig, Metro Manila. 2 (Emphasis supplied)
Deliberating on the instant Petition for Review, the Comment thereon by private respondent and
petitioner's Reply, the Court considers that Gabionza's Petition for Certiorari and Prohibition dismissed by
the Court of Appeals was indeed in substantial compliance with the requirements of the Circular on
forum shopping and that that Petition should not have been dismissed.
Forum shopping has been characterized as an act of malpractice that is prohibited and condemned as
trifling with the courts and abusing their processes. It constitutes improper conduct which tends to
degrade the administration of justice. It has also been aptly described as deplorable because it adds to the
congestion of the already heavily burdened dockets of the courts. 3
Circular No. 28-91 has its roots in the rule that a party-litigant shall not be allowed to pursue simultaneous
remedies in two (2) different forums, for such practice works havoc upon orderly judicial procedure. 4 That
rule was formalized in Section 17 of the Interim Rules and Guidelines issued by the Supreme Court on 11
January 1983 in connection with the implementation of Batas Pambansa Blg. 129. Section 17 read as
follows:
17. Petitions for writs of certiorari, etc. — No petition for certiorari, mandamus, prohibition, habeas
corpus or quo warranto may be filed in the Intermediate Appellate Court if another similar petition has
been filed or is still pending in the Supreme Court. Nor may a petition be filed in the Supreme Courtif a
similar petition has been filed or is still pending in the Intermediate Appellate Court, unless it be to review
the action taken by the Intermediate Appellate Court on the petition filed with it. A violation of this rule
shall constitute contempt of court and shall be a cause for the summary dismissal of both petitions
without prejudice to the taking of appropriate actions against the counsel or party concerned.
Circular No. 28-91, in its original form, established two (2) requirements which are to be complied with by
every petition filed with the Supreme Court or the Court of Appeals. The first requirement related to the
caption of a petition or complaint filed with the Supreme Court or the Court of Appeals; 5 the second
requirement related to the certification which must accompany that petition or complaint.
The first requirement was set out in the following terms:
The attention of this court has been called to the filing of multiple petitions and complaints involving the
same issues in the Supreme Court, the Court of Appeals and the different divisions thereof, or any other
tribunal or agency with the result that said tribunals or agency have to resolve the same issues.
To avoid the foregoing, every petition or complaint filed with the Supreme Court, Court of Appeals, or
different divisions thereof, or any other tribunal or agency shall comply with the following requirements,
aside from pertinent provisions of the Rules of Court and existing circulars:
1. Caption of petition or complaint. — The caption of the petition or complaint must include the docket
number of the case in the lower court or quasi-judicial agency whose order or judgment is sought to be
reviewed.
xxx xxx xxx
(Emphases supplied).
The first requirement had two (2) components: first, the docket number of the case before the
lower court whose order is sought to be reviewed, should be in the petition; and second, that docket
number should be in the captionof the petition. In the instant case, there is no dispute that the docket
number of the case before the trial courthad not been set out in the caption of the Petition
for Certiorari and Prohibition filed with the Court of Appeals. However, that docket number, as well as the
title of the case, before the trial court had in fact been set out in the second page of the Petition
for Certiorari and Prohibition.
There is also no dispute that petitioner Gabionza had complied with the second requirement of Circular
No. 28-91, i.e., that the required sworn certification (to the effect that "there is no similar petition [with]
the same subject matter previously filed, pending, withdrawn or dismissed in the Supreme Court, in this
Honorable Court [Court ofAppeals] or different divisions thereof, or any other tribunal or agency") 6 was
attached to the Petition forCertiorari and Prohibition filed with the Court of Appeals. There has been no
allegation that the sworn certification filed by petitioner was false or untrue in a material respect or that
petitioner Gabionza had sought to deceive the Court of Appeals.
We, therefore, believe and so hold that the Petition for Certiorari and Prohibition filed by Gabionza with
the Courtof Appeals was in substantial compliance with the original requirements of Circular No. 28-91
and that the objectives of that Circular were not being subverted by Gabionza's Petition. It is scarcely
necessary to add that Circular No. 28-91 must be so interpreted and applied as to achieve the purposes
projected by the SupremeCourt when it promulgated that Circular. Circular No. 28-91 was designed to
serve as an instrument to promote and facilitate the orderly administration of justice and should not be
interpreted with such absolute literalness as to subvert its own ultimate and legitimate objective or the
goal of all rules of procedure — which is to achieve substantial justice as expeditiously as possible.
The Court of Appeals could and should have required petitionerGabionza simply to comply with Circular
No. 28-91 by amending the caption of his petition, instead of dismissing that petition altogether.
ACCORDINGLY, the Court Resolved to GRANT DUE COURSE to the Petition for Review on Certiorari, to
TREAT private respondent's Comment as its Answer to the Petition, and to REVERSE and SET ASIDE the
Resolutions of the Court of Appeals dated 4 August 1993 and 10 November 1993 rendered in C.A.-G.R.
SP No. 31549. This case is hereby REMANDED to the Court of Appeals, and the Petition for Certiorari and
Prohibition there filed is hereby REINSTATED, for further proceedings consistent with this Resolution. No
costs.
Bidin, Romero, Melo and Vitug, JJ., concur.
#Footnotes

1 Gabionza v. Gerona, C.A.-G.R. SP No. 31549, 4 August 1993, Rollo, p. 22.

2 Petition, p. 4; Rollo, p. 12.
3 Ruiz v. Drilon, 209 SCRA 701 (1992).
4 People v. Court of Appeals, 101 SCRA 450 (1980).
5 Circular No. 28-91 was revised by the Supreme Court on 8 February 1994. The revised Circular No. 28-
91, which took effect on 1 April 1994, has deleted the requirement that the docket number of the case in
the lower court, whose order or judgment is sought to be reviewed, must be set out in the caption of the
petition filed with the Supreme Court or the Court of Appeals.
6 Records, p. 12.

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SEC vs. Interport (2008)

Sunday, June 06, 2010
5:00 AM

G.R. No. 135808 October 6, 2008

SECURITIES AND EXCHANGE COMMISSION, petitioner,
vs.
INTERPORT RESOURCES CORPORATION, MANUEL S. RECTO, RENE S. VILLARICA, PELAGIO
RICALDE, ANTONIO REINA, FRANCISCO ANONUEVO, JOSEPH SY and SANTIAGO TANCHAN,
JR., respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the
Decision,1 dated 20 August 1998, rendered by the Court of Appeals in C.A.-G.R. SP No. 37036, enjoining
petitioner Securities and Exchange Commission (SEC) from taking cognizance of or initiating any action
against the respondent corporation Interport Resources Corporation (IRC) and members of its board of
directors, respondents Manuel S. Recto, Rene S. Villarica, Pelagio Ricalde, Antonio Reina, Francisco
Anonuevo, Joseph Sy and Santiago Tanchan, Jr., with respect to Sections 8, 30 and 36 of the Revised
Securities Act. In the same Decision of the appellate court, all the proceedings taken against the
respondents, including the assailed SEC Omnibus Orders of 25 January 1995 and 30 March 1995, were
declared void.
The antecedent facts of the present case are as follows.
On 6 August 1994, the Board of Directors of IRC approved a Memorandum of Agreement with Ganda
Holdings Berhad (GHB). Under the Memorandum of Agreement, IRC acquired 100% or the entire capital
stock of Ganda Energy Holdings, Inc. (GEHI),2 which would own and operate a 102 megawatt (MW) gas
turbine power-generating barge. The agreement also stipulates that GEHI would assume a five-year
power purchase contract with National Power Corporation. At that time, GEHI's power-generating barge
was 97% complete and would go on-line by mid-September of 1994. In exchange, IRC will issue to GHB
55% of the expanded capital stock of IRC amounting to 40.88 billion shares which had a total par value
of P488.44 million.3
On the side, IRC would acquire 67% of the entire capital stock of Philippine Racing Club, Inc. (PRCI). PRCI
owns 25.724 hectares of real estate property in Makati. Under the Agreement, GHB, a member of the
Westmont Group of Companies in Malaysia, shall extend or arrange a loan required to pay for the
proposed acquisition by IRC of PRCI.4
IRC alleged that on 8 August 1994, a press release announcing the approval of the agreement was sent
through facsimile transmission to the Philippine Stock Exchange and the SEC, but that the facsimile
machine of the SEC could not receive it. Upon the advice of the SEC, the IRC sent the press release on the
morning of 9 August 1994.5
The SEC averred that it received reports that IRC failed to make timely public disclosures of its
negotiations with GHB and that some of its directors, respondents herein, heavily traded IRC shares
utilizing this material insider information. On 16 August 1994, the SEC Chairman issued a directive
requiring IRC to submit to the SEC a copy of its aforesaid Memorandum of Agreement with GHB. The SEC
Chairman further directed all principal officers of IRC to appear at a hearing before the Brokers and
Exchanges Department (BED) of the SEC to explain IRC's failure to immediately disclose the information
as required by the Rules on Disclosure of Material Facts.6
In compliance with the SEC Chairman's directive, the IRC sent a letter dated 16 August 1994 to the SEC,
attaching thereto copies of the Memorandum of Agreement. Its directors, Manuel Recto, Rene Villarica
and Pelagio Ricalde, also appeared before the SEC on 22 August 1994 to explain IRC's alleged failure to
immediately disclose material information as required under the Rules on Disclosure of Material Facts.7
On 19 September 1994, the SEC Chairman issued an Order finding that IRC violated the Rules on
Disclosure of Material Facts, in connection with the Old Securities Act of 1936, when it failed to make
timely disclosure of its negotiations with GHB. In addition, the SEC pronounced that some of the officers
and directors of IRC entered into transactions involving IRC shares in violation of Section 30, in relation to
Section 36, of the Revised Securities Act.8
Respondents filed an Omnibus Motion, dated 21 September 1994, which was superseded by an Amended
Omnibus Motion, filed on 18 October 1994, alleging that the SEC had no authority to investigate the
subject matter, since under Section 8 of Presidential Decree No. 902-A,9 as amended by Presidential
Decree No. 1758, jurisdiction was conferred upon the Prosecution and Enforcement Department (PED) of
the SEC. Respondents also claimed that the SEC violated their right to due process when it ordered that
the respondents appear before the SEC and "show cause why no administrative, civil or criminal sanctions
should be imposed on them," and, thus, shifted the burden of proof to the respondents. Lastly, they
sought to have their cases tried jointly given the identical factual situations surrounding the alleged
violation committed by the respondents.10
Respondents also filed a Motion for Continuance of Proceedings on 24 October 1994, wherein they moved
for discontinuance of the investigations and the proceedings before the SEC until the undue publicity had
abated and the investigating officials had become reasonably free from prejudice and public pressure.11
No formal hearings were conducted in connection with the aforementioned motions, but on 25 January
1995, the SEC issued an Omnibus Order which thus disposed of the same in this wise:12
WHEREFORE, premised on the foregoing considerations, the Commission resolves and hereby rules:
1. To create a special investigating panel to hear and decide the instant case in accordance with the
Rules of Practice and Procedure Before the Prosecution and Enforcement Department (PED), Securities
and Exchange Commission, to be composed of Attys. James K. Abugan, Medardo Devera (Prosecution and
Enforcement Department), and Jose Aquino (Brokers and Exchanges Department), which is hereby
directed to expeditiously resolve the case by conducting continuous hearings, if possible.
2. To recall the show cause orders dated September 19, 1994 requiring the respondents to appear and
show cause why no administrative, civil or criminal sanctions should be imposed on them.
3. To deny the Motion for Continuance for lack of merit.
Respondents filed an Omnibus Motion for Partial Reconsideration,13 questioning the creation of the
special investigating panel to hear the case and the denial of the Motion for Continuance. The SEC denied
reconsideration in its Omnibus Order dated 30 March 1995.14
The respondents filed a petition before the Court of Appeals docketed as C.A.-G.R. SP No. 37036,
questioning the Omnibus Orders dated 25 January 1995 and 30 March 1995.15 During the proceedings
before the Court of Appeals, respondents filed a Supplemental Motion16 dated 16 May 1995, wherein
they prayed for the issuance of a writ of preliminary injunction enjoining the SEC and its agents from
investigating and proceeding with the hearing of the case against respondents herein. On 5 May 1995,
the Court of Appeals granted their motion and issued a writ of preliminary injunction, which effectively
enjoined the SEC from filing any criminal, civil or administrative case against the respondents herein.17
On 23 October 1995, the SEC filed a Motion for Leave to Quash SEC Omnibus Orders so that the case may
be investigated by the PED in accordance with the SEC Rules and Presidential Decree No. 902-A, and not
by the special body whose creation the SEC had earlier ordered.18
The Court of Appeals promulgated a Decision19 on 20 August 1998. It determined that there were no
implementing rules and regulations regarding disclosure, insider trading, or any of the provisions of the
Revised Securities Acts which the respondents allegedly violated. The Court of Appeals likewise noted
that it found no statutory authority for the SEC to initiate and file any suit for civil liability under Sections
8, 30 and 36 of the Revised Securities Act. Thus, it ruled that no civil, criminal or administrative
proceedings may possibly be held against the respondents without violating their rights to due process
and equal protection. It further resolved that absent any implementing rules, the SEC cannot be allowed
to quash the assailed Omnibus Orders for the sole purpose of re-filing the same case against the
respondents.20
The Court of Appeals further decided that the Rules of Practice and Procedure Before the PED, which took
effect on 14 April 1990, did not comply with the statutory requirements contained in the Administrative
Code of 1997. Section 8, Rule V of the Rules of Practice and Procedure Before the PED affords a party the
right to be present but without the right to cross-examine witnesses presented against him, in violation of
Section 12(3), Chapter 3, Book VII of the Administrative Code. 21
In the dispositive portion of its Decision, dated 20 August 1998, the Court of Appeals ruled that22:
WHEREFORE, [herein petitioner SEC's] Motion for Leave to Quash SEC Omnibus Orders is
herebyDENIED. The petition for certiorari, prohibition and mandamus is GRANTED. Consequently, all
proceedings taken against [herein respondents] in this case, including the Omnibus Orders of January 25,
1995 and March 30, 1995 are declared null and void. The writ of preliminary injunction is hereby
made permanent and, accordingly, [SEC] is hereby prohibited from taking cognizance or
initiating any action, be they civil, criminal, or administrative against [respondents] with respect to
Sections 8 (Procedure for Registration), 30 (Insider's duty to disclose when trading) and 36 (Directors,
Officers and Principal Stockholders) in relation to Sections 46 (Administrative sanctions) 56 (Penalties) 44
(Liabilities of Controlling persons) and 45 (Investigations, injunctions and prosecution of offenses) of the
Revised Securities Act and Section 144 (Violations of the Code) of the Corporation Code. (Emphasis
provided.)
The SEC filed a Motion for Reconsideration, which the Court of Appeals denied in a Resolution23 issued on
30 September 1998.
Hence, the present petition, which relies on the following grounds24:
I
THE COURT OF APPEALS ERRED WHEN IT DENIED PETITIONER'S MOTION FOR LEAVE TO QUASH THE
ASSAILED SEC OMNIBUS ORDERS DATED JANUARY 25 AND MARCH 30, 1995.
II
THE COURT OF APPEALS ERRED WHEN IT RULED THAT THERE IS NO STATUTORY AUTHORITY
WHATSOEVER FOR PETITIONER SEC TO INITIATE AND FILE ANY SUIT BE THEY CIVIL, CRIMINAL OR
ADMINISTRATIVE AGAINST RESPONDENT CORPORATION AND ITS DIRECTORS WITH RESPECT TO SECTION
30 (INSIDER'S DUTY TO DISCOLSED [sic] WHEN TRADING) AND 36 (DIRECTORS OFFICERS AND PRINCIPAL
STOCKHOLDERS) OF THE REVISED SECURITIES ACT; AND
III
THE COURT OF APPEALS ERRED WHEN IT RULED THAT RULES OF PRACTICE AND PROSECUTION BEFORE
THE PED AND THE SICD RULES OF PROCEDURE ON ADMINISTRATIVE ACTIONS/PROCEEDINGS25 ARE
INVALID AS THEY FAIL TO COMPLY WITH THE STATUTORY REQUIREMENTS CONTAINED IN THE
ADMINISTRATIVE CODE OF 1987.
The petition is impressed with merit.
Before discussing the merits of this case, it should be noted that while this case was pending in this
Court, Republic Act No. 8799, otherwise known as the Securities Regulation Code, took effect on 8 August
2000. Section 8 of Presidential Decree No. 902-A, as amended, which created the PED, was already
repealed as provided for in Section 76 of the Securities Regulation Code:
SEC. 76. Repealing Clause. - The Revised Securities Act (Batas Pambansa Blg. 178), as amended, in its
entirety, and Sections 2, 4 and 8 of Presidential Decree 902-A, as amended, are hereby repealed. All
other laws, orders, rules and regulations, or parts thereof, inconsistent with any provision of this Code are
hereby repealed or modified accordingly.
Thus, under the new law, the PED has been abolished, and the Securities Regulation Code has taken the
place of the Revised Securities Act.
The Court now proceeds with a discussion of the present case.
I. Sctions 8, 30 and 36 of the Revised Securities Act do not require the enactment of
implementing rules to make them binding and effective.
The Court of Appeals ruled that absent any implementing rules for Sections 8, 30 and 36 of the Revised
Securities Act, no civil, criminal or administrative actions can possibly be had against the respondents
without violating their right to due process and equal protection, citing as its basis the case Yick Wo v.
Hopkins.26 This is untenable.
In the absence of any constitutional or statutory infirmity, which may concern Sections 30 and 36 of the
Revised Securities Act, this Court upholds these provisions as legal and binding. It is well settled that
every law has in its favor the presumption of validity. Unless and until a specific provision of the law is
declared invalid and unconstitutional, the same is valid and binding for all intents and purposes.27 The
mere absence of implementing rules cannot effectively invalidate provisions of law, where a reasonable
construction that will support the law may be given. In People v. Rosenthal,28 this Court ruled that:
In this connection we cannot pretermit reference to the rule that "legislation should not be held invalid on
the ground of uncertainty if susceptible of any reasonable construction that will support and give it effect.
An Act will not be declared inoperative and ineffectual on the ground that it furnishes no adequate means
to secure the purpose for which it is passed, if men of common sense and reason can devise and provide
the means, and all the instrumentalities necessary for its execution are within the reach of those
intrusted therewith." (25 R.C.L., pp. 810, 811)
In Garcia v. Executive Secretary,29 the Court underlined the importance of the presumption of validity of
laws and the careful consideration with which the judiciary strikes down as invalid acts of the legislature:
The policy of the courts is to avoid ruling on constitutional questions and to presume that the acts of the
political departments are valid in the absence of a clear and unmistakable showing to the contrary. To
doubt is to sustain. This presumption is based on the doctrine of separation of powers which enjoins upon
each department a becoming respect for the acts of the other departments. The theory is that as the joint
act of Congress and the President of the Philippines, a law has been carefully studied and determined to
be in accordance with the fundamental law before it was finally enacted.
The necessity for vesting administrative authorities with power to make rules and regulations is based on
the impracticability of lawmakers' providing general regulations for various and varying details of
management.30 To rule that the absence of implementing rules can render ineffective an act of
Congress, such as the Revised Securities Act, would empower the administrative bodies to defeat the
legislative will by delaying the implementing rules. To assert that a law is less than a law, because it is
made to depend on a future event or act, is to rob the Legislature of the power to act wisely for the public
welfare whenever a law is passed relating to a state of affairs not yet developed, or to things future and
impossible to fully know.31 It is well established that administrative authorities have the power to
promulgate rules and regulations to implement a given statute and to effectuate its policies, provided
such rules and regulations conform to the terms and standards prescribed by the statute as well as
purport to carry into effect its general policies. Nevertheless, it is undisputable that the rules and
regulations cannot assert for themselves a more extensive prerogative or deviate from the mandate of
the statute.32Moreover, where the statute contains sufficient standards and an unmistakable intent, as in
the case of Sections 30 and 36 of the Revised Securities Act, there should be no impediment to its
implementation.
The reliance placed by the Court of Appeals in Yick Wo v. Hopkins33 shows a glaring error. In the cited
case, this Court found unconstitutional an ordinance which gave the board of supervisors authority to
refuse permission to carry on laundries located in buildings that were not made of brick and stone,
because it violated the equal protection clause and was highly discriminatory and hostile to Chinese
residents and not because the standards provided therein were vague or ambiguous.
This Court does not discern any vagueness or ambiguity in Sections 30 and 36 of the Revised
Securities Act, such that the acts proscribed and/or required would not be understood by a person of
ordinary intelligence.
Section 30 of the Revised Securities Act
Section 30 of the Revised Securities Act reads:
Sec. 30. Insider's duty to disclose when trading. - (a) It shall be unlawful for an insider to sell or buy
a security of the issuer, if he knows a fact of special significance with respect to the issuer or the security
that is not generally available, unless (1) the insider proves that the fact is generally available or (2) if the
other party to the transaction (or his agent) is identified, (a) the insider proves that the other party knows
it, or (b) that other party in fact knows it from the insider or otherwise.
(b) "Insider" means (1) the issuer, (2) a director or officer of, or a person controlling, controlled by, or
under common control with, the issuer, (3) a person whose relationship or former relationship to the
issuer gives or gave him access to a fact of special significance about the issuer or the security that is not
generally available, or (4) a person who learns such a fact from any of the foregoing insiders as defined in
this subsection, with knowledge that the person from whom he learns the fact is such an insider.
(c) A fact is "of special significance" if (a) in addition to being material it would be likely, on being made
generally available, to affect the market price of a security to a significant extent, or (b) a reasonable
person would consider it especially important under the circumstances in determining his course of action
in the light of such factors as the degree of its specificity, the extent of its difference from information
generally available previously, and its nature and reliability.
(d) This section shall apply to an insider as defined in subsection (b) (3) hereof only to the extent that he
knows of a fact of special significance by virtue of his being an insider.
The provision explains in simple terms that the insider's misuse of nonpublic and undisclosed information
is the gravamen of illegal conduct. The intent of the law is the protection of investors against fraud,
committed when an insider, using secret information, takes advantage of an uninformed investor. Insiders
are obligated to disclose material information to the other party or abstain from trading the shares of his
corporation. This duty to disclose or abstain is based on two factors: first, the existence of a relationship
giving access, directly or indirectly, to information intended to be available only for a corporate purpose
and not for the personal benefit of anyone; and second, the inherent unfairness involved when a party
takes advantage of such information knowing it is unavailable to those with whom he is dealing.34
In the United States (U.S.), the obligation to disclose or abstain has been traditionally imposed on
corporate "insiders," particularly officers, directors, or controlling stockholders, but that definition has
since been expanded.35 The term "insiders" now includes persons whose relationship or former
relationship to the issuer gives or gave them access to a fact of special significance about the issuer or
the security that is not generally available, and one who learns such a fact from an insider knowing that
the person from whom he learns the fact is such an insider. Insiders have the duty to disclose material
facts which are known to them by virtue of their position but which are not known to persons with whom
they deal and which, if known, would affect their investment judgment. In some cases, however, there
may be valid corporate reasons for the nondisclosure of material information. Where such reasons exist,
an issuer's decision not to make any public disclosures is not ordinarily considered as a violation of insider
trading. At the same time, the undisclosed information should not be improperly used for non-corporate
purposes, particularly to disadvantage other persons with whom an insider might transact, and therefore
the insider must abstain from entering into transactions involving such securities.36
Respondents further aver that under Section 30 of the Revised Securities Act, the SEC still needed to
define the following terms: "material fact," "reasonable person," "nature and
reliability" and "generally available." 37 In determining whether or not these terms are vague, these
terms must be evaluated in the context of Section 30 of the Revised Securties Act. To fully understand
how the terms were used in the aforementioned provision, a discussion of what the law recognizes as a
fact of special significance is required, since the duty to disclose such fact or to abstain from any
transaction is imposed on the insider only in connection with a fact of special significance.
Under the law, what is required to be disclosed is a fact of "special significance" which may be (a) a
material fact which would be likely, on being made generally available, to affect the market price of a
security to a significant extent, or (b) one which a reasonable person would consider especially important
in determining his course of action with regard to the shares of stock.
(a) Material Fact - The concept of a "material fact" is not a new one. As early as 1973, the Rules
Requiring Disclosure of Material Facts by Corporations Whose Securities Are Listed In Any Stock Exchange
or Registered/Licensed Under the Securities Act, issued by the SEC on 29 January 1973, explained that
"[a] fact is material if it induces or tends to induce or otherwise affect the sale or purchase of its
securities." Thus, Section 30 of the Revised Securities Act provides that if a fact affects the sale or
purchase of securities, as well as its price, then the insider would be required to disclose such information
to the other party to the transaction involving the securities. This is the first definition given to a "fact of
special significance."
(b.1) Reasonable Person - The second definition given to a fact of special significance involves the
judgment of a "reasonable person." Contrary to the allegations of the respondents, a "reasonable person"
is not a problematic legal concept that needs to be clarified for the purpose of giving effect to a statute;
rather, it is the standard on which most of our legal doctrines stand. The doctrine on negligence uses the
discretion of the "reasonable man" as the standard.38 A purchaser in good faith must also take into
account facts which put a "reasonable man" on his guard.39 In addition, it is the belief of the reasonable
and prudent man that an offense was committed that sets the criteria for probable cause for a warrant of
arrest.40 This Court, in such cases, differentiated the reasonable and prudent man from "a person with
training in the law such as a prosecutor or a judge," and identified him as "the average man on the
street," who weighs facts and circumstances without resorting to the calibrations of our technical rules of
evidence of which his knowledge is nil. Rather, he relies on the calculus of common sense of which all
reasonable men have in abundance.41 In the same vein, the U.S. Supreme Court similarly determined its
standards by the actual significance in the deliberations of a "reasonable investor," when it ruled in TSC
Industries, Inc. v. Northway, Inc.,42 that the determination of materiality "requires delicate assessments
of the inferences a ‘reasonable shareholder' would draw from a given set of facts and the significance of
those inferences to him."
(b.2) Nature and Reliability - The factors affecting the second definition of a "fact of special
significance," which is of such importance that it is expected to affect the judgment of a reasonable man,
were substantially lifted from a test of materiality pronounced in the case In the Matter of Investors
Management Co., Inc.43:
Among the factors to be considered in determining whether information is material under this test are the
degree of its specificity, the extent to which it differs from information previously publicly disseminated,
and its reliability in light of its nature and source and the circumstances under which it was received.
It can be deduced from the foregoing that the "nature and reliability" of a significant fact in determining
the course of action a reasonable person takes regarding securities must be clearly viewed in connection
with the particular circumstances of a case. To enumerate all circumstances that would render the
"nature and reliability" of a fact to be of special significance is close to impossible. Nevertheless, the
proper adjudicative body would undoubtedly be able to determine if facts of a certain "nature and
reliability" can influence a reasonable person's decision to retain, sell or buy securities, and thereafter
explain and justify its factual findings in its decision.
(c) Materiality Concept - A discussion of the "materiality concept" would be relevant to both a material
fact which would affect the market price of a security to a significant extent and/or a fact which a
reasonable person would consider in determining his or her cause of action with regard to the shares of
stock. Significantly, what is referred to in our laws as a fact of special significance is referred to in the U.S.
as the "materiality concept" and the latter is similarly not provided with a precise definition. In Basic v.
Levinson,44 the U.S. Supreme Court cautioned against confining materiality to a rigid formula, stating
thus:
A bright-line rule indeed is easier to follow than a standard that requires the exercise of judgment in the
light of all the circumstances. But ease of application alone is not an excuse for ignoring the purposes of
the Securities Act and Congress' policy decisions. Any approach that designates a single fact or
occurrence as always determinative of an inherently fact-specific finding such as materiality, must
necessarily be overinclusive or underinclusive.
Moreover, materiality "will depend at any given time upon a balancing of both the indicated probability
that the event will occur and the anticipated magnitude of the event in light of the totality of the
company activity."45 In drafting the Securities Act of 1934, the U.S. Congress put emphasis on the
limitations to the definition of materiality:
Although the Committee believes that ideally it would be desirable to have absolute certainty in the
application of the materiality concept, it is its view that such a goal is illusory and unrealistic. The
materiality concept is judgmental in nature and it is not possible to translate this into a
numerical formula. The Committee's advice to the [SEC] is to avoid this quest for certainty
and to continue consideration of materiality on a case-by-case basis as disclosure problems
are identified."House Committee on Interstate and Foreign Commerce, Report of the Advisory
Committee on Corporate Disclosure to the Securities and Exchange Commission, 95th Cong., 1st Sess.,
327 (Comm.Print 1977). (Emphasis provided.)46
(d) Generally Available - Section 30 of the Revised Securities Act allows the insider the defense that in
a transaction of securities, where the insider is in possession of facts of special significance, such
information is "generally available" to the public. Whether information found in a newspaper, a
specialized magazine, or any cyberspace media be sufficient for the term "generally available" is a matter
which may be adjudged given the particular circumstances of the case. The standards cannot remain at a
standstill. A medium, which is widely used today was, at some previous point in time, inaccessible to
most. Furthermore, it would be difficult to approximate how the rules may be applied to the instant case,
where investigation has not even been started. Respondents failed to allege that the negotiations of their
agreement with GHB were made known to the public through any form of media for there to be a proper
appreciation of the issue presented.
Section 36(a) of the Revised Securities Act
As regards Section 36(a) of the Revised Securities Act, respondents claim that the term "beneficial
ownership" is vague and that it requires implementing rules to give effect to the law. Section 36(a) of the
Revised Securities Act is a straightforward provision that imposes upon (1) a beneficial owner of more
than ten percent of any class of any equity security or (2) a director or any officer of the issuer of such
security, the obligation to submit a statement indicating his or her ownership of the issuer's securities
and such changes in his or her ownership thereof. The said provision reads:
Sec. 36. Directors, officers and principal stockholders. - (a) Every person who is directly or indirectly
the beneficial owner of more than ten per centum of any [class] of any equity security which is registered
pursuant to this Act, or who is [a] director or an officer of the issuer of such security, shall file, at the time
of the registration of such security on a securities exchange or by the effective date of a registration
statement or within ten days after he becomes such a beneficial owner, director or officer, a statement
with the Commission and, if such security is registered on a securities exchange, also with the exchange,
of the amount of all equity securities of such issuer of which he is the beneficial owner, and within ten
days after the close of each calendar month thereafter, if there has been a change in such ownership
during such month, shall file with the Commission, and if such security is registered on a securities
exchange, shall also file with the exchange, a statement indicating his ownership at the close of the
calendar month and such changes in his ownership as have occurred during such calendar month.
(Emphasis provided.)
Section 36(a) refers to the "beneficial owner." Beneficial owner has been defined in the following manner:
[F]irst, to indicate the interest of a beneficiary in trust property (also called "equitable ownership"); and
second, to refer to the power of a corporate shareholder to buy or sell the shares, though the shareholder
is not registered in the corporation's books as the owner. Usually, beneficial ownership is distinguished
from naked ownership, which is the enjoyment of all the benefits and privileges of ownership, as against
possession of the bare title to property.47
Even assuming that the term "beneficial ownership" was vague, it would not affect respondents' case,
where the respondents are directors and/or officers of the corporation, who are specifically required to
comply with the reportorial requirements under Section 36(a) of the Revised Securities Act. The validity of
a statute may be contested only by one who will sustain a direct injury as a result of its enforcement.48
Sections 30 and 36 of the Revised Securities Act were enacted to promote full disclosure in the securities
market and prevent unscrupulous individuals, who by their positions obtain non-public information, from
taking advantage of an uninformed public. No individual would invest in a market which can be
manipulated by a limited number of corporate insiders. Such reaction would stifle, if not stunt, the growth
of the securities market. To avert the occurrence of such an event, Section 30 of the Revised Securities
Act prevented the unfair use of non-public information in securities transactions, while Section 36 allowed
the SEC to monitor the transactions entered into by corporate officers and directors as regards the
securities of their companies.
In the case In the Matter of Investor's Management Co.,49 it was cautioned that "the broad language of
the anti-fraud provisions," which include the provisions on insider trading, should not be "circumscribed
by fine distinctions and rigid classifications." The ambit of anti-fraud provisions is necessarily broad so as
to embrace the infinite variety of deceptive conduct.50
In Tatad v. Secretary of Department of Energy,51 this Court brushed aside a contention, similar to that
made by the respondents in this case, that certain words or phrases used in a statute do not set
determinate standards, declaring that:
Petitioners contend that the words "as far as practicable," "declining" and "stable" should have been
defined in R.A. No. 8180 as they do not set determinate and determinable standards. This stubborn
submission deserves scant consideration. The dictionary meanings of these words are well settled and
cannot confuse men of reasonable intelligence. x x x. The fear of petitioners that these words will result in
the exercise of executive discretion that will run riot is thus groundless. To be sure, the Court has
sustained the validity of similar, if not more general standards in other cases.
Among the words or phrases that this Court upheld as valid standards were "simplicity and
dignity,"52 "public interest,"53 and "interests of law and order."54
The Revised Securities Act was approved on 23 February 1982. The fact that the Full Disclosure Rules
were promulgated by the SEC only on 24 July 1996 does not render ineffective in the meantime Section
36 of the Revised Securities Act. It is already unequivocal that the Revised Securities Act requires full
disclosure and the Full Disclosure Rules were issued to make the enforcement of the law more consistent,
efficient and effective. It is equally reasonable to state that the disclosure forms later provided by the
SEC, do not, in any way imply that no compliance was required before the forms were provided. The
effectivity of a statute which imposes reportorial requirements cannot be suspended by the issuance of
specified forms, especially where compliance therewith may be made even without such forms. The forms
merely made more efficient the processing of requirements already identified by the statute.
For the same reason, the Court of Appeals made an evident mistake when it ruled that no civil, criminal or
administrative actions can possibly be had against the respondents in connection with Sections 8, 30 and
36 of the Revised Securities Act due to the absence of implementing rules. These provisions are
sufficiently clear and complete by themselves. Their requirements are specifically set out, and the acts
which are enjoined are determinable. In particular, Section 855 of the Revised Securities Act is a
straightforward enumeration of the procedure for the registration of securities and the particular matters
which need to be reported in the registration statement thereof. The Decision, dated 20 August 1998,
provides no valid reason to exempt the respondent IRC from such requirements. The lack of
implementing rules cannot suspend the effectivity of these provisions. Thus, this Court cannot find any
cogent reason to prevent the SEC from exercising its authority to investigate respondents for violation of
Section 8 of the Revised Securities Act.
II. The right to cross-examination is not absolute and cannot be demanded during
investigative proceedings before the PED.
In its assailed Decision dated 20 August 1998, the Court of Appeals pronounced that the PED Rules of
Practice and Procedure was invalid since Section 8, Rule V56 thereof failed to provide for the parties' right
to cross-examination, in violation of the Administrative Code of 1987 particularly Section 12(3), Chapter
3, Book VII thereof. This ruling is incorrect.
Firstly, Section 4, Rule I of the PED Rules of Practice and Procedure, categorically stated that the
proceedings before the PED are summary in nature:
Section 4. Nature of Proceedings - Subject to the requirements of due process, proceedings before the
"PED" shall be summary in nature not necessarily adhering to or following the technical rules of evidence
obtaining in the courts of law. The Rules of Court may apply in said proceedings in suppletory character
whenever practicable.
Rule V of the PED Rules of Practice and Procedure further specified that:
Section 5. Submission of Documents - During the preliminary conference/hearing, or immediately
thereafter, the Hearing Officer may require the parties to simultaneously submit their respective verified
position papers accompanied by all supporting documents and the affidavits of their witnesses, if any
which shall take the place of their direct testimony. The parties shall furnish each other with copies of the
position papers together with the supporting affidavits and documents submitted by them.
Section 6. Determination of necessity of hearing. - Immediately after the submission by the parties of
their position papers and supporting documents, the Hearing Officer shall determine whether there is a
need for a formal hearing. At this stage, he may, in his discretion, and for the purpose of making such
determination, elicit pertinent facts or information, including documentary evidence, if any, from any
party or witness to complete, as far as possible, the facts of the case. Facts or information so elicited may
serve as basis for his clarification or simplifications of the issues in the case. Admissions and stipulation of
facts to abbreviate the proceedings shall be encouraged.
Section 7. Disposition of Case. If the Hearing Officer finds no necessity of further hearing after the parties
have submitted their position papers and supporting documents, he shall so inform the parties stating the
reasons therefor and shall ask them to acknowledge the fact that they were so informed by signing the
minutes of the hearing and the case shall be deemed submitted for resolution.
As such, the PED Rules provided that the Hearing Officer may require the parties to submit their
respective verified position papers, together with all supporting documents and affidavits of witnesses. A
formal hearing was not mandatory; it was within the discretion of the Hearing Officer to determine
whether there was a need for a formal hearing. Since, according to the foregoing rules, the holding of a
hearing before the PED is discretionary, then the right to cross-examination could not have been
demanded by either party.
Secondly, it must be pointed out that Chapter 3, Book VII of the Administrative Code, entitled
"Adjudication," does not affect the investigatory functions of the agencies. The law creating the PED,
Section 8 of Presidential Decree No. 902-A, as amended, defines the authority granted to the PED, thus:
SEC. 8. The Prosecution and Enforcement Department shall have, subject to the Commission's control and
supervision, the exclusive authority to investigate, on complaint or motu proprio, any act or omission
of the Board of Directors/Trustees of corporations, or of partnerships, or of other associations, or of their
stockholders, officers or partners, including any fraudulent devices, schemes or representations, in
violation of any law or rules and regulations administered and enforced by the Commission; to file and
prosecutein accordance with law and rules and regulations issued by the Commission and in appropriate
cases, the corresponding criminal or civil case before the Commission or the proper court or body upon
prima facie finding of violation of any laws or rules and regulations administered and enforced by the
Commission; and to perform such other powers and functions as may be provided by law or duly
delegated to it by the Commission. (Emphasis provided.)
The law creating PED empowers it to investigate violations of the rules and regulations promulgated by
the SEC and to file and prosecute such cases. It fails to mention any adjudicatory functions insofar as the
PED is concerned. Thus, the PED Rules of Practice and Procedure need not comply with the provisions of
the Administrative Code on adjudication, particularly Section 12(3), Chapter 3, Book VII.
In Cariño v. Commission on Human Rights,57 this Court sets out the distinction between investigative and
adjudicative functions, thus:
"Investigate," commonly understood, means to examine, explore, inquire or delve or probe into, research
on, study. The dictionary definition of "investigate" is "to observe or study closely; inquire into
systematically: "to search or inquire into" xx to subject to an official probe xx: to conduct an official
inquiry." The purpose of an investigation, of course is to discover, to find out, to learn, obtain information.
Nowhere included or intimated is the notion of settling, deciding or resolving a controversy involved in the
facts inquired into by application of the law to the facts established by the inquiry.
The legal meaning of "investigate" is essentially the same: "(t)o follow up step by step by patient inquiry
or observation. To trace or track; to search into; to examine and inquire into with care and accuracy; to
find out by careful inquisition; examination; the taking of evidence; a legal inquiry;" "to inquire; to make
an investigation," "investigation" being in turn described as "(a)n administrative function, the exercise of
which ordinarily does not require a hearing. 2 Am J2d Adm L Sec. 257; xx an inquiry, judicial or otherwise,
for the discovery and collection of facts concerning a certain matter or matters."
"Adjudicate," commonly or popularly understood, means to adjudge, arbitrate, judge, decide, determine,
resolve, rule on, settle. The dictionary defines the term as "to settle finally (the rights and duties of
parties to a court case) on the merits of issues raised: xx to pass judgment on: settle judicially: xx act as
judge." And "adjudge" means "to decide or rule upon as a judge or with judicial or quasi-judicial powers:
xx to award or grant judicially in a case of controversy x x x."
In a legal sense, "adjudicate" means: "To settle in the exercise of judicial authority. To determine finally.
Synonymous with adjudge in its strictest sense;" and "adjudge" means: "To pass on judicially, to decide,
settle, or decree, or to sentence or condemn. x x x Implies a judicial determination of a fact, and the entry
of a judgment."
There is no merit to the respondent's averment that the sections under Chapter 3, Book VII of the
Administrative Code, do not distinguish between investigative and adjudicatory functions. Chapter 3,
Book VII of the Administrative Code, is unequivocally entitled "Adjudication."
Respondents insist that the PED performs adjudicative functions, as enumerated under Section 1(h) and
(j), Rule II; and Section 2(4), Rule VII of the PED Rules of Practice and Procedure:
Section 1. Authority of the Prosecution and Enforcement Department - Pursuant to Presidential Decree
No. 902-A, as amended by Presidential Decree No. 1758, the Prosecution and Enforcement Department is
primarily charged with the following:
xxxx
(h) Suspends or revokes, after proper notice and hearing in accordance with these Rules, the franchise or
certificate of registration of corporations, partnerships or associations, upon any of the following grounds:
1. Fraud in procuring its certificate of registration;
2. Serious misrepresentation as to what the corporation can do or is doing to the great prejudice of or
damage to the general public;
3. Refusal to comply or defiance of any lawful order of the Commission restraining commission of acts
which would amount to a grave violation of its franchise;
xxxx
(j) Imposes charges, fines and fees, which by law, it is authorized to collect;
xxxx
Section 2. Powers of the Hearing Officer. The Hearing Officer shall have the following powers:
xxxx
4. To cite and/or declare any person in direct or indirect contempt in accordance with pertinent provisions
of the Rules of Court.
Even assuming that these are adjudicative functions, the PED, in the instant case, exercised its
investigative powers; thus, respondents do not have the requisite standing to assail the validity of the
rules on adjudication. A valid source of a statute or a rule can only be contested by one who will sustain a
direct injury as a result of its enforcement.58 In the instant case, respondents are only being investigated
by the PED for their alleged failure to disclose their negotiations with GHB and the transactions entered
into by its directors involving IRC shares. The respondents have not shown themselves to be under any
imminent danger of sustaining any personal injury attributable to the exercise of adjudicative functions
by the SEC. They are not being or about to be subjected by the PED to charges, fees or fines; to citations
for contempt; or to the cancellation of their certificate of registration under Section 1(h), Rule II of the
PED Rules of Practice and Procedure.
To repeat, the only powers which the PED was likely to exercise over the respondents were investigative
in nature, to wit:
Section 1. Authority of the Prosecution and Enforcement Department - Pursuant to Presidential Decree
No. 902-A, as amended by Presidential Decree No. 1758, the Prosecution and Enforcement Department is
primarily charged with the following:
xxxx
b. Initiates proper investigation of corporations and partnerships or persons, their books, records and
other properties and assets, involving their business transactions, in coordination with the operating
department involved;
xxxx
e. Files and prosecutes civil or criminal cases before the Commission and other courts of justice involving
violations of laws and decrees enforced by the Commission and the rules and regulations promulgated
thereunder;
f. Prosecutes erring directors, officers and stockholders of corporations and partnerships, commercial
paper issuers or persons in accordance with the pertinent rules on procedures;
The authority granted to the PED under Section 1(b), (e), and (f), Rule II of the PED Rules of Practice and
Procedure, need not comply with Section 12, Chapter 3, Rule VII of the Administrative Code, which affects
only the adjudicatory functions of administrative bodies. Thus, the PED would still be able to investigate
the respondents under its rules for their alleged failure to disclose their negotiations with GHB and the
transactions entered into by its directors involving IRC shares.
This is not to say that administrative bodies performing adjudicative functions are required to strictly
comply with the requirements of Chapter 3, Rule VII of the Administrative Code, particularly, the right to
cross-examination. It should be noted that under Section 2.2 of Executive Order No. 26, issued on 7
October 1992, abbreviated proceedings are prescribed in the disposition of administrative cases:
2. Abbreviation of Proceedings. All administrative agencies are hereby directed to adopt and include in
their respective Rules of Procedure the following provisions:
xxxx
2.2 Rules adopting, unless otherwise provided by special laws and without prejudice to Section 12,
Chapter 3, Book VII of the Administrative Code of 1987, the mandatory use of affidavits in lieu of direct
testimonies and the preferred use of depositions whenever practicable and convenient.
As a consequence, in proceedings before administrative or quasi-judicial bodies, such as the National
Labor Relations Commission and the Philippine Overseas Employment Agency, created under laws which
authorize summary proceedings, decisions may be reached on the basis of position papers or other
documentary evidence only. They are not bound by technical rules of procedure and evidence. 59 In fact,
the hearings before such agencies do not connote full adversarial proceedings.60 Thus, it is not necessary
for the rules to require affiants to appear and testify and to be cross-examined by the counsel of the
adverse party. To require otherwise would negate the summary nature of the administrative or quasi-
judicial proceedings.61 In Atlas Consolidated Mining and Development Corporation v. Factoran, Jr.,62 this
Court stated that:
[I]t is sufficient that administrative findings of fact are supported by evidence, or negatively stated, it is
sufficient that findings of fact are not shown to be unsupported by evidence. Substantial evidence is all
that is needed to support an administrative finding of fact, and substantial evidence is "such relevant
evidence as a reasonable mind might accept as adequate to support a conclusion."
In order to comply with the requirements of due process, what is required, among other things, is that
every litigant be given reasonable opportunity to appear and defend his right and to introduce relevant
evidence in his favor.63
III. The Securities Regulations Code did not repeal Sections 8, 30 and 36 of the Revised
Securities Act since said provisions were reenacted in the new law.
The Securities Regulations Code absolutely repealed the Revised Securities Act. While the absolute repeal
of a law generally deprives a court of its authority to penalize the person charged with the violation of the
old law prior to its appeal, an exception to this rule comes about when the repealing law punishes the act
previously penalized under the old law. The Court, in Benedicto v. Court of Appeals, sets down the rules in
such instances:64
As a rule, an absolute repeal of a penal law has the effect of depriving the court of its authority to punish
a person charged with violation of the old law prior to its repeal. This is because an unqualified repeal of a
penal law constitutes a legislative act of rendering legal what had been previously declared as illegal,
such that the offense no longer exists and it is as if the person who committed it never did so. There are,
however, exceptions to the rule. One is the inclusion of a saving clause in the repealing statute that
provides that the repeal shall have no effect on pending actions. Another exception is where the
repealing act reenacts the former statute and punishes the act previously penalized under the old law. In
such instance, the act committed before the reenactment continues to be an offense in the statute books
and pending cases are not affected, regardless of whether the new penalty to be imposed is more
favorable to the accused. (Emphasis provided.)
In the present case, a criminal case may still be filed against the respondents despite the repeal, since
Sections 8,65 12,66 26,67 2768 and 2369 of the Securities Regulations Code impose duties that are
substantially similar to Sections 8, 30 and 36 of the repealed Revised Securities Act.
Section 8 of the Revised Securities Act, which previously provided for the registration of securities and the
information that needs to be included in the registration statements, was expanded under Section 12, in
connection with Section 8 of the Securities Regulations Code. Further details of the information required
to be disclosed by the registrant are explained in the Amended Implementing Rules and Regulations of
the Securities Regulations Code, issued on 30 December 2003, particularly Sections 8 and 12 thereof.
Section 30 of the Revised Securities Act has been reenacted as Section 27 of the Securities Regulations
Code, still penalizing an insider's misuse of material and non-public information about the issuer, for the
purpose of protecting public investors. Section 26 of the Securities Regulations Code even widens the
coverage of punishable acts, which intend to defraud public investors through various devices,
misinformation and omissions.
Section 23 of the Securities Regulations Code was practically lifted from Section 36(a) of the Revised
Securities Act. Both provisions impose upon (1) a beneficial owner of more than ten percent of any class
of any equity security or (2) a director or any officer of the issuer of such security, the obligation to
submit a statement indicating his or her ownership of the issuer's securities and such changes in his or
her ownership thereof.
Clearly, the legislature had not intended to deprive the courts of their authority to punish a person
charged with violation of the old law that was repealed; in this case, the Revised Securities Act.
IV. The SEC retained the jurisdiction to investigate violations of the Revised Securities Act,
reenacted in the Securities Regulations Code, despite the abolition of the PED.
Section 53 of the Securities Regulations Code clearly provides that criminal complaints for violations of
rules and regulations enforced or administered by the SEC shall be referred to the Department of Justice
(DOJ) for preliminary investigation, while the SEC nevertheless retains limited investigatory
powers.70 Additionally, the SEC may still impose the appropriate administrative sanctions under Section
54 of the aforementioned law.71
In Morato v. Court of Appeals,72 the cases therein were still pending before the PED for investigation and
the SEC for resolution when the Securities Regulations Code was enacted. The case before the SEC
involved an intra-corporate dispute, while the subject matter of the other case investigated by the PED
involved the schemes, devices, and violations of pertinent rules and laws of the company's board of
directors. The enactment of the Securities Regulations Code did not result in the dismissal of the cases;
rather, this Court ordered the transfer of one case to the proper regional trial court and the SEC to
continue with the investigation of the other case.
The case at bar is comparable to the aforecited case. In this case, the SEC already commenced the
investigative proceedings against respondents as early as 1994. Respondents were called to appear
before the SEC and explain their failure to disclose pertinent information on 14 August 1994. Thereafter,
the SEC Chairman, having already made initial findings that respondents failed to make timely disclosures
of their negotiations with GHB, ordered a special investigating panel to hear the case. The investigative
proceedings were interrupted only by the writ of preliminary injunction issued by the Court of Appeals,
which became permanent by virtue of the Decision, dated 20 August 1998, in C.A.-G.R. SP No. 37036.
During the pendency of this case, the Securities Regulations Code repealed the Revised Securities Act. As
in Morato v. Court of Appeals, the repeal cannot deprive SEC of its jurisdiction to continue investigating
the case; or the regional trial court, to hear any case which may later be filed against the respondents.
V. The instant case has not yet prescribed.
Respondents have taken the position that this case is moot and academic, since any criminal complaint
that may be filed against them resulting from the SEC's investigation of this case has already
prescribed.73 They point out that the prescription period applicable to offenses punished under special
laws, such as violations of the Revised Securities Act, is twelve years under Section 1 of Act No. 3326, as
amended by Act No. 3585 and Act No. 3763, entitled "An Act to Establish Periods of Prescription for
Violations Penalized by Special Acts and Municipal Ordinances and to Provide When Prescription Shall
Begin to Act."74 Since the offense was committed in 1994, they reasoned that prescription set in as early
as 2006 and rendered this case moot. Such position, however, is incongruent with the factual
circumstances of this case, as well as the applicable laws and jurisprudence.
It is an established doctrine that a preliminary investigation interrupts the prescription period.75 A
preliminary investigation is essentially a determination whether an offense has been committed, and
whether there is probable cause for the accused to have committed an offense:
A preliminary investigation is merely inquisitorial, and it is often the only means of discovering the
persons who may be reasonably charged with a crime, to enable the fiscal to prepare the complaint or
information. It is not a trial of the case on the merits and has no purpose except that of determining
whether a crime has been committed or whether there is probable cause to believe that the accused is
guilty thereof.76
Under Section 45 of the Revised Securities Act, which is entitled Investigations, Injunctions and
Prosecution of Offenses, the Securities Exchange Commission (SEC) has the authority to "make such
investigations as it deems necessary to determine whether any person has violated or is about to violate
any provision of this Act XXX." After a finding that a person has violated the Revised Securities Act, the
SEC may refer the case to the DOJ for preliminary investigation and prosecution.
While the SEC investigation serves the same purpose and entails substantially similar duties as the
preliminary investigation conducted by the DOJ, this process cannot simply be disregarded. In Baviera v.
Paglinawan,77 this Court enunciated that a criminal complaint is first filed with the SEC, which determines
the existence of probable cause, before a preliminary investigation can be commenced by the DOJ. In the
aforecited case, the complaint filed directly with the DOJ was dismissed on the ground that it should have
been filed first with the SEC. Similarly, the offense was a violation of the Securities Regulations Code,
wherein the procedure for criminal prosecution was reproduced from Section 45 of the Revised Securities
Act. 78 This Court affirmed the dismissal, which it explained thus:
The Court of Appeals held that under the above provision, a criminal complaint for violation of any law or
rule administered by the SEC must first be filed with the latter. If the Commission finds that there is
probable cause, then it should refer the case to the DOJ. Since petitioner failed to comply with the
foregoing procedural requirement, the DOJ did not gravely abuse its discretion in dismissing his complaint
in I.S. No. 2004-229.
A criminal charge for violation of the Securities Regulation Code is a specialized dispute. Hence, it must
first be referred to an administrative agency of special competence, i.e., the SEC. Under the doctrine of
primary jurisdiction, courts will not determine a controversy involving a question within the jurisdiction of
the administrative tribunal, where the question demands the exercise of sound administrative discretion
requiring the specialized knowledge and expertise of said administrative tribunal to determine technical
and intricate matters of fact. The Securities Regulation Code is a special law. Its enforcement is
particularly vested in the SEC. Hence, all complaints for any violation of the Code and its implementing
rules and regulations should be filed with the SEC. Where the complaint is criminal in nature, the SEC
shall indorse the complaint to the DOJ for preliminary investigation and prosecution as provided in Section
53.1 earlier quoted.
We thus agree with the Court of Appeals that petitioner committed a fatal procedural lapse when he filed
his criminal complaint directly with the DOJ. Verily, no grave abuse of discretion can be ascribed to the
DOJ in dismissing petitioner's complaint.
The said case puts in perspective the nature of the investigation undertaken by the SEC, which is a
requisite before a criminal case may be referred to the DOJ. The Court declared that it is imperative that
the criminal prosecution be initiated before the SEC, the administrative agency with the special
competence.
It should be noted that the SEC started investigative proceedings against the respondents as early as
1994. This investigation effectively interrupted the prescription period. However, said proceedings were
disrupted by a preliminary injunction issued by the Court of Appeals on 5 May 1995, which effectively
enjoined the SEC from filing any criminal, civil, or administrative case against the respondents
herein.79 Thereafter, on 20 August 1998, the appellate court issued the assailed Decision in C.A. G.R. SP.
No. 37036 ordering that the writ of injunction be made permanent and prohibiting the SEC from taking
cognizance of and initiating any action against herein respondents. The SEC was bound to comply with
the aforementioned writ of preliminary injunction and writ of injunction issued by the Court of Appeals
enjoining it from continuing with the investigation of respondents for 12 years. Any deviation by the SEC
from the injunctive writs would be sufficient ground for contempt. Moreover, any step the SEC takes in
defiance of such orders will be considered void for having been taken against an order issued by a court
of competent jurisdiction.
An investigation of the case by any other administrative or judicial body would likewise be impossible
pending the injunctive writs issued by the Court of Appeals. Given the ruling of this Court in Baviera v.
Paglinawan,80 the DOJ itself could not have taken cognizance of the case and conducted its preliminary
investigation without a prior determination of probable cause by the SEC. Thus, even presuming that the
DOJ was not enjoined by the Court of Appeals from conducting a preliminary investigation, any
preliminary investigation conducted by the DOJ would have been a futile effort since the SEC had only
started with its investigation when respondents themselves applied for and were granted an injunction by
the Court of Appeals.
Moreover, the DOJ could not have conducted a preliminary investigation or filed a criminal case against
the respondents during the time that issues on the effectivity of Sections 8, 30 and 36 of the Revised
Securities Act and the PED Rules of Practice and Procedure were still pending before the Court of Appeals.
After the Court of Appeals declared the aforementioned statutory and regulatory provisions invalid and,
thus, no civil, criminal or administrative case may be filed against the respondents for violations thereof,
the DOJ would have been at a loss, as there was no statutory provision which respondents could be
accused of violating.
Accordingly, it is only after this Court corrects the erroneous ruling of the Court of Appeals in its Decision
dated 20 August 1998 that either the SEC or DOJ may properly conduct any kind of investigation against
the respondents for violations of Sections 8, 30 and 36 of the Revised Securities Act. Until then, the
prescription period is deemed interrupted.
To reiterate, the SEC must first conduct its investigations and make a finding of probable cause in
accordance with the doctrine pronounced in Baviera v. Paglinawan.81 In this case, the DOJ was precluded
from initiating a preliminary investigation since the SEC was halted by the Court of Appeals from
continuing with its investigation. Such a situation leaves the prosecution of the case at a standstill, and
neither the SEC nor the DOJ can conduct any investigation against the respondents, who, in the first
place, sought the injunction to prevent their prosecution. All that the SEC could do in order to break the
impasse was to have the Decision of the Court of Appeals overturned, as it had done at the earliest
opportunity in this case. Therefore, the period during which the SEC was prevented from continuing with
its investigation should not be counted against it. The law on the prescription period was never intended
to put the prosecuting bodies in an impossible bind in which the prosecution of a case would be placed
way beyond their control; for even if they avail themselves of the proper remedy, they would still be
barred from investigating and prosecuting the case.
Indubitably, the prescription period is interrupted by commencing the proceedings for the prosecution of
the accused. In criminal cases, this is accomplished by initiating the preliminary investigation. The
prosecution of offenses punishable under the Revised Securities Act and the Securities Regulations Code
is initiated by the filing of a complaint with the SEC or by an investigation conducted by the SEC motu
proprio. Only after a finding of probable cause is made by the SEC can the DOJ instigate a preliminary
investigation. Thus, the investigation that was commenced by the SEC in 1995, soon after it discovered
the questionable acts of the respondents, effectively interrupted the prescription period. Given the nature
and purpose of the investigation conducted by the SEC, which is equivalent to the preliminary
investigation conducted by the DOJ in criminal cases, such investigation would surely interrupt the
prescription period.
VI. The Court of Appeals was justified in denying SEC's Motion for Leave to Quash SEC
Omnibus Orders dated 23 October 1995.
The SEC avers that the Court of Appeals erred when it denied its Motion for Leave to Quash SEC Omnibus
Orders, dated 23 October 1995, in the light of its admission that the PED had the sole authority to
investigate the present case. On this matter, this Court cannot agree with the SEC.
In the assailed decision, the Court of Appeals denied the SEC's Motion for Leave to Quash SEC Omnibus
Orders, since it found other issues that were more important than whether or not the PED was the proper
body to investigate the matter. Its refusal was premised on its earlier finding that no criminal, civil, or
administrative case may be filed against the respondents under Sections 8, 30 and 36 of the Revised
Securities Act, due to the absence of any implementing rules and regulations. Moreover, the validity of
the PED Rules on Practice and Procedure was also raised as an issue. The Court of Appeals, thus,
reasoned that if the quashal of the orders was granted, then it would be deprived of the opportunity to
determine the validity of the aforementioned rules and statutory provisions. In addition, the SEC would
merely pursue the same case without the Court of Appeals having determined whether or not it may do
so in accordance with due process requirements. Absent a determination of whether the SEC may file a
case against the respondents based on the assailed provisions of the Revised Securities Act, it would
have been improper for the Court of Appeals to grant the SEC's Motion for Leave to Quash SEC Omnibus
Orders.
In all, this Court rules that no implementing rules were needed to render effective Sections 8, 30 and 36
of the Revised Securities Act; nor was the PED Rules of Practice and Procedure invalid, prior to the
enactment of the Securities Regulations Code, for failure to provide parties with the right to cross-
examine the witnesses presented against them. Thus, the respondents may be investigated by the
appropriate authority under the proper rules of procedure of the Securities Regulations Code for violations
of Sections 8, 30, and 36 of the Revised Securities Act.82
IN VIEW OF THE FOREGOING, the instant Petition is GRANTED. This Court hereby REVERSES the
assailed Decision of the Court of Appeals promulgated on 20 August 1998 in CA-G.R. SP No. 37036
and LIFTS the permanent injunction issued pursuant thereto. This Court further DECLARES that the
investigation of the respondents for violations of Sections 8, 30 and 36 of the Revised Securities Act may
be undertaken by the proper authorities in accordance with the Securities Regulations Code. No costs.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:

