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economic, and political structure of our society, do hereby order and decree and
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TRUST RECEIPTS LAW
PRESIDENTIAL DECREE No. 115 January 29, 1973
PROVIDING FOR THE REGULATION OF TRUST RECEIPTS
TRANSACTIONS
WHEREAS, the utilization of trust receipts, as a convenient business device to assist
importers and merchants solve their financing problems, had gained popular
acceptance in international and domestic business practices, particularly in
commercial banking transactions;
WHEREAS, there is no specific law in the Philippines that governs trust receipt
transactions, especially the rights and obligations of the parties involved therein and
the enforcement of the said rights in case of default or violation of the terms of the
trust receipt agreement;
WHEREAS, the recommendations contained in the report on the financial system
which have been accepted, with certain modifications by the monetary authorities
included, among others, the enactment of a law regulating the trust receipt
transactions;
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,
make as part of the law of the land the following:
Section 1. Short Title. This Decree shall be known as the Trust Receipts Law.
Section 2. Declaration of Policy. It is hereby declared to be the policy of the state (a)
to encourage and promote the use of trust receipts as an additional and convenient
aid to commerce and trade; (b) to provide for the regulation of trust receipts
transactions in order to assure the protection of the rights and enforcement of
obligations of the parties involved therein; and (c) to declare the misuse and/or
misappropriation of goods or proceeds realized from the sale of goods, documents or
instruments released under trust receipts as a criminal offense punishable under
Article Three hundred and fifteen of the Revised Penal Code.
Section 3. Definition of terms. As used in this Decree, unless the context otherwise
requires, the term
(a) Document shall mean written or printed evidence of title to goods.
(b) Entrustee shall refer to the person having or taking possession of goods,
documents or instruments under a trust receipt transaction, and any
successor in interest of such person for the purpose or purposes specified in
the trust receipt agreement.
(c) Entruster shall refer to the person holding title over the goods,
documents, or instruments subject of a trust receipt transaction, and any
successor in interest of such person.
(d) Goods shall include chattels and personal property other than: money,
things in action, or things so affixed to land as to become a part thereof.
(e) Instrument means any negotiable instrument as defined in the
Negotiable Instrument Law; any certificate of stock, or bond or debenture for
the payment of money issued by a public or private corporation, or any
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certificate of deposit, participation certificate or receipt, any credit or
investment instrument of a sort marketed in the ordinary course of business
or finance, whereby the entrustee, after the issuance of the trust receipt,
appears by virtue of possession and the face of the instrument to be the
owner. Instrument shall not include a document as defined in this Decree.
(f) Purchase means taking by sale, conditional sale, lease, mortgage, or
pledge, legal or equitable.
(g) Purchaser means any person taking by purchase.
(h) Security Interest means a property interest in goods, documents or
instruments to secure performance of some obligations of the entrustee or
of some third persons to the entruster and includes title, whether or not
expressed to be absolute, whenever such title is in substance taken or
retained for security only.
(i) Person means, as the case may be, an individual, trustee, receiver, or other
fiduciary, partnership, corporation, business trust or other association, and
two more persons having a joint or common interest.
(j) Trust Receipt shall refer to the written or printed document signed by the
entrustee in favor of the entruster containing terms and conditions
substantially complying with the provisions of this Decree. No further
formality of execution or authentication shall be necessary to the validity of
a trust receipt.
(k) Value means any consideration sufficient to support a simple contract.
Section 4. What constitutes a trust receipt transaction. A trust receipt transaction,
within the meaning of this Decree, is any transaction by and between a person
referred to in this Decree as the entruster, and another person referred to in this
Decree as entrustee, whereby the entruster, who owns or holds absolute title or
security interests over certain specified goods, documents or instruments, releases
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the same to the possession of the entrustee upon the latter's execution and delivery
to the entruster of a signed document called a trust receipt wherein the entrustee
binds himself to hold the designated goods, documents or instruments in trust for the
entruster and to sell or otherwise dispose of the goods, documents or instruments
with the obligation to turn over to the entruster the proceeds thereof to the extent
of the amount owing to the entruster or as appears in the trust receipt or the goods,
documents or instruments themselves if they are unsold or not otherwise disposed
of, in accordance with the terms and conditions specified in the trust receipt, or for
other purposes substantially equivalent to any of the following:
1. In the case of goods or documents, (a) to sell the goods or procure their
sale; or (b) to manufacture or process the goods with the purpose of ultimate
sale: Provided, That, in the case of goods delivered under trust receipt for the
purpose of manufacturing or processing before its ultimate sale, the
entruster shall retain its title over the goods whether in its original or
processed form until the entrustee has complied fully with his obligation
under the trust receipt; or (c) to load, unload, ship or tranship or otherwise
deal with them in a manner preliminary or necessary to their sale; or
2. In the case of instruments,
a) to sell or procure their sale or exchange; or
b) to deliver them to a principal; or
c) to effect the consummation of some transactions involving delivery
to a depository or register; or
d) to effect their presentation, collection or renewal
The sale of goods, documents or instruments by a person in the business of
selling goods, documents or instruments for profit who, at the outset of the
transaction, has, as against the buyer, general property rights in such goods,
documents or instruments, or who sells the same to the buyer on credit,
Nigel Carmelo Q. Reago 2

retaining title or other interest as security for the payment of the purchase
price, does not constitute a trust receipt transaction and is outside the
purview and coverage of this Decree.
Section 5. Form of trust receipts; contents. A trust receipt need not be in any
particular form, but every such receipt must substantially contain (a) a description of
the goods, documents or instruments subject of the trust receipt; (2) the total invoice
value of the goods and the amount of the draft to be paid by the entrustee; (3) an
undertaking or a commitment of the entrustee (a) to hold in trust for the entruster
the goods, documents or instruments therein described; (b) to dispose of them in the
manner provided for in the trust receipt; and (c) to turn over the proceeds of the sale
of the goods, documents or instruments to the entruster to the extent of the amount
owing to the entruster or as appears in the trust receipt or to return the goods,
documents or instruments in the event of their non-sale within the period specified
therein.
The trust receipt may contain other terms and conditions agreed upon by the parties
in addition to those hereinabove enumerated provided that such terms and
conditions shall not be contrary to the provisions of this Decree, any existing laws,
public policy or morals, public order or good customs.
Section 6. Currency in which a trust receipt may be denominated. A trust receipt may
be denominated in the Philippine currency or any foreign currency acceptable and
eligible as part of international reserves of the Philippines, the provisions of existing
law, executive orders, rules and regulations to the contrary notwithstanding:
Provided, however, That in the case of trust receipts denominated in foreign currency,
payment shall be made in its equivalent in Philippine currency computed at the
prevailing exchange rate on the date the proceeds of sale of the goods, documents or
instruments held in trust by the entrustee are turned over to the entruster or on such
other date as may be stipulated in the trust receipt or other agreements executed
between the entruster and the entrustee.
Section 7. Rights of the entruster. The entruster shall be entitled to the proceeds from
the sale of the goods, documents or instruments released under a trust receipt to the
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entrustee to the extent of the amount owing to the entruster or as appears in the
trust receipt, or to the return of the goods, documents or instruments in case of non-
sale, and to the enforcement of all other rights conferred on him in the trust receipt
provided such are not contrary to the provisions of this Decree.
The entruster may cancel the trust and take possession of the goods, documents or
instruments subject of the trust or of the proceeds realized therefrom at any time
upon default or failure of the entrustee to comply with any of the terms and
conditions of the trust receipt or any other agreement between the entruster and the
entrustee, and the entruster in possession of the goods, documents or instruments
may, on or after default, give notice to the entrustee of the intention to sell, and may,
not less than five days after serving or sending of such notice, sell the goods,
documents or instruments at public or private sale, and the entruster may, at a public
sale, become a purchaser. The proceeds of any such sale, whether public or private,
shall be applied (a) to the payment of the expenses thereof; (b) to the payment of the
expenses of re-taking, keeping and storing the goods, documents or instruments; (c)
to the satisfaction of the entrustee's indebtedness to the entruster. The entrustee
shall receive any surplus but shall be liable to the entruster for any deficiency. Notice
of sale shall be deemed sufficiently given if in writing, and either personally served on
the entrustee or sent by post-paid ordinary mail to the entrustee's last known
business address.