REYNATO S. PUNO
Chief Justice
LEONARDO A. QUISUMBING
Associate Justice
ANTONIO T. CARPIO
Associate Justice
*RENATO C. CORONA
Associate Justice
CONSUELO YNARES-SANTIAGO
Associate Justice
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
CONCHITA CARPIO MORALES
Associate Justice
ADOLFO S. AZCUNA DANTE O. TINGA
Associate Justice Associate Justice
PRESBITERO J. VELASCO, JR. **ANTONIO EDUARDO B. NACHURA
Associate Justice Associate Justice
RUBEN T. REYES TERESITA LEONARDO DE CASTRO
Associate Justice Associate Justice
**ARTURO D. BRION
Associate Justice
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the
above Decision were reached in consultation before the case was assigned to the writer of the opinion of
the Court.
REYNATO S. PUNO
Chief Justice
x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x

EN BANC
G.R. No. 135808 October 6, 2008
SECURITIES AND EXCHANGE COMMISSION, petitioner,
vs.
INTERPORT RESOURCES CORPORATION, MANUEL S. RECTO, RENE S. VILLARICA, PELAGIO
RICALDE, ANTONIO REINA, FRANCISCO ANONUEVO, JOSEPH SY and SANTIAGO TANCHAN,
JR., respondents.
Promulgated:
October 6, 2008
x-----------------------------------------------------------------------------------------x
DISSENTING OPINION
CARPIO, J.:
I dissent because the majority opinion is patently contrary to the express provision of Section 2 of Act
No. 3326.
The majority opinion holds that the administrative investigation by the Securities and Exchange
Commission (SEC) interrupted the running of the prescriptive period for violation of the Securities
Regulation Code (Code). The majority opinion holds:
x x x It should be noted that the SEC started investigative proceedings against the respondents as early
as 1994. This investigation effectively interrupted the prescriptive period.
xxx
x x x Thus, the investigation that was commenced by the SEC in 1995 (sic), soon after they
discovered the questionable acts made by the respondents, effectively interrupted the
prescriptive period. (Emphasis supplied)
This ruling of the majority violates Section 2 of Act No. 3326 entitled An Act to Establish Periods of
Prescription for Violations Penalized by Special Acts and Municipal Ordinances and To Provide When
Prescription Shall Begin To Run. Section 2 provides:
Section 2. Prescription shall begin to run from the day of the commission of the violation of the law, and if
the same be not known at the time, from the discovery thereof and the institution
of judicialproceedings for its investigation and punishment. (Emphasis and underscoring supplied)
In Zaldivia v. Reyes, Jr.,1 the Court ruled that the proceedings referred to in Section 2 of Act No. 3326
are judicial proceedings and not administrative proceedings. The Court held:
x x x This means that the running of the prescriptive period shall be halted on the date the
case is actually filed in court and not on any date before that.
This interpretation is in consonance with the afore-quoted Act No. 3326 which says that the period of
prescription shall be suspended "when proceedings are instituted against the guilty party." The
proceedings referred to in Section 2 thereof are "judicial proceedings," contrary to the
submission of the Solicitor General that they include administrative proceedings. His contention is that we
must not distinguish as the law does not distinguish. As a matter of fact, it does. (Emphasis and
underscoring supplied)
Indeed, Section 2 of Act No. 3326 expressly refers to the "institution of judicial proceedings."
Contrary to the majority opinion's claim that "a preliminary investigation interrupts the prescriptive
period," only the institution of judicial proceedings can interrupt the running of the
prescriptive period. Thus, in the present case, since no criminal case was filed in any court against
respondents since 1994 for violation of the Code, the prescriptive period of twelve years under Section
12 of Act No. 3326 has now expired.
The fact that the Court of Appeals enjoined the SEC from filing any criminal, civil or administrative case
against respondents for violation of the Code is immaterial. The SEC has no jurisdiction to institute judicial
proceedings against respondents for criminal violation of the Code. Even if the Court of Appeals did not
issue the injunction, the SEC could still not have instituted any judicial proceedings against respondents
for criminal violation of the Code. The Code empowers the SEC to conduct only administrative
investigations and to impose fines and other administrative sanctions3 against violators of the
Code. Section 54.2 of the Code states that the "imposition of x x x administrative sanctions shall be
without prejudice to the filing of criminal charges against the individuals responsible for the
violation." Thus, the criminal charges may proceed separately and independently of the
administrative proceedings.
Under Section 53.1 of the Code,4 jurisdiction to institute judicial proceedings against respondents for
criminal violation of the Code lies exclusively with the Department of Justice (DOJ). Section 53.1 of the
Code expressly states that "all criminal complaints for violations of this Code x x x shall be
referred to the Department of Justice for preliminary investigation and prosecution before the
proper court." No court ever enjoined the DOJ to institute judicial proceedings against respondents for
criminal violation of the Code. Nothing prevented the DOJ's National Bureau of Investigation from
investigating the alleged criminal violations of the Code by respondents. Thereafter, the DOJ could have
conducted a preliminary investigation and instituted judicial proceedings against respondents. The DOJ
did not and prescription has now set in.
Accordingly, I vote to DISMISS the petition.
ANTONIO T. CARPIO
Associate Justice
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Promulgated:
October 6, 2008
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CONCURRING OPINION
TINGA, J.:
While I fully concur with the ponencia ably penned by Justice Chico-Nazario, I write separately to highlight
the factual and legal background behind the legal proscription against the blight that is "insider trading."
This case is the farthest yet this Court has explored the matter, and it is heartening that our decision
today affirms the viability for prosecutions against insider trading, an offense that assaults the integrity of
our vital securities market. This case bears special significance, even if it does not dwell on the guilt or
innocence of petitioners who are charged with insider trading, simply because the arguments raised by
them essentially assail the validity of our laws against insider trading. Since we deny certiorari and
debunk the challenge, our ruling will embolden our securities regulators to investigate and prosecute
insider trading cases, thereby ensuring a more stable, mature and investor-friendly stock market.
The securities market, when active and vibrant, is an effective engine of economic growth. It is more able
to channel capital as it tends to favor start-up and venture capital companies. To remain attractive to
investors, however, the stock market should be fair and orderly. All the regulations, all the requirements,
all the procedures and all the people in the industry should strive to achieve this avowed objective.
Manipulative devices and deceptive practices, including insider trading, throw a monkey wrench right into
the heart of the securities industry. When someone trades in the market with unfair advantage in the
form of highly valuable secret inside information, all other participants are defrauded. All of the
mechanisms become worthless. Given enough of stock market scandals coupled with the related loss of
faith in the market, such abuses could presage a severe drain of capital. And investors would eventually
feel more secure with their money invested elsewhere.1
The securities market is imbued with public interest and as such it is regulated. Specifically, the reasons
given for securities regulation are (1) to protect investors, (2) to supply the informational needs of
investors, (3) to ensure that stock prices conform to the fundamental value of the companies traded, (4)
to allow shareholders to gain greater control over their corporate managers, and (5) to foster economic
growth, innovation and access to capital.2
In checking securities fraud, regulation of the stock market assumes quite a few forms, the most common
being disclosure regulation and financial activity regulation.
Disclosure regulation requires issuers of securities to make public a large amount of financial information
to actual and potential investors. The standard justification for disclosure rules is that the managers of
the issuing firm have more information about the financial health and future of the firm than investors
who own or are considering the purchase of the firm's securities. Financial activity regulation consists of
rules about traders of securities and trading on or off the stock exchange. A prime example of this form of
regulation is the set of rules against trading by insiders.3
I.
In its barest essence, insider trading involves the trading of securities based on knowledge of material
information not disclosed to the public at the time.4 Such activity is generally prohibited in many
jurisdictions, including our own, though the particular scope and definition of "insider trading" depends on
the legislation or case law of each jurisdiction. In the United States, the rule has been stated as "that
anyone who, for trading for his own account in the securities of a corporation has ‘access, directly or
indirectly, to information intended to be available only for a corporate purpose and not for the personal
benefit of anyone' may not take ‘advantage of such information knowing it is unavailable to those with
whom he is dealing', i.e., the investing public."5
It would be useful to examine the historical evolution of the rule.
In the United States, legal abhorrence of insider trading preceded the modern securities market. Prior to
1900, it was treatise law that the doctrine that officers and directors of corporations are trustees of the
stockholders does not extend to their private dealings with stockholders or others, though in such
dealings they take advantage of knowledge gained through their official position.6 Under that doctrine,
the misrepresentation or fraudulent concealment of a material fact by such corporate officers or directors
gave rise to liability based on general fraud as understood in common law, yet such liability would arise
only if the defendant actively prevented the plaintiff from looking into or inquiring upon the affairs or
condition of the corporation and its prospects for dividends.7 The rule, as understood then, did not
encompass a positive duty for public disclosure of any material information pertinent to a corporation
and/or its securities.
The first paradigm shift came with a decision in 1903 of the Georgia Supreme Court in Oliver v.
Oliver,8 which pronounced that the shareholder had a right to disclosure, and the corporation a
corresponding duty to disclose such material information, based on the principle that "[w]here the
director obtains the information giving added value to the stock by virtue of his official position, he holds
the information in trust for the benefit of [the shareholders]."9 Subsequent state jurisprudence affirmed
this fiduciary obligation to disclose material nonpublic information to shareholders before trading with
them, otherwise known as the "minority" or the "duty to disclose" rule. However, the U.S. Supreme Court
in 1909 expressed preference for a different rule in Strong v. Repide,10acknowledging that the corporate
directors generally owed no duty to disclose material facts when trading with shareholders, unless there
were "special circumstances" that gave rise to such duty. The "special circumstances," as identified
in Strong, were the concealment of identity by the defendant, and the failure to disclose significant facts
having a dramatic impact on the stock price.
Both the "special circumstances" and "duty to disclose" rules gained adherents in the next several years.
In the meantime, the 1920s saw the unprecedented popularity of the stock market with the general
public, which was widely taken advantage of by corporations and brokers through unscrupulous practices.
The American stock market collapse of October 1929, which helped trigger the worldwide Great
Depression, left fully half of the $25 million worth of securities floated during the post-First World War
period as worthless, to the injury of thousands of individuals who had invested their life savings in those
securities.11 The consequent wellspring of concern over the welfare of the investors animated the
passage of the first U.S. federal securities laws, such as the Securities Exchange Act of 1934 which
declared that "transactions in securities as commonly conducted upon securities exchanges and over-the-
counter markets are affected with a national public interest which makes it necessary to provide for
regulation and control of such transactions."12
Section 10(b) of the Securities Exchange Act of 1934 provided that:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of
interstate commerce or of the mails, or of any facility of the national securities exchange ─ x x x
(b) To use or employ, in connection with the purchase or sale of any security registered on a national
securities exchange or any security not so registered, any manipulative or deceptive device or
contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary
or appropriate in the public interest or for the protection of investors.13
It is this provision which stands as the core statutory authority prohibiting insider trading under U.S.
federal law.14Yet the provision itself does not utilize the term "insider trading," and indeed doubts have
been expressed whether it was intended at all by the U.S. Congress to impose a ban on insider trading
through the 1934 Securities Exchange Act.15 At the same time, the provision did grant to the U.S.
Securities and Exchange Commission (U.S. SEC) the authority to promulgate rules and regulations "as
necessary or appropriate in the public interest or for the protection of investors." This power was
exercised by the U.S. SEC in 1942, when it enacted Rule 10b-5, which has been described as "the
foundation on which the modern insider trading prohibition rests."16 The Rule reads:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of
interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order
to make the statements made, in the light of the circumstances under which they were made, not
misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or
deceipt upon any person,
in connection with the purchase or sale of any security.17
Again, the rule by itself did not provide for an explicit prohibition on insider trading practices, and
commentators have expressed doubts whether the U.S. SEC in 1942 had indeed contemplated that the
rule work to such effect.18 Yet undoubtedly the Rule created a powerful antifraud weapon,19 and it would
finally be applied by the U.S. SEC as a prohibition against insider trading in the 1961 case of In re Cady,
Roberts & Co.20
The facts of that case hew closely to our traditional understanding of insider trading. A corporate director
of Curtiss-Wright Corporation had told one of his business partners, Gimpel, that the board of directors
had decided to reduce the company's quarterly dividend. Armed with such information even before the
news was announced, Gimpel sold several thousand shares in the corporation's stock held in customer
accounts over which he had discretionary trading authority. When the news of the reduced dividend was
publicly disclosed, the corporation's share prices predictably dropped, and the owners of the sold shares
were able to avoid injury. The U.S. SEC ruled that Gimpel had violated Rule 10b-5, even though he was
not an insider privy to the confidential material information, but merely a "tippee" of that insider. In doing
so, the U.S. SEC formulated the "disclose or abstain" rule, requiring that an insider in possession of
material nonpublic information must disclose such information before trading or, if disclosure is
impossible or improper, abstain from trading.21
Not long after, the American federal courts adopted the principles pronounced by the U.S. SEC
in Cady, Roberts, and the rule
evolved that insider trading was deemed a form of securities fraud within the U.S. SEC's regulatory
jurisdiction.22Subsequently, jurisprudential limitations were imposed by the U.S. Supreme Court, ruling
for example that an insider bears a duty to disclose on the basis of a fiduciary relationship of trust and
confidence as between him and the shareholders;23 or that a tippee is liable for insider trading only if the
tipper breached a fiduciary relationship by disclosing information to the tippee, who knew or had reason
to know of the breach of duty.24 In response to these decisions, the U.S. SEC promulgated Rule 14e-3,
which specifically prohibited insiders of the bidder and the target company from divulging confidential
information about a tender offer to persons that are likely to violate the rule by trading on the basis of
that information.25
In the United Kingdom, insider trading is considered as a type of "market abuse" assuming the form of
behavior "based on information which is not generally available to those using the market but which, if
available to a regular user of the market, would or would be likely to be regarded by him as relevant
when deciding the terms on which transactions in investments of the kind in question should be
effected."26
The Philippines has adopted statutory regulations in the trading of securities, tracing in fact as far back as
1936, or just two years after the enactment of the US Securities Exchange Act of 1934. The then National
Assembly of the Philippines enacted in 1936 Commonwealth Act No. 83, also known as the Securities
Act,27 designed to regulate the sale of securities and to create a Securities and Exchange Commission
(SEC) for that purpose. Notably, Com. Act No. 83 did not contain any explicit provision prohibiting insider
trading in precise terms, even as it contained specific provisions prohibiting the manipulation of stock
prices28 or the employment of manipulative and deceptive devices.29 This silence is unsurprising,
considering that American federal law had similarly failed to enact so specific a prohibition and that Rule
10b-5 of the U.S. SEC had not yet come into existence then.
However, in January of 1973, the SEC would issue a set of rules,30 which required specific insiders to
"make a resonably full, fair and accurate disclosure of every material fact relating or affecting it which is
of interest to investors."31 It was explained therein that a fact is material if it "induces or tends to induce
or otherwise affect the sale or purchase of the securities of the issuing corporation, such as an acquisition
of mining claims, patent or formula, real estate, or similar capital assets; discovery of mineral ores;
declaration of dividends; executing a contract of merger or consolidation; rights offering; and any other
important event or happening."32
The enactment of the Revised Securities Act in 1980 (Batas Pambansa Blg. 178, as amended) provided
for the first time a specific statutory prohibition in Philippine law against insider trading. This was
embodied in Section 30 of the law, which provides:
Sec. 30. Insider's duty to disclose when trading - (a) It shall be unlawful for an insider to sell or buy a
security of the issuer, if he knows a fact of special signifinace whith respest to the issuer or the security
that is not generally available, unless (1) the insider proves that the fact is generally available or (2) if the
other party to the transaction (or his agent ) is identified, (a) the insider proves that the other party
knows it, or (b) that other party in fact knows it from the insider or otherwise.
(b) "Insider" means (1) the issuer, (2) a director or officer of, or a person controlling, controlled by, or
under common control with, the issuer, (3) a person whose relationship or former relationship to the
issuer gives or gave him access to a fact of special significance about the issuer or the security that is not
generally available, or (4) a person who learns such a fact from any of the foregoing insiders as defined in
this subsection, with knowledge that the person from whom he learns the fact is such an insider.
(c) A fact is "of special significance" if (a) in addition to being material it would be likely, on being made
generally available, to affect the market price of a security to a significant extent, or (b) a reasonable
person would consider it especially important under the circumstances in determining his course of action
in the light of such factors as the degree of its specificity, the extent of its difference from information
generally available previously, and its nature and reliability.
(d) This section shall apply to an insider as defined in subsection (b) (3) hereof only to the extent that he
knows of a fact of special significance by virtue of his being an insider.
Contrary to the claims of respondents, such terms as "material fact," "reasonable person," "nature and
reliability" and "generally available" as utilized in Section 30 do not suffer from the vice of vagueness and
do not necessitate an administrative rule to supply definitions of the terms either. For example, as
the ponente points out, the 1973 Rules already provided for a definition of a "material fact," a definition
that was actually incorporated in Section 30.
Yet there is an underlying dangerous implication to respondents' arguments which makes the Court's
rejection thereof even more laudable. The ability of the SEC to effectively regulate the securities market
depends on the breadth of its discretion to undertake regulatory activities. The intractable adherents
of laissez-faire absolutism may decry the fact that there exists an SEC in the first place, yet it is that body
which assures the protection of interests of ordinary stockholders and investors in the capital markets,
interests which may be overlooked by the issuers of securities and their corporate overseers whose own
interests may not necessarily align with that of the investing public. A "free market" that is not a "fair
market" is not truly free, even if left unshackled by the State as it would in fact be shackled by the
uninhibited greed of only the largest players.
Respondents essentially contend that the SEC is precluded from enforcing its statutory powers unless it
first translates the statute into a more comprehensive set of rules. Without denigrating the SEC's
delegated rule-making power, each provision of the law already constitutes an executable command from
the legislature. Any refusal on the part of the SEC to enforce the statute on the premise that it had yet to
undergo the gauntlet of administrative interpretation is derelict to that body's legal mandate. By no
means is the Congress impervious to the concern that certain statutory provisions are best enforced only
after an administrative regulation implementing the same is promulgated. In such cases, the legislature is
solicitous enough to specifically condition the enforcement of the statute upon the promulgation of the
relevant administrative rules. Yet in cases where the legislature does not see fit to impose such a
conditionality, the body tasked with enforcing the law has no choice but to do so. Any quibbling as to the
precise meaning of the statutory language would be duly resolved through the exercise of judicial review.
It bears notice that unlike the American experience where the U.S. Congress has not seen fit to
specifically legislate prohibitions on insider trading, relying instead on the discretion of the U.S. SEC to
penalize such acts, our own legislature has proven to be more pro-active in that regard, legislating such
prohibition, not once, but twice. The Revised Securities Act was later superseded by the Securities
Regulation Code of 2000 (Rep. Act No. 8799), a law which is admittedly more precise and ambitious in its
regulation of such activity. The passage of that law is praiseworthy insofar as it strengthens the State's
commitment to combat insider trading. And the promulgation of this decision confirms that the judiciary
will not hesitate in performing its part in seeing to it that our securities laws are properly implemented
and enforced.
III
I also wish to share my thoughts on the issue of principles.
The issue boils down to the determination of whether the investigation conducted by the SEC pursuant to
Section 4533 of the Revised Securities Act in 1994 tolled the running of the period of prescription. I
submit it did.
Firstly, this Court, in ruling in Baviera v. Paglinawan34 that the Department of Justice cannot conduct a
preliminary investigation for the determination of probable cause for offenses under the Revised
Securities Code, without an investigation first had by the SEC, essentially underscored that the exercise is
a two-stage process. The procedure is similar to the two-phase preliminary investigation prior to the
prosecution of a criminal case in court under the old rules.35 The venerable J.B.L. Reyes in People v.
Olarte36 finally settled a long standing jurisprudential conflict at the time by holding that the filing of
the complaint in the Municipal Court, even if it be merely for purposes of preliminary
examination or investigation, should, and does, interrupt the period of prescription of the
criminal responsibility, even if the court where the complaint or information is filed cannot
try the case on its merits. The court gave three reasons in support of its decision, thus:
. . . Several reasons buttress this conclusion: first the text of Article 91 of the Revised Penal Code, in
declaring that the period of prescription "shall be interrupted by the filing of the complaint or information"
without distinguishing whether the complaint is filed in the court for preliminary examination or
investigation merely, or for action on the merits. Second, even if the court where the complaint or
information is filed may only proceed to investigate the case its actuations already represent the initial
step of the proceedings against the offender. Third, it is unjust to deprive the injured party of the right to
obtain vindication on account of delays that are not under his control. All that the victim of the offense
may do not on his part to initiate the prosecution is to file the requisite complaint.37
The same reasons which moved the Court in 1967 to declare that the mere filing of the complaint,
whether for purposes of preliminary examination or preliminary investigation should interrupt the
prescription of the criminal action inspire the Court's ruling in this case.
It should be emphasized that Sec. 45 of the Revised Securities Act invests the SEC with the power to
"make such investigations as it deems necessary to determine whether any person has violated or is
about to violate any provision of this Act or any rule or regulation thereunder, and may require or permit
any person to file with it a statement in writing, under oath or otherwise, as the Commission shall
determine, as to all facts and circumstances concerning the matter to be investigated" and to refer
criminal complaints for violations of the Act to the Department of Justice for preliminary investigation and
prosecution before the proper court.
The SEC's investigatory powers are obviously akin to the preliminary examination stage mentioned in
People v. Olarte. The SEC's investigation and determination that there was indeed a violation of the
provisions of the Revised Securities Act would set the stage for any further proceedings, such as
preliminary investigation, that may be conducted by the DOJ after the case is referred to it by the SEC.
Secondly, Sec. 2 of Act No. 332638 provides in part:
Prescription shall begin to run from the day of the commission of the violation of the law, and if the same
be not known at the time, from the discovery thereof and the institution of judicial proceedings for its
investigation and punishment. The prescription shall be interrupted when proceedings are
instituted against the guilty person, and shall begin to run again if the proceedings are dismissed for
reasons not constituting jeopardy. (Emphasis supplied)
Act No. 3326 was approved on 4 December 1926, at a time that the function of conducting the
preliminary investigation of criminal offenses was vested in the justices of the peace. The prevailing rule
at the time, embodied in the early case of U.S. v. Lazada39 and later affirmed in People v. Joson,40 is that
the prescription of the offense is halted once the complaint is filed with the justice of the peace for
preliminary investigation inasmuch as the filing of the complaint signifies the institution of criminal
proceedings against the accused.41 People v. Parao42—a case which affirmed the power of the then
municipal president to conduct preliminary investigation in the absence of the justice of the peace and of
the auxiliary justice of the peace when the same could not be deferred without prejudice to the interest of
justice—established the correlative rule that the first step taken in the investigation or examination of
offenses partakes the nature of a judicial proceedings which suspends the prescription of the
offense.43 But although the second Olarte44 case made an affirmative ruling that the preliminary
investigation is not part of the action proper, the Court therein nevertheless declared that such
investigation is quasi-judicial in nature and that as such, the mere filing of the complaint with the justice
of the peace should stall the exhaustion of the prescriptive period of the offense charged.
While it may be observed that the term "judicial proceedings" in Sec. 2 of Act No. 3326 appears before
"investigation and punishment" in the old law, with the subsequent change in set-up whereby the
investigation of the charge for purposes of prosecution has become the exclusive function of the
executive branch, the term "proceedings" should now be understood either executive or judicial in
character: executive when it involves the investigation phase and judicial when it refers to the trial and
judgment stage. With this clarification, any kind of investigative proceeding instituted against the guilty
person which may ultimately lead to his prosecution as provided by law shall suffice to toll prescription.
Thus, in the case at bar, the initiation of investigative proceedings against respondents, halted only by
the injunctive orders issued by the Court of Appeals upon their application no less, should and did
interrupt the prescriptive period of the criminal action.
DANTE O. TINGA
Associate Justice
Footnotes
* On Official leave.
** No part.
1 Penned by Associate Justice Emeterio C. Cui with Associate Justices Angelina Sandoval-Gutierrez and
Conrado M. Vasquez, Jr., concurring. Rollo, pp. 31-38.
2 GEHI is a subsidiary wholly owned by GHB. CA rollo, p. 51.
3 Id. at 46-49.
4 Id.
5 Id. at 5-6.
6 Rollo, pp. 9-10.
7 CA rollo, p. 6; Rules Requiring Disclosure of Material Facts by Corporations Whose Securities Are Listed
in Any Stock Exchange or Registered/Licensed Under the Securities Act, issued by the Securities and
Exchange Commission on 8 February 1973; see rollo, p. 65.
8 Rollo, p. 10.
9 SEC. 8. The Prosecution and Enforcement Department shall have, subject to the Commission's control
and supervision, the exclusive authority to investigate, on complaint or motu proprio, any act or omission
of the Board of Directors/Trustees of corporations, or of partnerships, or of other associations, or of their
stockholders, officers or partners, including any fraudulent devices, schemes or representations, in
violation of any law or rules and regulations administered and enforced by the Commission; to file and
prosecute in accordance with law and rules and regulations issued by the Commission and in appropriate
cases, the corresponding criminal or civil case before the Commission or the proper court or body upon
prima facie finding of violation of any laws or rules and regulations administered and enforced by the
Commission; and to perform such other powers and functions as may be provided by law or duly
delegated to it by the Commission.
10 CA rollo, pp. 68-94.
11 Id. at 95-107.
12 Id. at 39-43.
13 Id. at 152-162.
14 Id. at 44.
15 Id. at 1- 37.
16 CA rollo, pp. 214-230.
17 Id at .237-238.
18 Id.at 269-270.
19 Penned by Associate Justice Emeterio C. Cui with Associate Justices Angelina Sandoval-Gutierrez and
Conrado M. Vasquez, Jr., concurring. Rollo, pp. 31-38.
20 Id. at 35-36.
21 Id. at 36.
22 Id. at 37.
23 Id. at 40-41.
24 Id. at 14.
25 The Securities Investigation and Clearing Department (SICD) Rules of Procedure on Administrative
Actions/Proceedings took effect on 29 December 1996, after the violations allegedly took place.
26 118 U.S. 356.
27 Secretary of the Department of Transportation and Communications v. Mabalot, 428 Phil. 154, 164
(2002); Larin v. Executive Secretary, 345 Phil. 962, 979 (1997).
28 68 Phil. 328, 348 (1939).
29 G.R. No. 100883, 2 December 1991, 204 SCRA 516, 523.
30 Geukeko v. Araneta, 102 Phil. 706, 712-713 (1957).
31 Calalang v. Williams, 70 Phil. 726, 733 (1940).
32 Del Mar v. The Philippine Veterans Administration, 151-A Phil. 792, 802 (1973).
33 Supra note 23.
34 In the Matter of Cady, Roberts & Co., 40 S.E.C. 907 (1961).
35 Id. citing H.R. Rep. No. 1383, 73rd Cong., 2d Sess. 13 (1934); S. Rep. No.792, 73rd Cong., 2d Sess. 9
(1934). A significant purpose of the Exchange Act was to eliminate the idea that the use of inside
information for personal advantage was a normal emolument of corporate office.
36 In the Matter of Investors Management Co., Inc., 44 SEC 633, 29 July 1971; Securities and Exchange
Commission v. Texas Gulf Sulfur Co., 401 F. 2d 833, 13 August 1968.
37 Rollo, p. 459.
38 Negligence is defined as the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent and reasonable man would not do. (Emphasis provided.) McKee v.
Intermediate Appellate Court, G.R. Nos. 68102-03, 16 July 1992, 211 SCRA 517, 539, citing Layugan v.
Intermediate Appellate Court, G.R. No. L-73998, 14 November 1988, 167 SCRA 363, 373.
39 Dela Cruz v. Intermediate Appellate Court, G.R. No. L-72981, 29 January 1988, 157 SCRA 660, 671 and
Balatbat v. Court of Appeals, 329 Phil. 858, 874 (1996).
40 Webb v. Hon. de Leon, 317 Phil. 758, 779 (1995).
41 Id. at 780.
42 48 L ed 2d 757, 766 (1976).
43 Supra note 33.
44 99 L ed 2d 194, 211 (1988).
45 Securities and Exchange Commission v. Texas Gulf Sulphur Co., 401 F.2d 833, 849 (1968).
46 Basic v. Levinson, supra note 41 at 211.
47 La Bugal-B'Laan Tribal Association, Inc. v. Ramos, G.R. No. 127882, 1 December 2004, 445 SCRA 1,
155-156, citing Black's Law Dictionary, 5th edition.
48 Gonzales v. Hon. Narvasa, 392 Phil. 518, 528 (2000), citing Sanidad v. Commission on Elections, G.R.
No. L-44640, 12 October 1976, 73 SCRA 333, 358.
49 Supra note 33.
50 Securities and Exchange Commission v. Capital Gains Research Bureau, Inc., 11 L ed 2d 237, 247
(1963).
51 346 Phil. 321, 362 (1997).
52 Balbuna v. Hon. Secretary of Education, 110 Phil. 150, 154 (1960).
53 People v. Rosenthal, 68 Phil. 328, 342 (1939).
54 Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 702 (1919).
55 Sec. 8. Procedure for registration. — (a) All securities required to be registered under subsection (a) of
Section four of this Act shall be registered through the filing by the issuer or by any dealer or underwriter
interested in the sale thereof, in the office of the Commission, of a sworn registration statement with
respect to such securities, containing or having attached thereto, the following:
(1) Name of issuer and, if incorporated, place of incorporation.
(2) The location of the issuer's principal business office, and if such issuer is a non-resident or its place of
office is outside of the Philippines, the name and address of its agent in the Philippines authorized to
receive notice.
(3) The names and addresses of the directors or persons performing similar functions, and the chief
executive, financial and accounting officers, chosen or to be chosen, if the issuer be a corporation,
association, trust, or other entity; of all the partners, if the issuer be a partnership; and of the issuer, if
the issuer be an individual; and of the promoters in the case of a business to be formed.
(4) The names and addresses of the underwriters.
(5) The general character of the business actually transacted or to be transacted by, and the organization
and financial structure of, the issuer including identities of all companies controlling, controlled by or
commonly controlled with the issuer.
(6) The names and addresses of all persons, if any, owning of record or beneficially, if known, more than
ten (10%) per centum in the aggregate of the outstanding stock of the issuer as of a date within twenty
days prior to the filing of the registration statement.
(7) The amount of securities of the issuer held by any person specified in subparagraphs (3), (4), and (6)
of this subsection, as of a date within twenty days prior to the filing of the registration statement, and, if
possible, as of one year prior thereto, and the amount of the securities, for which the registration
statement is filed, to which such persons have indicated their intention to subscribe.
(8) A statement of the capitalization of the issuer and of all companies controlling, controlled by or
commonly controlled with the issuer, including the authorized and outstanding amounts of its capital
stock and the proportion thereof paid up; the number and classes of shares in which such capital stock is
divided; par value thereof, or if it has no par value, the stated or assigned value thereof; a description of
the respective voting rights, preferences, conversion and exchange rights, rights to dividends, profits, or
capital of each class, with respect to each other class, including the retirement and liquidation rights or
values thereof.
(9) A copy of the security for the registration of which application is made.
(10) A copy of any circular, prospectus, advertisement, letter, or communication to be used for the public
offering of the security.
(11) A statement of the securities, if any, covered by options outstanding or to be created in connection
with the security to be offered, together with the names and addresses of all persons, if any, to be
allotted more than ten (10%) per centum in the aggregate of such options.
(12) The amount of capital stock of each class issued or included in the shares of stock to be offered.
(13) The amount of the funded indebtedness outstanding and to be created by the security to be offered,
with a brief statement of the date, maturity, and character of such debt, rate of interest, character or
amortization provisions, other terms and conditions thereof and the security, if any, therefor. If
substitution of any security is permissible, a summarized statement of the conditions under which such
substitution is permitted. If substitution is permissible without notice, a specific statement to that effect.
(14) The specific purposes in detail and the approximate amounts to be devoted to such purposes, so far
as determinable, for which the security to be offered is to supply funds, and if the funds are to be raised
in part from other sources, the amounts and the sources thereof.
(15) The remuneration, paid or estimated to be paid, by the issuer or its predecessor, directly or
indirectly, during the past year and the ensuing year to (a) the directors or persons performing similar
functions, and (b) its officers and other persons, naming them whenever such remuneration exceeded
sixty thousand (P60,000.00) pesos during any such year.
(16) The amount of issue of the security to be offered.
(17) The estimated net proceeds to be derived from the security to be offered.
(18) The price at which the security is proposed to be offered to the public or the method by which such
price is computed and any variation therefrom at which any portion of such security is proposed to be
offered to persons or classes of persons, other than the underwriters, naming them or specifying the
class. A variation in price may be proposed prior to the date of the public offering of the security by filing
an amended registration statement.
(19) All commissions or discounts paid or to be paid, directly or indirectly, by the issuer to the
underwriters in respect of the sale of the security to be offered. Commissions shall include all cash,
securities, contracts, or anything of value, paid, to be set aside, or disposed of, or understanding with or
for the benefit of any other person in which any underwriter is interested, made in connection with the
sale of such security. A commission paid or to be paid in connection with the sale of such security by a
person in which the issuer has an interest or which is controlled by, or under common control with, the
issuer shall be deemed to have been paid by the issuer. Where any such commission is paid, the amount
of such commission paid to each underwriter shall be stated.
(20) The amount or estimated amounts, itemized in reasonable detail, of expenses, other than
commission specified in the next preceding paragraph, incurred or to be incurred by or for the account of
the issuer in connection with the sale of the security to be offered or properly chargeable thereto,
including legal, engineering, certification, authentication, and other charges.
(21) The net proceeds derived from any security sold by the issuer during the two years preceding the
filing of the registration statement, the price at which such security was offered to the public, and the
names of the principal underwriters of such security.
(22) Any amount paid within two years preceding the filing of the registration statement or intended to be
paid to any promoter and the consideration for any such payment.
(23) The names and addresses of the vendors and the purchase price of any property or goodwill,
acquired or to be acquired, not in the ordinary course of business, which is to be defrayed in whole or in
part from the proceeds of the security to be offered, the amount of any commission payable to any
person in connection with such acquisition, and the name or names of such person or persons, together
with any expense incurred or to be incurred in connection with such acquisition, including the cost of
borrowing money to finance such acquisition.
(24) Full particulars of the nature and extent of the interest, if any, of every director, principal executive
officer, and of every stockholder holding more than ten (10%) per centum in the aggregate of the stock of
the issuer, in any property acquired, not in the ordinary course of business of the issuer, within two years
preceding the filing of the registration statement or proposed to be acquired at such date.
(25) The names and addresses of independent counsel who have passed on the legality of the issue.
(26) Dates of and parties to, and the general effect concisely stated of every material contract made, not
in the ordinary course of business, which contract is to be executed in whole or in part at or after the
filing of the registration statement or which has been executed not more than two years before such
filing. Any management contract or contract providing for special bonuses or profit-sharing arrangements,
and every material patent or contract for a material patent right, and every contract by or with a public
utility company or an affiliate thereof, providing for the giving or receiving of technical or financial advice
or service shall be deemed a material contract.
Any contract, whether or not made in the ordinary course of business with any stockholder, whether a
natural or juridical person, owning more than ten (10%) per centum of the shares of the issuer shall be
deemed a material contract for the purpose of this Act.
(27) A balance sheet as of a date not more than ninety days prior to the date of the filing of the
registration statement showing all of the assets of the issuer, the nature and cost thereof, whenever
determinable with intangible items segregated, including any loan to or from any officer, director,
stockholder or person directly or indirectly controlling or controlled by the issuer, or person under direct
or indirect common control with the issuer. In the event any such assets consist of shares of stock in
other companies, the balance sheet and profit and loss statements of such companies for the past three
years shall likewise be enclosed. All the liabilities of the issuer, including surplus of the issuer, showing
how and from what sources such surplus was created, all as of a date not more than ninety days prior to
the filing of the registration statement. If such statement is not certified by an independent certified
public accountant, in addition to the balance sheet required to be submitted under this schedule, a similar
detailed balance sheet of the assets and liabilities of the issuer, certified by an independent certified
public accountant, of a date not more than one year prior to the filing of the registration statement, shall
be submitted.
(28) A profit and loss statement of the issuer showing earnings and income, the nature and source
thereof, and the expenses and fixed charges in such detail and such form as the Commission shall
prescribe for the latest fiscal year for which such statement is available and for the two preceding fiscal
years, year by year, or, if such issuer has been in actual business for less than three years, then for such
time as the issuer has been in actual business, year by year. If the date of the filing of the registration
statement is more than six months after the close of the last fiscal year, a statement from such closing
date to the latest practicable date. Such statement shall show what the practice of the issuer has been
during the three years or lesser period as to the character of the charges, dividends or other distributions
made against its various surplus accounts, and as to depreciation, depletion, and maintenance charges,
and if stock dividends or avails from the sale of rights have been credited to income, they shall be shown
separately with statement of the basis upon which credit is computed. Such statement shall also
differentiate between recurring and nonrecurring income and between any investment and operating
income. Such statement shall be certified by an independent certified public accountant.
(29) Any liabilities of the issuer to companies controlling or controlled by the issuer shall be disclosed in
full detail as to use of the proceeds thereof, the maturity and repayment schedule, nature of security
thereof, the rate of interest and other terms and conditions thereof. If the proceeds, or any part of the
proceeds, of the security to be issued is to be applied directly or indirectly to the purchase of any
business, a profit and loss statement of such business, certified by an independent certified public
accountant, meeting the requirements of subparagraph (28) of this subsection, for the three preceding
fiscal years, together with a balance sheet, similarly certified, of such business, meeting the requirements
of subparagraph (27) hereof of a date not more than ninety days prior to the filing of the registration
statement or at the date such business was acquired by the issuer more than ninety days prior to the
filing of the registration statement.
(30) A copy of any agreement or agreements or, if identical agreements are used, the forms thereof
made with any underwriter, including all contracts and agreements referred to in subparagraph (19)
hereof.
(31) A copy of the opinion or opinions of independent counsel in respect to the legality of the issue.
(32) A copy of all material contracts referred to in subparagraph (26) hereof, but no disclosure shall be
required by the Commission of any portion of any such contract if the disclosure of such portion would
impair the value of the contract and would not be necessary for the protection of the investors.
(33) A detailed statement showing the items of cash, property, services, patents, goodwill, and any other
consideration for which securities have been or are to be issued in payment.
(34) The amount of cash to be paid as promotion fees, or of capital stock which is to be set aside and
disposed of as promotion stock, and a statement of all stock issued from time to time as promotion stock.
(35) In connection with securities issued by a person engaged in the business of developing, exploiting or
operating mineral claims, a sworn statement of a mining engineer stating the ore possibilities of the mine
and such other information in connection therewith as will show the quality of the ore in such claims, and
the unit cost of extracting it.
(36) Unless previously filed and registered with the Commission and brought up to date:
(a) A copy of its articles of incorporation with all amendments thereof and its existing by-laws or
instruments corresponding thereto, whatever the name, if the issuer be a corporation;
(b) A copy of all instruments by which the trust is created or declared and in which it is accepted and
acknowledged, if the issuer is a trust;
(c) A copy of its articles of partnership or association and all the papers pertaining to its organization, if
the issuer is a partnership, unincorporated association, joint-stock company, syndicate, or any other form
of organization.
(37) A copy of the underlying agreements or indentures affecting any stock, bonds, or debentures offered
or to be offered by the issuer and outstanding on the part of companies controlling or controlled by the
issuer.
(38) Where the issuer or registrant is not formed, organized and existing under the laws of the Philippines
or is not domiciled in the Philippines, a written power of attorney, certified and authenticated in
accordance with law, designating some individual person, who must be a resident of the Philippines, on
whom any summons and other legal processes may be served in all actions or other legal proceedings
against him, and consenting that service upon such resident agent shall be admitted as valid and proper
service upon the issuer or registrant, and if at any time that service cannot be made upon such resident
agent, service shall be made upon the Commission.
Additional information or documents, including written information from an expert, may be required, or
anyone of the above requirements may be dispensed with, depending on the necessity thereof for the
protection of the public investors, or their applicability to the class of securities sought to be registered,
as the case may be.
The registration statement shall be signed by the issuer, its principal executive officer, its principal
operating officer, its principal financial officer, its comptroller or principal accounting officer or persons
performing similar functions. The written consent of the expert named as having certified any part of the
registration statement or any document used in connection therewith shall also be filed.
Upon filing of the registration statement, the registrant shall pay to the Commission a fee of not more
than one-tenth of one per centum of the maximum aggregate price at which such securities are proposed
to be offered and the fact of such filing shall be immediately published by the Commission, at the
expense of the registrant, in two newspapers of general circulation in the Philippines, once a week for two
consecutive weeks, reciting that a registration statement for the sale of such security has been filed with
it, and that the aforesaid registration statement, as well as the papers attached thereto, are open to
inspection during business hours, by interested parties, and copies thereof, photostatic or otherwise, shall
be furnished to every applicant at such reasonable charge as the Commission may prescribe.
Any interested party may file an opposition to the registration within ten days from the publication.
If after the completion of the aforesaid publication, the Commission finds that the registration statement
together with all the other papers and documents attached thereto, is on its face complete and that the
requirements and conditions for the protection of the investors have been complied with, and unless
there are grounds to reject a registration statement as herein provided, it shall as soon as feasible enter
an order making the registration effective, and issue to the registrant a permit reciting that such person,
its brokers or agents, are entitled to offer the securities named in said certificate, with such terms and
conditions as it may impose in the public interest and for the protection of investors.
The Commission shall, however, advise the public that the issuance of such permit shall not be deemed a
finding by the Commission that the registration statement is true and accurate on its face or that it does
not contain an untrue statement of fact or omit to state a material fact, or be held to mean that the
Commission has in any way given approval to the security included in the registration statement. Every
permit and any other statement, printed or otherwise, for public consumption, that makes reference to
such permit shall clearly and distinctively state that the issuance thereof is only permissive and does not
constitute a recommendation or endorsement of the securities permitted to be offered for sale. It shall be
unlawful to make, or cause to be made, to any prospective purchaser any representation contrary to the
foregoing.
Notwithstanding the foregoing, the Commission, for the guidance of investors, may require issuers to
submit their securities to rating by securities rating agencies accredited by the Commission, to provide all
information necessary therefor, and to report such rating in the registration statement and prospectus, if
any, offering the securities.
If any change occurs in the facts set forth in the registration statement, it shall be the obligation of the
issuer, dealer or underwriter who filed the original registration statement to submit to the Commission for
approval an amended registration statement.
The Commission, in its order, may fix the maximum amount of commission or other form of remuneration
to be paid in cash or otherwise, directly or indirectly, for or in connection with the sale or offering for sale
of such securities in the Philippines and the maximum amount of compensation which the issuer shall pay
for mining claims and mineral rights for which provision is made by the issuer for payment in cash or
securities. The amount of compensation which shall be paid the owner or holder of such mining claims or
mineral rights shall be a fair valuation thereof, as may be fixed by the Commission, after consultation
with the Bureau of Mines, and after receiving such technical information as the issuer or dealer or the
owner or owners of such claims may care to submit in the premises.
A copy of the order of the Commission making the registration effective, together with the registration
statement, shall be transmitted to the exchange wherein the security may be listed and shall be available
for inspection by any interested party during reasonable hours on any business day.
The order shall likewise be published, at the expense of the registrant, once in a newspaper of general
circulation within ten days from its promulgation.
The same rules shall apply to any amendment to the registration statement.
56 Section 8. Order of Investigation - The parties shall be afforded an opportunity to be present but
without the right to examine or cross-examine. If the parties so desire, they may submit questions to the
Hearing Officer which the latter may propound to the parties or witnesses concerned.
57 G.R. No. 96681, 2 December 1991, 204 SCRA 483, 495-496.
58 Gonzales v. Hon. Narvasa, supra note 45 at 528, citing Sanidad v. Commission on Elections, supra note
45 at 358; and Valmonte v. Philippine Charity Sweepstakes, G.R. No. 78716, 22 September 1987,
Resolution.
59 Rabago v. National Labor Relations Commission, G.R. No. 82868, 5 August 1991, 200 SCRA 158, 164-
165; Rase v. National Labor Relations Commission, G.R. No. 110637, 7 October 1994, 237 SCRA 523, 532.
60 Philippine Airlines, Inc. v. Tongson, 459 Phil. 742, 753 (2003).
61 Rase v. National Labor Relations Commission, supra note 56 at 534.
62 G.R. No. L-75501, 15 September 1987, 154 SCRA 49, 54.
63 Philippine Airlines, Inc. v. Tongson, supra note 57 at 753.
64 416 Phil. 722, 746-747 (2001).
65 SEC. 8. Requirement of Registration of Securities.
8.1. Securities shall not be sold or offered for sale or distribution within the Philippines, without a
registration statement duly filed with and approved by the Commission. Prior to such sale, information on
the securities, in such form and with such substance as the Commission may prescribe, shall be made
available to each prospective purchaser.
8.2. The Commission may conditionally approve the registration statement under such terms as it may
deem necessary.
8.3. The Commission may specify the terms and conditions under which any written communication,
including any summary prospectus, shall be deemed not to constitute an offer for sale under this Section.
8.4. A record of the registration of securities shall be kept in a Register of Securities in which shall be
recorded orders entered by the Commission with respect to such securities. Such register and all
documents or information with respect to the securities registered therein shall be open to public
inspection at reasonable hours on business days.
8.5. The Commission may audit the financial statements, assets and other information of a firm applying
for registration of its securities whenever it deems the same necessary to insure full disclosure or to
protect the interest of the investors and the public in general.
66 SEC. 12. Procedure for Registration of Securities. -
12.1. All securities required to be registered under Subsection 8.1 shall be registered through the filing by
the issuer in the main office of the Commission, of a sworn registration statement with respect to such
securities, in such form and containing such information and documents as the Commission shall
prescribe. The registration statement shall include any prospectus required or permitted to be delivered
under Subsections 8.2, 8.3 and 8.4.
12.2. In promulgating rules governing the content of any registration statement (including any prospectus
made a part thereof or annexed thereto), the Commission may require the registration statement to
contain such information or documents as it may, by rule, prescribe. It may dispense with any such
requirement, or may require additional information or documents, including written information from an
expert, depending on the necessity thereof or their applicability to the class of securities sought to be
registered.
12.3. The information required for the registration of any kind, and all securities, shall include, among
others, the effect of the securities issue on ownership, on the mix of ownership, especially foreign and
local ownership.
12.4. The registration statement shall be signed by the issuer's executive officer, its principal operating
officer, its principal financial officer, its comptroller, principal accounting officer, its corporate secretary or
persons performing similar functions accompanied by a duly verified resolution of the board of directors
of the issuer corporation. The written consent of the expert named as having certified any part of the
registration statement or any document used in connection therewith shall also be filed. Where the
registration statement includes shares to be sold by selling shareholders, a written certification by such
selling shareholders as to the accuracy of any part of the registration statement contributed to by such
selling shareholders shall also be filed.
12.5. a) Upon filing of the registration statement, the issuer shall pay to the Commission a fee of not more
than one-tenth (1/10) of one per centum (1%) of the maximum aggregate price at which such securities
are proposed to be offered. The Commission shall prescribe by rule diminishing fees in inverse proportion
to the value of the aggregate price of the offering.
b) Notice of the filing of the registration statement shall be immediately published by the issuer, at its
own expense, in two (2) newspapers of general circulation in the Philippines, once a week for two (2)
consecutive weeks, or in such other manner as the Commission by rule shall prescribe, reciting that a
registration statement for the sale of such security has been filed, and that the aforesaid registration
statement, as well as the papers attached thereto are open to inspection at the Commission during
business hours, and copies thereof, photostatic or otherwise, shall be furnished to interested parties at
such reasonable charge as the Commission may prescribe.
12.6. Within forty-five (45) days after the date of filing of the registration statement, or by such later date
to which the issuer has consented, the Commission shall declare the registration statement effective or
rejected, unless the applicant is allowed to amend the registration statement as provided in Section 14
hereof. The Commission shall enter an order declaring the registration statement to be effective if it finds
that the registration statement together with all the other papers and documents attached thereto, is on
its face complete and that the requirements have been complied with. The Commission may impose such
terms and conditions as may be necessary or appropriate for the protection of the investors.
12.7. Upon effectivity of the registration statement, the issuer shall state under oath in every prospectus
that all registration requirements have been met and that all information are true and correct as
represented by the issuer or the one making the statement. Any untrue statement of fact or omission to
state a material fact required to be stated therein or necessary to make the statement therein not
misleading shall constitute fraud.
67 SEC. 26. Fraudulent Transactions. - It shall be unlawful for any person, directly or indirectly, in
connection with the purchase or sale of any securities to:
26.1. Employ any device, scheme, or artifice to defraud;
26.2. Obtain money or property by means of any untrue statement of a material fact of any omission to
state a material fact necessary in order to make the statements made, in the light of the circumstances
under which they were made, not misleading; or
26.3. Engage in any act, transaction, practice or course of business which operates or would operate as a
fraud or deceit upon any person.
68 SEC. 27. Insider's Duty to Disclose When Trading. -
27.1. It shall be unlawful for an insider to sell or buy a security of the issuer, while in possession of
material information with respect to the issuer or the security that is not generally available to the public,
unless: (a) The insider proves that the information was not gained from such relationship; or (b) If the
other party selling to or buying from the insider (or his agent) is identified, the insider proves: (i) that he
disclosed the information to the other party, or (ii) that he had reason to believe that the other party
otherwise is also in possession of the information. A purchase or sale of a security of the issuer made by
an insider defined in Subsection 3.8, or such insider's spouse or relatives by affinity or consanguinity
within the second degree, legitimate or common-law, shall be presumed to have been effected while in
possession of material non-public information if transacted after such information came into existence but
prior to dissemination of such information to the public and the lapse of a reasonable time for the market
to absorb such information: Provided, however, That this presumption shall be rebutted upon a showing
by the purchaser or seller that he was not aware of the material non-public information at the time of the
purchase or sale.
27.2. For purposes of this Section, information is "material non-public" if: (a) It has not been generally
disclosed to the public and would likely affect the market price of the security after being disseminated to
the public and the lapse of a reasonable time for the market to absorb the information; or (b) would be
considered by a reasonable person important under the circumstances in determining his course of action
whether to buy, sell or hold a security.
27.3. It shall be unlawful for any insider to communicate material non-public information about the issuer
or the security to any person who, by virtue of the communication, becomes an insider as defined in
Subsection 3.8, where the insider communicating the information knows or has reason to believe that
such person will likely buy or sell a security of the issuer while in possession of such information.
27.4. a) It shall be unlawful where a tender offer has commenced or is about to commence for:
(i) Any person (other than the tender offeror) who is in possession of material non-public information
relating to such tender offer, to buy or sell the securities of the issuer that are sought or to be sought by
such tender offer if such person knows or has reason to believe that the information is non-public and has
been acquired directly or indirectly from the tender offeror, those acting on its behalf, the issuer of the
securities sought or to be sought by such tender offer, or any insider of such issuer; and
(ii) Any tender offeror, those acting on its behalf, the issuer of the securities sought or to be sought by
such tender offer, and any insider of such issuer to communicate material non-public information relating
to the tender offer to any other person where such communication is likely to result in a violation of
Subsection 27.4 (a)(i).
(b) For purposes of this subsection the term "securities of the issuer sought or to be sought by such
tender offer" shall include any securities convertible or exchangeable into such securities or any options
or rights in any of the foregoing securities.
69 SEC. 23. Transactions of Directors, Officers and Principal Stockholders.
23.1. Every person who is directly or indirectly the beneficial owner of more than ten per centum (10%) of
any class of any equity security which satisfies the requirements of Subsection 17.2, or who is a director
or an officer of the issuer of such security, shall file, at the time either such requirement is first satisfied
or within ten days after he becomes such a beneficial owner, director, or officer, a statement with the
Commission and, if such security is listed for trading on an Exchange, also with the Exchange, of the
amount of all equity securities of such issuer of which he is the beneficial owner, and within ten (10) days
after the close of each calendar month thereafter, if there has been a change in such ownership during
such month, shall file with the Commission, and if such security is listed for trading on an Exchange, shall
also file with the Exchange, a statement indicating his ownership at the close of the calendar month and
such changes in his ownership as have occurred during such calendar month.
70 SEC. 53. Investigations, Injunctions and Prosecution of Offenses. - 53.1 The Commission may, in its
discretion, make such investigations as it deems necessary to determine whether any person has violated
or is about to violate any provision of this Code, any rule, regulation or order thereunder, or any rule of an
Exchange, registered securities association, clearing agency, other self-regulatory organization, and may
require or permit any person to file with it a statement in writing, under oath or otherwise, as the
Commission shall determine, as to all facts and circumstances concerning the matter to be investigated.
The Commission may publish information concerning any such violations, and to investigate any fact,
condition, practice or matter which it may deem necessary or proper to aid in the enforcement of the
provisions of this Code, in prescribing of rules and regulations thereunder, or in securing information to
serve as a basis for recommending further legislation concerning the matters to which this Code relates:
Provided, however, That any person requested or subpoenaed to produce documents or testify in any
investigation shall simultaneously be notified in writing of the purpose of such investigation: Provided,
further, That all criminal complaints for violations of this Code, and the implementing rules and
regulations enforced or administered by the Commission shall be referred to the Department of Justice for
preliminary investigation and prosecution before the proper court: Provided, furthermore, That in
instances where the law allows independent civil or criminal proceedings of violations arising from the
same act, the Commission shall take appropriate action to implement the same: Provided, finally,That the
investigation, prosecution, and trial of such cases shall be given priority.
71 SEC. 54. Administrative Sanctions. - 54.1 If after due notice and hearing, the Commission finds that:
(a) There is a violation of this Code, its rules, or its orders; (b) Any registered broker or dealer, associated
person thereof has failed reasonably to supervise, with a view to preventing violations, another person
subject to supervision who commits any such violation; (c) Any registrant or other person has, in a
registration statement or in other reports, applications, accounts, records or documents required by law
or rules to be filed with the Commission, made any untrue statement of a material fact, or omitted to
state any material fact required to be stated therein or necessary to make the statements therein not
misleading; or, in the case of an underwriter, has failed to conduct an inquiry with reasonable diligence to
insure that a registration statement is accurate and complete in all material respects; or (d) Any person
has refused to permit any lawful examinations into its affairs, it shall in its discretion, and subject only to
the limitations hereinafter prescribed, impose any or all of the following sanctions as may be appropriate
in light of the facts and circumstances.
72 G.R. No. 141510, 13 August 2004, 436 SCRA 438, 458.
73 Rollo, p. 649-652.
74 Section 1. Violation penalized by special acts shall, unless otherwise provided in such acts, prescribe in
accordance with the following rules: (a) imprisonment for not more than one month, or both; (b) after four
years for those punished by imprisonment for more than one month, but less than two years; (c) after
eight years for those punished by imprisonment for two years or more, but less than six years; and (d)
after twelve years for any other offense punished by imprisonment for six years or more, except the
crime of treason, which shall prescribe after twenty years: provided, however, That all offenses against
any law or par of law administered by the Bureau of Internal Revenue shall prescribe after five years.
Violations penalized by municipal ordinances shall prescribe after two months. (Emphasis provided.)
75 Llenes v. Dicdican, G.R. No. 122274, 31 July 1986, 260 SCRA 207, 217-220; and Baytan v. Commission
on Elections, G.R. No. 153945, 4 February 2003, 396 SCRA 703, 713.
76 Bautista v. Court of Appeals, G.R. No. 143375, 6 July 2001, 360 SCRA 618, 623.
77 G.R. No. 168380, 8 February 2007.
78 The Revised Securities Act provides that:
Sec. 45. Investigations, injunctions and prosecution of offenses. — (a) The Commission may, in its
discretion, make such investigations as it deems necessary to determine whether any person
has violated or is about to violate any provision of this Act or any rule or regulation
thereunder, and may require or permit any person to file with it a statement in writing, under oath or
otherwise, as the Commission shall determine, as to all facts and circumstances concerning the matter to
be investigated. The Commission is authorized, in its discretion, to publish information concerning any
such violations, and to investigate any fact, condition, practice or matter which it may deem necessary or
proper to aid in the enforcement of the provisions of this Act, in the prescribing of rules and regulations
thereunder, or in securing information to serve as a basis for recommending further legislation
concerning the matters to which this Act relates: Provided, however, That no such investigation shall be
conducted unless the person investigated is furnished with a copy of any complaint which may have been
the cause of the initiation of the investigation or is notified in writing of the purpose of such investigation:
Provided, further, That all criminal complaints for violations of this Act, and the implementing rules and
regulations enforced or administered by the Commission shall be referred to the National Prosecution
Service of the Ministry of Justice for preliminary investigation and prosecution before the proper court:
and, Provided, finally, That the investigation, prosecution, and trial of such cases shall be given priority.
(Emphasis provided.)
The Securities Regulations Code provides that:
SEC. 53. Investigations, Injunctions and Prosecution of Offenses . - 53.1. The Commission may, in its
discretion, make such investigations as it deems necessary to determine whether any person has violated
or is about to violate any provision of this Code, any rule, regulation or order thereunder, or any rule of an
Exchange, registered securities association, clearing agency, other self-regulatory organization, and may
require or permit any person to file with it a statement in writing, under oath or otherwise, as the
Commission shall determine, as to all facts and circumstances concerning the matter to be investigated.
The Commission may publish information concerning any such violations, and to investigate any fact,
condition, practice or matter which it may deem necessary or proper to aid in the enforcement of the
provisions of this Code, in the prescribing of rules and regulations thereunder, or in securing information
to serve as a basis for recommending further legislation concerning the matters to which this Code
relates: Provided, however, That any person requested or subpoenaed to produce documents or testify in
any investigation shall simultaneously be notified in writing of the purpose of such
investigation: Provided, further, That all criminal complaints for violations of this Code, and the
implementing rules and regulations enforced or administered by the Commission shall be referred to the
Department of Justice for preliminary investigation and prosecution before the proper court: Provided,
furthermore, That in instances where the law allows independent civil or criminal proceedings of
violations arising from the same act, the Commission shall take appropriate action to implement the
same: Provided, finally, That the investigation, prosecution, and trial of such cases shall be given priority.
79 Rollo, p. 32.
80 G.R. No. 168380, 8 February 2007, 515 SCRA 170.
81 Id.
82 Section 5.2 of Republic Act No. 8799, known as the Securities Regulations Code, enacted on 19 July
2000, reads:
5.2 The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential Decree No.
902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court:
Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial Court
branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over
pending cases involving intra-corporate disputes submitted for final resolution which should be resolved
within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over
pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.
CARPIO, J.:
1 G.R. No. 102342, 3 July 1991, 211 SCRA 277.
2 Section 1 of Act No. 3326 provides: "Violations penalized by special acts shall, unless otherwise
provided in such acts, prescribe in accordance with the following rules: (a) after a year for offences
punished only by a fine or by imprisonment for not more than one month, or both; (b) after four years for
those punished by imprisonment for more than one month, but less than two years; (c) after eight years
for those punished by imprisonment for two years or more, but less than six years; and (d) after twelve
years for any other offence punished by imprisonment for six years or more, except the crime of treason,
which shall prescribe after twenty years. Violations penalized by municipal ordinances shall prescribe
after two months." (Emphasis supplied)
3 Section 54 of the Securities Regulation Code provides: "Administrative Sanctions. — 54.1. If, after due
notice and hearing, the Commission finds that: (a) There is a violation of this Code, its rules, or its orders;
(b) Any registered broker or dealer, associated person thereof has failed reasonably to supervise, with a
view to preventing violations, another person subject to supervision who commits any such violation; (c)
Any registrant or other person has, in a registration statement or in other reports, applications, accounts,
records or documents required by law or rules to be filed with the Commission, made any untrue
statement of a material fact, or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; or, in the case of an underwriter, has failed to
conduct an inquiry with reasonable diligence to insure that a registration statement is accurate and
complete in all material respects; or (d) Any person has refused to permit any lawful examinations into its
affairs, it shall, in its discretion, and subject only to the limitations hereinafter prescribed, impose any or
all of the following sanctions as may be appropriate in light of the facts and circumstances:
(i) Suspension, or revocation of any registration for the offering of securities;
(ii) A fine of no less than Ten thousand pesos (P10,000.00) nor more than One million pesos
(P1,000,000.00) plus not more than Two thousand pesos (P2,000.00) for each day of continuing violation;
(iii) In the case of a violation of Sections 19.2, 20, 24, 26 and 27, disqualification from being an officer,
member of the Board of Directors, or person performing similar functions, of an issuer required to file
reports under Section 17 of this Code or any other act, rule or regulation administered by the
Commission;
(iv) In the case of a violation of Section 34, a fine of no more than three (3) times the profit gained or loss
avoided as a result of the purchase, sale or communication proscribed by such Section; and
(v) Other penalties within the power of the Commission to impose.
54.2. The imposition of the foregoing administrative sanctions shall be without prejudice to the filing of
criminal charges against the individuals responsible for the violation.
54.3. The Commission shall have the power to issue writs of execution to enforce the provisions of this
Section and to enforce payment of the fees and other dues collectible under this Code.
4 Section 53.1 of the Securities Regulation Code provides that "all criminal complaints for violations
of this Code, and the implementing rules and regulations enforced or administered by the Commission
shall be referred to the Department of Justice for preliminary investigation and prosecution before the
proper court." Section 45 of the old Revised Securities Act contained substantially the same provision.
TINGA, J.:
1 See ColiN Chapman, How the Stock Market Works (1988 ed.), pp. 151-152.
2 See R. Jennings, H. Marsh, Jr., J. Coffee, Jr. and J. Salgiman, Securities REgulation: Cases and Materials
(8th ed., 1998), pp. 1-6.
3 F. Babozzi and F. Modigliani, Capital Markets (3rd ed., 2006).
4 "Generally speaking, insider trading is trading in securities while in possession of material nonpublic
information." S. Bainbridge, Corporation Law and Economics (2002 ed.), p. 519.
5 Matter of Cady, Roberts & Co., 40 SEC 907, 912 (1961); cited in Texas Gulf Sulpher Co., 401 F.2d 833
(2d Cir. 1968).
6 Bainbridge, supra note 4 at 520 citing H.L. Wilgus, Purchase of Shares of a Corporation by a Director
from a Shareholder, 8 Mich. L. Rev. 267, 267 (1910).
7 Id., citing Carpenter v. Danforth, 52 Barb. 581 589 (N.Y.Sup. Ct.1868).
8 45 S.E. 232 (Ga.1903)
9 Id.
10 213 U.S. 419 (1909).
11 See R. Jennings, H. Marsh Jr., J. Coffee Jr. and J. Seligman, supra note 2 at 2; citing H.R.Rep. No. 85,
73d Cong., 1st Sess. 2 (1933).
12 Id.
13 15 U.S.C. § 78j(b).
14 Bainbridge, supra note 4 at 525.
15 Id. at 526.
16 Id. at 527.
17 17 CFR §240.10b-5.
18 "According to one account, the decision to adopt the rule and model it on section 17(a) [of the 1933
Securities Exchange Act] was arrived at without any deliberation, with the only official discussion
consisting of one SEC Commissioner reportedly observing, "we are against fraud, aren't we?" T.L. Hazen,
The Law of Securities Regulation (4th ed., 2002), at 571; citing J. Blackmun, dissenting, Blue Chips
Stamps v. Manor Drug Stores, 421 U.S. 723, 767 (1975).
19 Id. at 570-571.
20 Supra note 5.
21 Bainbridge, supra note 4 at 528.
22 Particularly, through the case of SEC v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d Cir.1968), which has
been described as "the first of the truly seminal insider trading cases," even though much of its core
insider trading holding had since been rejected by the U.S. Supreme Court. See Bainbridge, supra note 4,
at 529.
23 U.S. v. Chiarella, 445 U.S. 222 (1980).
24 Dirks v. SEC, 463 U.S. 646 (1984).
25 See Bainbridge, supra note 4, at 537.
26 Financial Securities and Markets Act of 2000, Part VIII (118)(2)(a).
27 See Sec. 1, Com. Act No. 83 (1936).
28 See Sec. 20, Com. Act No. 83 (1936)
29 See Sec. 21, Com. Act No. 83 (1936).
30 Rules Requiring Disclosure of Material Facts by Corporations whose Securities are Listed in any Stock
Exchange or Registered/Licensed Under the Revised Securities Act, dated 29 January 1973.
31 See R. Morales, The Philippine Securities Regulation Code (Annotated) (2002 ed.) at 199.
32 Id.
33 A similar provision is found in Section 53 of the Securities Regulation Code of 2008.
34 G.R. No. 168380, 8 February 2007, 515 SCRA 515.
35 The first phase was the preliminary examination for the determination of the fact of commission of the
offense and the existence of probable cause, as well as the issuance of the warrant of arrest. The second
phase was the preliminary investigation proper (after arrest, for the determination of whether there was a
prima facie case against the accused and whether the issuance of the arrest warrant was justified).
36 125 Phil. 895 (1967).
37 Id.
38 Entitled "An Act To Establish Periods of Prescription for Violation Penalized by Special Acts and
Municipals Ordinances And To Provide When Prescription Shall Begin To Act."
39 9 Phil. 509 (1908).
40 46 Phil. 380.
41 9 Phil. 509, 511.
42 52 Phil. 712 (1929).
43 52 Phil. 712, 715.
44 G.R. No. L-22465, 28 February 1967.