Section 8. Entruster not responsible on sale by entrustee. The entruster holding a
security interest shall not, merely by virtue of such interest or having given the
entrustee liberty of sale or other disposition of the goods, documents or instruments
under the terms of the trust receipt transaction be responsible as principal or as
vendor under any sale or contract to sell made by the entrustee.
Section 9. Obligations of the entrustee. The entrustee shall (1) hold the goods,
documents or instruments in trust for the entruster and shall dispose of them strictly
in accordance with the terms and conditions of the trust receipt; (2) receive the
proceeds in trust for the entruster and turn over the same to the entruster to the
extent of the amount owing to the entruster or as appears on the trust receipt; (3)
insure the goods for their total value against loss from fire, theft, pilferage or other
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casualties; (4) keep said goods or proceeds thereof whether in money or whatever
form, separate and capable of identification as property of the entruster; (5) return
the goods, documents or instruments in the event of non-sale or upon demand of the
entruster; and (6) observe all other terms and conditions of the trust receipt not
contrary to the provisions of this Decree.
or other officials or persons therein responsible for the offense, without prejudice to
the civil liabilities arising from the criminal offense.
Section 14. Cases not covered by this Decree. Cases not provided for in this Decree
shall be governed by the applicable provisions of existing laws.

Section 10. Liability of entrustee for loss. The risk of loss shall be borne by the Section 15. Separability clause. If any provision or section of this Decree or the
entrustee. Loss of goods, documents or instruments which are the subject of a trust application thereof to any person or circumstance is held invalid, the other provisions
receipt, pending their disposition, irrespective of whether or not it was due to the or sections hereof and the application of such provisions or sections to other persons
fault or negligence of the entrustee, shall not extinguish his obligation to the entruster or circumstances shall not be affected thereby.
for the value thereof.
Section 16. Repealing clause. All Acts inconsistent with this Decree are hereby
Section 11. Rights of purchaser for value and in good faith. Any purchaser of goods repealed.
from an entrustee with right to sell, or of documents or instruments through their
customary form of transfer, who buys the goods, documents, or instruments for value Section 17. This Decree shall take effect immediately.
and in good faith from the entrustee, acquires said goods, documents or instruments
free from the entruster's security interest. Done in the City of Manila, this 29th day of January, in the year of Our Lord, nineteen
hundred and seventy-three.
Section 12. Validity of entruster's security interest as against creditors. The
entruster's security interest in goods, documents, or instruments pursuant to the
written terms of a trust receipt shall be valid as against all creditors of the entrustee
for the duration of the trust receipt agreement.

Section 13. Penalty clause. The failure of an entrustee to turn over the proceeds of
the sale of the goods, documents or instruments covered by a trust receipt to the
extent of the amount owing to the entruster or as appears in the trust receipt or to
return said goods, documents or instruments if they were not sold or disposed of in
accordance with the terms of the trust receipt shall constitute the crime of estafa,
punishable under the provisions of Article Three hundred and fifteen, paragraph one
(b) of Act Numbered Three thousand eight hundred and fifteen, as amended,
otherwise known as the Revised Penal Code. If the violation or offense is committed
by a corporation, partnership, association or other juridical entities, the penalty
provided for in this Decree shall be imposed upon the directors, officers, employees

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NEGOTIABLE INSTRUMENTS LAW
ACT NO. 2031
February 03, 1911
I. FORM AND INTERPRETATION
Section 1. Form of negotiable instruments. - An instrument to be negotiable must
conform to the following requirements
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in
money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
Sec. 2. What constitutes certainty as to sum. - The sum payable is a sum certain within
the meaning of this Act, although it is to be paid
(a) with interest; or
(b) by stated installments; or
(c) by stated installments, with a provision that, upon default in payment of
any installment or of interest, the whole shall become due; or
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(d) with exchange, whether at a fixed rate or at the current rate; or
(e) with costs of collection or an attorney's fee, in case payment shall not be
made at maturity.
Sec. 3. When promise is unconditional. - An unqualified order or promise to pay is
unconditional within the meaning of this Act though coupled with
(a) An indication of a particular fund out of which reimbursement is to be
made or a particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument.
But an order or promise to pay out of a particular fund is not unconditional.
Sec. 4. Determinable future time; what constitutes. - An instrument is payable at a
determinable future time, within the meaning of this Act, which is expressed to be
payable
(a) At a fixed period after date or sight; or
(b) On or before a fixed or determinable future time specified therein; or
(c) On or at a fixed period after the occurrence of a specified event which is
certain to happen, though the time of happening be uncertain.
An instrument payable upon a contingency is not negotiable, and the happening of
the event does not cure the defect.
Sec. 5. Additional provisions not affecting negotiability. - An instrument which
contains an order or promise to do any act in addition to the payment of money is not
negotiable. But the negotiable character of an instrument otherwise negotiable is not
affected by a provision which
(a) authorizes the sale of collateral securities in case the instrument be not
paid at maturity; or
Nigel Carmelo Q. Reago 5

(b) authorizes a confession of judgment if the instrument be not paid at
maturity; or
(c) waives the benefit of any law intended for the advantage or protection of
the obligor; or
(d) gives the holder an election to require something to be done in lieu of
payment of money.
But nothing in this section shall validate any provision or stipulation otherwise illegal.
Sec. 6. Omissions; seal; particular money. - The validity and negotiable character of
an instrument are not affected by the fact that
(a) it is not dated; or
(b) does not specify the value given, or that any value had been given therefor;
or
(c) does not specify the place where it is drawn or the place where it is payable;
or
(d) bears a seal; or
(e) designates a particular kind of current money in which payment is to be
made.
But nothing in this section shall alter or repeal any statute requiring in certain cases
the nature of the consideration to be stated in the instrument.
Sec. 7. When payable on demand. - An instrument is payable on
demand
(a) When it is so expressed to be payable on demand, or at sight, or on
presentation; or
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(b) In which no time for payment is expressed.
Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards
the person so issuing, accepting, or indorsing it, payable on demand.
Sec. 8. When payable to order. - The instrument is payable to order where it is drawn
payable to the order of a specified person or to him or his order. It may be drawn
payable to the order of
(a) A payee who is not maker, drawer, or drawee; or
(b) The drawer or maker; or
(c) The drawee; or
(d) Two or more payees jointly; or
(e) One or some of several payees; or
(f) The holder of an office for the time being.
Where the instrument is payable to order, the payee must be named or otherwise
indicated therein with reasonable certainty.
Sec. 9. When payable to bearer. - The instrument is payable to
bearer
(a) When it is expressed to be so payable; or
(b) When it is payable to a person named therein or bearer; or
(c) When it is payable to the order of a fictitious or non-existing person, and
such fact was known to the person making it so payable; or
(d) When the name of the payee does not purport to be the name of any
person; or
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(e) When the only or last indorsement is an indorsement in blank.
Sec. 10. Terms, when sufficient. - The instrument need not follow the language of this
Act, but any terms are sufficient which clearly indicate an intention to conform to the
requirements hereof.
Sec. 11. Date, presumption as to. - Where the instrument or an acceptance or any
indorsement thereon is dated, such date is deemed prima facie to be the true date of
the making, drawing, acceptance, or indorsement, as the case may be.
Sec. 12. Ante-dated and post-dated. - The instrument is not invalid for the reason only
that it is ante-dated or post-dated, provided this is not done for an illegal or
fraudulent purpose. The person to whom an instrument so dated is delivered acquires
the title thereto as of the date of delivery.