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Roma Drug vs. RTC Guagua (2009)

Sunday, June 06, 2010
5:02 AM

G.R. No. 149907 April 16, 2009

ROMA DRUG and ROMEO RODRIGUEZ, as Proprietor of ROMA DRUG, Petitioners,
vs.
THE REGIONAL TRIAL COURT OF GUAGUA, PAMPANGA, THE PROVINCIAL PROSECUTOR OF
PAMPANGA, BUREAU OF FOOD & DRUGS (BFAD) and GLAXO SMITHKLINE, Respondents.
DECISION
TINGA, J.:
On 14 August 2000, a team composed of the National Bureau of Investigation (NBI) operatives and
inspectors of the Bureau of Food and Drugs (BFAD) conducted a raid on petitioner Roma Drug, a
duly registered sole proprietorship of petitioner Romeo Rodriguez (Rodriguez) operating a drug store
located at San Matias, Guagua, Pampanga. The raid was conducted pursuant to a search warrant1 issued
by the Regional Trial Court (RTC), Branch 57, Angeles City. The raiding team seized several imported
medicines, including Augmentin (375mg.) tablets, Orbenin (500mg.) capsules, Amoxil (250mg.) capsules
and Ampiclox (500mg.).2 It appears that Roma Drug is one of six drug stores which were raided on or
around the same time upon the request of SmithKline Beecham Research Limited (SmithKline), a duly
registered corporation which is the local distributor of pharmaceutical products manufactured by its
parent London-based corporation. The local SmithKline has since merged with Glaxo Wellcome Phil. Inc to
form Glaxo SmithKline, private respondent in this case. The seized medicines, which were manufactured
by SmithKline, were imported directly from abroad and not purchased through the local SmithKline, the
authorized Philippine distributor of these products.
The NBI subsequently filed a complaint against Rodriguez for violation of Section 4 (in relation to Sections
3 and 5) of Republic Act No. 8203, also known as the Special Law on Counterfeit Drugs (SLCD), with the
Office of the Provincial Prosecutor in San Fernando, Pampanga. The section prohibits the sale of
counterfeit drugs, which under Section 3(b)(3), includes "an unregistered imported drug product." The
term "unregistered" signifies the lack of registration with the Bureau of Patent, Trademark and
Technology Transfer of a trademark, tradename or other identification mark of a drug in the name of a
natural or juridical person, the process of which is governed under Part III of the Intellectual Property
Code.
In this case, there is no doubt that the subject seized drugs are identical in content with their Philippine-
registered counterparts. There is no claim that they were adulterated in any way or mislabeled at least.
Their classification as "counterfeit" is based solely on the fact that they were imported from abroad and
not purchased from the Philippine-registered owner of the patent or trademark of the drugs.
During preliminary investigation, Rodriguez challenged the constitutionality of the SLCD. However,
Assistant Provincial Prosecutor Celerina C. Pineda skirted the challenge and issued a Resolution dated 17
August 2001 recommending that Rodriguez be charged with violation of Section 4(a) of the SLCD. The
recommendation was approved by Provincial Prosecutor Jesus Y. Manarang approved the
recommendation.3
Hence, the present Petition for Prohibition questing the RTC-Guagua Pampanga and the Provincial
Prosecutor to desist from further prosecuting Rodriguez, and that Sections 3(b)(3), 4 and 5 of the SLCD be
declared unconstitutional. In gist, Rodriguez asserts that the challenged provisions contravene three
provisions of the Constitution. The first is the equal protection clause of the Bill of Rights. The two other
provisions are Section 11, Article XIII, which mandates that the State make "essential goods, health and
other social services available to all the people at affordable cost;" and Section 15, Article II, which states
that it is the policy of the State "to protect and promote the right to health of the people and instill health
consciousness among them."
Through its Resolution dated 15 October 2001, the Court issued a temporary restraining order enjoining
the RTC from proceeding with the trial against Rodriguez, and the BFAD, the NBI and Glaxo Smithkline
from prosecuting the petitioners.4
Glaxo Smithkline and the Office of the Solicitor General (OSG) have opposed the petition, the latter in
behalf of public respondents RTC, Provincial Prosecutor and Bureau of Food and Drugs (BFAD). On the
constitutional issue, Glaxo Smithkline asserts the rule that the SLCD is presumed constitutional, arguing
that both Section 15, Article II and Section 11, Article XIII "are not self-executing provisions, the disregard
of which can give rise to a cause of action in the courts." It adds that Section 11, Article XIII in particular
cannot be work "to the oppression and unlawful of the property rights of the legitimate manufacturers,
importers or distributors, who take pains in having imported drug products registered before the BFAD."
Glaxo Smithkline further claims that the SLCD does not in fact conflict with the aforementioned
constitutional provisions and in fact are in accord with constitutional precepts in favor of the people’s
right to health.
The Office of the Solicitor General casts the question as one of policy wisdom of the law that is, beyond
the interference of the judiciary.5 Again, the presumption of constitutionality of statutes is invoked, and
the assertion is made that there is no clear and unequivocal breach of the Constitution presented by the
SLCD.
II.
The constitutional aspect of this petition raises obviously interesting questions. However, such questions
have in fact been mooted with the passage in 2008 of Republic Act No. 9502, also known as the
"Universally Accessible Cheaper and Quality Medicines Act of 2008".6
Section 7 of Rep. Act No. 9502 amends Section 72 of the Intellectual Property Code in that the later law
unequivocally grants third persons the right to import drugs or medicines whose patent were registered in
the Philippines by the owner of the product:
Sec. 7. Section 72 of Republic Act No. 8293, otherwise known as the Intellectual Property Code of the
Philippines, is hereby amended to read as follows:
"Sec. 72. Limitations of Patent Rights. – The owner of a patent has no right to prevent third parties from
performing, without his authorization, the acts referred to in Section 71 hereof in the following
circumstances:
"72.1. Using a patented product which has been put on the market in the Philippines by the owner of the
product, or with his express consent, insofar as such use is performed after that product has been so put
on the said market: Provided, That, with regard to drugs and medicines, the limitation on patent
rights shall apply after a drug or medicine has been introduced in the Philippines or anywhere
else in the world by the patent owner, or by any party authorized to use the
invention: Provided,
further, That the right to import the drugs and medicines contemplated in this section shall
be available to any government agency or any private third party;
"72.2. Where the act is done privately and on a non-commercial scale or for a non-commercial purpose:
Provided, That it does not significantly prejudice the economic interests of the owner of the patent;
"72.3. Where the act consists of making or using exclusively for experimental use of the invention for
scientific purposes or educational purposes and such other activities directly related to such scientific or
educational experimental use;
"72.4. In the case of drugs and medicines, where the act includes testing, using, making or selling the
invention including any data related thereto, solely for purposes reasonably related to the development
and submission of information and issuance of approvals by government regulatory agencies required
under any law of the Philippines or of another country that regulates the manufacture, construction, use
or sale of any product: Provided, That, in order to protect the data submitted by the original patent holder
from unfair commercial use provided in Article 39.3 of the Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS Agreement), the Intellectual Property Office, in consultation with the
appropriate government agencies, shall issue the appropriate rules and regulations necessary therein not
later than one hundred twenty (120) days after the enactment of this law;
"72.5. Where the act consists of the preparation for individual cases, in a pharmacy or by a medical
professional, of a medicine in accordance with a medical shall apply after a drug or medicine has been
introduced in the Philippines or anywhere else in the world by the patent owner, or by any party
authorized to use the invention: Provided, further, That the right to import the drugs and medicines
contemplated in this section shall be available to any government agency or any private third party; xxx7
The unqualified right of private third parties such as petitioner to import or possess "unregistered
imported drugs" in the Philippines is further confirmed by the "Implementing Rules to Republic Act No.
9502" promulgated on 4 November 2008.8 The relevant provisions thereof read:
Rule 9. Limitations on Patent Rights. The owner of a patent has no right to prevent third parties from
performing, without his authorization, the acts referred to in Section 71 of the IP Code as enumerated
hereunder:
(i) Introduction in the Philippines or Anywhere Else in the World.
Using a patented product which has been put on the market in the Philippines by the owner of the
product, or with his express consent, insofar as such use is performed after that product has been so put
on the said market:Provided, That, with regard to drugs and medicines, the limitation on patent rights
shall apply after a drug or medicine has been introduced in the Philippines or anywhere else in the world
by the patent owner, or by any party authorized to use the invention: Provided, further, That the right to
import the drugs and medicines contemplated in this section shall be available to any government
agency or any private third party. (72.1)1avvphi1
The drugs and medicines are deemed introduced when they have been sold or offered for sale anywhere
else in the world. (n)
It may be that Rep. Act No. 9502 did not expressly repeal any provision of the SLCD. However, it is clear
that the SLCO’s classification of "unregistered imported drugs" as "counterfeit drugs," and of
corresponding criminal penalties therefore are irreconcilably in the imposition conflict with Rep. Act No.
9502 since the latter indubitably grants private third persons the unqualified right to import or otherwise
use such drugs. Where a statute of later date, such as Rep. Act No. 9502, clearly reveals an intention on
the part of the legislature to abrogate a prior act on the subject that intention must be given
effect.9 When a subsequent enactment covering a field of operation coterminus with a prior statute
cannot by any reasonable construction be given effect while the prior law remains in operative existence
because of irreconcilable conflict between the two acts, the latest legislative expression prevails and the
prior law yields to the extent of the conflict.10 Irreconcilable inconsistency between two laws embracing
the same subject may exist when the later law nullifies the reason or purpose of the earlier act, so that
the latter loses all meaning and function.11 Legis posteriors priores contrarias abrogant.
For the reasons above-stated, the prosecution of petitioner is no longer warranted and the quested writ of
prohibition should accordingly be issued.
III.
Had the Court proceeded to directly confront the constitutionality of the assailed provisions of the SLCD,
it is apparent that it would have at least placed in doubt the validity of the provisions. As written, the law
makes a criminal of any person who imports an unregistered drug regardless of the purpose, even if the
medicine can spell life or death for someone in the Philippines. It does not accommodate the situation
where the drug is out of stock in the Philippines, beyond the reach of a patient who urgently depends on
it. It does not allow husbands, wives, children, siblings, parents to import the drug in behalf of their loved
ones too physically ill to travel and avail of the meager personal use exemption allotted by the law. It
discriminates, at the expense of health, against poor Filipinos without means to travel abroad to purchase
less expensive medicines in favor of their wealthier brethren able to do so. Less urgently perhaps, but still
within the range of constitutionally protected behavior, it deprives Filipinos to choose a less expensive
regime for their health care by denying them a plausible and safe means of purchasing medicines at a
cheaper cost.
The absurd results from this far-reaching ban extends to implications that deny the basic decencies of
humanity. The law would make criminals of doctors from abroad on medical missions of such
humanitarian organizations such as the International Red Cross, the International Red Crescent, Medicin
Sans Frontieres, and other
like-minded groups who necessarily bring their own pharmaceutical drugs when they embark on their
missions of mercy. After all, they are disabled from invoking the bare "personal use" exemption afforded
by the SLCD.
Even worse is the fact that the law is not content with simply banning, at civil costs, the importation of
unregistered drugs. It equates the importers of such drugs, many of whom motivated to do so out of
altruism or basic human love, with the malevolents who would alter or counterfeit pharmaceutical drugs
for reasons of profit at the expense of public safety. Note that the SLCD is a special law, and the
traditional treatment of penal provisions of special laws is that of malum prohibitum–or punishable
regardless of motive or criminal intent. For a law that is intended to help save lives, the SLCD has
revealed itself as a heartless, soulless legislative piece.
The challenged provisions of the SLCD apparently proscribe a range of constitutionally permissible
behavior. It is laudable that with the passage of Rep. Act No. 9502, the State has reversed course and
allowed for a sensible and compassionate approach with respect to the importation of pharmaceutical
drugs urgently necessary for the people’s constitutionally-recognized right to health.
WHEREFORE, the petition is GRANTED in part. A writ of prohibition is hereby ISSUED commanding
respondents from prosecuting petitioner Romeo Rodriguez for violation of Section 4 or Rep. Act No. 8203.
The Temporary Restraining Order dated 15 October 2001 is hereby made PERMANENT. No
pronouncements as to costs.
SO ORDERED.
DANTE O. TINGAAssociate Justice
WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CONCHITA CARPIO MORALES PRESBITERO J. VELASCO, JR.
Associate Justice Associate Justice
ARTURO D. BRION
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, it is
hereby certified that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1 Search Warrant No. 00-43
2 Rollo, p. 7.
3 Rollo, p. 56.
4 Rollo, p. 134.
5 Rollo, p. 711.
6 See Rep. Act No. 9502, Sec. 1.
7 Rep. Act No. 9502, Section 7.
8 Available from the website of the Intellectual Property Office (http://www.ipophil.gov.ph/)
9 R. Agpalo, Statutory Construction (1995 ed.), at 315.
10 Sutherland, Statutes and Statutory Construction 463, 464; cited in Ramirez v. Court of Appeals, G.R.
No. 23984, 24 January 1974, 55 SCRA 261.
11 Agpalo, supra note 9 at 317.