Sec. 13. When date may be inserted. - Where an instrument expressed to be payable
at a fixed period after date is issued undated, or where the acceptance of an
instrument payable at a fixed period after sight is undated, any holder may insert
therein the true date of issue or acceptance, and the instrument shall be payable
accordingly. The insertion of a wrong date does not avoid the instrument in the hands
of a subsequent holder in due course; but as to him, the date so inserted is to be
regarded as the true date.
Sec. 14. Blanks; when may be filled. - Where the instrument is wanting in any material
particular, the person in possession thereof has a prima facie authority to complete
it by filling up the blanks therein. And a signature on a blank paper delivered by the
person making the signature in order that the paper may be converted into a
negotiable instrument operates as a prima facie authority to fill it up as such for any
amount. In order, however, that any such instrument when completed may be
enforced against any person who became a party thereto prior to its completion, it
must be filled up strictly in accordance with the authority given and within a
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reasonable time. But if any such instrument, after completion, is negotiated to a
holder in due course, it is valid and effectual for all purposes in his hands, and he may
enforce it as if it had been filled up strictly in accordance with the authority given and
within a reasonable time.
Sec. 15. Incomplete instrument not delivered. - Where an incomplete instrument has
not been delivered, it will not, if completed and negotiated without authority, be a
valid contract in the hands of any holder, as against any person whose signature was
placed thereon before delivery.
Sec. 16. Delivery; when effectual; when presumed. - Every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for the
purpose of giving effect thereto. As between immediate parties and as regards a
remote party other than a holder in due course, the delivery, in order to be effectual,
must be made either by or under the authority of the party making, drawing,
accepting, or indorsing, as the case may be; and, in such case, the delivery may be
shown to have been conditional, or for a special purpose only, and not for the purpose
of transferring the property in the instrument. But where the instrument is in the
hands of a holder in due course, a valid delivery thereof by all parties prior to him so
as to make them liable to him is conclusively presumed. And where the instrument is
no longer in the possession of a party whose signature appears thereon, a valid and
intentional delivery by him is presumed until the contrary is proved.
Sec. 17. Construction where instrument is ambiguous. - Where the language of the
instrument is ambiguous or there are omissions therein, the following rules of
construction apply
(a) Where the sum payable is expressed in words and also in figures and there
is a discrepancy between the two, the sum denoted by the words is the sum
payable; but if the words are ambiguous or uncertain, reference may be had
to the figures to fix the amount;
Nigel Carmelo Q. Reago 7

(b) Where the instrument provides for the payment of interest, without
specifying the date from which interest is to run, the interest runs from the
date of the instrument, and if the instrument is undated, from the issue
thereof;
(c) Where the instrument is not dated, it will be considered to be dated as of
the time it was issued;
(d) Where there is a conflict between the written and printed provisions of
the instrument, the written provisions prevail;
(e) Where the instrument is so ambiguous that there is doubt whether it is a
bill or note, the holder may treat it as either at his election;
(f) Where a signature is so placed upon the instrument that it is not clear in
what capacity the person making the same intended to sign, he is to be
deemed an indorser;
(g) Where an instrument containing the word “I promise to pay” is signed by
two or more persons, they are deemed to be jointly and severally liable
thereon.
Sec. 18. Liability of person signing in trade or assumed name. - No person is liable on
the instrument whose signature does not appear thereon, except as herein otherwise
expressly provided. But one who signs in a trade or assumed name will be liable to
the same extent as if he had signed in his own name.
Sec. 19. Signature by agent; authority; how shown. - The signature of any party may
be made by a duly authorized agent. No particular form of appointment is necessary
for this purpose; and the authority of the agent may be established as in other cases
of agency.
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Sec. 20. Liability of person signing as agent, and so forth. - Where the instrument
contains or a person adds to his signature words indicating that he signs for or on
behalf of a principal or in a representative capacity, he is not liable on the instrument
if he was duly authorized; but the mere addition of words describing him as an agent,
or as filling a representative character, without disclosing his principal, does not
exempt him from personal liability.
Sec. 21. Signature by procuration; effect of. - A signature by procuration operates as
notice that the agent has but a limited authority to sign, and the principal is bound
only in case the agent in so signing acted within the actual limits of his authority.
Sec. 22. Effect of indorsement by infant or corporation.- The indorsement or
assignment of the instrument by a corporation or by an infant passes the property
therein, notwithstanding that from want of capacity, the corporation or infant may
incur no liability thereon.
Sec. 23. Forged signature; effect of. - When a signature is forged or made without the
authority of the person whose signature it purports to be, it is wholly inoperative, and
no right to retain the instrument, or to give a discharge therefor, or to enforce
payment thereof against any party thereto, can be acquired through or under such
signature, unless the party against whom it is sought to enforce such right is
precluded from setting up the forgery or want of authority.
II. CONSIDERATION
Sec. 24. Presumption of consideration. - Every negotiable instrument is deemed
prima facie to have been issued for a valuable consideration; and every person whose
signature appears thereon to have become a party thereto for value.
Sec. 25. Value, what constitutes. — Value is any consideration sufficient to support a
simple contract. An antecedent or pre-existing debt constitutes value; and is deemed
such whether the instrument is payable on demand or at a future time.
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Sec. 26. What constitutes holder for value. - Where value has at any time been given
for the instrument, the holder is deemed a holder for value in respect to all parties
who become such prior to that time.
Sec. 27. When lien on instrument constitutes holder for value. — Where the holder
has a lien on the instrument arising either from contract or by implication of law, he
is deemed a holder for value to the extent of his lien.
Sec. 28. Effect of want of consideration. - Absence or failure of consideration is a
matter of defense as against any person not a holder in due course; and partial failure
of consideration is a defense pro tanto, whether the failure is an ascertained and
liquidated amount or otherwise.
Sec. 29. Liability of accommodation party. - An accommodation party is one who has
signed the instrument as maker, drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his name to some other person. Such
a person is liable on the instrument to a holder for value, notwithstanding such holder,
at the time of taking the instrument, knew him to be only an accommodation party.
III. NEGOTIATION
Sec. 30. What constitutes negotiation. - An instrument is negotiated when it is
transferred from one person to another in such manner as to constitute the
transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if
payable to order, it is negotiated by the indorsement of the holder and completed by
delivery.
Sec. 31. Indorsement; how made. - The indorsement must be written on the
instrument itself or upon a paper attached thereto. The signature of the indorser,
without additional words, is a sufficient indorsement.
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Sec. 32. Indorsement must be of entire instrument. - The indorsement must be an
indorsement of the entire instrument. An indorsement which purports to transfer to
the indorsee a part only of the amount payable, or which purports to transfer the
instrument to two or more indorsees severally, does not operate as a negotiation of
the instrument. But where the instrument has been paid in part, it may be indorsed
as to the residue.
Sec. 33. Kinds of indorsement. - An indorsement may be either special or in blank;
and it may also be either restrictive or qualified or conditional.
Sec. 34. Special indorsement; indorsement in blank. - A special indorsement specifies
the person to whom, or to whose order, the instrument is to be payable, and the
indorsement of such indorsee is necessary to the further negotiation of the
instrument. An indorsement in blank specifies no indorsee, and an instrument so
indorsed is payable to bearer, and may be negotiated by delivery.
Sec. 35. Blank indorsement; how changed to special indorsement. - The holder may
convert a blank indorsement into a special indorsement by writing over the signature
of the indorser in blank any contract consistent with the character of the indorsement.
Sec. 36. When indorsement restrictive. - An indorsement is restrictive which either
(a) Prohibits the further negotiation of the instrument; or
(b) Constitutes the indorsee the agent of the indorser; or
(c) Vests the title in the indorsee in trust for or to the use of some other
persons.
But the mere absence of words implying power to negotiate does not make an
indorsement restrictive.