Pasted from <http://www.lawphil.net/judjuris/juri2009/apr2009/gr_149907_2009.html>

McDo vs. Macjoy (2007)

Sunday, June 06, 2010
5:02 AM

G.R. No. 166115 February 2, 2007

McDONALD’S CORPORATION, Petitioner,
vs.
MACJOY FASTFOOD CORPORATION, Respondent.
DECISION
GARCIA, J.:
In this petition for review on certiorari under Rule 45 of the Rules of Court, herein petitioner McDonald’s
Corporation seeks the reversal and setting aside of the following issuances of the Court of Appeals (CA) in
CA-G.R. SP No. 57247, to wit:
1. Decision dated 29 July 20041 reversing an earlier decision of the Intellectual Property Office (IPO)
which rejected herein respondent MacJoy FastFood Corporation’s application for registration of the
trademark "MACJOY & DEVICE"; and
2. Resolution dated 12 November 20042 denying the petitioner’s motion for reconsideration.
As culled from the record, the facts are as follows:
On 14 March 1991, respondent MacJoy Fastfood Corporation, a domestic corporation engaged in the sale
of fast food products in Cebu City, filed with the then Bureau of Patents, Trademarks and Technology
Transfer (BPTT), now the Intellectual Property Office (IPO), an application, thereat identified as Application
Serial No. 75274, for the registration of the trademark "MACJOY & DEVICE" for fried chicken, chicken
barbeque, burgers, fries, spaghetti, palabok, tacos, sandwiches, halo-halo and steaks under classes 29
and 30 of the International Classification of Goods.
Petitioner McDonald’s Corporation, a corporation duly organized and existing under the laws of the State
of Delaware, USA, filed a verified Notice of Opposition3 against the respondent’s application claiming that
the trademark "MACJOY & DEVICE" so resembles its corporate logo, otherwise known as the Golden
Arches or "M" design, and its marks "McDonalds," McChicken," "MacFries," "BigMac," "McDo,"
"McSpaghetti," "McSnack," and "Mc," (hereinafter collectively known as the MCDONALD’S marks) such
that when used on identical or related goods, the trademark applied for would confuse or deceive
purchasers into believing that the goods originate from the same source or origin. Likewise, the petitioner
alleged that the respondent’s use and adoption in bad faith of the "MACJOY & DEVICE" mark would falsely
tend to suggest a connection or affiliation with petitioner’s restaurant services and food products, thus,
constituting a fraud upon the general public and further cause the dilution of the distinctiveness of
petitioner’s registered and internationally recognized MCDONALD’S marks to its prejudice and irreparable
damage. The application and the opposition thereto was docketed as Inter Partes Case No. 3861.
Respondent denied the aforementioned allegations of the petitioner and averred that it has used the
mark "MACJOY" for the past many years in good faith and has spent considerable sums of money for said
mark’s extensive promotion in tri-media, especially in Cebu City where it has been doing business long
before the petitioner opened its outlet thereat sometime in 1992; and that its use of said mark would not
confuse affiliation with the petitioner’s restaurant services and food products because of the differences
in the design and detail of the two (2) marks.
In a decision4 dated December 28, 1998, the IPO, ratiocinating that the predominance of the letter "M,"
and the prefixes "Mac/Mc" in both the "MACJOY" and the "MCDONALDS" marks lead to the conclusion that
there is confusing similarity between them especially since both are used on almost the same products
falling under classes 29 and 30 of the International Classification of Goods, i.e., food and ingredients of
food, sustained the petitioner’s opposition and rejected the respondent’s application, viz:
WHEREFORE, the Opposition to the registration of the mark MACJOY & DEVICE for use in fried chicken and
chicken barbecue, burgers, fries, spaghetti, palabok, tacos, sandwiches, halo-halo, and steaks is, as it is
hereby, SUSTAINED. Accordingly, Application Serial No. 75274 of the herein Respondent-Applicant is
REJECTED.
Let the filewrapper of MACJOY subject matter of this case be sent to the Administrative, Financial and
Human Resources Development Bureau for appropriate action in accordance with this Decision, with a
copy to be furnished the Bureau of Trademarks for information and to update its record.
SO ORDERED.
In time, the respondent moved for a reconsideration but the IPO denied the motion in its Order5 of
January 14, 2000.
Therefrom, the respondent went to the CA via a Petition for Review with prayer for Preliminary
Injunction6 under Rule 43 of the Rules of Court, whereat its appellate recourse was docketed as CA-G.R.
SP No. 57247.
Finding no confusing similarity between the marks "MACJOY" and "MCDONALD’S," the CA, in its herein
assailed Decision7 dated July 29, 2004, reversed and set aside the appealed IPO decision and order, thus:
WHEREFORE, in view of the foregoing, judgment is hereby rendered by us REVERSING and SETTING ASIDE
the Decision of the IPO dated 28 December 1998 and its Order dated 14 January 2000 and ORDERING the
IPO to give due course to petitioner’s Application Serial No. 75274.
SO ORDERED.
Explains the CA in its decision:
xxx, it is clear that the IPO brushed aside and rendered useless the glaring and drastic differences and
variations in style of the two trademarks and even decreed that these pronounced differences are
"miniscule" and considered them to have been "overshadowed by the appearance of the predominant
features" such as "M," "Mc," and "Mac" appearing in both MCDONALD’S and MACJOY marks. Instead of
taking into account these differences, the IPO unreasonably shrugged off these differences in the device,
letters and marks in the trademark sought to be registered. The IPO brushed aside and ignored the
following irrefutable facts and circumstances showing differences between the marks of MACJOY and
MCDONALD’S. They are, as averred by the petitioner [now respondent]:
1. The word "MacJoy" is written in round script while the word "McDonald’s" is written in single stroke
gothic;
2. The word "MacJoy" comes with the picture of a chicken head with cap and bowtie and wings sprouting
on both sides, while the word "McDonald’s" comes with an arches "M" in gold colors, and absolutely
without any picture of a chicken;
3. The word "MacJoy" is set in deep pink and white color scheme while "McDonald’s" is written in red,
yellow and black color combination;
4. The façade of the respective stores of the parties are entirely different. Exhibits 1 and 1-A, show that
[respondent’s] restaurant is set also in the same bold, brilliant and noticeable color scheme as that of its
wrappers, containers, cups, etc., while [petitioner’s] restaurant is in yellow and red colors, and with the
mascot of "Ronald McDonald" being prominently displayed therein." (Words in brackets supplied.)
Petitioner promptly filed a motion for reconsideration. However, in its similarly challenged Resolution8 of
November 12, 2004, the CA denied the motion, as it further held:
Whether a mark or label of a competitor resembles another is to be determined by an inspection of the
points of difference and resemblance as a whole, and not merely the points of resemblance. The articles
and trademarks employed and used by the [respondent] Macjoy Fastfood Corporation are so different and
distinct as to preclude any probability or likelihood of confusion or deception on the part of the public to
the injury of the trade or business of the [petitioner] McDonald’s Corporation. The "Macjoy & Device"
mark is dissimilar in color, design, spelling, size, concept and appearance to the McDonald’s marks.
(Words in brackets supplied.)
Hence, the petitioner’s present recourse on the following grounds:
I.
THE COURT OF APPEALS ERRED IN RULING THAT RESPONDENT’S "MACJOY & DEVICE" MARK IS NOT
CONFUSINGLY SIMILAR TO PETITIONER’S "McDONALD’S MARKS." IT FAILED TO CORRECTLY APPLY
THE DOMINANCY TEST WHICH HAS BEEN CONSISTENTLY APPLIED BY THIS HONORABLE COURT IN
DETERMINING THE EXISTENCE OF CONFUSING SIMILARITY BETWEEN COMPETING MARKS.
A. The McDonald’s Marks belong to a well-known and established "family of marks" distinguished by
the use of the prefix "Mc" and/or "Mac" and the corporate "M" logo design.
B. The prefix "Mc" and/or "Mac" is the dominant portion of both Petitioner’s McDonald’s Marks and
the Respondent’s "Macjoy & Device" mark. As such, the marks are confusingly similar under the
Dominancy Test.
C. Petitioner’s McDonald’s Marks are well-known and world-famous marks which must be protected
under the Paris Convention.
II.
THE COURT OF APPEALS ERRED IN RULING THAT THE DECISION OF THE IPO DATED 28 DECEMBER
1998 AND ITS ORDER DATED 14 JANUARY 2000 WERE NOT BASED ON SUBSTANTIAL EVIDENCE.
In its Comment,9 the respondent asserts that the petition should be dismissed outright for being
procedurally defective: first, because the person who signed the certification against forum shopping in
behalf of the petitioner was not specifically authorized to do so, and second, because the petition does
not present a reviewable issue as what it challenges are the factual findings of the CA. In any event, the
respondent insists that the CA committed no reversible error in finding no confusing similarity between
the trademarks in question.
The petition is impressed with merit.
Contrary to respondent’s claim, the petitioner’s Managing Counsel, Sheila Lehr, was specifically
authorized to sign on behalf of the petitioner the Verification and Certification10attached to the petition.
As can be gleaned from the petitioner’s Board of Director’s Resolution dated December 5, 2002, as
embodied in the Certificate of the Assistant Secretary dated December 21, 2004,11 Sheila Lehr was one
of those authorized and empowered "to execute and deliver for and on behalf of [the petitioner] all
documents as may be required in connection with x x x the protection and maintenance of any foreign
patents, trademarks, trade-names, and copyrights owned now or hereafter by [the petitioner], including,
but not limited to, x x x documents required to institute opposition or cancellation proceedings against
conflicting trademarks, and to do such other acts and things and to execute such other documents as
may be necessary and appropriate to effect and carry out the intent of this resolution." Indeed, the afore-
stated authority given to Lehr necessarily includes the authority to execute and sign the mandatorily
required certification of non-forum shopping to support the instant petition for review which stemmed
from the "opposition proceedings" lodged by the petitioner before the IPO. Considering that the person
who executed and signed the certification against forum shopping has the authority to do so, the petition,
therefore, is not procedurally defective.
As regards the respondent’s argument that the petition raises only questions of fact which are not proper
in a petition for review, suffice it to say that the contradictory findings of the IPO and the CA constrain us
to give due course to the petition, this being one of the recognized exceptions to Section 1, Rule 45 of the
Rules of Court. True, this Court is not the proper venue to consider factual issues as it is not a trier of
facts.12 Nevertheless, when the factual findings of the appellate court are mistaken, absurd, speculative,
conjectural, conflicting, tainted with grave abuse of discretion, or contrary to the findings culled by the
court of origin,13 as here, this Court will review them.
The old Trademark Law, Republic Act (R.A.) No. 166, as amended, defines a "trademark" as any
distinctive word, name, symbol, emblem, sign, or device, or any combination thereof adopted and used
by a manufacturer or merchant on his goods to identify and distinguish them from those manufactured,
sold, or dealt in by others.14
Under the same law, the registration of a trademark is subject to the provisions of Section 4 thereof,
paragraph (d) of which is pertinent to this case. The provision reads:
Section 4. Registration of trademarks, trade-names and service-marks on the principal register. – There is
hereby established a register of trademarks, tradenames and service-marks which shall be known as the
principal register. The owner of the trade-mark, trade-name or service-mark used to distinguish his goods,
business or services of others shall have the right to register the same on the principal register, unless it:
xxx xxx xxx
(d) Consists of or comprises a mark or trade-name which so resembles a mark or trade-name registered
in the Philippines or a mark or trade-name previously used in the Philippines by another and not
abandoned, as to be likely, when applied to or used in connection with the goods, business or services of
the applicant, to cause confusion or mistake or to deceive purchasers;
xxx xxx xxx
Essentially, the issue here is whether there is a confusing similarity between the MCDONALD’S marks of
the petitioner and the respondent’s "MACJOY & DEVICE" trademark when applied to Classes 29 and 30 of
the International Classification of Goods, i.e., food and ingredients of food.
In determining similarity and likelihood of confusion, jurisprudence has developed two tests, the
dominancy test and the holistic test.15 The dominancy test focuses on the similarity of the prevalent
features of the competing trademarks that might cause confusion or deception.16 In contrast, the holistic
test requires the court to consider the entirety of the marks as applied to the products, including the
labels and packaging, in determining confusing similarity.17 Under the latter test, a comparison of the
words is not the only determinant factor.18 1awphi1.net
Here, the IPO used the dominancy test in concluding that there was confusing similarity between the two
(2) trademarks in question as it took note of the appearance of the predominant features "M", "Mc" and/or
"Mac" in both the marks. In reversing the conclusion reached by the IPO, the CA, while seemingly
applying the dominancy test, in fact actually applied the holistic test. The appellate court ruled in this
wise:
Applying the Dominancy test to the present case, the IPO should have taken into consideration the
entirety of the two marks instead of simply fixing its gaze on the single letter "M" or on the combinations
"Mc" or "Mac". A mere cursory look of the subject marks will reveal that, save for the letters "M" and "c",
no other similarity exists in the subject marks.
We agree with the [respondent] that it is entirely unwarranted for the IPO to consider the prefix "Mac" as
the predominant feature and the rest of the designs in [respondent’s] mark as details. Taking into
account such paramount factors as color, designs, spelling, sound, concept, sizes and audio and visual
effects, the prefix "Mc" will appear to be the only similarity in the two completely different marks; and it is
the prefix "Mc" that would thus appear as the miniscule detail. When pitted against each other, the two
marks reflect a distinct and disparate visual impression that negates any possible confusing similarity in
the mind of the buying public. (Words in brackets supplied.)
Petitioner now vigorously points out that the dominancy test should be the one applied in this case.
We agree.
In trademark cases, particularly in ascertaining whether one trademark is confusingly similar to another,
no set rules can be deduced because each case must be decided on its merits.19 In such cases, even
more than in any other litigation, precedent must be studied in the light of the facts of the particular
case.20 That is the reason why in trademark cases, jurisprudential precedents should be applied only to a
case if they are specifically in point.21
While we agree with the CA’s detailed enumeration of differences between the two (2) competing
trademarks herein involved, we believe that the holistic test is not the one applicable in this case, the
dominancy test being the one more suitable. In recent cases with a similar factual milieu as here, the
Court has consistently used and applied the dominancy test in determining confusing similarity or
likelihood of confusion between competing trademarks.22
Notably, in McDonalds Corp. v. LC Big Mak Burger, Inc.,23 a case where the trademark "Big Mak" was
found to be confusingly similar with the "Big Mac" mark of the herein the petitioner, the Court explicitly
held:
This Court, xxx, has relied on the dominancy test rather than the holistic test. The dominancy test
considers the dominant features in the competing marks in determining whether they are confusingly
similar. Under the dominancy test, courts give greater weight to the similarity of the appearance of the
product arising from the adoption of the dominant features of the registered mark, disregarding minor
differences. Courts will consider more the aural and visual impressions created by the marks in the public
mind, giving little weight to factors like prices, quality, sales outlets and market segments.
Moreover, in Societe Des Produits Nestle, S.A. v. CA24 the Court, applying the dominancy test, concluded
that the use by the respondent therein of the word "MASTER" for its coffee product "FLAVOR MASTER"
was likely to cause confusion with therein petitioner’s coffee products’ "MASTER ROAST" and "MASTER
BLEND" and further ruled:
xxx, the totality or holistic test is contrary to the elementary postulate of the law on trademarks and
unfair competition that confusing similarity is to be determined on the basis of visual, aural, connotative
comparisons and overall impressions engendered by the marks in controversy as they are encountered in
the marketplace. The totality or holistic test only relies on visual comparisons between two trademarks
whereas the dominancy test relies not only on the visual but also on the aural and connotative
comparisons and overall impressions between the two trademarks.
Applying the dominancy test to the instant case, the Court finds that herein petitioner’s "MCDONALD’S"
and respondent’s "MACJOY" marks are confusingly similar with each other such that an ordinary
purchaser can conclude an association or relation between the marks.
To begin with, both marks use the corporate "M" design logo and the prefixes "Mc" and/or "Mac" as
dominant features. The first letter "M" in both marks puts emphasis on the prefixes "Mc" and/or "Mac" by
the similar way in which they are depicted i.e. in an arch-like, capitalized and stylized manner.25
For sure, it is the prefix "Mc," an abbreviation of "Mac," which visually and aurally catches the attention of
the consuming public. Verily, the word "MACJOY" attracts attention the same way as did "McDonalds,"
"MacFries," "McSpaghetti," "McDo," "Big Mac" and the rest of the MCDONALD’S marks which all use the
prefixes Mc and/or Mac.
Besides and most importantly, both trademarks are used in the sale of fastfood products. Indisputably,
the respondent’s trademark application for the "MACJOY & DEVICE" trademark covers goods under
Classes 29 and 30 of the International Classification of Goods, namely, fried chicken, chicken barbeque,
burgers, fries, spaghetti, etc. Likewise, the petitioner’s trademark registration for the MCDONALD’S marks
in the Philippines covers goods which are similar if not identical to those covered by the respondent’s
application.
Thus, we concur with the IPO’s findings that:
In the case at bar, the predominant features such as the "M," "Mc," and "Mac" appearing in both
McDonald’s marks and the MACJOY & DEVICE" easily attract the attention of would-be customers. Even
non-regular customers of their fastfood restaurants would readily notice the predominance of the "M"
design, "Mc/Mac" prefixes shown in both marks. Such that the common awareness or perception of
customers that the trademarks McDonalds mark and MACJOY & DEVICE are one and the same, or an
affiliate, or under the sponsorship of the other is not far-fetched.
The differences and variations in styles as the device depicting a head of chicken with cap and bowtie and
wings sprouting on both sides of the chicken head, the heart-shaped "M," and the stylistic letters in
"MACJOY & DEVICE;" in contrast to the arch-like "M" and the one-styled gothic letters in McDonald’s marks
are of no moment. These minuscule variations are overshadowed by the appearance of the predominant
features mentioned hereinabove.
Thus, with the predominance of the letter "M," and prefixes "Mac/Mc" found in both marks, the inevitable
conclusion is there is confusing similarity between the trademarks Mc Donald’s marks and "MACJOY AND
DEVICE" especially considering the fact that both marks are being used on almost the same products
falling under Classes 29 and 30 of the International Classification of Goods i.e. Food and ingredients of
food.
With the existence of confusing similarity between the subject trademarks, the resulting issue to be
resolved is who, as between the parties, has the rightful claim of ownership over the said marks.
We rule for the petitioner.
A mark is valid if it is distinctive and hence not barred from registration under the Trademark Law.
However, once registered, not only the mark’s validity but also the registrant’s ownership thereof is prima
facie presumed.26
Pursuant to Section 3727 of R.A. No. 166, as amended, as well as the provision regarding the protection
of industrial property of foreign nationals in this country as embodied in the Paris Convention28 under
which the Philippines and the petitioner’s domicile, the United States, are adherent-members, the
petitioner was able to register its MCDONALD’S marks successively, i.e., "McDonald’s" in 04 October,
197129 ; the corporate logo which is the "M" or the golden arches design and the "McDonald’s" with the
"M" or golden arches design both in 30 June 197730 ; and so on and so forth.31
On the other hand, it is not disputed that the respondent’s application for registration of its trademark
"MACJOY & DEVICE" was filed only on March 14, 1991 albeit the date of first use in the Philippines was
December 7, 1987.32
Hence, from the evidence on record, it is clear that the petitioner has duly established its ownership of
the mark/s.
Respondent’s contention that it was the first user of the mark in the Philippines having used "MACJOY &
DEVICE" on its restaurant business and food products since December, 1987 at Cebu City while the first
McDonald’s outlet of the petitioner thereat was opened only in 1992, is downright unmeritorious. For the
requirement of "actual use in commerce x x x in the Philippines" before one may register a trademark,
trade-name and service mark under the Trademark Law33 pertains to the territorial jurisdiction of the
Philippines and is not only confined to a certain region, province, city or barangay.
Likewise wanting in merit is the respondent’s claim that the petitioner cannot acquire ownership of the
word "Mac" because it is a personal name which may not be monopolized as a trademark as against
others of the same name or surname. As stated earlier, once a trademark has been registered, the
validity of the mark is prima facie presumed. In this case, the respondent failed to overcome such
presumption. We agree with the observations of the petitioner regarding the respondent’s explanation
that the word "MACJOY" is based on the name of its president’s niece, Scarlett Yu Carcell. In the words of
the petitioner:
First of all, Respondent failed to present evidence to support the foregoing claim which, at best, is a mere
self-serving assertion. Secondly, it cannot be denied that there is absolutely no connection between the
name "Scarlett Yu Carcel" and "MacJoy" to merit the coinage of the latter word. Even assuming that the
word "MacJoy" was chosen as a term of endearment, fondness and affection for a certain Scarlett Yu
Carcel, allegedly the niece of Respondent’s president, as well as to supposedly bring good luck to
Respondent’s business, one cannot help but wonder why out of all the possible letters or combinations of
letters available to Respondent, its president had to choose and adopt a mark with the prefix "Mac" as the
dominant feature thereof. A more plausible explanation perhaps is that the niece of Respondent’s
president was fond of the food products and services of the Respondent, but that is beside the point." 34
By reason of the respondent’s implausible and insufficient explanation as to how and why out of the many
choices of words it could have used for its trade-name and/or trademark, it chose the word "MACJOY," the
only logical conclusion deducible therefrom is that the respondent would want to ride high on the
established reputation and goodwill of the MCDONALD’s marks, which, as applied to petitioner’s
restaurant business and food products, is undoubtedly beyond question.
Thus, the IPO was correct in rejecting and denying the respondent’s application for registration of the
trademark "MACJOY & DEVICE." As this Court ruled in Faberge Inc. v. IAC,35 citing Chuanchow Soy &
Canning Co. v. Dir. of Patents and Villapanta:36
When one applies for the registration of a trademark or label which is almost the same or very closely
resembles one already used and registered by another, the application should be rejected and dismissed
outright, even without any opposition on the part of the owner and user of a previously registered label or
trademark, this not only to avoid confusion on the part of the public, but also to protect an already used
and registered trademark and an established goodwill.
WHEREFORE, the instant petition is GRANTED. Accordingly, the assailed Decision and Resolution of the
Court of Appeals in CA-G.R. SP NO. 57247, are REVERSED and SET ASIDE and the Decision of the
Intellectual Property Office in Inter Partes Case No. 3861 is REINSTATED.
No pronouncement as to costs.
SO ORDERED.
CANCIO C. GARCIA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson
ANGELINA SANDOVAL- RENATO C. CORONA
GUTIERREZ Asscociate Justice
Associate Justice
ADOLFO S. AZCUNA
Associate Justice
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the
above decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1 Penned by Associate Justice Isaias P. Dicdican and concurred in by Associate Justices Elvi John S.
Asuncion and Ramon Bato, Jr.; Rollo, pp. 209-219.
2 Id. at 256-257.
3 Id. at 77-81.
4 Id. at 114-122.
5 Id. at 139-142.
6 Id. at 144-159.
7 Supra note 1.
8 Supra note 2.
9 Rollo, pp. 291-306.
10 Id. at 72.
11 Id. at 74 & 76
12 Moomba Mining Exploration Co. v. CA, G.R. No. 108846, October 26, 99, 317 SCRA 38, 397.
13 Smith Kline Beckman Corporation v. CA, G.R. No. 126627, August 14, 2003, 409 SCRA 33, 39.
14 Section 38, R.A. 166, as amended
15 Mighty Corporation v. E & J Gallo Winery, G.R. No. 154342, July 14, 2004, 434 SCRA 473, 506.
16 McDonald’s Corporation v. L.C. Big Mak Burger, Inc., supra
17 Id.
18 Emerald Garment Manufacturing Corporation v. Court of Appeals, G.R. No. 100098, December 29,
1995, 251 SCRA 600, 615-616.
19 Societe Des Produits Nestle, S.A. v. CA, GR No. 112012, April 4, 2001, 356 SCRA 207, 217.
20 Id.
21 Id. at p. 218.
22 Applied in McDonald’s Corp. v. L.C. Big Mak Burger, Inc., supra; Societe Des Produits Nestle, S.A. v. CA,
supra; Asia Brewery, Inc. v. CA, G.R. No. 103543, July 5, 1993, 224 SCRA 437; Converse Rubber Corp. v.
Universal Rubber Products, Inc., G.R. No. L-27906, January 8, 1987, 147 SCRA 154; Phil. Nut Industry Inc.
v. Standard Brands, Inc., G.R. No. L-23035, July 31, 1975, 65 SCRA 575.
23 Supra note 14, at 32.
24 Supra note 23.
25 "MacJoy" mark, Rollo p. 297 and "MCDONALDS" marks, Rollo, pp. 86, 89 & 91.
26 McDonald’s Corporation v L.C. Big Mak Burger Inc., supra note 14; SEC. 20. Certificate of registration
prima facie evidence of validity. - A certificate of registration of a mark or trade name shall be prima facie
evidence of the validity of the registration, the registrant’s ownership of the mark or trade name, and of
the registrant’s exclusive right to use the same in connection with the goods, business or services
specified in the certificate, subject to any conditions and limitations stated therein.
27 Sec. 37. Rights of Foreign Registrants-Persons who are nationals of, domiciled in, or have a bona fide
or effective business or commercial establishment in any foreign country, which is a party to an
international convention or treaty relating to marks or tradenames on the repression of unfair competition
to which the Philippines may be a party, shall be entitled to the benefits and subject to the provisions of
this Act . . . x x x
"Tradenames of persons described in the first paragraph of this section shall be protected without the
obligation of filing or registration whether or not they form parts of marks."
28 The Paris Convention is essentially a compact among the various member countries to accord in their
own countries to citizens of the other contracting parties’ trademarks and other rights comparable to
those accorded their own citizens by their domestic laws. The underlying principle is that foreign
nationals should be given the same treatment in each of the member countries as that country makes
available to its own citizens. In addition, the Convention sought to create uniformity in certain respects by
obligating each nation to assure to nationals of countries of the Union an effective protection against
unfair competition. Article 2 of the Paris Convention provides that: ART. 2. Nationals of each of the
countries of the Union shall, as regards the protection of industrial property, enjoy in all the other
countries of the Union the advantages that their respective laws now grant, or may hereafter grant, to
nationals, without prejudice to the rights specially provided by the present Convention. Consequently,
 they shall have the same protection as the latter, and the same legal remedy against any infringement of
their rights, provided they observe the conditions and formalities imposed upon nationals.
29 Rollo, p. 86
30 Id. at 89 & 91
31 Registration No. 31966, dated June 24, 1983 for the mark "McChicken", Id. at 93; Registration No.
34065, dated March 06, 1985, for the mark "McDonald’s with "corporate logo"arches design, Id. at 94;
Registration No. 34065, dated July 18, 1985 for the mark "Big Mac", Id. at 97; Registration No. 39988,
dated July 14, 1988 for the mark "MacFries", Id. at 99; Registration No. 45583, dated July 14, 1988, for the
mark "McSpaghetti", Id. at 101; Registration No. 50987, dated July 24, 1991, for the servicemark "McDo" ,
Id. at 100; Registration No. 32009, dated June 24, 1983 for the trademark "Big Mac" and Circle Design
Rollo, p. 106; Registration No. 48491, dated June 25, 1990 for the service mark "McSnack" Id. at 105;
Registration No. 51789, dated December 02, 1991, for the trademark "Mc" (Id. at 107).
32 IPO Decision; Rollo, pp. 120-121.
33 Section 2 of R.A. 166, as amended, provides: Sec. 2. What are registrable. – Trademarks, tradenames
and service marks owned by persons, corporations, partnerships or associations domiciled in the
Philippines and by persons, corporations, partnerships or associations domiciled in any foreign country
may be registered in accordance with the provisions of this Act; Provided, That said trademarks,
tradenames, or service marks are actually in use in commerce and services not less than two months in
the Philippines before the time the applications for registration are filed; And provided, further, That the
country of which the applicant for registration is a citizen grants by law substantially similar privileges to
citizens of the Philippines, and such fact is officially certified, with a certified true copy of the foreign law
translated into the English language, by the government of the foreign country to the Government of the
Republic of the Philippines. (As amended by R.A. No. 865).
34 Rollo, pp. 55-56.
35 G.R. No. 71189, November 4, 1992.
36 G.R. No. L-13947, 108 Phil. 833, 836.

Pasted from <http://www.lawphil.net/judjuris/juri2007/feb2007/gr_166115_2007.html>

Coca Cola Bottlers vs. Gomez (2008)

Sunday, June 06, 2010
5:03 AM

G.R. No. 154491 November 14, 2008

COCA-COLA BOTTLERS, PHILS., INC. (CCBPI), Naga Plant, petitioner,
vs.
QUINTIN J. GOMEZ, a.k.a. "KIT" GOMEZ and DANILO E. GALICIA, a.k.a. "DANNY
GALICIA", respondents.
DECISION
BRION, J.:
Is the hoarding of a competitor's product containers punishable as unfair competition under the
Intellectual Property Code (IP Code, Republic Act No. 8293) that would entitle the aggrieved party to a
search warrant against the hoarder? This is the issue we grapple with in this petition for review
on certiorari involving two rival multinational softdrink giants; petitioner Coca-Cola Bottlers, Phils., Inc.
(Coca-Cola) accuses Pepsi Cola Products Phils., Inc. (Pepsi), represented by the respondents, of hoarding
empty Coke bottles in bad faith to discredit its business and to sabotage its operation in Bicolandia.
BACKGROUND
The facts, as culled from the records, are summarized below.
On July 2, 2001, Coca-Cola applied for a search warrant against Pepsi for hoarding Coke empty bottles in
Pepsi's yard in Concepcion Grande, Naga City, an act allegedly penalized as unfair competition under the
IP Code. Coca-Cola claimed that the bottles must be confiscated to preclude their illegal use, destruction
or concealment by the respondents.1 In support of the application, Coca-Cola submitted the sworn
statements of three witnesses: Naga plant representative Arnel John Ponce said he was informed that one
of their plant security guards had gained access into the Pepsi compound and had seen empty Coke
bottles; acting plant security officer Ylano A. Regaspisaid he investigated reports that Pepsi was
hoarding large quantities of Coke bottles by requesting their security guard to enter the Pepsi plant and
he was informed by the security guard that Pepsi hoarded several Coke bottles; security guard Edwin
Lirio stated that he entered Pepsi's yard on July 2, 2001 at 4 p.m. and saw empty Coke bottles inside
Pepsi shells or cases.2
Municipal Trial Court (MTC) Executive Judge Julian C. Ocampo of Naga City, after taking the joint
deposition of the witnesses, issued Search Warrant No. 2001-013 to seize 2,500 Litro and 3,000 eight and
12 ounces empty Coke bottles at Pepsi's Naga yard for violation of Section 168.3 (c) of the IP Code.4 The
local police seized and brought to the MTC's custody 2,464 Litro and 4,036 eight and 12 ounces empty
Coke bottles, 205 Pepsi shells for Litro, and 168 Pepsi shells for smaller (eight and 12 ounces) empty Coke
bottles, and later filed with the Office of the City Prosecutor of Naga a complaint against two Pepsi officers
for violation of Section 168.3 (c) in relation to Section 170 of the IP Code.5 The named respondents, also
the respondents in this petition, were Pepsi regional sales manager Danilo E. Galicia (Galicia) and its
Naga general manager Quintin J. Gomez, Jr. (Gomez).
In their counter-affidavits, Galicia and Gomez claimed that the bottles came from various Pepsi retailers
and wholesalers who included them in their return to make up for shortages of empty Pepsi bottles; they
had no way of ascertaining beforehand the return of empty Coke bottles as they simply received what
had been delivered; the presence of the bottles in their yard was not intentional nor deliberate; Ponce
and Regaspi's statements are hearsay as they had no personal knowledge of the alleged crime; there is
no mention in the IP Code of the crime of possession of empty bottles; and that the ambiguity of the law,
which has a penal nature, must be construed strictly against the State and liberally in their favor. Pepsi
security guards Eduardo E. Miral and Rene Acebuche executed a joint affidavit stating that per their
logbook, Lirio did not visit or enter the plant premises in the afternoon of July 2, 2001.
The respondents also filed motions for the return of their shells and to quash the search warrant. They
contended that no probable cause existed to justify the issuance of the search warrant; the facts charged
do not constitute an offense; and their Naga plant was in urgent need of the shells.
Coca-Cola opposed the motions as the shells were part of the evidence of the crime, arguing that Pepsi
used the shells in hoarding the bottles. It insisted that the issuance of warrant was based on probable
cause for unfair competition under the IP Code, and that the respondents violated R.A. 623, the law
regulating the use of stamped or marked bottles, boxes, and other similar containers.
THE MTC RULINGS
On September 19, 2001, the MTC issued the first assailed order6 denying the twin motions. It explained
there was an exhaustive examination of the applicant and its witnesses through searching questions and
that the Pepsi shells are prima facie evidence that the bottles were placed there by the respondents.
In their motion for reconsideration, the respondents argued for the quashal of the warrant as the MTC did
not conduct a probing and exhaustive examination; the applicant and its witnesses had no personal
knowledge of facts surrounding the hoarding; the court failed to order the return of the "borrowed" shells;
there was no crime involved; the warrant was issued based on hearsay evidence; and the seizure of the
shells was illegal because they were not included in the warrant.
On November 14, 2001, the MTC denied the motion for reconsideration in the second assailed
order,7 explaining that the issue of whether there was unfair competition can only be resolved during
trial.
The respondents responded by filing a petition for certiorari under Rule 65 of the Revised Rules of Court
before the Regional Trial Court (RTC) of Naga City on the ground that the subject search warrant was
issued without probable cause and that the empty shells were neither mentioned in the warrant nor the
objects of the perceived crime.
THE RTC RULINGS
On May 8, 2002, the RTC voided the warrant for lack of probable cause and the non-commission of the
crime of unfair competition, even as it implied that other laws may have been violated by the
respondents. The RTC, though, found no grave abuse of discretion on the part of the issuing MTC
judge.8 Thus,
Accordingly, as prayed for, Search Warrant No. 2001-02 issued by the Honorable Judge Julian C. Ocampo
III on July 2, 2001 is ANNULLED and SET ASIDE. The Orders issued by the Pairing Judge of Br. 1, MTCC of
Naga City dated September 19, 2001 and November 14, 2001 are also declared VOID and SET ASIDE. The
City Prosecutor of Naga City and SPO1 Ernesto Paredes are directed to return to the Petitioner the
properties seized by virtue of Search Warrant No. 2001-02. No costs.
SO ORDERED.9
In a motion for reconsideration, which the RTC denied on July 12, 2002, the petitioner stressed that the
decision of the RTC was contradictory because it absolved Judge Ocampo of grave abuse of discretion in
issuing the search warrant, but at the same time nullified the issued warrant. The MTC should have
dismissed the petition when it found out that Judge Ocampo did not commit any grave abuse of
discretion.
Bypassing the Court of Appeals, the petitioner asks us through this petition for review on certiorari under
Rule 45 of the Rules of Court to reverse the decision of the RTC. Essentially, the petition raises questions
against the RTC's nullification of the warrant when it found no grave abuse of discretion committed by the
issuing judge.
THE PETITION and
THE PARTIES' POSITIONS
In its petition, the petitioner insists the RTC should have dismissed the respondents' petition for certiorari
because it found no grave abuse of discretion by the MTC in issuing the search warrant. The petitioner
further argues that the IP Code was enacted into law to remedy various forms of unfair competition
accompanying globalization as well as to replace the inutile provision of unfair competition under Article
189 of the Revised Penal Code. Section 168.3(c) of the IP Code does not limit the scope of protection on
the particular acts enumerated as it expands the meaning of unfair competition to include "other acts
contrary to good faith of a nature calculated to discredit the goods, business or services of another." The
inherent element of unfair competition is fraud or deceit, and that hoarding of large quantities of a
competitor's empty bottles is necessarily characterized by bad faith. It claims that its Bicol bottling
operation was prejudiced by the respondents' hoarding and destruction of its empty bottles.
The petitioner also argues that the quashal of the search warrant was improper because it complied with
all the essential requisites of a valid warrant. The empty bottles were concealed in Pepsi shells to prevent
discovery while they were systematically being destroyed to hamper the petitioner's bottling operation
and to undermine the capability of its bottling operations in Bicol.
The respondents counter-argue that although Judge Ocampo conducted his own examination, he gravely
erred and abused his discretion when he ignored the rule on the need of sufficient evidence to establish
probable cause; satisfactory and convincing evidence is essential to hold them guilty of unfair
competition; the hoarding of empty Coke bottles did not cause actual or probable deception and
confusion on the part of the general public; the alleged criminal acts do not show conduct aimed at
deceiving the public; there was no attempt to use the empty bottles or pass them off as the respondents'
goods.
The respondents also argue that the IP Code does not criminalize bottle hoarding, as the acts penalized
must always involve fraud and deceit. The hoarding does not make them liable for unfair competition as
there was no deception or fraud on the end-users.
THE ISSUE
Based on the parties' positions, the basic issue submitted to us for resolution is whether the Naga MTC
was correct in issuing Search Warrant No. 2001-01 for the seizure of the empty Coke bottles from Pepsi's
yard for probable violation of Section 168.3 (c) of the IP Code. This basic issue involves two sub-issues,
namely, the substantive issue of whether the application for search warrant effectively charged an
offense, i.e., a violation of Section 168.3 (c) of the IP Code; and the procedural issue of whether the MTC
observed the procedures required by the Rules of Court in the issuance of search warrants.
OUR RULING
We resolve to deny the petition for lack of merit.
We clarify at the outset that while we agree with the RTC decision, our agreement is more in the result
than in the reasons that supported it. The decision is correct in nullifying the search warrant because it
was issued on an invalid substantive basis - the acts imputed on the respondents do not violate Section
168.3 (c) of the IP Code. For this reason, we deny the present petition.
The issuance of a search warrant10 against a personal property11 is governed by Rule 126 of the Revised
Rules of Court whose relevant sections state:
Section 4. Requisites for issuing search warrant. - A search warrant shall not issue except upon probable
cause in connection with one specific offense to be determined personally by the judge after
examination under oath or affirmation of the complainant and the witnesses he may produce, and
particularly describing the place to be searched and the things to be seized which may be anywhere in
the Philippines.
Section 5. Examination of complainant; record. - The judge must, before issuing the warrant, personally
examine in the form of searching questions and answers, in writing and under oath, the
complainant and the witnesses he may produce on facts personally known to them and attach to the
record their sworn statements together with the affidavits submitted.
Section 6. Issuance and form of search warrant. - If the judge is satisfied of the existence of facts upon
which the application is based or that there is probable cause to believe that they exist, he shall issue the
warrant, which must be substantially in the form prescribed by these Rules. [Emphasis supplied]
To paraphrase this rule, a search warrant may be issued only if there is probable cause in connection with
a specific offense alleged in an application based on the personal knowledge of the applicant and his or
her witnesses. This is the substantive requirement in the issuance of a search warrant. Procedurally, the
determination of probable cause is a personal task of the judge before whom the application for search
warrant is filed, as he has to examine under oath or affirmation the applicant and his or her witnesses in
the form of "searching questions and answers" in writing and under oath. The warrant, if issued, must
particularly describe the place to be searched and the things to be seized.
We paraphrase these requirements to stress that they have substantive and procedural aspects.
Apparently, the RTC recognized this dual nature of the requirements and, hence, treated them
separately; it approved of the way the MTC handled the procedural aspects of the issuance of the search
warrant but found its action on the substantive aspect wanting. It therefore resolved to nullify the
warrant, without however expressly declaring that the MTC gravely abused its discretion when it issued
the warrant applied for. The RTC's error, however, is in the form rather than the substance of the decision
as the nullification of the issued warrant for the reason the RTC gave was equivalent to the declaration
that grave abuse of discretion was committed. In fact, we so rule as the discussions below will show.
Jurisprudence teaches us that probable cause, as a condition for the issuance of a search warrant, is such
reasons supported by facts and circumstances as will warrant a cautious man in the belief that his action
and the means taken in prosecuting it are legally just and proper. Probable cause requires facts and
circumstances that would lead a reasonably prudent man to believe that an offense has been committed
and the objects sought in connection with that offense are in the place to be searched.12 Implicit in this
statement is the recognition that an underlying offense must, in the first place, exist. In other words, the
acts alleged, taken together, must constitute an offense and that these acts are imputable to an offender
in relation with whom a search warrant is applied for.
In the context of the present case, the question is whether the act charged - alleged to be hoarding of
empty Coke bottles - constitutes an offense under Section 168.3 (c) of the IP Code. Section 168 in its
entirety states:
SECTION 168. Unfair Competition, Rights, Regulation and Remedies. -
168.1. A person who has identified in the mind of the public the goods he manufactures or deals in, his
business or services from those of others, whether or not a registered mark is employed, has a property
right in the goodwill of the said goods, business or services so identified, which will be protected in the
same manner as other property rights.
168.2. Any person who shall employ deception or any other means contrary to good faith by which he
shall pass off the goods manufactured by him or in which he deals, or his business, or services for those
of the one having established such goodwill, or who shall commit any acts calculated to produce said
result, shall be guilty of unfair competition, and shall be subject to an action therefor.
168.3. In particular, and without in any way limiting the scope of protection against unfair competition,
the following shall be deemed guilty of unfair competition:
(a) Any person, who is selling his goods and gives them the general appearance of goods of another
manufacturer or dealer, either as to the goods themselves or in the wrapping of the packages in which
they are contained, or the devices or words thereon, or in any other feature of their appearance, which
would be likely to influence purchasers to believe that the goods offered are those of a manufacturer or
dealer, other than the actual manufacturer or dealer, or who otherwise clothes the goods with such
appearance as shall deceive the public and defraud another of his legitimate trade, or any subsequent
vendor of such goods or any agent of any vendor engaged in selling such goods with a like purpose;
(b) Any person who by any artifice, or device, or who employs any other means calculated to induce the
false belief that such person is offering the services of another who has identified such services in the
mind of the public; or
(c) Any person who shall make any false statement in the course of trade or who shall commit any other
act contrary to good faith of a nature calculated to discredit the goods, business or services of another.
168.4. The remedies provided by Sections 156, 157 and 161 shall apply mutatis mutandis. (Sec. 29, R.A.
No. 166a)
The petitioner theorizes that the above section does not limit the scope of protection on the particular
acts enumerated as it expands the meaning of unfair competition to include "other acts contrary to good
faith of a nature calculated to discredit the goods, business or services of another." Allegedly, the
respondents' hoarding of Coca Cola empty bottles is one such act.
We do not agree with the petitioner's expansive interpretation of Section 168.3 (c).
"Unfair competition," previously defined in Philippine jurisprudence in relation with R.A. No. 166 and
Articles 188 and 189 of the Revised Penal Code, is now covered by Section 168 of the IP Code as this
Code has expressly repealed R.A. No. 165 and R.A. No. 166, and Articles 188 and 189 of the Revised
Penal Code.
Articles 168.1 and 168.2, as quoted above, provide the concept and general rule on the definition of
unfair competition. The law does not thereby cover every unfair act committed in the course of business;
it covers only acts characterized by "deception or any other means contrary to good faith" in the passing
off of goods and services as those of another who has established goodwill in relation with these goods or
services, or any other act calculated to produce the same result.
What unfair competition is, is further particularized under Section 168.3 when it provides specifics of what
unfair competition is "without in any way limiting the scope of protection against unfair competition." Part
of these particulars is provided under Section 168.3(c) which provides the general "catch-all" phrase that
the petitioner cites. Under this phrase, a person shall be guilty of unfair competition "who shall commit
any other act contrary to good faith of a nature calculated to discredit the goods, business or services of
another."
From jurisprudence, unfair competition has been defined as the passing off (or palming off) or attempting
to pass off upon the public the goods or business of one person as the goods or business of another with
the end and probable effect of deceiving the public. It formulated the "true test" of unfair competition:
whether the acts of defendant are such as are calculated to deceive the ordinary buyer making his
purchases under the ordinary conditions which prevail in the particular trade to which the controversy
relates.13 One of the essential requisites in an action to restrain unfair competition is proof of fraud; the
intent to deceive must be shown before the right to recover can exist.14 The advent of the IP Code has
not significantly changed these rulings as they are fully in accord with what Section 168 of the Code in its
entirety provides. Deception, passing off and fraud upon the publicare still the key elements that must be
present for unfair competition to exist.
The act alleged to violate the petitioner's rights under Section 168.3 (c) is hoarding which we gather to be
the collection of the petitioner's empty bottles so that they can be withdrawn from circulation and thus
impede the circulation of the petitioner's bottled products. This, according to the petitioner, is an act
contrary to good faith - a conclusion that, if true, is indeed an unfair act on the part of the respondents.
The critical question, however, isnot the intrinsic unfairness of the act of hoarding; what is critical for
purposes of Section 168.3 (c) is to determine if the hoarding, as charged, "is of a nature calculated to
discredit the goods, business or services" of the petitioner.
We hold that it is not. Hoarding as defined by the petitioner is not even an act within the contemplation of
the IP Code.
The petitioner's cited basis is a provision of the IP Code, a set of rules that refer to a very specific subject
- intellectual property. Aside from the IP Code's actual substantive contents (which relate specifically to
patents, licensing, trademarks, trade names, service marks, copyrights, and the protection and
infringement of the intellectual properties that these protective measures embody), the coverage and
intent of the Code is expressly reflected in its "Declaration of State Policy" which states:
Section 2. Declaration of State Policy. - The State recognizes that an effective intellectual and industrial
property system is vital to the development of domestic and creative activity, facilitates transfer of
technology, attracts foreign investments, and ensures market access for our products. It shall protect and
secure the exclusive rights of scientists, inventors, artists and other gifted citizens to their intellectual
property and creations, particularly when beneficial to the people, for such periods as provided in this Act.
The use of intellectual property bears a social function. To this end, the State shall promote the diffusion
of knowledge and information for the promotion of national development and progress and the common
good.
It is also the policy of the State to streamline administrative procedures of registering patents,
trademarks and copyright, to liberalize the registration on the transfer of technology, and to enhance the
enforcement of intellectual property rights in the Philippines. (n)
"Intellectual property rights" have furthermore been defined under Section 4 of the Code to consist of: a)
Copyright and Related Rights; b) Trademarks and Service Marks; c) Geographic Indications; d)
IndustrialDesigns; e) Patents; f) Layout-Designs (Topographies) of Integrated Circuits; and g)Protection of
Undisclosed Information.
Given the IP Code's specific focus, a first test that should be made when a question arises on whether a
matter is covered by the Code is to ask if it refers to an intellectual property as defined in the Code. If it
does not, then coverage by the Code may be negated.
A second test, if a disputed matter does not expressly refer to an intellectual property right as defined
above, is whether it falls under the general "unfair competition" concept and definition under Sections
168.1 and 168.2 of the Code. The question then is whether there is "deception" or any other similar act in
"passing off" of goods or services to be those of another who enjoys established goodwill.
Separately from these tests is the application of the principles of statutory construction giving particular
attention, not so much to the focus of the IP Code generally, but to the terms of Section 168 in particular.
Under the principle of "noscitur a sociis," when a particular word or phrase is ambiguous in itself or is
equally susceptible of various meanings, its correct construction may be made clear and specific by
considering the company of words in which it is found or with which it is associated.15
As basis for this interpretative analysis, we note that Section 168.1 speaks of a person who has earned
goodwill with respect to his goods and services and who is entitled to protection under the Code, with or
without a registered mark. Section 168.2, as previously discussed, refers to the general definition of
unfair competition.Section 168.3, on the other hand, refers to the specific instances of unfair
competition, with Section 168.1referring to the sale of goods given the appearance of the goods of
another; Section 168.2, to the inducement of belief that his or her goods or services are that of another
who has earned goodwill; while the disputed Section 168.3 being a "catch all" clause whose coverage
the parties now dispute.
Under all the above approaches, we conclude that the "hoarding" - as defined and charged by the
petitioner - does not fall within the coverage of the IP Code and of Section 168 in particular. It does not
relate to any patent, trademark, trade name or service mark that the respondents have invaded, intruded
into or used without proper authority from the petitioner. Nor are the respondents alleged to be
fraudulently "passing off" their products or services as those of the petitioner. The respondents are not
also alleged to be undertaking any representation or misrepresentation that would confuse or tend to
confuse the goods of the petitioner with those of the respondents, or vice versa. What in fact the
petitioner alleges is an act foreign to the Code, to the concepts it embodies and to the acts it regulates;
as alleged, hoarding inflicts unfairness by seeking to limit the opposition's sales by depriving it of the
bottles it can use for these sales.
In this light, hoarding for purposes of destruction is closer to what another law - R.A. No. 623 - covers, to
wit:
SECTION 1. Persons engaged or licensed to engage in the manufacture, bottling or selling of soda water,
mineral or aerated waters, cider, milk, cream, or other lawful beverages in bottles, boxes, casks, kegs, or
barrels, and other similar containers, with their names or the names of their principals or products, or
other marks of ownership stamped or marked thereon, may register with the Philippine Patent Office a
description of the names or are used by them, under the same conditions, rules, and regulations, made
applicable by law or regulation to the issuance of trademarks.
SECTION 2. It shall be unlawful for any person, without the written consent of the manufacturer, bottler or
seller who has successfully registered the marks of ownership in accordance with the provisions of the
next preceding section, to fill such bottles, boxes, kegs, barrels, or other similar containers so
marked or stamped, for the purpose of sale, or to sell, dispose of, buy, or traffic in, or
wantonly destroy the same, whether filled or not, or to use the same for drinking vessels or
glasses or for any other purpose than that registered by the manufacturer, bottler or seller.
Any violation of this section shall be punished by a fine or not more than one hundred pesos or
imprisonment of not more than thirty days or both.
As its coverage is defined under Section 1, the Act appears to be a measure that may overlap or be
affected by the provisions of Part II of the IP Code on "The Law on Trademarks, Service Marks and Trade
Names." What is certain is that the IP Code has not expressly repealed this Act. The Act appears, too, to
have specific reference to a special type of registrants - the manufacturers, bottlers or sellers of soda
water, mineral or aerated waters, cider, milk, cream, or other lawful beverages in bottles, boxes, casks,
kegs, or barrels, and other similar containers - who are given special protection with respect to the
containers they use. In this sense, it is in fact a law of specific coverage and application, compared with
the general terms and application of the IP Code. Thus, under its Section 2, it speaks specifically of
unlawful use of containers and even of the unlawfulness of their wanton destruction - a matter that
escapes the IP Code's generalities unless linked with the concepts of "deception" and "passing off" as
discussed above.
Unfortunately, the Act is not the law in issue in the present case and one that the parties did not consider
at all in the search warrant application. The petitioner in fact could not have cited it in its search warrant
application since the "one specific offense" that the law allows and which the petitioner used was Section
168.3 (c). If it serves any purpose at all in our discussions, it is to show that the underlying factual
situation of the present case is in fact covered by another law, not by the IP Code that the petitioner cites.
Viewed in this light, the lack of probable cause to support the disputed search warrant at once becomes
apparent.
Where, as in this case, the imputed acts do not violate the cited offense, the ruling of this Court penned
by Mr. Justice Bellosillo is particularly instructive:
In the issuance of search warrants, the Rules of Court requires a finding of probable cause in connection
with one specific offense to be determined personally by the judge after examination of the complainant
and the witnesses he may produce, and particularly describing the place to be searched and the things to
be seized. Hence, since there is no crime to speak of, the search warrant does not even begin
to fulfill these stringent requirements and is therefore defective on its face. The nullity of the
warrant renders moot and academic the other issues raised in petitioners' Motion to Quash and Motion for
Reconsideration. Since the assailed search warrant is null and void, all property seized by virtue thereof
should be returned to petitioners in accordance with established jurisprudence.16
Based on the foregoing, we conclude that the RTC correctly ruled that the petitioner's search warrant
should properly be quashed for the petitioner's failure to show that the acts imputed to the respondents
do not violate the cited offense. There could not have been any probable cause to support the issuance of
a search warrant because no crime in the first place was effectively charged. This conclusion renders
unnecessary any further discussion on whether the search warrant application properly alleged that the
imputed act of holding Coke empties was in fact a "hoarding" in bad faith aimed to prejudice the
petitioner's operations, or whether the MTC duly complied with the procedural requirements for the
issuance of a search warrant under Rule 126 of the Rules of Court.
WHEREFORE, we hereby DENY the petition for lack of merit. Accordingly, we confirm that Search
Warrant No. 2001-01, issued by the Municipal Trial Court, Branch 1, Naga City, is NULL and VOID. Costs
against the petitioner.
SO ORDERED.
ARTURO D. BRION
Associate Justice
WE CONCUR:

*LEONARDO A. QUISUMBING
Acting Chief Justice
CONCHITA CARPIO MORALES DANTE O. TINGA
Associate Justice Associate Justice
PRESBITERO J. VELASCO, JR.
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, it is
hereby certified that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.
LEONARDO A. QUISUMBING
Acting Chief Justice
Footnotes
* Acting Chief Justice.
1 See Paragraph 3 of the Application; records, p. 96.
2 Id., pp. 98-101.
3 Id., pp. 108-109.
4 Sec. 168. Unfair Competition, Rights, Regulations and Remedies. -
xxx xxx xxx
Sec. 168.3: In particular, and without in any way limiting the scope of protection against unfair
competition, the following shall be deemed guilty of unfair competition:
xxx
(c) Any person who shall make any false statement in the course of trade or who shall commit any other
act contrary to good faith of a nature calculated to discredit the goods, business or service of another.
5 Sec. 170. Penalties. - Independent of the civil and administrative sanctions imposed by law, a criminal
penalty of imprisonment from two years to five years and a fine ranging from Fifty thousand pesos
(P50,000) to Two hundred thousand pesos (P200,000), shall be imposed on any person who is found
guilty of committing any of the acts mentioned in Section 155, Section 168 and Subsection 169.1.
6 Penned by Pairing Judge Irma Isidora M. Boncodin, MTC, Branch 1, Naga; records, p. 23.
7 Penned by Acting Presiding Judge Jose P. Nacional, MTC, Branch 1, Naga; id, p. 22.
8 Decision penned by Judge Ramon A. Cruz, RTC, Branch 21; id., pp. 202-211.
9 Id., p. 210.
10 Rule 126, Section 1. Search warrant defined. - A search warrant is an order in writing issued in the
name of the People of the Philippines, signed by a judge and directed to a peace officer, commanding him
to search for personal property described therein and bring it before the court.
11 Rule 126, Section 3. Personal property to be seized. - A search warrant may be issued for the search
and seizure of personal property:
(a) Subject of the offense;
(b) Stolen or embezzled and other proceeds or fruits of the offense; or
(c) Used or intended to be used as the means of committing an offense.
12 La Chemise Lacoste, S. A. v. Judge Fernandez, G.R. Nos. 63796-97, May 21, 1984, 129 SCRA 373.
13 Alhambra Cigar & Cigarette Manufacturing Co v. Mojica, 27 Phil. 266 (1914).
14 Compania General de Tabacos de Filipinas v. Alhambra Cigar & Cigarette Manufacturing Co., 33 Phil.
485 (1916).
15 Agpalo, Statutory Construction, 3rd (1995) Ed., at p. 159, citing Co Kim Chan v. Valdez Tan Keh, 75
Phil 371, and Soriano v. Sandiganbayan, G.R. No. 65952, July 1, 1984, among others.
16 Supra note 12, pp. 705-706.
 Pasted from <http://www.lawphil.net/judjuris/juri2008/nov2008/gr_154491_2008.html>

Ching vs. Salinas (2005)