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Sec. 37. Effect of restrictive indorsement; rights of indorsee. - A restrictive
indorsement confers upon the indorsee the right
(a) to receive payment of the instrument;
(b) to bring any action thereon that the indorser could bring;
(c) to transfer his rights as such indorsee, where the form of the indorsement
authorizes him to do so.
But all subsequent indorsees acquire only the title of the first indorsee under the
restrictive indorsement.
Sec. 38. Qualified indorsement. - A qualified indorsement constitutes the indorser a
mere assignor of the title to the instrument. It may be made by adding to the
indorser's signature the words without recourse or any words of similar import. Such
an indorsement does not impair the negotiable character of the instrument.
Sec. 39. Conditional indorsement. - Where an indorsement is conditional, the party
required to pay the instrument may disregard the condition and make payment to
the indorsee or his transferee whether the condition has been fulfilled or not. But any
person to whom an instrument so indorsed is negotiated will hold the same, or the
proceeds thereof, subject to the rights of the person indorsing conditionally.
Sec. 40. Indorsement of instrument payable to bearer. - Where an instrument,
payable to bearer, is indorsed specially, it may nevertheless be further negotiated by
delivery; but the person indorsing specially is liable as indorser to only such holders
as make title through his indorsement.
Sec. 41. Indorsement where payable to two or more persons. - Where an instrument
is payable to the order of two or more payees or indorsees who are not partners, all
must indorse unless the one indorsing has authority to indorse for the others.
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Sec. 42. Effect of instrument drawn or indorsed to a person as cashier. - Where an
instrument is drawn or indorsed to a person as cashier or other fiscal officer of a
bank or corporation, it is deemed prima facie to be payable to the bank or corporation
of which he is such officer, and may be negotiated by either the indorsement of the
bank or corporation or the indorsement of the officer.
Sec. 43. Indorsement where name is misspelled, and so forth. - Where the name of a
payee or indorsee is wrongly designated or misspelled, he may indorse the instrument
as therein described adding, if he thinks fit, his proper signature.
Sec. 44. Indorsement in representative capacity. - Where any person is under
obligation to indorse in a representative capacity, he may indorse in such terms as to
negative personal liability.
Sec. 45. Time of indorsement; presumption. - Except where an indorsement bears
date after the maturity of the instrument, every negotiation is deemed prima facie to
have been effected before the instrument was overdue.
Sec. 46. Place of indorsement; presumption. - Except where the contrary appears,
every indorsement is presumed prima facie to have been made at the place where
the instrument is dated.
Sec. 47. Continuation of negotiable character. - An instrument negotiable in its origin
continues to be negotiable until it has been restrictively indorsed or discharged by
payment or otherwise.
Sec. 48. Striking out indorsement. - The holder may at any time strike out any
indorsement which is not necessary to his title. The indorser whose indorsement is
struck out, and all indorsers subsequent to him, are thereby relieved from liability on
the instrument.
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Sec. 49. Transfer without indorsement; effect of. - Where the holder of an instrument
payable to his order transfers it for value without indorsing it, the transfer vests in the
transferee such title as the transferor had therein, and the transferee acquires in
addition, the right to have the indorsement of the transferor. But for the purpose of
determining whether the transferee is a holder in due course, the negotiation takes
effect as of the time when the indorsement is actually made.
Sec. 50. When prior party may negotiate instrument. - Where an instrument is
negotiated back to a prior party, such party may, subject to the provisions of this Act,
reissue and further negotiable the same. But he is not entitled to enforce payment
thereof against any intervening party to whom he was personally liable.
IV. RIGHTS OF THE HOLDER
Sec. 51. Right of holder to sue; payment. - The holder of a negotiable instrument may
to sue thereon in his own name; and payment to him in due course discharges the
instrument.
Sec. 52. What constitutes a holder in due course. - A holder in due course is a holder
who has taken the instrument under the following conditions
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and without notice
that it has been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any infirmity
in the instrument or defect in the title of the person negotiating it.
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Sec. 53. When person not deemed holder in due course. - Where an instrument
payable on demand is negotiated on an unreasonable length of time after its issue,
the holder is not deemed a holder in due course.
Sec. 54. Notice before full amount is paid. - Where the transferee receives notice of
any infirmity in the instrument or defect in the title of the person negotiating the
same before he has paid the full amount agreed to be paid therefor, he will be
deemed a holder in due course only to the extent of the amount therefore paid by
him.
Sec. 55. When title defective. - The title of a person who negotiates an instrument is
defective within the meaning of this Act when he obtained the instrument, or any
signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for
an illegal consideration, or when he negotiates it in breach of faith, or under such
circumstances as amount to a fraud.
Sec. 56. What constitutes notice of defect. - To constitutes notice of an infirmity in
the instrument or defect in the title of the person negotiating the same, the person
to whom it is negotiated must have had actual knowledge of the infirmity or defect,
or knowledge of such facts that his action in taking the instrument amounted to bad
faith.
Sec. 57. Rights of holder in due course. - A holder in due course holds the instrument
free from any defect of title of prior parties, and free from defenses available to prior
parties among themselves, and may enforce payment of the instrument for the full
amount thereof against all parties liable thereon.
Sec. 58. When subject to original defense. - In the hands of any holder other than a
holder in due course, a negotiable instrument is subject to the same defenses as if it
were non-negotiable. But a holder who derives his title through a holder in due course,
and who is not himself a party to any fraud or illegality affecting the instrument, has
all the rights of such former holder in respect of all parties prior to the latter.
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Sec. 59. Who is deemed holder in due course. - Every holder is deemed prima facie to
be a holder in due course; but when it is shown that the title of any person who has
negotiated the instrument was defective, the burden is on the holder to prove that
he or some person under whom he claims acquired the title as holder in due course.
But the last-mentioned rule does not apply in favor of a party who became bound on
the instrument prior to the acquisition of such defective title.
V. LIABILITIES OF PARTIES
Sec. 60. Liability of maker. - The maker of a negotiable instrument, by making it,
engages that he will pay it according to its tenor, and admits the existence of the
payee and his then capacity to indorse.
Sec. 61. Liability of drawer. - The drawer by drawing the instrument admits the
existence of the payee and his then capacity to indorse; and engages that, on due
presentment, the instrument will be accepted or paid, or both, according to its tenor,
and that if it be dishonored and the necessary proceedings on dishonor be duly taken,
he will pay the amount thereof to the holder or to any subsequent indorser who may
be compelled to pay it. But the drawer may insert in the instrument an express
stipulation negativing or limiting his own liability to the holder.
Sec. 62. Liability of acceptor. - The acceptor, by accepting the instrument, engages
that he will pay it according to the tenor of his acceptance and admits
(a) The existence of the drawer, the genuineness of his signature, and his
capacity and authority to draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.
Sec. 63. When a person deemed indorser. - A person placing his signature upon an
instrument otherwise than as maker, drawer, or acceptor, is deemed to be indorser
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unless he clearly indicates by appropriate words his intention to be bound in some
other capacity.
Sec. 64. Liability of irregular indorser. - Where a person, not otherwise a party to an
instrument, places thereon his signature in blank before delivery, he is liable as
indorser, in accordance with the following rules
(a) If the instrument is payable to the order of a third person, he is liable to
the payee and to all subsequent parties.
(b) If the instrument is payable to the order of the maker or drawer, or is
payable to bearer, he is liable to all parties subsequent to the maker or
drawer.
(c) If he signs for the accommodation of the payee, he is liable to all parties
subsequent to the payee.
Sec. 65. Warranty where negotiation by delivery and so forth. — Every person
negotiating an instrument by delivery or by a qualified indorsement warrants
(a) That the instrument is genuine and in all respects what it purports to be;
(b) That he has a good title to it;
(c) That all prior parties had capacity to contract;
(d) That he has no knowledge of any fact which would impair the validity of
the instrument or render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of no
holder other than the immediate transferee.