Sunday, June 06, 2010
5:05 AM

G.R. No. 161295 June 29, 2005

JESSIE G. CHING, petitioner,
vs.
WILLIAM M. SALINAS, SR., WILLIAM M. SALINAS, JR., JOSEPHINE L. SALINAS, JENNIFER Y.
SALINAS, ALONTO SOLAIMAN SALLE, JOHN ERIC I. SALINAS, NOEL M. YABUT (Board of Directors
and Officers of WILAWARE PRODUCT CORPORATION), respondents.
DECISION
CALLEJO, SR., J.:
This petition for review on certiorari assails the Decision1 and Resolution2 of the Court of Appeals (CA) in
CA-G.R. SP No. 70411 affirming the January 3, 2002 and February 14, 2002 Orders3 of the Regional Trial
Court (RTC) of Manila, Branch 1, which quashed and set aside Search Warrant Nos. 01-2401 and 01-2402
granted in favor of petitioner Jessie G. Ching.
Jessie G. Ching is the owner and general manager of Jeshicris Manufacturing Co., the maker and
manufacturer of a Utility Model, described as "Leaf Spring Eye Bushing for Automobile" made up of plastic.
On September 4, 2001, Ching and Joseph Yu were issued by the National Library Certificates of Copyright
Registration and Deposit of the said work described therein as "Leaf Spring Eye Bushing for Automobile."4
On September 20, 2001, Ching requested the National Bureau of Investigation (NBI) for police/investigative
assistance for the apprehension and prosecution of illegal manufacturers, producers and/or distributors of
the works.5
After due investigation, the NBI filed applications for search warrants in the RTC of Manila against William
Salinas, Sr. and the officers and members of the Board of Directors of Wilaware Product Corporation. It was
alleged that the respondents therein reproduced and distributed the said models penalized under Sections
177.1 and 177.3 of Republic Act (R.A.) No. 8293. The applications sought the seizure of the following:
a.) Undetermined quantity of Leaf spring eye bushing for automobile that are made up of plastic
polypropylene;
b.) Undetermined quantity of Leaf spring eye bushing for automobile that are made up of polyvinyl
chloride plastic;
c.) Undetermined quantity of Vehicle bearing cushion that is made up of polyvinyl chloride plastic;
d.) Undetermined quantity of Dies and jigs, patterns and flasks used in the manufacture/fabrication of
items a to d;
e.) Evidences of sale which include delivery receipts, invoices and official receipts.6
The RTC granted the application and issued Search Warrant Nos. 01-2401 and 01-2402 for the seizure of
the aforecited articles.7 In the inventory submitted by the NBI agent, it appears that the following
articles/items were seized based on the search warrants:
Leaf Spring eye bushing
a) Plastic Polypropylene
- C190 27 }
- C240 rear 40 }
- C240 front 41 } BAG 1
b) Polyvinyl Chloride Plastic
- C190 13 }
c) Vehicle bearing cushion
- center bearing cushion 11 }
Budder for C190 mold 8 }
Diesel Mold
a) Mold for spring eye bushing rear 1 set
b) Mold for spring eye bushing front 1 set
c) Mold for spring eye bushing for C190 1 set
d) Mold for C240 rear 1 piece of the set
e) Mold for spring eye bushing for L300 2 sets
f) Mold for leaf spring eye bushing C190 with metal 1 set
g) Mold for vehicle bearing cushion 1 set8
The respondents filed a motion to quash the search warrants on the following grounds:
2. The copyright registrations were issued in violation of the Intellectual Property Code on the ground that:
a) the subject matter of the registrations are not artistic or literary;
b) the subject matter of the registrations are spare parts of automobiles meaning – there (sic) are original
parts that they are designed to replace. Hence, they are not original.9
The respondents averred that the works covered by the certificates issued by the National Library are not
artistic in nature; they are considered automotive spare parts and pertain to technology. They aver that
the models are not original, and as such are the proper subject of a patent, not copyright.10
In opposing the motion, the petitioner averred that the court which issued the search warrants was not the
proper forum in which to articulate the issue of the validity of the copyrights issued to him. Citing the
ruling of the Court inMalaloan v. Court of Appeals,11 the petitioner stated that a search warrant is merely a
judicial process designed by the Rules of Court in anticipation of a criminal case. Until his copyright was
nullified in a proper proceeding, he enjoys rights of a registered owner/holder thereof.
On January 3, 2002, the trial court issued an Order12 granting the motion, and quashed the search warrant
on its finding that there was no probable cause for its issuance. The court ruled that the work covered by
the certificates issued to the petitioner pertained to solutions to technical problems, not literary and
artistic as provided in Article 172 of the Intellectual Property Code.
His motion for reconsideration of the order having been denied by the trial court’s Order of February 14,
2002, the petitioner filed a petition for certiorari in the CA, contending that the RTC had no jurisdiction to
delve into and resolve the validity of the copyright certificates issued to him by the National Library. He
insisted that his works are covered by Sections 172.1 and 172.2 of the Intellectual Property Code. The
petitioner averred that the copyright certificates are prima facie evidence of its validity, citing the ruling of
the United States Court of Appeals in Wildlife Express Corporation v. Carol Wright Sales, Inc.13 The
petitioner asserted that the respondents failed to adduce evidence to support their motion to quash the
search warrants. The petitioner noted that respondent William Salinas, Jr. was not being honest, as he was
able to secure a similar copyright registration of a similar product from the National Library on January 14,
2002.
On September 26, 2003, the CA rendered judgment dismissing the petition on its finding that the RTC did
not commit any grave abuse of its discretion in issuing the assailed order, to wit:
It is settled that preliminarily, there must be a finding that a specific offense must have been committed to
justify the issuance of a search warrant. In a number of cases decided by the Supreme Court, the same is
explicitly provided, thus:
"The probable cause must be in connection with one specific offense, and the judge must, before issuing
the warrant, personally examine in the form of searching questions and answers, in writing and under
oath, the complainant and any witness he may produce, on facts personally known to them and attach to
the record their sworn statements together with any affidavit submitted.
"In the determination of probable cause, the court must necessarily resolve whether or not an offense
exists to justify the issuance or quashal of the search warrant."
In the instant case, the petitioner is praying for the reinstatement of the search warrants issued, but
subsequently quashed, for the offense of Violation of Class Designation of Copyrightable Works under
Section 177.1 in relation to Section 177.3 of Republic Act 8293, when the objects subject of the same, are
patently not copyrightable.
It is worthy to state that the works protected under the Law on Copyright are: literary or artistic works
(Sec. 172) and derivative works (Sec. 173). The Leaf Spring Eye Bushing and Vehicle Bearing Cushion fall
on neither classification. Accordingly, if, in the first place, the item subject of the petition is not entitled to
be protected by the law on copyright, how can there be any violation?14
The petitioner’s motion for reconsideration of the said decision suffered the same fate. The petitioner
forthwith filed the present petition for review on certiorari, contending that the revocation of his copyright
certificates should be raised in a direct action and not in a search warrant proceeding.
The petitioner posits that even assuming ex argumenti that the trial court may resolve the validity of his
copyright in a proceeding to quash a search warrant for allegedly infringing items, the RTC committed a
grave abuse of its discretion when it declared that his works are not copyrightable in the first place. He
claims that R.A. No. 8293, otherwise known as the Intellectual Property Code of the Philippines, which took
effect on January 1, 1998, provides in no uncertain terms that copyright protection automatically attaches
to a work by the sole fact of its creation, irrespective of its mode or form of expression, as well as of its
content, quality or purpose.15 The law gives a non-inclusive definition of "work" as referring to original
intellectual creations in the literary and artistic domain protected from the moment of their creation; and
includes original ornamental designs or models for articles of manufacture, whether or not registrable as
an industrial design and other works of applied art under Section 172.1(h) of R.A. No. 8293.lawphil.net
As such, the petitioner insists, notwithstanding the classification of the works as either literary and/or
artistic, the said law, likewise, encompasses works which may have a bearing on the utility aspect to which
the petitioner’s utility designs were classified. Moreover, according to the petitioner, what the Copyright
Law protects is the author’s intellectual creation, regardless of whether it is one with utilitarian functions or
incorporated in a useful article produced on an industrial scale.
The petitioner also maintains that the law does not provide that the intended use or use in industry of an
article eligible for patent bars or invalidates its registration under the Law on Copyright. The test of
protection for the aesthetic is not beauty and utility, but art for the copyright and invention of original and
ornamental design for design patents.16 In like manner, the fact that his utility designs or models for
articles of manufacture have been expressed in the field of automotive parts, or based on something
already in the public domain does not automatically remove them from the protection of the Law on
Copyright.17
The petitioner faults the CA for ignoring Section 218 of R.A. No. 8293 which gives the same presumption to
an affidavit executed by an author who claims copyright ownership of his work.
The petitioner adds that a finding of probable cause to justify the issuance of a search warrant means
merely a reasonable suspicion of the commission of the offense. It is not equivalent to absolute certainty
or a finding of actual and positive cause.18 He assists that the determination of probable cause does not
concern the issue of whether or not the alleged work is copyrightable. He maintains that to justify a finding
of probable cause in the issuance of a search warrant, it is enough that there exists a reasonable suspicion
of the commission of the offense.
The petitioner contends that he has in his favor the benefit of the presumption that his copyright is valid;
hence, the burden of overturning this presumption is on the alleged infringers, the respondents herein. But
this burden cannot be carried in a hearing on a proceeding to quash the search warrants, as the issue
therein is whether there was probable cause for the issuance of the search warrant. The petitioner
concludes that the issue of probable cause should be resolved without invalidating his copyright.
In their comment on the petition, the respondents aver that the work of the petitioner is essentially a
technical solution to the problem of wear and tear in automobiles, the substitution of materials, i.e., from
rubber to plastic matter of polyvinyl chloride, an oil resistant soft texture plastic material strong enough to
endure pressure brought about by the vibration of the counter bearing and thus brings bushings. Such
work, the respondents assert, is the subject of copyright under Section 172.1 of R.A. No. 8293. The
respondents posit that a technical solution in any field of human activity which is novel may be the subject
of a patent, and not of a copyright. They insist that the certificates issued by the National Library are only
certifications that, at a point in time, a certain work was deposited in the said office. Furthermore, the
registration of copyrights does not provide for automatic protection. Citing Section 218.2(b) of R.A. No.
8293, the respondents aver that no copyright is said to exist if a party categorically questions its existence
and legality. Moreover, under Section 2, Rule 7 of the Implementing Rules of R.A. No. 8293, the
registration and deposit of work is not conclusive as to copyright outlay or the time of copyright or the
right of the copyright owner. The respondents maintain that a copyright exists only when the work is
covered by the protection of R.A. No. 8293.
The petition has no merit.
The RTC had jurisdiction to delve into and resolve the issue whether the petitioner’s utility models are
copyrightable and, if so, whether he is the owner of a copyright over the said models. It bears stressing
that upon the filing of the application for search warrant, the RTC was duty-bound to determine whether
probable cause existed, in accordance with Section 4, Rule 126 of the Rules of Criminal Procedure:
SEC. 4. Requisite for issuing search warrant. – A search warrant shall not issue but upon probable cause in
connection with one specific offense to be determined personally by the judge after examination under
oath or affirmation of the complainant and the witnesses he may produce, and, particularly, describing the
place to be searched and the things to be seized.
In Solid Triangle Sales Corporation v. The Sheriff of RTC QC, Br. 93,19 the Court held that in the
determination of probable cause, the court must necessarily resolve whether or not an offense exists to
justify the issuance of a search warrant or the quashal of one already issued by the court. Indeed, probable
cause is deemed to exist only where facts and circumstances exist which could lead a reasonably cautious
and prudent man to believe that an offense has been committed or is being committed. Besides, in Section
3, Rule 126 of the Rules of Criminal Procedure, a search warrant may be issued for the search and seizure
of personal property (a) subject of the offense; (b) stolen or embezzled and other proceeds or fruits of the
offense; or (c) used or intended to be used as the means of committing an offense.
The RTC is mandated under the Constitution and Rules of Criminal Procedure to determine probable cause.
The court cannot abdicate its constitutional obligation by refusing to determine whether an offense has
been committed.20 The absence of probable cause will cause the outright nullification of the search
warrant.21
For the RTC to determine whether the crime for infringement under R.A. No. 8293 as alleged in an
application is committed, the petitioner-applicant was burdened to prove that (a) respondents Jessie Ching
and Joseph Yu were the owners of copyrighted material; and (b) the copyrighted material was being copied
and distributed by the respondents. Thus, the ownership of a valid copyright is essential.22
Ownership of copyrighted material is shown by proof of originality and copyrightability. By originality is
meant that the material was not copied, and evidences at least minimal creativity; that it was
independently created by the author and that it possesses at least same minimal degree of
creativity.23 Copying is shown by proof of access to copyrighted material and substantial similarity
between the two works.24 The applicant must thus demonstrate the existence and the validity of his
copyright because in the absence of copyright protection, even original creation may be freely copied.25
By requesting the NBI to investigate and, if feasible, file an application for a search warrant for
infringement under R.A. No. 8293 against the respondents, the petitioner thereby authorized the RTC (in
resolving the application), to delve into and determine the validity of the copyright which he claimed he
had over the utility models. The petitioner cannot seek relief from the RTC based on his claim that he was
the copyright owner over the utility models and, at the same time, repudiate the court’s jurisdiction to
ascertain the validity of his claim without running afoul to the doctrine of estoppel.
To discharge his burden, the applicant may present the certificate of registration covering the work or, in
its absence, other evidence.26 A copyright certificate provides prima facie evidence of originality which is
one element of copyright validity. It constitutes prima facie evidence of both validity and ownership27 and
the validity of the facts stated in the certificate.28 The presumption of validity to a certificate of copyright
registration merely orders the burden of proof. The applicant should not ordinarily be forced, in the first
instance, to prove all the multiple facts that underline the validity of the copyright unless the respondent,
effectively challenging them, shifts the burden of doing so to the applicant.29 Indeed, Section 218.2 of R.A.
No. 8293 provides:
218.2. In an action under this Chapter:
(a) Copyright shall be presumed to subsist in the work or other subject matter to which the action relates if
the defendant does not put in issue the question whether copyright subsists in the work or other subject
matter; and
(b) Where the subsistence of the copyright is established, the plaintiff shall be presumed to be the owner
of the copyright if he claims to be the owner of the copyright and the defendant does not put in issue the
question of his ownership.
A certificate of registration creates no rebuttable presumption of copyright validity where other evidence
in the record casts doubt on the question. In such a case, validity will not be presumed.30
To discharge his burden of probable cause for the issuance of a search warrant for violation of R.A. No.
8293, the petitioner-applicant submitted to the RTC Certificate of Copyright Registration Nos. 2001-197
and 2001-204 dated September 3, 2001 and September 4, 2001, respectively, issued by the National
Library covering work identified as Leaf Spring Eye Bushing for Automobile and Vehicle Bearing Cushion
both classified under Section 172.1(h) of R.A. No. 8293, to wit:
SEC. 172. Literary and Artistic Works. – 172.1. Literary and artistic works, hereinafter referred to as
"works," are original intellectual creations in the literary and artistic domain protected from the moment of
their creation and shall include in particular:
...
(h) Original ornamental designs or models for articles of manufacture, whether or not registrable as an
industrial design, and other works of applied art.
Related to the provision is Section 171.10, which provides that a "work of applied art" is an artistic creation
with utilitarian functions or incorporated in a useful article, whether made by hand or produced on an
industrial scale.
But, as gleaned from the specifications appended to the application for a copyright certificate filed by the
petitioner, the said Leaf Spring Eye Bushing for Automobile is merely a utility model described as
comprising a generally cylindrical body having a co-axial bore that is centrally located and provided with a
perpendicular flange on one of its ends and a cylindrical metal jacket surrounding the peripheral walls of
said body, with the bushing made of plastic that is either polyvinyl chloride or polypropylene.31 Likewise,
the Vehicle Bearing Cushion is illustrated as a bearing cushion comprising a generally semi-circular body
having a central hole to secure a conventional bearing and a plurality of ridges provided therefore, with
said cushion bearing being made of the same plastic materials.32 Plainly, these are not literary or artistic
works. They are not intellectual creations in the literary and artistic domain, or works of applied art. They
are certainly not ornamental designs or one having decorative quality or value.
It bears stressing that the focus of copyright is the usefulness of the artistic design, and not its
marketability. The central inquiry is whether the article is a work of art.33 Works for applied art include all
original pictorials, graphics, and sculptural works that are intended to be or have been embodied in useful
article regardless of factors such as mass production, commercial exploitation, and the potential
availability of design patent protection.34
As gleaned from the description of the models and their objectives, these articles are useful articles which
are defined as one having an intrinsic utilitarian function that is not merely to portray the appearance of
the article or to convey information. Indeed, while works of applied art, original intellectual, literary and
artistic works are copyrightable, useful articles and works of industrial design are not.35 A useful article
may be copyrightable only if and only to the extent that such design incorporates pictorial, graphic, or
sculptural features that can be identified separately from, and are capable of existing independently of the
utilitarian aspects of the article.
We agree with the contention of the petitioner (citing Section 171.10 of R.A. No. 8293), that the author’s
intellectual creation, regardless of whether it is a creation with utilitarian functions or incorporated in a
useful article produced on an industrial scale, is protected by copyright law. However, the law refers to a
"work of applied art which is an artistic creation." It bears stressing that there is no copyright protection for
works of applied art or industrial design which have aesthetic or artistic features that cannot be identified
separately from the utilitarian aspects of the article.36 Functional components of useful articles, no matter
how artistically designed, have generally been denied copyright protection unless they are separable from
the useful article.37
In this case, the petitioner’s models are not works of applied art, nor artistic works. They are utility models,
useful articles, albeit with no artistic design or value. Thus, the petitioner described the utility model as
follows:
LEAF SPRING EYE BUSHING FOR AUTOMOBILE
Known bushings inserted to leaf-spring eye to hold leaf-springs of automobile are made of hard rubber.
These rubber bushings after a time, upon subjecting them to so much or intermittent pressure would
eventually wore (sic) out that would cause the wobbling of the leaf spring.
The primary object of this utility model, therefore, is to provide a leaf-spring eye bushing for automobile
that is made up of plastic.
Another object of this utility model is to provide a leaf-spring eye bushing for automobiles made of
polyvinyl chloride, an oil resistant soft texture plastic or polypropylene, a hard plastic, yet both causes
cushion to the leaf spring, yet strong enough to endure pressure brought about by the up and down
movement of said leaf spring.
Yet, an object of this utility model is to provide a leaf-spring eye bushing for automobiles that has a much
longer life span than the rubber bushings.
Still an object of this utility model is to provide a leaf-spring eye bushing for automobiles that has a very
simple construction and can be made using simple and ordinary molding equipment.
A further object of this utility model is to provide a leaf-spring eye bushing for automobile that is supplied
with a metal jacket to reinforce the plastic eye bushing when in engaged with the steel material of the leaf
spring.
These and other objects and advantages will come to view and be understood upon a reading of the
detailed description when taken in conjunction with the accompanying drawings.
Figure 1 is an exploded perspective of a leaf-spring eye bushing according to the present utility model;
Figure 2 is a sectional view taken along line 2-2 of Fig. 1;
Figure 3 is a longitudinal sectional view of another embodiment of this utility model;
Figure 4 is a perspective view of a third embodiment; and
Figure 5 is a sectional view thereof.
Referring now to the several views of the drawings wherein like reference numerals designated same parts
throughout, there is shown a utility model for a leaf-spring eye bushing for automobile generally
designated as reference numeral 10.
Said leaf-spring eye bushing 10 comprises a generally cylindrical body 11 having a co-axial bore 12
centrally provided thereof.
As shown in Figs. 1 and 2, said leaf-spring eye bushing 10 is provided with a perpendicular flange 13 on
one of its ends and a cylindrical metal jacket 14 surrounding the peripheral walls 15 of said body 11. When
said leaf-spring bushing 10 is installed, the metal jacket 14 acts with the leaf-spring eye (not shown),
which is also made of steel or cast steel. In effect, the bushing 10 will not be directly in contact with steel,
but rather the metal jacket, making the life of the bushing 10 longer than those without the metal jacket.
In Figure 2, the bushing 10 as shown is made of plastic, preferably polyvinyl chloride, an oil resistant soft
texture plastic or a hard polypropylene plastic, both are capable to endure the pressure applied thereto,
and, in effect, would lengthen the life and replacement therefor.
Figure 3, on the other hand, shows the walls 16 of the co-axial bore 12 of said bushing 10 is insertably
provided with a steel tube 17 to reinforce the inner portion thereof. This steel tube 17 accommodates or
engages with the leaf-spring bolt (not shown) connecting the leaf spring and the automobile’s chassis.
Figures 4 and 5 show another embodiment wherein the leaf eye bushing 10 is elongated and cylindrical as
to its construction. Said another embodiment is also made of polypropylene or polyvinyl chloride plastic
material. The steel tube 17 and metal jacket 14 may also be applied to this embodiment as an option
thereof.38
VEHICLE BEARING CUSHION
Known bearing cushions inserted to bearing housings for vehicle propeller shafts are made of hard rubber.
These rubber bushings after a time, upon subjecting them to so much or intermittent pressure would
eventually be worn out that would cause the wobbling of the center bearing.
The primary object of this utility model therefore is to provide a vehicle-bearing cushion that is made up of
plastic.
Another object of this utility model is to provide a vehicle bearing cushion made of polyvinyl chloride, an oil
resistant soft texture plastic material which causes cushion to the propeller’s center bearing, yet strong
enough to endure pressure brought about by the vibration of the center bearing.
Yet, an object of this utility model is to provide a vehicle-bearing cushion that has a much longer life span
than rubber bushings.
Still an object of this utility model is to provide a vehicle bearing cushion that has a very simple
construction and can be made using simple and ordinary molding equipment.
These and other objects and advantages will come to view and be understood upon a reading of the
detailed description when taken in conjunction with the accompanying drawings.
Figure 1 is a perspective view of the present utility model for a vehicle-bearing cushion; and
Figure 2 is a sectional view thereof.
Referring now to the several views of the drawing, wherein like reference numeral designate same parts
throughout, there is shown a utility model for a vehicle-bearing cushion generally designated as reference
numeral 10.
Said bearing cushion 10 comprises of a generally semi-circular body 11, having central hole 12 to house a
conventional bearing (not shown). As shown in Figure 1, said body 11 is provided with a plurality of ridges
13 which serves reinforcing means thereof.
The subject bearing cushion 10 is made of polyvinyl chloride, a soft texture oil and chemical resistant
plastic material which is strong, durable and capable of enduring severe pressure from the center bearing
brought about by the rotating movement of the propeller shaft of the vehicle.39
A utility model is a technical solution to a problem in any field of human activity which is new and
industrially applicable. It may be, or may relate to, a product, or process, or an improvement of any of the
aforesaid.40Essentially, a utility model refers to an invention in the mechanical field. This is the reason
why its object is sometimes described as a device or useful object.41 A utility model varies from an
invention, for which a patent for invention is, likewise, available, on at least three aspects: first, the
requisite of "inventive step"42 in a patent for invention is not required; second, the maximum term of
protection is only seven years43 compared to a patent which is twenty years,44 both reckoned from the
date of the application; and third, the provisions on utility model dispense with its substantive
examination45 and prefer for a less complicated system.
Being plain automotive spare parts that must conform to the original structural design of the components
they seek to replace, the Leaf Spring Eye Bushing and Vehicle Bearing Cushion are not ornamental. They
lack the decorative quality or value that must characterize authentic works of applied art. They are not
even artistic creations with incidental utilitarian functions or works incorporated in a useful article. In
actuality, the personal properties described in the search warrants are mechanical works, the principal
function of which is utility sans any aesthetic embellishment.
Neither are we to regard the Leaf Spring Eye Bushing and Vehicle Bearing Cushion as included in the
catch-all phrase "other literary, scholarly, scientific and artistic works" in Section 172.1(a) of R.A. No. 8293.
Applying the principle of ejusdem generis which states that "where a statute describes things of a
particular class or kind accompanied by words of a generic character, the generic word will usually be
limited to things of a similar nature with those particularly enumerated, unless there be something in the
context of the state which would repel such inference,"46 the Leaf Spring Eye Bushing and Vehicle Bearing
Cushion are not copyrightable, being not of the same kind and nature as the works enumerated in Section
172 of R.A. No. 8293.
No copyright granted by law can be said to arise in favor of the petitioner despite the issuance of the
certificates of copyright registration and the deposit of the Leaf Spring Eye Bushing and Vehicle Bearing
Cushion. Indeed, inJoaquin, Jr. v. Drilon47 and Pearl & Dean (Phil.), Incorporated v. Shoemart,
Incorporated,48 the Court ruled that:
Copyright, in the strict sense of the term, is purely a statutory right. It is a new or independent right
granted by the statute, and not simply a pre-existing right regulated by it. Being a statutory grant, the
rights are only such as the statute confers, and may be obtained and enjoyed only with respect to the
subjects and by the persons, and on terms and conditions specified in the statute. Accordingly, it can cover
only the works falling within the statutory enumeration or description.
That the works of the petitioner may be the proper subject of a patent does not entitle him to the issuance
of a search warrant for violation of copyright laws. In Kho v. Court of Appeals49 and Pearl & Dean (Phil.),
Incorporated v. Shoemart, Incorporated,50 the Court ruled that "these copyright and patent rights are
completely distinct and separate from one another, and the protection afforded by one cannot be used
interchangeably to cover items or works that exclusively pertain to the others." The Court expounded
further, thus:
Trademark, copyright and patents are different intellectual property rights that cannot be interchanged
with one another. A trademark is any visible sign capable of distinguishing the goods (trademark) or
services (service mark) of an enterprise and shall include a stamped or marked container of goods. In
relation thereto, a trade name means the name or designation identifying or distinguishing an enterprise.
Meanwhile, the scope of a copyright is confined to literary and artistic works which are original intellectual
creations in the literary and artistic domain protected from the moment of their creation. Patentable
inventions, on the other hand, refer to any technical solution of a problem in any field of human activity
which is new, involves an inventive step and is industrially applicable.
The petitioner cannot find solace in the ruling of the United States Supreme Court in Mazer v. Stein51 to
buttress his petition. In that case, the artifacts involved in that case were statuettes of dancing male and
female figures made of semi-vitreous china. The controversy therein centered on the fact that although
copyrighted as "works of art," the statuettes were intended for use and used as bases for table lamps, with
electric wiring, sockets and lampshades attached. The issue raised was whether the statuettes were
copyright protected in the United States, considering that the copyright applicant intended primarily to use
them as lamp bases to be made and sold in quantity, and carried such intentions into effect. At that time,
the Copyright Office interpreted the 1909 Copyright Act to cover works of artistic craftsmanship insofar as
their form, but not the utilitarian aspects, were concerned. After reviewing the history and intent of the US
Congress on its copyright legislation and the interpretation of the copyright office, the US Supreme Court
declared that the statuettes were held copyrightable works of art or models or designs for works of art.
The High Court ruled that:
"Works of art (Class G) – (a) – In General. This class includes works of artistic craftsmanship, in so far as
their form but not their mechanical or utilitarian aspects are concerned, such as artistic jewelry, enamels,
glassware, and tapestries, as well as all works belonging to the fine arts, such as paintings, drawings and
sculpture. …"
So we have a contemporaneous and long-continued construction of the statutes by the agency charged to
administer them that would allow the registration of such a statuette as is in question here.52
The High Court went on to state that "[t]he dichotomy of protection for the aesthetic is not beauty and
utility but art for the copyright and the invention of original and ornamental design for design patents."
Significantly, the copyright office promulgated a rule to implement Mazer to wit:
… [I]f "the sole intrinsic function of an article is its utility, the fact that the work is unique and attractively
shaped will not qualify it as a work of art."
In this case, the bushing and cushion are not works of art. They are, as the petitioner himself admitted,
utility models which may be the subject of a patent.
IN LIGHT OF ALL THE FOREGOING, the instant petition is hereby DENIED for lack of merit. The assailed
Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 70411 are AFFIRMED. Search Warrant
Nos. 01-2401 and 01-2402 issued on October 15, 2001 are ANNULLED AND SET ASIDE. Costs against the
petitioner.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.
Footnotes
1 Penned by Associate Justice Amelita G. Tolentino, with Associate Justices Eloy R. Bello, Jr. (retired) and
Arturo D. Brion, concurring; Rollo, pp. 17-24.
2 Rollo, pp. 31-32.
3 Penned by Acting Presiding Judge Antonio M. Eugenio, Jr.
4 CA Rollo, pp. 28-34.
5 Id. at 47.
6 CA Rollo, p. 54.
7 Id. at 54-61.
8 Id. at 68.
9 CA Rollo, p. 70.
10 Id. at 73-75.
11 G.R. No. 104879, 6 May 1994, 232 SCRA 249.
12 Rollo, pp. 22-23.
13 18 F.3d 502.
14 Rollo, p. 23.
15 Section 172.2, Republic Act No. 8293.
16 Citing Amador, Vicente B., Copyright Under the Intellectual Property Code, 1998 ed., p. 128,
citing Mazerv. Stein, 347 U.S. 201 (1954).
17 Norma Ribbon & Trimming v. Little, United States Court of Appeals, Fifth Circuit, No. 94-60389, 27 April
1995.
18 Columbia Pictures, Inc. v. Court of Appeals, G.R. No. 110318, 28 August 1996, 261 SCRA 144.
19 G.R. No. 144309, 23 November 2001, 370 SCRA 491.
20 Ibid.
21 Republic of the Philippines v. Sandiganbayan, G.R. Nos. 112708-09, 29 March 1996, 255 SCRA 438.
22 Feist Publications, Inc. v. Rural Telephone Service Company, 499 U.S. 340; 111 S.Ct. 1282 (1991).
23 Donald Bruce Company v. B.G. Multi-Comm. Corporation, 964 F.Supp. 265 (1997).
24 Apple Barrel Productions, Inc. v. R.D. Beard, 730 F.2d 384 (1984).
25 Durnham Industries, Inc. v. Tomy Corporation, 630 F.2d 905 (1980).
26 Apple Barrel Productions, Inc. v. R.D. Beard, supra.
27 Midway Manufacturing Corporation v. Bandai-America, Inc., 546 F.Supp. 125 (1982); Lakedreams v.
Steve Taylor, 932 F.2d 1103 (1991).
28 Durnham Industries, Inc. v. Tomy Corporation, supra.
29 Barnhart, Inc. v. Economy Cover Corporation, 773 F.2d 411 (1985).
30 Ibid; Midway Manufacturing Corporation v. Bandai-America, Inc., supra.
31 Rollo, p. 86.
32 Id. at 94.
33 Pivot Port International, Inc. v. Charlene Products, Inc., 372 F.2d 913 (2004).
34 Gay Toys, Inc. v. Buddy L. Corporation, 703 F.2d 970 (1983).
35 Pivot Port International, Inc. v. Charlene Products, Inc., supra.
36 Ibid; DBC of New York v. Merit Diamond Corporation, 768 F.Supp. 414 (1991).
37 Norris Industries, Inc. v. ITT Corporation, 696 F.2d 918 (1983).
38 Rollo, pp. 84-87.
39 Rollo, pp. 93-94.
40 Section 109.1(a) and (b) in relation to Section 21 of Republic Act No. 8293.
41 Amador, Vicente B., Patents Under The Intellectual Property Code, 2001 ed., p. 751.
42 An invention involves an inventive step if, having regard to prior art, it is not obvious to a person skilled
in the art at the time of the filing date or priority date of the application claiming the invention. (Section
26, Republic Act No. 8293).
43 Section 109.3, supra.
44 Section 54, supra.
45 Sections 108 to 111 of Republic Act No. 8293 state the rule on utility models and grant of a patent
therefor:
SEC. 108. Applicability of Provisions Relating to Patents. –
108.1 Subject to Section 109, the provisions governing patents shall apply, mutatis mutandis, to the
registration of utility models.
108.2. Where the right to a patent conflicts with the right to a utility model registration in the case referred
to in Section 29, the said provisions shall apply as if the word "patent" were replaced by the words "patent
or utility model registration." (Sec. 55, R.A. No. 165a)
SEC. 109. Special Provisions Relating to Utility Models. –
109.1. (a) An invention qualifies for registration as a utility model if it is new and industrially applicable.
(b) Section 21, "Patentable Inventions," shall apply except the reference to inventive step as a condition of
protection.
109.2. Sections 43 to 49 shall not apply in the case of applications for registration of a utility model.
109.3. A utility model registration shall expire, without any possibility of renewal, at the end of the seventh
year after the date of the filing of the application.
109.4. In proceedings under Sections 61 to 64, the utility model registration shall be canceled on the
following grounds:
(a) That the claimed invention does not qualify for registration as a utility model and does not meet the
requirements of registrability, in particular having regard to Subsection 109.1 and Sections 22, 23, 24 and
27;
(b) That the description and the claims do not comply with the prescribed requirements;
(c) That any drawing which is necessary for the understanding of the invention has not been furnished;
(d) That the owner of the utility model registration is not the inventor or his successor in title. (Secs. 55, 56
and 57, R.A. No. 165a)
SEC. 110. Conversion of Patent Applications or Applications for Utility Model Registration. –
110.1 At any time before the grant or refusal of a patent, an applicant for a patent may, upon payment of
the prescribed fee, convert his application into an application for registration of a utility model, which shall
be accorded the filing date of the initial application. An application may be converted only once.
110.2 At any time before the grant or refusal of a utility model registration, an applicant for a utility model
registration may, upon payment of the prescribed fee, convert his application into a patent application,
which shall be accorded the filing date of the initial application. (Sec. 58, R.A. No. 165a)
SEC. 111. Prohibition against Filing of Parallel Applications. – An applicant may not file two (2) applications
for the same subject, one for utility model registration and the other for the grant of a patent whether
simultaneously or consecutively. (Sec. 59, R.A. No. 165a)
46 See Kapisanan ng mga Manggagawa sa Government Service Insurance System (KMG) v. Commission
on Audit, G.R. No. 150769, 31 August 2004, 437 SCRA 371, citing Philippine Basketball Association v. Court
of Appeals, 337 SCRA 358 (2000); National Power Corporation v. Angas, G.R. Nos. 60225-26, 8 May 1992,
208 SCRA 542; Cebu Institute of Technology v. Ople, G.R. No. L-58870, 18 December 1987, 156 SCRA
629; Ollada v. Court of Tax Appeals, 99 Phil. 604 (1956); Murphy, Morris & Co. v. Collector of Customs, 11
Phil. 456 (1908).
47 G.R. No. 108946, 28 January 1999, 302 SCRA 225.
48 G.R. No. 148222, 15 August 2003, 409 SCRA 231.
49 G.R. No. 115758, 19 March 2002, 379 SCRA 410.
50 Supra.
51 74 S.Ct. 460; 347 U.S. 201.
52 Great Northern Ry. Co. v. United States, 315 U.S. 262, 275, 62 S.Ct. 529, 534, 86 L.Ed. 836.

Pasted from <http://www.lawphil.net/judjuris/juri2005/jun2005/gr_161295_2005.html>

ABSCBN vs. Phil Multi-Media (2009)

Sunday, June 06, 2010
5:05 AM

G.R. No. 175769-70 January 19, 2009

ABS-CBN BROADCASTING CORPORATION, Petitioners,
vs.
PHILIPPINE MULTI-MEDIA SYSTEM, INC., CESAR G. REYES, FRANCIS CHUA (ANG BIAO), MANUEL
F. ABELLADA, RAUL B. DE MESA, AND ALOYSIUS M. COLAYCO, Respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari1 assails the July 12, 2006 Decision2 of the Court of Appeals in CA-
G.R. SP Nos. 88092 and 90762, which affirmed the December 20, 2004 Decision of the Director-General of
the Intellectual Property Office (IPO) in Appeal No. 10-2004-0002. Also assailed is the December 11, 2006
Resolution3 denying the motion for reconsideration.
Petitioner ABS-CBN Broadcasting Corporation (ABS-CBN) is licensed under the laws of the Republic of the
Philippines to engage in television and radio broadcasting.4 It broadcasts television programs by wireless
means to Metro Manila and nearby provinces, and by satellite to provincial stations through Channel 2 on
Very High Frequency (VHF) and Channel 23 on Ultra High Frequency (UHF). The programs aired over
Channels 2 and 23 are either produced by ABS-CBN or purchased from or licensed by other producers.
ABS-CBN also owns regional television stations which pattern their programming in accordance with
perceived demands of the region. Thus, television programs shown in Metro Manila and nearby provinces
are not necessarily shown in other provinces.
Respondent Philippine Multi-Media System, Inc. (PMSI) is the operator of Dream Broadcasting System. It
delivers digital direct-to-home (DTH) television via satellite to its subscribers all over the Philippines.
Herein individual respondents, Cesar G. Reyes, Francis Chua, Manuel F. Abellada, Raul B. De Mesa, and
Aloysius M. Colayco, are members of PMSI’s Board of Directors.
PMSI was granted a legislative franchise under Republic Act No. 86305 on May 7, 1998 and was given a
Provisional Authority by the National Telecommunications Commission (NTC) on February 1, 2000 to
install, operate and maintain a nationwide DTH satellite service. When it commenced operations, it
offered as part of its program line-up ABS-CBN Channels 2 and 23, NBN, Channel 4, ABC Channel 5, GMA
Channel 7, RPN Channel 9, and IBC Channel 13, together with other paid premium program channels.
However, on April 25, 2001,6 ABS-CBN demanded for PMSI to cease and desist from rebroadcasting
Channels 2 and 23. On April 27, 2001,7 PMSI replied that the rebroadcasting was in accordance with the
authority granted it by NTC and its obligation under NTC Memorandum Circular No. 4-08-88,8 Section 6.2
of which requires all cable television system operators operating in a community within Grade “A” or “B”
contours to carry the television signals of the authorized television broadcast stations.9
Thereafter, negotiations ensued between the parties in an effort to reach a settlement; however, the
negotiations were terminated on April 4, 2002 by ABS-CBN allegedly due to PMSI’s inability to ensure the
prevention of illegal retransmission and further rebroadcast of its signals, as well as the adverse effect of
the rebroadcasts on the business operations of its regional television stations.10
On May 13, 2002, ABS-CBN filed with the IPO a complaint for “Violation of Laws Involving Property Rights,
with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction,”
which was docketed as IPV No. 10-2002-0004. It alleged that PMSI’s unauthorized rebroadcasting of
Channels 2 and 23 infringed on its broadcasting rights and copyright.
On July 2, 2002, the Bureau of Legal Affairs (BLA) of the IPO granted ABS-CBN’s application for a
temporary restraining order. On July 12, 2002, PMSI suspended its retransmission of Channels 2 and 23
and likewise filed a petition for certiorari with the Court of Appeals, which was docketed as CA-G.R. SP No.
71597.
Subsequently, PMSI filed with the BLA a Manifestation reiterating that it is subject to the must-carry rule
under Memorandum Circular No. 04-08-88. It also submitted a letter dated December 20, 2002 of then
NTC Commissioner Armi Jane R. Borje to PMSI stating as follows:
This refers to your letter dated December 16, 2002 requesting for regulatory guidance from this
Commission in connection with the application and coverage of NTC Memorandum Circular No. 4-08-
88, particularly Section 6 thereof, on mandatory carriage of television broadcast signals, to the
direct-to-home (DTH) pay television services of Philippine Multi-Media System, Inc. (PMSI).
Preliminarily, both DTH pay television and cable television services are broadcast services, the only
difference being the medium of delivering such services (i.e. the former by satellite and the latter by
cable). Both can carry broadcast signals to the remote areas, thus enriching the lives of the
residents thereof through the dissemination of social, economic, educational information and
cultural programs.
The DTH pay television services of PMSI is equipped to provide nationwide DTH satellite services.
Concededly, PMSI’s DTH pay television services covers very much wider areas in terms of carriage
of broadcast signals, including areas not reachable by cable television services thereby providing a
better medium of dissemination of information to the public.
In view of the foregoing and the spirit and intent of NTC memorandum Circular No. 4-08-
88, particularly section 6 thereof, on mandatory carriage of television broadcast signals,
DTH pay television services should be deemed covered by such NTC Memorandum
Circular.
For your guidance. (Emphasis added)11
On August 26, 2003, PMSI filed another Manifestation with the BLA that it received a letter dated July 24,
2003 from the NTC enjoining strict and immediate compliance with the must-carry rule under
Memorandum Circular No. 04-08-88, to wit:
Dear Mr. Abellada:
Last July 22, 2003, the National Telecommunications Commission (NTC) received a letter dated July
17, 2003 from President/COO Rene Q. Bello of the International Broadcasting Corporation (IBC-
Channel 13) complaining that your company, Dream Broadcasting System, Inc., has cut-off, without
any notice or explanation whatsoever, to air the programs of IBC-13, a free-to-air television, to the
detriment of the public.
We were told that, until now, this has been going on.
Please be advised that as a direct broadcast satellite operator, operating a direct-to-
home (DTH) broadcasting system, with a provisional authority (PA) from the NTC, your
company, along with cable television operators, are mandated to strictly comply with the
existing policy of NTC on mandatory carriage of television broadcast signals as provided
under Memorandum Circular No. 04-08-88, also known as the Revised Rules and
Regulations Governing Cable Television System in the Philippines.
This mandatory coverage provision under Section 6.2 of said Memorandum Circular,
requires all cable television system operators, operating in a community within the
Grade “A” or “B” contours to “must-carry” the television signals of the authorized
television broadcast stations, one of which is IBC-13. Said directive equally applies to
your company as the circular was issued to give consumers and the public a wider access
to more sources of news, information, entertainment and other programs/contents.
This Commission, as the governing agency vested by laws with the jurisdiction, supervision and
control over all public services, which includes direct broadcast satellite operators, and taking into
consideration the paramount interest of the public in general, hereby directs you to immediately
restore the signal of IBC-13 in your network programs, pursuant to existing circulars and regulations
of the Commission.
For strict compliance. (Emphasis added)12
Meanwhile, on October 10, 2003, the NTC issued Memorandum Circular No. 10-10-2003, entitled
“Implementing Rules and Regulations Governing Community Antenna/Cable Television (CATV) and Direct
Broadcast Satellite (DBS) Services to Promote Competition in the Sector.” Article 6, Section 8 thereof
states:
As a general rule, the reception, distribution and/or transmission by any CATV/DBS operator of any
television signals without any agreement with or authorization from program/content providers are
prohibited.
On whether Memorandum Circular No. 10-10-2003 amended Memorandum Circular No. 04-08-88, the NTC
explained to PMSI in a letter dated November 3, 2003 that:
To address your query on whether or not the provisions of MC 10-10-2003 would have the effect of
amending the provisions of MC 4-08-88 on mandatory carriage of television signals, the answer is in
the negative.
xxxx
The Commission maintains that, MC 4-08-88 remains valid, subsisting and enforceable.
Please be advised, therefore, that as duly licensed direct-to-home satellite television service
provider authorized by this Commission, your company continues to be bound by the
guidelines provided for under MC 04-08-88, specifically your obligation under its
mandatory carriage provisions, in addition to your obligations under MC 10-10-
2003. (Emphasis added)
Please be guided accordingly.13
On December 22, 2003, the BLA rendered a decision14 finding that PMSI infringed the broadcasting rights
and copyright of ABS-CBN and ordering it to permanently cease and desist from rebroadcasting Channels
2 and 23.
On February 6, 2004, PMSI filed an appeal with the Office of the Director-General of the IPO which was
docketed as Appeal No. 10-2004-0002. On December 23, 2004, it also filed with the Court of Appeals a
“Motion to Withdraw Petition; Alternatively, Memorandum of the Petition for Certiorari” in CA-G.R. SP No.
71597, which was granted in a resolution dated February 17, 2005.
On December 20, 2004, the Director-General of the IPO rendered a decision15 in favor of PMSI, the
dispositive portion of which states:
WHEREFORE, premises considered, the instant appeal is hereby GRANTED. Accordingly, Decision No.
2003-01 dated 22 December 2003 of the Director of Bureau of Legal Affairs is hereby REVERSED
and SET ASIDE.
Let a copy of this Decision be furnished the Director of the Bureau of Legal Affairs for appropriate
action, and the records be returned to her for proper disposition. The Documentation, Information
and Technology Transfer Bureau is also given a copy for library and reference purposes.
SO ORDERED.16
Thus, ABS-CBN filed a petition for review with prayer for issuance of a temporary restraining order and
writ of preliminary injunction with the Court of Appeals, which was docketed as CA-G.R. SP No. 88092.
On July 18, 2005, the Court of Appeals issued a temporary restraining order. Thereafter, ABS-CBN filed a
petition for contempt against PMSI for continuing to rebroadcast Channels 2 and 23 despite the
restraining order. The case was docketed as CA- G.R. SP No. 90762.
On November 14, 2005, the Court of Appeals ordered the consolidation of CA-G.R. SP Nos. 88092 and
90762.
In the assailed Decision dated July 12, 2006, the Court of Appeals sustained the findings of the Director-
General of the IPO and dismissed both petitions filed by ABS-CBN.17
ABS-CBN’s motion for reconsideration was denied, hence, this petition.
ABS-CBN contends that PMSI’s unauthorized rebroadcasting of Channels 2 and 23 is an infringement of its
broadcasting rights and copyright under the Intellectual Property Code (IP Code);18that Memorandum
Circular No. 04-08-88 excludes DTH satellite television operators; that the Court of Appeals’ interpretation
of the must-carry rule violates Section 9 of Article III19 of the Constitution because it allows the taking of
property for public use without payment of just compensation; that the Court of Appeals erred in
dismissing the petition for contempt docketed as CA-G.R. SP No. 90762 without requiring respondents to
file comment.
Respondents, on the other hand, argue that PMSI’s rebroadcasting of Channels 2 and 23 is sanctioned by
Memorandum Circular No. 04-08-88; that the must-carry rule under the Memorandum Circular is a valid
exercise of police power; and that the Court of Appeals correctly dismissed CA-G.R. SP No. 90762 since it
found no need to exercise its power of contempt.
After a careful review of the facts and records of this case, we affirm the findings of the Director-General
of the IPO and the Court of Appeals.
There is no merit in ABS-CBN’s contention that PMSI violated its broadcaster’s rights under Section 211 of
the IP Code which provides in part:
 Chapter XIV
BROADCASTING ORGANIZATIONS
Sec. 211. Scope of Right. - Subject to the provisions of Section 212, broadcasting organizations shall
enjoy the exclusive right to carry out, authorize or prevent any of the following acts:
211.1. The rebroadcasting of their broadcasts;
xxxx
Neither is PMSI guilty of infringement of ABS-CBN’s copyright under Section 177 of the IP Code which
states that copyright or economic rights shall consist of the exclusive right to carry out, authorize or
prevent the public performance of the work (Section 177.6), and other communication to the public of the
work (Section 177.7).20
Section 202.7 of the IP Code defines broadcasting as “the transmission by wireless means for the public
reception of sounds or of images or of representations thereof; such transmission by satellite is also
‘broadcasting’ where the means for decrypting are provided to the public by the broadcasting
organization or with its consent.”
On the other hand, rebroadcasting as defined in Article 3(g) of the International Convention for the
Protection of Performers, Producers of Phonograms and Broadcasting Organizations, otherwise known as
the 1961 Rome Convention, of which the Republic of the Philippines is a signatory, 21 is “the
simultaneous broadcasting by one broadcasting organization of the broadcast of another broadcasting
organization.”
The Director-General of the IPO correctly found that PMSI is not engaged in rebroadcasting and thus
cannot be considered to have infringed ABS-CBN’s broadcasting rights and copyright, thus:
That the Appellant’s [herein respondent PMSI] subscribers are able to view Appellee’s [herein
petitioner ABS-CBN] programs (Channels 2 and 23) at the same time that the latter is broadcasting
the same is undisputed. The question however is, would the Appellant in doing so be considered
engaged in broadcasting. Section 202.7 of the IP Code states that broadcasting means
“the transmission by wireless means for the public reception of sounds or of images or of
representations thereof; such transmission by satellite is also ‘broadcasting’ where the means for
decrypting are provided to the public by the broadcasting organization or with its consent.”
Section 202.7 of the IP Code, thus, provides two instances wherein there is broadcasting, to wit:
1. The transmission by wireless means for the public reception of sounds or of images or of
representations thereof; and
2. The transmission by satellite for the public reception of sounds or of images or of representations
thereof where the means for decrypting are provided to the public by the broadcasting organization
or with its consent.
It is under the second category that Appellant’s DTH satellite television service must be examined
since it is satellite-based. The elements of such category are as follows:
1. There is transmission of sounds or images or of representations thereof;
2. The transmission is through satellite;
3. The transmission is for public reception; and
4. The means for decrypting are provided to the public by the broadcasting organization or with its
consent.
It is only the presence of all the above elements can a determination that the DTH is broadcasting
and consequently, rebroadcasting Appellee’s signals in violation of Sections 211 and 177 of the IP
Code, may be arrived at.
Accordingly, this Office is of the view that the transmission contemplated under Section 202.7 of the
IP Code presupposes that the origin of the signals is the broadcaster. Hence, a program that is
broadcasted is attributed to the broadcaster. In the same manner, the rebroadcasted program is
attributed to the rebroadcaster.
In the case at hand, Appellant is not the origin nor does it claim to be the origin of the programs
broadcasted by the Appellee. Appellant did not make and transmit on its own but merely carried the
existing signals of the Appellee. When Appellant’s subscribers view Appellee’s programs in Channels
2 and 23, they know that the origin thereof was the Appellee.
Aptly, it is imperative to discern the nature of broadcasting. When a broadcaster transmits, the
signals are scattered or dispersed in the air. Anybody may pick-up these signals. There is no
restriction as to its number, type or class of recipients. To receive the signals, one is not required to
subscribe or to pay any fee. One only has to have a receiver, and in case of television signals, a
television set, and to tune-in to the right channel/frequency. The definition of broadcasting, wherein
it is required that the transmission is wireless, all the more supports this discussion. Apparently, the
undiscriminating dispersal of signals in the air is possible only through wireless means. The use of
wire in transmitting signals, such as cable television, limits the recipients to those who are
connected. Unlike wireless transmissions, in wire-based transmissions, it is not enough that one
 wants to be connected and possesses the equipment. The service provider, such as cable television
companies may choose its subscribers.
The only limitation to such dispersal of signals in the air is the technical capacity of the transmitters
and other equipment employed by the broadcaster. While the broadcaster may use a less powerful
transmitter to limit its coverage, this is merely a business strategy or decision and not an inherent
limitation when transmission is through cable.
Accordingly, the nature of broadcasting is to scatter the signals in its widest area of coverage as
possible. On this score, it may be said that making public means that accessibility is
undiscriminating as long as it [is] within the range of the transmitter and equipment of the
broadcaster. That the medium through which the Appellant carries the Appellee’s signal, that is via
satellite, does not diminish the fact that it operates and functions as a cable television. It remains
that the Appellant’s transmission of signals via its DTH satellite television service cannot be
considered within the purview of broadcasting. x x x
xxxx
This Office also finds no evidence on record showing that the Appellant has provided decrypting
means to the public indiscriminately. Considering the nature of this case, which is punitive in fact,
the burden of proving the existence of the elements constituting the acts punishable rests on the
shoulder of the complainant.
Accordingly, this Office finds that there is no rebroadcasting on the part of the Appellant of the
Appellee’s programs on Channels 2 and 23, as defined under the Rome Convention.22
Under the Rome Convention, rebroadcasting is “the simultaneous broadcasting by one broadcasting
organization of the broadcast of another broadcasting organization.” The Working Paper23 prepared by
the Secretariat of the Standing Committee on Copyright and Related Rights defines broadcasting
organizations as “entities that take the financial and editorial responsibility for the selection and
arrangement of, and investment in, the transmitted content.”24 Evidently, PMSI would not qualify as a
broadcasting organization because it does not have the aforementioned responsibilities imposed upon
broadcasting organizations, such as ABS-CBN.
ABS-CBN creates and transmits its own signals; PMSI merely carries such signals which the viewers
receive in its unaltered form. PMSI does not produce, select, or determine the programs to be shown in
Channels 2 and 23. Likewise, it does not pass itself off as the origin or author of such programs. Insofar as
Channels 2 and 23 are concerned, PMSI merely retransmits the same in accordance with Memorandum
Circular 04-08-88. With regard to its premium channels, it buys the channels from content providers and
transmits on an as-is basis to its viewers. Clearly, PMSI does not perform the functions of a broadcasting
organization; thus, it cannot be said that it is engaged in rebroadcasting Channels 2 and 23.
The Director-General of the IPO and the Court of Appeals also correctly found that PMSI’s services are
similar to a cable television system because the services it renders fall under cable “retransmission,” as
described in the Working Paper, to wit:
(G) Cable Retransmission
47. When a radio or television program is being broadcast, it can be retransmitted to new audiences
by means of cable or wire. In the early days of cable television, it was mainly used to improve signal
reception, particularly in so-called “shadow zones,” or to distribute the signals in large buildings or
building complexes. With improvements in technology, cable operators now often receive signals
from satellites before retransmitting them in an unaltered form to their subscribers through cable.
48. In principle, cable retransmission can be either simultaneous with the broadcast over-the-air or
delayed (deferred transmission) on the basis of a fixation or a reproduction of a fixation.
Furthermore, they might be unaltered or altered, for example through replacement of commercials,
etc. In general, however, the term “retransmission” seems to be reserved for such
transmissions which are both simultaneous and unaltered.
49. The Rome Convention does not grant rights against unauthorized cable retransmission. Without
such a right, cable operators can retransmit both domestic and foreign over the air broadcasts
simultaneously to their subscribers without permission from the broadcasting organizations or other
rightholders and without obligation to pay remuneration.25 (Emphasis added)
Thus, while the Rome Convention gives broadcasting organizations the right to authorize or prohibit the
rebroadcasting of its broadcast, however, this protection does not extend to cable retransmission. The
retransmission of ABS-CBN’s signals by PMSI – which functions essentially as a cable television – does not
therefore constitute rebroadcasting in violation of the former’s intellectual property rights under the IP
Code.
It must be emphasized that the law on copyright is not absolute. The IP Code provides that:
Sec. 184. Limitations on Copyright. -
184.1. Notwithstanding the provisions of Chapter V, the following acts shall not constitute
infringement of copyright:
 xxxx
(h) The use made of a work by or under the direction or control of the Government, by the National
Library or by educational, scientific or professional institutions where such use is in the public
interest and is compatible with fair use;
The carriage of ABS-CBN’s signals by virtue of the must-carry rule in Memorandum Circular No. 04-08-88
is under the direction and control of the government though the NTC which is vested with exclusive
jurisdiction to supervise, regulate and control telecommunications and broadcast services/facilities in the
Philippines.26 The imposition of the must-carry rule is within the NTC’s power to promulgate rules and
regulations, as public safety and interest may require, to encourage a larger and more effective use of
communications, radio and television broadcasting facilities, and to maintain effective competition among
private entities in these activities whenever the Commission finds it reasonably feasible.27 As correctly
observed by the Director-General of the IPO:
Accordingly, the “Must-Carry Rule” under NTC Circular No. 4-08-88 falls under the foregoing
category of limitations on copyright. This Office agrees with the Appellant [herein respondent PMSI]
that the “Must-Carry Rule” is in consonance with the principles and objectives underlying Executive
Order No. 436,28 to wit:
The Filipino people must be given wider access to more sources of news, information,
education, sports event and entertainment programs other than those provided for by mass
media and afforded television programs to attain a well informed, well-versed and culturally
refined citizenry and enhance their socio-economic growth:
WHEREAS, cable television (CATV) systems could support or supplement the services provided
by television broadcast facilities, local and overseas, as the national information highway to
the countryside.29
The Court of Appeals likewise correctly observed that:
[T]he very intent and spirit of the NTC Circular will prevent a situation whereby station owners and a
few networks would have unfettered power to make time available only to the highest bidders, to
communicate only their own views on public issues, people, and to permit on the air only those with
whom they agreed – contrary to the state policy that the (franchise) grantee like the petitioner,
private respondent and other TV station owners, shall provide at all times sound and balanced
programming and assist in the functions of public information and education.
This is for the first time that we have a structure that works to accomplish explicit state policy
goals.30
Indeed, intellectual property protection is merely a means towards the end of making society benefit from
the creation of its men and women of talent and genius. This is the essence of intellectual property laws,
and it explains why certain products of ingenuity that are concealed from the public are outside the pale
of protection afforded by the law. It also explains why the author or the creator enjoys no more rights
than are consistent with public welfare.31
Further, as correctly observed by the Court of Appeals, the must-carry rule as well as the legislative
franchises granted to both ABS-CBN and PMSI are in consonance with state policies enshrined in the
Constitution, specifically Sections 9,32 17,33 and 2434 of Article II on the Declaration of Principles and
State Policies.35
ABS-CBN was granted a legislative franchise under Republic Act No. 7966, Section 1 of which authorizes it
“to construct, operate and maintain, for commercial purposes and in the public interest, television and
radio broadcasting in and throughout the Philippines x x x.” Section 4 thereof mandates that it “shall
provide adequate public service time to enable the government, through the said broadcasting stations,
to reach the population on important public issues; provide at all times sound and balanced
programming; promote public participation such as in community programming; assist in the functions of
public information and education x x x.”
PMSI was likewise granted a legislative franchise under Republic Act No. 8630, Section 4 of which
similarly states that it “shall provide adequate public service time to enable the government, through the
said broadcasting stations, to reach the population on important public issues; provide at all times sound
and balanced programming; promote public participation such as in community programming; assist in
the functions of public information and education x x x.” Section 5, paragraph 2 of the same law provides
that “the radio spectrum is a finite resource that is a part of the national patrimony and the use thereof is
a privilege conferred upon the grantee by the State and may be withdrawn anytime, after due process.”
In Telecom. & Broadcast Attys. of the Phils., Inc. v. COMELEC,36 the Court held that a franchise is a mere
privilege which may be reasonably burdened with some form of public service. Thus:
All broadcasting, whether by radio or by television stations, is licensed by the government. Airwave
frequencies have to be allocated as there are more individuals who want to broadcast than there are
frequencies to assign. A franchise is thus a privilege subject, among other things, to amendment by
Congress in accordance with the constitutional provision that “any such franchise or right granted . .
 . shall be subject to amendment, alteration or repeal by the Congress when the common good so
requires.”
xxxx
Indeed, provisions for COMELEC Time have been made by amendment of the franchises of radio and
television broadcast stations and, until the present case was brought, such provisions had not been
thought of as taking property without just compensation. Art. XII, §11 of the Constitution authorizes
the amendment of franchises for “the common good.” What better measure can be conceived for
the common good than one for free air time for the benefit not only of candidates but even more of
the public, particularly the voters, so that they will be fully informed of the issues in an election? “[I]t
is the right of the viewers and listeners, not the right of the broadcasters, which is paramount.”
Nor indeed can there be any constitutional objection to the requirement that broadcast stations give
free air time. Even in the United States, there are responsible scholars who believe that government
controls on broadcast media can constitutionally be instituted to ensure diversity of views and
attention to public affairs to further the system of free expression. For this purpose, broadcast
stations may be required to give free air time to candidates in an election. Thus, Professor Cass R.
Sunstein of the University of Chicago Law School, in urging reforms in regulations affecting the
broadcast industry, writes:
xxxx
In truth, radio and television broadcasting companies, which are given franchises, do not own the
airwaves and frequencies through which they transmit broadcast signals and images. They are
merely given the temporary privilege of using them. Since a franchise is a mere privilege, the
exercise of the privilege may reasonably be burdened with the performance by the grantee of some
form of public service. x x x37
There is likewise no merit to ABS-CBN’s claim that PMSI’s carriage of its signals is for a commercial
purpose; that its being the country’s top broadcasting company, the availability of its signals allegedly
enhances PMSI’s attractiveness to potential customers;38 or that the unauthorized carriage of its signals
by PMSI has created competition between its Metro Manila and regional stations.
ABS-CBN presented no substantial evidence to prove that PMSI carried its signals for profit; or that such
carriage adversely affected the business operations of its regional stations. Except for the testimonies of
its witnesses,[39] no studies, statistical data or information have been submitted in evidence.
Administrative charges cannot be based on mere speculation or conjecture. The complainant has the
burden of proving by substantial evidence the allegations in the complaint.40 Mere allegation is not
evidence, and is not equivalent to proof.41
Anyone in the country who owns a television set and antenna can receive ABS-CBN’s signals for free.
Other broadcasting organizations with free-to-air signals such as GMA-7, RPN-9, ABC-5, and IBC-13 can
likewise be accessed for free. No payment is required to view the said channels42 because these
broadcasting networks do not generate revenue from subscription from their viewers but from airtime
revenue from contracts with commercial advertisers and producers, as well as from direct sales.
In contrast, cable and DTH television earn revenues from viewer subscription. In the case of PMSI, it offers
its customers premium paid channels from content providers like Star Movies, Star World, Jack TV, and
AXN, among others, thus allowing its customers to go beyond the limits of “Free TV and Cable TV.”43 It
does not advertise itself as a local channel carrier because these local channels can be viewed with or
without DTH television.
Relevantly, PMSI’s carriage of Channels 2 and 23 is material in arriving at the ratings and audience share
of ABS-CBN and its programs. These ratings help commercial advertisers and producers decide whether
to buy airtime from the network. Thus, the must-carry rule is actually advantageous to the broadcasting
networks because it provides them with increased viewership which attracts commercial advertisers and
producers.
On the other hand, the carriage of free-to-air signals imposes a burden to cable and DTH television
providers such as PMSI. PMSI uses none of ABS-CBN’s resources or equipment and carries the signals and
shoulders the costs without any recourse of charging.44 Moreover, such carriage of signals takes up
channel space which can otherwise be utilized for other premium paid channels.
There is no merit to ABS-CBN’s argument that PMSI’s carriage of Channels 2 and 23 resulted in
competition between its Metro Manila and regional stations. ABS-CBN is free to decide to pattern its
regional programming in accordance with perceived demands of the region; however, it cannot impose
this kind of programming on the regional viewers who are also entitled to the free-to-air channels. It must
be emphasized that, as a national broadcasting organization, one of ABS-CBN’s responsibilities is to
scatter its signals to the widest area of coverage as possible. That it should limit its signal reach for the
sole purpose of gaining profit for its regional stations undermines public interest and deprives the viewers
of their right to access to information.
Indeed, television is a business; however, the welfare of the people must not be sacrificed in the pursuit
of profit. The right of the viewers and listeners to the most diverse choice of programs available is
paramount.45 The Director-General correctly observed, thus:
The “Must-Carry Rule” favors both broadcasting organizations and the public. It prevents cable
television companies from excluding broadcasting organization especially in those places not
reached by signal. Also, the rule prevents cable television companies from depriving viewers in far-
flung areas the enjoyment of programs available to city viewers. In fact, this Office finds the rule
more burdensome on the part of the cable television companies. The latter carries the television
signals and shoulders the costs without any recourse of charging. On the other hand, the signals
that are carried by cable television companies are dispersed and scattered by the television stations
and anybody with a television set is free to pick them up.
With its enormous resources and vaunted technological capabilities, Appellee’s [herein petitioner
ABS-CBN] broadcast signals can reach almost every corner of the archipelago. That in spite of such
capacity, it chooses to maintain regional stations, is a business decision. That the “Must-Carry Rule”
adversely affects the profitability of maintaining such regional stations since there will be
competition between them and its Metro Manila station is speculative and an attempt to extrapolate
the effects of the rule. As discussed above, Appellant’s DTH satellite television services is of limited
subscription. There was not even a showing on part of the Appellee the number of Appellant’s
subscribers in one region as compared to non-subscribing television owners. In any event, if this
Office is to engage in conjecture, such competition between the regional stations and the Metro
Manila station will benefit the public as such competition will most likely result in the production of
better television programs.”46
All told, we find that the Court of Appeals correctly upheld the decision of the IPO Director-General that
PMSI did not infringe on ABS-CBN’s intellectual property rights under the IP Code. The findings of facts of
administrative bodies charged with their specific field of expertise, are afforded great weight by the
courts, and in the absence of substantial showing that such findings are made from an erroneous
estimation of the evidence presented, they are conclusive, and in the interest of stability of the
governmental structure, should not be disturbed.47
Moreover, the factual findings of the Court of Appeals are conclusive on the parties and are not
reviewable by the Supreme Court. They carry even more weight when the Court of Appeals affirms the
factual findings of a lower fact-finding body,48 as in the instant case.
There is likewise no merit to ABS-CBN’s contention that the Memorandum Circular excludes from its
coverage DTH television services such as those provided by PMSI. Section 6.2 of the Memorandum
Circular requires all cable television system operators operating in a community within Grade “A” or “B”
contours to carry the television signals of the authorized television broadcast stations.49 The rationale
behind its issuance can be found in the whereas clauses which state:
Whereas, Cable Television Systems or Community Antenna Television (CATV) have shown their
ability to offer additional programming and to carry much improved broadcast signals in the remote
areas, thereby enriching the lives of the rest of the population through the dissemination of social,
economic, educational information and cultural programs;
Whereas, the national government supports the promotes the orderly growth of the Cable Television
industry within the framework of a regulated fee enterprise, which is a hallmark of a democratic
society;
Whereas, public interest so requires that monopolies in commercial mass media shall be regulated
or prohibited, hence, to achieve the same, the cable TV industry is made part of the broadcast
media;
Whereas, pursuant to Act 3846 as amended and Executive Order 205 granting the National
Telecommunications Commission the authority to set down rules and regulations in order to protect
the public and promote the general welfare, the National Telecommunications Commission hereby
promulgates the following rules and regulations on Cable Television Systems;
The policy of the Memorandum Circular is to carry improved signals in remote areas for the good of the
general public and to promote dissemination of information. In line with this policy, it is clear that DTH
television should be deemed covered by the Memorandum Circular. Notwithstanding the different
technologies employed, both DTH and cable television have the ability to carry improved signals and
promote dissemination of information because they operate and function in the same way.
In its December 20, 2002 letter,50 the NTC explained that both DTH and cable television services are of a
similar nature, the only difference being the medium of delivering such services. They can carry
broadcast signals to the remote areas and possess the capability to enrich the lives of the residents
thereof through the dissemination of social, economic, educational information and cultural programs.
Consequently, while the Memorandum Circular refers to cable television, it should be understood as to
include DTH television which provides essentially the same services.
In Eastern Telecommunications Philippines, Inc. v. International Communication Corporation,51 we held:
The NTC, being the government agency entrusted with the regulation of activities coming under its
special and technical forte, and possessing the necessary rule-making power to implement its
objectives, is in the best position to interpret its own rules, regulations and guidelines. The Court has
consistently yielded and accorded great respect to the interpretation by administrative agencies of
their own rules unless there is an error of law, abuse of power, lack of jurisdiction or grave abuse of
discretion clearly conflicting with the letter and spirit of the law.52
With regard to the issue of the constitutionality of the must-carry rule, the Court finds that its resolution is
not necessary in the disposition of the instant case. One of the essential requisites for a successful judicial
inquiry into constitutional questions is that the resolution of the constitutional question must be
necessary in deciding the case.53 In Spouses Mirasol v. Court of Appeals,54 we held:
As a rule, the courts will not resolve the constitutionality of a law, if the controversy can be settled
on other grounds. The policy of the courts is to avoid ruling on constitutional questions and to
presume that the acts of the political departments are valid, absent a clear and unmistakable
showing to the contrary. To doubt is to sustain. This presumption is based on the doctrine of
separation of powers. This means that the measure had first been carefully studied by the legislative
and executive departments and found to be in accord with the Constitution before it was finally
enacted and approved.55
The instant case was instituted for violation of the IP Code and infringement of ABS-CBN’s broadcasting
rights and copyright, which can be resolved without going into the constitutionality of Memorandum
Circular No. 04-08-88. As held by the Court of Appeals, the only relevance of the circular in this case is
whether or not compliance therewith should be considered manifestation of lack of intent to commit
infringement, and if it is, whether such lack of intent is a valid defense against the complaint of
petitioner.56
The records show that petitioner assailed the constitutionality of Memorandum Circular No. 04-08-88 by
way of a collateral attack before the Court of Appeals. In Philippine National Bank v. Palma,57 we ruled
that for reasons of public policy, the constitutionality of a law cannot be collaterally attacked. A law is
deemed valid unless declared null and void by a competent court; more so when the issue has not been
duly pleaded in the trial court.58
As a general rule, the question of constitutionality must be raised at the earliest opportunity so that if not
raised in the pleadings, ordinarily it may not be raised in the trial, and if not raised in the trial court, it will
not be considered on appeal.59 In Philippine Veterans Bank v. Court of Appeals,60 we held:
We decline to rule on the issue of constitutionality as all the requisites for the exercise of judicial
review are not present herein. Specifically, the question of constitutionality will not be
passed upon by the Court unless, at the first opportunity, it is properly raised and
presented in an appropriate case, adequately argued, and is necessary to a
determination of the case, particularly where the issue of constitutionality is the very lis
mota presented.x x x61
Finally, we find that the dismissal of the petition for contempt filed by ABS-CBN is in order.
Indirect contempt may either be initiated (1) motu proprio by the court by issuing an order or any other
formal charge requiring the respondent to show cause why he should not be punished for contempt or (2)
by the filing of a verified petition, complying with the requirements for filing initiatory pleadings.62
ABS-CBN filed a verified petition before the Court of Appeals, which was docketed CA G.R. SP No. 90762,
for PMSI’s alleged disobedience to the Resolution and Temporary Restraining Order, both dated July 18,
2005, issued in CA-G.R. SP No. 88092. However, after the cases were consolidated, the Court of Appeals
did not require PMSI to comment on the petition for contempt. It ruled on the merits of CA-G.R. SP No.
88092 and ordered the dismissal of both petitions.
ABS-CBN argues that the Court of Appeals erred in dismissing the petition for contempt without having
ordered respondents to comment on the same. Consequently, it would have us reinstate CA-G.R. No.
90762 and order respondents to show cause why they should not be held in contempt.
It bears stressing that the proceedings for punishment of indirect contempt are criminal in nature. The
modes of procedure and rules of evidence adopted in contempt proceedings are similar in nature to those
used in criminal prosecutions. 63 While it may be argued that the Court of Appeals should have ordered
respondents to comment, the issue has been rendered moot in light of our ruling on the merits. To order
respondents to comment and have the Court of Appeals conduct a hearing on the contempt charge when
the main case has already been disposed of in favor of PMSI would be circuitous. Where the issues have
become moot, there is no justiciable controversy, thereby rendering the resolution of the same of no
practical use or value.64
WHEREFORE, the petition is DENIED. The July 12, 2006 Decision of the Court of Appeals in CA-G.R. SP
Nos. 88092 and 90762, sustaining the findings of the Director-General of the Intellectual Property Office
and dismissing the petitions filed by ABS-CBN Broadcasting Corporation, and the December 11, 2006
Resolution denying the motion for reconsideration, are AFFIRMED.
SO ORDERED.
ACONSUELO YNARES-SANTIAGO
Associate Justice
WE CONCUR:
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
MINITA V. CHICO- ANTONIO EDUARDO B. NACHURA
NAZARIO Associate Justice
Associate Justice
TERESITA J. LEONARDO-DE CASTRO
Associate Justice
ATTESTATION
I attest that the conclusions in the above decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, it is
hereby certified that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1 Rollo, pp. 65-178.
2 Id. at 8-43.
3 Id. at 54-57.
4 ABS-CBN was granted a franchise under Republic Act No. 7966, entitled AN ACT GRANTING THE ABS-
CBN BROADCASTING CORPORATION A FRANCHISE TO CONSTRUCT, INSTALL, OPERATE AND MAINTAIN
TELEVISION AND RADIO BROADCASTING STATIONS IN THE PHILIPPINES, AND FOR OTHER PURPOSES.
5 AN ACT GRANTING THE PHILIPPINE MULTI-MEDIA SYSTEM, INC., A FRANCHISE TO CONSTRUCT, INSTALL,
ESTABLISH, OPERATE AND MAINTAIN RADIO AND TELEVISION STATIONS IN THE PHILIPPINES.
6 Rollo, p. 316.
7 Id. at 317.
8 Revised Rules and Regulations Governing Cable Television Systems in the Philippines.
9 6.2. Mandatory Coverage
6.2.1. A cable TV system operating in a community which is within the Grade A or Grade B contours of an
authorized TV broadcast station or stations must carry the TV signals of these stations.
10 Rollo, p. 322.
11 Id. at 852.
12 Id. at 853-854.
13 Id. at 857.
14 Id. at 567-590. Penned by Estrellita Beltran-Abelardo, Director, Bureau of Legal Affairs.
15 Id at 793-811. Penned by Director-General Emma C. Francisco.
16 Id. at 811.
17 Id. at 43.
18 Republic Act No. 8923, effective January 1, 1998.
19 Article III, Section 9 provides: “Private property shall not be taken for public use without just
compensation.”
20 Sec. 177. Copy or Economic Rights. - Subject to the provisions of Chapter VIII, copyright or economic
rights shall consist of the exclusive right to carry out, authorize or prevent the following acts:
xxxx
177.6. Public performance of the work; and
177.7. Other communication to the public of the work (Sec. 5, P. D. No. 49a)
21 Entered into force on September 25, 1984. source: http://www.wipo.int/treaties/en/ShowResults.jsp?
lang=en&treaty_id=17.
22 Rollo, pp. 805-809.
23 Eighth Session, Geneva, November 4-8, 2002.
24 Id.at paragraph 58, page 12.
25 Id. at paragraphs 47-49, page 10.
26 E.O. No. 546, Sec. 15. Functions of the Commission. The Commission shall exercise the following
functions:
a. Issue Certificate of Public Convenience for the operation of communications utilities and services, radio
communications systems, wire or wireless telephone or telegraph systems, radio and television
broadcasting system and other similar public utilities;
b. Establish, prescribe and regulate areas of operation of particular operators of public service
communications; and determine and prescribe charges or rates pertinent to the operation of such public
utility facilities and services except in cases where charges or rates are established by international
bodies or associations of which the Philippines is a participating member or by bodies recognized by the
Philippine Government as the proper arbiter of such charges or rates;
c. Grant permits for the use of radio frequencies for wireless telephone and telegraph systems and radio
communication systems including amateur radio stations and radio and television broadcasting systems;
d. Sub-allocate series of frequencies of bands allocated by the International Telecommunications Union to
the specific services;
e. Establish and prescribe rules, regulations, standards, specifications in all cases related to the issued
Certificate of Public Convenience and administer and enforce the same;
f. Coordinate and cooperate with government agencies and other entities concerned with any aspect
involving communications with a view to continuously improve the communications service in the
country;
g. Promulgate such rules and regulations, as public safety and interest may require, to encourage a larger
and more effective use of communications, radio and television broadcasting facilities, and to maintain
effective competition among private entities in these activities whenever the Commission finds it
reasonably feasible;
h. Supervise and inspect the operation of radio stations and telecommunications facilities;
i. Undertake the examination and licensing of radio operators;
j. Undertake, whenever necessary, the registration of radio transmitters and transceivers; and
k. Perform such other functions as may be prescribed by law.
27 Id. Section 15 (g).
28 PRESCRIBING POLICY GUIDELINES TO GOVERN THE OPERATIONS OF CABLE TELEVISION IN THE
PHILIPPINES.
29 Rollo, p. 810.
30 Id. at 42.
31 Fr. Ranhillo Callangan Aquino, Intellectual Property Law: Comments and Annotations, 2003, p. 5.
32 SEC. 9. The State shall promote a just and dynamic social order that will ensure the prosperity and
independence of the nation and free the people from poverty through policies that provide adequate
social services, promote full employment, a rising standard of living, and an improved quality of life for
all.
33 SEC. 17. The State shall give priority to education, science and technology, arts, culture, and sports to
foster patriotism and nationalism, accelerate social progress, and promote total human liberation and
development.
34 SEC. 24. The State recognizes the vital role of communication and information in nation-building.
35 Rollo, p. 40.
36 352 Phil. 153 (1998).
37Id. at 171-174.
38 Rollo, pp. 129-130.
39 Id. at 134.
40 Artuz v. Court of Appeals, 417 Phil. 588, 597 (2001).
41 Navarro v. Clerk of Court, A.M. No. P-05-1962, February 17, 2005, 451 SCRA 626, 629.
42 Rollo, Comment, p. 1249.
43 http://www.dreamsatellite.com/about.htm
44 Rollo, p. 810.
45 Telecom. & Broadcast Attys. of the Phils., Inc v. COMELEC, 352 Phil. 153, 173 (1998).
46 Rollo, pp. 810-811.
47 Ocampo v. Salalila, 382 Phil. 522, 532 (2000).
48 Gala v. Ellice Agro-Industrial Corporation, G.R. No. 156819, December 11, 2003, 418 SCRA 431, 444.
49 Supra note 9.
50 Supra note 11.
51 G.R. No. 135992, January 31, 2006, 481 SCRA 163.
52 Id. at 166-167.
53 Meralco v. Secretary of Labor, 361 Phil. 845, 867 (1999).
54 403 Phil. 760 (2001).
55 Id. at 774.
56 Rollo, p. 41; citing the Decision of the Director-General of the IPO.
57 G.R. No. 157279, August 9, 2005, 466 SCRA 307.
58 Id. at 322-323.
59 Joaquin G. Bernas, The 1987 Constitution of the Republic of the Philippines: A Commentary, p. 858
(1996), citing People v. Vera, 65 Phil. 56 (1937).
60 G.R. No. 132561, June 30, 2005, 462 SCRA 336.
61 Id. at 349.
62 Montenegro v. Montenegro, G.R. No. 156829, June 8, 2004.
63 Soriano v. Court of Appeals, G.R. No. 128938, June 4, 2004, 431 SCRA 1, 7-8
64 Delgado v. Court of Appeals, G.R. No. 137881, August 19, 2005, 467 SCRA 418, 428.

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