The provisions of subdivision (c) of this section do not apply to a person negotiating
public or corporation securities other than bills and notes.
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Sec. 66. Liability of general indorser. - Every indorser who indorses without
qualification, warrants to all subsequent holders in due course
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the
next preceding section; and
(b) That the instrument is, at the time of his indorsement, valid and subsisting;
And, in addition, he engages that, on due presentment, it shall be accepted
or paid, or both, as the case may be, according to its tenor, and that if it be
dishonored and the necessary proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder, or to any subsequent indorser who
may be compelled to pay it.
Sec. 67. Liability of indorser where paper negotiable by delivery. — Where a person
places his indorsement on an instrument negotiable by delivery, he incurs all the
liability of an indorser.
Sec. 68. Order in which indorsers are liable. - As respect one another, indorsers are
liable prima facie in the order in which they indorse; but evidence is admissible to
show that, as between or among themselves, they have agreed otherwise. Joint
payees or joint indorsees who indorse are deemed to indorse jointly and severally.
Sec. 69. Liability of an agent or broker. - Where a broker or other agent negotiates an
instrument without indorsement, he incurs all the liabilities prescribed by Section
Sixty-five of this Act, unless he discloses the name of his principal and the fact that he
is acting only as agent.
VI. PRESENTATION FOR PAYMENT
Sec. 70. Effect of want of demand on principal debtor. - Presentment for payment is
not necessary in order to charge the person primarily liable on the instrument; but if
the instrument is, by its terms, payable at a special place, and he is able and willing to
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pay it there at maturity, such ability and willingness are equivalent to a tender of
payment upon his part. But except as herein otherwise provided, presentment for
payment is necessary in order to charge the drawer and indorsers.
Sec. 71. Presentment where instrument is not payable on demand and where payable
on demand. - Where the instrument is not payable on demand, presentment must be
made on the day it falls due. Where it is payable on demand, presentment must be
made within a reasonable time after its issue, except that in the case of a bill of
exchange, presentment for payment will be sufficient if made within a reasonable
time after the last negotiation thereof.
Sec. 72. What constitutes a sufficient presentment. - Presentment for payment, to be
sufficient, must be made
(a) By the holder, or by some person authorized to receive payment on his
behalf;
(b) At a reasonable hour on a business day;
(c) At a proper place as herein defined;
(d) To the person primarily liable on the instrument, or if he is absent or
inaccessible, to any person found at the place where the presentment is
made.
Sec. 73. Place of presentment. - Presentment for payment is made at the proper place
(a) Where a place of payment is specified in the instrument and it is there
presented;
(b) Where no place of payment is specified but the address of the person to
make payment is given in the instrument and it is there presented;
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(c) Where no place of payment is specified and no address is given and the
instrument is presented at the usual place of business or residence of the
person to make payment;
(d) In any other case if presented to the person to make payment wherever
he can be found, or if presented at his last known place of business or
residence.
Sec. 74. Instrument must be exhibited. - The instrument must be exhibited to the
person from whom payment is demanded, and when it is paid, must be delivered up
to the party paying it.
Sec. 75. Presentment where instrument payable at bank. - Where the instrument is
payable at a bank, presentment for payment must be made during banking hours,
unless the person to make payment has no funds there to meet it at any time during
the day, in which case presentment at any hour before the bank is closed on that day
is sufficient.
Sec. 76. Presentment where principal debtor is dead. - Where the person primarily
liable on the instrument is dead and no place of payment is specified, presentment
for payment must be made to his personal representative, if such there be, and if,
with the exercise of reasonable diligence, he can be found.
Sec. 77. Presentment to persons liable as partners. - Where the persons primarily
liable on the instrument are liable as partners and no place of payment is specified,
presentment for payment may be made to any one of them, even though there has
been a dissolution of the firm.
Sec. 78. Presentment to joint debtors. - Where there are several persons, not partners,
primarily liable on the instrument and no place of payment is specified, presentment
must be made to them all.
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Sec. 79. When presentment not required to charge the drawer. - Presentment for
payment is not required in order to charge the drawer where he has no right to expect
or require that the drawee or acceptor will pay the instrument.
Sec. 80. When presentment not required to charge the indorser. - Presentment is not
required in order to charge an indorser where the instrument was made or accepted
for his accommodation and he has no reason to expect that the instrument will be
paid if presented.
Sec. 81. When delay in making presentment is excused. - Delay in making
presentment for payment is excused when the delay is caused by circumstances
beyond the control of the holder and not imputable to his default, misconduct, or
negligence. When the cause of delay ceases to operate, presentment must be made
with reasonable diligence.
Sec. 82. When presentment for payment is excused. - Presentment for payment is
excused
(a) Where, after the exercise of reasonable diligence, presentment, as
required by this Act, cannot be made;
(b) Where the drawee is a fictitious person;
(c) By waiver of presentment, express or implied.
Sec. 83. When instrument dishonored by non-payment. - The instrument is
dishonored by non-payment when
(a) It is duly presented for payment and payment is refused or cannot be
obtained; or
(b) Presentment is excused and the instrument is overdue and unpaid.
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Sec. 84. Liability of person secondarily liable, when instrument dishonored. - Subject
to the provisions of this Act, when the instrument is dishonored by non-payment, an
immediate right of recourse to all parties secondarily liable thereon accrues to the
holder.
Sec. 85. Time of maturity. - Every negotiable instrument is payable at the time fixed
therein without grace. When the day of maturity falls upon Sunday or a holiday, the
instruments falling due or becoming payable on Saturday are to be presented for
payment on the next succeeding business day except that instruments payable on
demand may, at the option of the holder, be presented for payment before twelve
o'clock noon on Saturday when that entire day is not a holiday.
Sec. 86. Time; how computed. - When the instrument is payable at a fixed period after
date, after sight, or after that happening of a specified event, the time of payment is
determined by excluding the day from which the time is to begin to run, and by
including the date of payment.
Sec. 87. Rule where instrument payable at bank. - Where the instrument is made
payable at a bank, it is equivalent to an order to the bank to pay the same for the
account of the principal debtor thereon.
Sec. 88. What constitutes payment in due course. - Payment is made in due course
when it is made at or after the maturity of the payment to the holder thereof in good
faith and without notice that his title is defective.
VII. NOTICE OF DISHONOR
Sec. 89. To whom notice of dishonor must be given. - Except as herein otherwise
provided, when a negotiable instrument has been dishonored by non-acceptance or
non-payment, notice of dishonor must be given to the drawer and to each indorser,
and any drawer or indorser to whom such notice is not given is discharged.
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Sec. 90. By whom given. - The notice may be given by or on behalf of the holder, or
by or on behalf of any party to the instrument who might be compelled to pay it to
the holder, and who, upon taking it up, would have a right to reimbursement from
the party to whom the notice is given.
Sec. 91. Notice given by agent. - Notice of dishonor may be given by any agent either
in his own name or in the name of any party entitled to given notice, whether that
party be his principal or not.
Sec. 92. Effect of notice on behalf of holder. - Where notice is given by or on behalf
of the holder, it inures to the benefit of all subsequent holders and all prior parties
who have a right of recourse against the party to whom it is given.
Sec. 93. Effect where notice is given by party entitled thereto. - Where notice is given
by or on behalf of a party entitled to give notice, it inures to the benefit of the holder
and all parties subsequent to the party to whom notice is given.
Sec. 94. When agent may give notice. - Where the instrument has been dishonored
in the hands of an agent, he may either himself give notice to the parties liable
thereon, or he may give notice to his principal. If he gives notice to his principal, he
must do so within the same time as if he were the holder, and the principal, upon the
receipt of such notice, has himself the same time for giving notice as if the agent had
been an independent holder.
Sec. 95. When notice sufficient. - A written notice need not be signed and an
insufficient written notice may be supplemented and validated by verbal
communication. A misdescription of the instrument does not vitiate the notice unless
the party to whom the notice is given is in fact misled thereby.
Sec. 96. Form of notice. - The notice may be in writing or merely oral and may be given
in any terms which sufficiently identify the instrument, and indicate that it has been
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dishonored by non-acceptance or non-payment. It may in all cases be given by
delivering it personally or through the mails.
Sec. 97. To whom notice may be given. - Notice of dishonor may be given either to
the party himself or to his agent in that behalf.
Sec. 98. Notice where party is dead. - When any party is dead and his death is known
to the party giving notice, the notice must be given to a personal representative, if
there be one, and if with reasonable diligence, he can be found. If there be no
personal representative, notice may be sent to the last residence or last place of
business of the deceased.
Sec. 99. Notice to partners. - Where the parties to be notified are partners, notice to
any one partner is notice to the firm, even though there has been a dissolution.
Sec. 100. Notice to persons jointly liable. - Notice to joint persons who are not
partners must be given to each of them unless one of them has authority to receive
such notice for the others.
Sec. 101. Notice to bankrupt. - Where a party has been adjudged a bankrupt or an
insolvent, or has made an assignment for the benefit of creditors, notice may be given
either to the party himself or to his trustee or assignee.
Sec. 102. Time within which notice must be given. - Notice may be given as soon as
the instrument is dishonored and, unless delay is excused as hereinafter provided,
must be given within the time fixed by this Act.
Sec. 103. Where parties reside in same place. - Where the person giving and the
person to receive notice reside in the same place, notice must be given within the
following times
(a) If given at the place of business of the person to receive notice, it must be
given before the close of business hours on the day following.
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(b) If given at his residence, it must be given before the usual hours of rest on
the day following.
(c) If sent by mail, it must be deposited in the post office in time to reach him
in usual course on the day following.
Sec. 104. Where parties reside in different places. - Where the person giving and the
person to receive notice reside in different places, the notice must be given within
the following times
(a) If sent by mail, it must be deposited in the post office in time to go by mail
the day following the day of dishonor, or if there be no mail at a convenient
hour on last day, by the next mail thereafter.
(b) If given otherwise than through the post office, then within the time that
notice would have been received in due course of mail, if it had been
deposited in the post office within the time specified in the last subdivision.
Sec. 105. When sender deemed to have given due notice. - Where notice of dishonor
is duly addressed and deposited in the post office, the sender is deemed to have given
due notice, notwithstanding any miscarriage in the mails.
Sec. 106. Deposit in post office; what constitutes. - Notice is deemed to have been
deposited in the post-office when deposited in any branch post office or in any letter
box under the control of the post-office department.
Sec. 107. Notice to subsequent party; time of. - Where a party receives notice of
dishonor, he has, after the receipt of such notice, the same time for giving notice to
antecedent parties that the holder has after the dishonor.
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Sec. 108. Where notice must be sent. - Where a party has added an address to his
signature, notice of dishonor must be sent to that address; but if he has not given
such address, then the notice must be sent as follows
(a) Either to the post-office nearest to his place of residence or to the post-
office where he is accustomed to receive his letters; or
(b) If he lives in one place and has his place of business in another, notice may
be sent to either place; or
(c) If he is sojourning in another place, notice may be sent to the place where
he is so sojourning.
But where the notice is actually received by the party within the time specified in this
Act, it will be sufficient, though not sent in accordance with the requirement of this
section.
Sec. 109. Waiver of notice. - Notice of dishonor may be waived either before the time
of giving notice has arrived or after the omission to give due notice, and the waiver
may be expressed or implied.
Sec. 110. Whom affected by waiver. - Where the waiver is embodied in the instrument
itself, it is binding upon all parties; but, where it is written above the signature of an
indorser, it binds him only.
Sec. 111. Waiver of protest. - A waiver of protest, whether in the case of a foreign bill
of exchange or other negotiable instrument, is deemed to be a waiver not only of a
formal protest but also of presentment and notice of dishonor.
Sec. 112. When notice is dispensed with. - Notice of dishonor is dispensed with when,
after the exercise of reasonable diligence, it cannot be given to or does not reach the
parties sought to be charged.
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Sec. 113. Delay in giving notice; how excused. - Delay in giving notice of dishonor is
excused when the delay is caused by circumstances beyond the control of the holder
and not imputable to his default, misconduct, or negligence. When the cause of delay
ceases to operate, notice must be given with reasonable diligence.
Sec. 114. When notice need not be given to drawer. - Notice of dishonor is not
required to be given to the drawer in either of the following cases
(a) Where the drawer and drawee are the same person;
(b) When the drawee is fictitious person or a person not having capacity to
contract;
(c) When the drawer is the person to whom the instrument is presented for
payment;
(d) Where the drawer has no right to expect or require that the drawee or
acceptor will honor the instrument;
(e) Where the drawer has countermanded payment.
Sec. 115. When notice need not be given to indorser. — Notice of dishonor is not
required to be given to an indorser in either of the following cases
(a) When the drawee is a fictitious person or person not having capacity to
contract, and the indorser was aware of that fact at the time he indorsed the
instrument;
(b) Where the indorser is the person to whom the instrument is presented
for payment;
(c) Where the instrument was made or accepted for his accommodation.
Nigel Carmelo Q. Reago 17

Sec. 116. Notice of non-payment where acceptance refused. - Where due notice of
dishonor by non-acceptance has been given, notice of a subsequent dishonor by non-
payment is not necessary unless in the meantime the instrument has been accepted.
Sec. 117. Effect of omission to give notice of non-acceptance. - An omission to give
notice of dishonor by non-acceptance does not prejudice the rights of a holder in due
course subsequent to the omission.
Sec. 118. When protest need not be made; when must be made. - Where any
negotiable instrument has been dishonored, it may be protested for non-acceptance
or non-payment, as the case may be; but protest is not required except in the case of
foreign bills of exchange.
VIII. DISCHARGE OF NEGOTIABLE INSTRUMENTS
Sec. 119. Instrument; how discharged. - A negotiable instrument is discharged
(a) By payment in due course by or on behalf of the principal debtor;
(b) By payment in due course by the party accommodated, where the
instrument is made or accepted for his accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract for the payment of
money;
(e) When the principal debtor becomes the holder of the instrument at or
after maturity in his own right.
Sec. 120. When persons secondarily liable on the instrument are discharged. - A
person secondarily liable on the instrument is discharged
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(a) By any act which discharges the instrument;
(b) By the intentional cancellation of his signature by the holder;
(c) By the discharge of a prior party;
(d) By a valid tender or payment made by a prior party;
(e) By a release of the principal debtor unless the holder's right of recourse
against the party secondarily liable is expressly reserved;
(f) By any agreement binding upon the holder to extend the time of payment
or to postpone the holder's right to enforce the instrument unless made with
the assent of the party secondarily liable or unless the right of recourse
against such party is expressly reserved.
Sec. 121. Right of party who discharges instrument. - Where the instrument is paid by
a party secondarily liable thereon, it is not discharged; but the party so paying it is
remitted to his former rights as regard all prior parties, and he may strike out his own
and all subsequent indorsements and against negotiate the instrument, except
(a) Where it is payable to the order of a third person and has been paid by
the drawer; and
(b) Where it was made or accepted for accommodation and has been paid by
the party accommodated.
Sec. 122. Renunciation by holder. - The holder may expressly renounce his rights
against any party to the instrument before, at, or after its maturity. An absolute and
unconditional renunciation of his rights against the principal debtor made at or after
the maturity of the instrument discharges the instrument. But a renunciation does
Nigel Carmelo Q. Reago 18

not affect the rights of a holder in due course without notice. A renunciation must be
in writing unless the instrument is delivered up to the person primarily liable thereon.
Sec. 123. Cancellation; unintentional; burden of proof. - A cancellation made
unintentionally or under a mistake or without the authority of the holder, is
inoperative but where an instrument or any signature thereon appears to have been
cancelled, the burden of proof lies on the party who alleges that the cancellation was
made unintentionally or under a mistake or without authority.
Sec. 124. Alteration of instrument; effect of. - Where a negotiable instrument is
materially altered without the assent of all parties liable thereon, it is avoided, except
as against a party who has himself made, authorized, or assented to the alteration
and subsequent indorsers.
But when an instrument has been materially altered and is in the hands of a holder in
due course not a party to the alteration, he may enforce payment thereof according
to its original tenor.
Sec. 125. What constitutes a material alteration. - Any alteration which changes
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
(f) Or which adds a place of payment where no place of payment is specified,
or any other change or addition which alters the effect of the instrument in
any respect, is a material alteration.
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BILLS OF EXCHANGE
IX. FORM AND INTERPRETATION
Sec. 126. Bill of exchange, defined. - A bill of exchange is an unconditional order in
writing addressed by one person to another, signed by the person giving it, requiring
the person to whom it is addressed to pay on demand or at a fixed or determinable
future time a sum certain in money to order or to bearer.
Sec. 127. Bill not an assignment of funds in hands of drawee. - A bill of itself does not
operate as an assignment of the funds in the hands of the drawee available for the
payment thereof, and the drawee is not liable on the bill unless and until he accepts
the same.
Sec. 128. Bill addressed to more than one drawee. - A bill may be addressed to two
or more drawees jointly, whether they are partners or not; but not to two or more
drawees in the alternative or in succession.
Sec. 129. Inland and foreign bills of exchange. - An inland bill of exchange is a bill
which is, or on its face purports to be, both drawn and payable within the Philippines.
Any other bill is a foreign bill. Unless the contrary appears on the face of the bill, the
holder may treat it as an inland bill.
Sec. 130. When bill may be treated as promissory note. - Where in a bill the drawer
and drawee are the same person or where the drawee is a fictitious person or a
person not having capacity to contract, the holder may treat the instrument at his
option either as a bill of exchange or as a promissory note.
Sec. 131. Referee in case of need. - The drawer of a bill and any indorser may insert
thereon the name of a person to whom the holder may resort in case of need; that is
to say, in case the bill is dishonored by non-acceptance or non-payment. Such person
Nigel Carmelo Q. Reago 19

is called a referee in case of need. It is in the option of the holder to resort to the
referee in case of need or not as he may see fit.
X. ACCEPTANCE
Sec. 132. Acceptance; how made, by and so forth. - The acceptance of a bill is the
signification by the drawee of his assent to the order of the drawer. The acceptance
must be in writing and signed by the drawee. It must not express that the drawee will
perform his promise by any other means than the payment of money.
Sec. 133. Holder entitled to acceptance on face of bill. - The holder of a bill presenting
the same for acceptance may require that the acceptance be written on the bill, and,
if such request is refused, may treat the bill as dishonored.
Sec. 134. Acceptance by separate instrument. - Where an acceptance is written on a
paper other than the bill itself, it does not bind the acceptor except in favor of a
person to whom it is shown and who, on the faith thereof, receives the bill for value.
Sec. 135. Promise to accept; when equivalent to acceptance. - An unconditional
promise in writing to accept a bill before it is drawn is deemed an actual acceptance
in favor of every person who, upon the faith thereof, receives the bill for value.
Sec. 136. Time allowed drawee to accept. - The drawee is allowed twenty-four hours
after presentment in which to decide whether or not he will accept the bill; the
acceptance, if given, dates as of the day of presentation.
Sec. 137. Liability of drawee returning or destroying bill. - Where a drawee to whom
a bill is delivered for acceptance destroys the same, or refuses within twenty-four
hours after such delivery or within such other period as the holder may allow, to
return the bill accepted or non-accepted to the holder, he will be deemed to have
accepted the same.
COMMERCIAL LAW 2018
Sec. 138. Acceptance of incomplete bill. - A bill may be accepted before it has been
signed by the drawer, or while otherwise incomplete, or when it is overdue, or after
it has been dishonored by a previous refusal to accept, or by non payment. But when
a bill payable after sight is dishonored by non-acceptance and the drawee
subsequently accepts it, the holder, in the absence of any different agreement, is
entitled to have the bill accepted as of the date of the first presentment.
Sec. 139. Kinds of acceptance. - An acceptance is either general or qualified. A general
acceptance assents without qualification to the order of the drawer. A qualified
acceptance in express terms varies the effect of the bill as drawn.
Sec. 140. What constitutes a general acceptance. - An acceptance to pay at a
particular place is a general acceptance unless it expressly states that the bill is to be
paid there only and not elsewhere.
Sec. 141. Qualified acceptance. - An acceptance is qualified which is
(a) Conditional; that is to say, which makes payment by the acceptor
dependent on the fulfillment of a condition therein stated;
(b) Partial; that is to say, an acceptance to pay part only of the amount for
which the bill is drawn;
(c) Local; that is to say, an acceptance to pay only at a particular place;
(d) Qualified as to time;
(e) The acceptance of some, one or more of the drawees but not of all.
Sec. 142. Rights of parties as to qualified acceptance. - The holder may refuse to take
a qualified acceptance and if he does not obtain an unqualified acceptance, he may
treat the bill as dishonored by non-acceptance. Where a qualified acceptance is taken,
the drawer and indorsers are discharged from liability on the bill unless they have
Nigel Carmelo Q. Reago 20

expressly or impliedly authorized the holder to take a qualified acceptance, or
subsequently assent thereto. When the drawer or an indorser receives notice of a
qualified acceptance, he must, within a reasonable time, express his dissent to the
holder or he will be deemed to have assented thereto.
XI. PRESENTMENT FOR ACCEPTANCE
Sec. 143. When presentment for acceptance must be made. - Presentment for
acceptance must be made
(a) Where the bill is payable after sight, or in any other case, where
presentment for acceptance is necessary in order to fix the maturity of the
instrument; or
(b) Where the bill expressly stipulates that it shall be presented for
acceptance; or
(c) Where the bill is drawn payable elsewhere than at the residence or place
of business of the drawee.
In no other case is presentment for acceptance necessary in order to render any party
to the bill liable.
Sec. 144. When failure to present releases drawer and indorser. - Except as herein
otherwise provided, the holder of a bill which is required by the next preceding
section to be presented for acceptance must either present it for acceptance or
negotiate it within a reasonable time. If he fails to do so, the drawer and all indorsers
are discharged.
Sec. 145. Presentment; how made. - Presentment for acceptance must be made by
or on behalf of the holder at a reasonable hour, on a business day and before the bill
is overdue, to the drawee or some person authorized to accept or refuse acceptance
on his behalf; and
COMMERCIAL LAW 2018
(a) Where a bill is addressed to two or more drawees who are not partners,
presentment must be made to them all unless one has authority to accept or
refuse acceptance for all, in which case presentment may be made to him
only;
(b) Where the drawee is dead, presentment may be made to his personal
representative;
(c) Where the drawee has been adjudged a bankrupt or an insolvent or has
made an assignment for the benefit of creditors, presentment may be made
to him or to his trustee or assignee.
Sec. 146. On what days presentment may be made. - A bill may be presented for
acceptance on any day on which negotiable instruments may be presented for
payment under the provisions of Sections seventy-two and eighty-five of this Act.
When Saturday is not otherwise a holiday, presentment for acceptance may be made
before twelve o'clock noon on that day.
Sec. 147. Presentment where time is insufficient. - Where the holder of a bill drawn
payable elsewhere than at the place of business or the residence of the drawee has
no time, with the exercise of reasonable diligence, to present the bill for acceptance
before presenting it for payment on the day that it falls due, the delay caused by
presenting the bill for acceptance before presenting it for payment is excused and
does not discharge the drawers and indorsers.
Sec. 148. Where presentment is excused. - Presentment for acceptance is excused
and a bill may be treated as dishonored by non-acceptance in either of the following
cases
(a) Where the drawee is dead, or has absconded, or is a fictitious person or a
person not having capacity to contract by bill.
Nigel Carmelo Q. Reago 21

(b) Where, after the exercise of reasonable diligence, presentment can not
be made.
(c) Where, although presentment has been irregular, acceptance has been
refused on some other ground.
Sec. 149. When dishonored by nonacceptance. - A bill is dishonored by non-
acceptance
(a) When it is duly presented for acceptance and such an acceptance as is
prescribed by this Act is refused or can not be obtained; or
(b) When presentment for acceptance is excused and the bill is not accepted.
Sec. 150. Duty of holder where bill not accepted. - Where a bill is duly presented for
acceptance and is not accepted within the prescribed time, the person presenting it
must treat the bill as dishonored by nonacceptance or he loses the right of recourse
against the drawer and indorsers.
Sec. 151. Rights of holder where bill not accepted. - When a bill is dishonored by
nonacceptance, an immediate right of recourse against the drawer and indorsers
accrues to the holder and no presentment for payment is necessary.
XII. PROTEST
Sec. 152. In what cases protest necessary. - Where a foreign bill appearing on its face
to be such is dishonored by nonacceptance, it must be duly protested for
nonacceptance, by nonacceptance is dishonored and where such a bill which has not
previously been dishonored by nonpayment, it must be duly protested for
nonpayment. If it is not so protested, the drawer and indorsers are discharged. Where
a bill does not appear on its face to be a foreign bill, protest thereof in case of dishonor
is unnecessary.
COMMERCIAL LAW 2018
Sec. 153. Protest; how made. - The protest must be annexed to the bill or must
contain a copy thereof, and must be under the hand and seal of the notary making it
and must specify
(a) The time and place of presentment;
(b) The fact that presentment was made and the manner thereof;
(c) The cause or reason for protesting the bill;
(d) The demand made and the answer given, if any, or the fact that the
drawee or acceptor could not be found.
Sec. 154. Protest, by whom made. - Protest may be made by
(a) A notary public; or
(b) By any respectable resident of the place where the bill is dishonored, in
the presence of two or more credible witnesses.
Sec. 155. Protest; when to be made. - When a bill is protested, such protest
must be made on the day of its dishonor unless delay is excused as herein
provided. When a bill has been duly noted, the protest may be subsequently
extended as of the date of the noting.
Sec. 156. Protest; where made. - A bill must be protested at the place where it is
dishonored, except that when a bill drawn payable at the place of business or
residence of some person other than the drawee has been dishonored by
nonacceptance, it must be protested for non-payment at the place where it is
expressed to be payable, and no further presentment for payment to, or demand on,
the drawee is necessary.
Sec. 157. Protest both for non-acceptance and non-payment. - A bill which has been
protested for non-acceptance may be subsequently protested for non-payment.
Nigel Carmelo Q. Reago 22

Sec. 158. Protest before maturity where acceptor insolvent. - Where the acceptor has
been adjudged a bankrupt or an insolvent or has made an assignment for the benefit
of creditors before the bill matures, the holder may cause the bill to be protested for
better security against the drawer and indorsers.
Sec. 159. When protest dispensed with. - Protest is dispensed with by any
circumstances which would dispense with notice of dishonor. Delay in noting or
protesting is excused when delay is caused by circumstances beyond the control of
the holder and not imputable to his default, misconduct, or negligence. When the
cause of delay ceases to operate, the bill must be noted or protested with reasonable
diligence.
Sec. 160. Protest where bill is lost and so forth. - When a bill is lost or destroyed or is
wrongly detained from the person entitled to hold it, protest may be made on a copy
or written particulars thereof.
XIII. ACCEPTANCE FOR HONOR
Sec. 161. When bill may be accepted for honor. - When a bill of exchange has been
protested for dishonor by non-acceptance or protested for better security and is not
overdue, any person not being a party already liable thereon may, with the consent
of the holder, intervene and accept the bill supra protest for the honor of any party
liable thereon or for the honor of the person for whose account the bill is drawn. The
acceptance for honor may be for part only of the sum for which the bill is drawn; and
where there has been an acceptance for honor for one party, there may be a further
acceptance by a different person for the honor of another party.
Sec. 162. Acceptance for honor; how made. - An acceptance for honor supra protest
must be in writing and indicate that it is an acceptance for honor and must be signed
by the acceptor for honor.
COMMERCIAL LAW 2018
Sec. 163. When deemed to be an acceptance for honor of the drawer. - Where an
acceptance for honor does not expressly state for whose honor it is made, it is
deemed to be an acceptance for the honor of the drawer.
Sec. 164. Liability of the acceptor for honor. - The acceptor for honor is liable to the
holder and to all parties to the bill subsequent to the party for whose honor he has
accepted.
Sec. 165. Agreement of acceptor for honor. - The acceptor for honor, by such
acceptance, engages that he will, on due presentment, pay the bill according to the
terms of his acceptance provided it shall not have been paid by the drawee and
provided also that is shall have been duly presented for payment and protested for
non-payment and notice of dishonor given to him.
Sec. 166. Maturity of bill payable after sight; accepted for honor. - Where a bill
payable after sight is accepted for honor, its maturity is calculated from the date of
the noting for non-acceptance and not from the date of the acceptance for honor.
Sec. 167. Protest of bill accepted for honor, and so forth. - Where a dishonored bill
has been accepted for honor supra protest or contains a referee in case of need, it
must be protested for non-payment before it is presented for payment to the
acceptor for honor or referee in case of need.
Sec. 168. Presentment for payment to acceptor for honor, how made. - Presentment
for payment to the acceptor for honor must be made as follows
(a) If it is to be presented in the place where the protest for non-payment was
made, it must be presented not later than the day following its maturity.
(b) If it is to be presented in some other place than the place where it was
protested, then it must be forwarded within the time specified in Section one
hundred and four.
Nigel Carmelo Q. Reago 23

Sec. 169. When delay in making presentment is excused. - The provisions of Section
eighty-one apply where there is delay in making presentment to the acceptor for
honor or referee in case of need.
Sec. 170. Dishonor of bill by acceptor for honor. - When the bill is dishonored by the
acceptor for honor, it must be protested for non-payment by him.
XIV. PAYMENT FOR HONOR
Sec. 171. Who may make payment for honor. - Where a bill has been protested for
non-payment, any person may intervene and pay it supra protest for the honor of any
person liable thereon or for the honor of the person for whose account it was drawn.
Sec. 172. Payment for honor; how made. - The payment for honor supra protest, in
order to operate as such and not as a mere voluntary payment, must be attested by
a notarial act of honor which may be appended to the protest or form an extension
to it.
Sec. 173. Declaration before payment for honor. - The notarial act of honor must be
founded on a declaration made by the payer for honor or by his agent in that behalf
declaring his intention to pay the bill for honor and for whose honor he pays.
Sec. 174. Preference of parties offering to pay for honor. - Where two or more
persons offer to pay a bill for the honor of different parties, the person whose
payment will discharge most parties to the bill is to be given the preference.
Sec. 175. Effect on subsequent parties where bill is paid for honor. - Where a bill has
been paid for honor, all parties subsequent to the party for whose honor it is paid are
discharged but the payer for honor is subrogated for, and succeeds to, both the rights
and duties of the holder as regards the party for whose honor he pays and all parties
liable to the latter.
COMMERCIAL LAW 2018
Sec. 176. Where holder refuses to receive payment supra protest. - Where the holder
of a bill refuses to receive payment supra protest, he loses his right of recourse against
any party who would have been discharged by such payment.
Sec. 177. Rights of payer for honor. - The payer for honor, on paying to the holder the
amount of the bill and the notarial expenses incidental to its dishonor, is entitled to
receive both the bill itself and the protest.
XV. BILLS IN SET
Sec. 178. Bills in set constitute one bill. - Where a bill is drawn in a set, each part of
the set being numbered and containing a reference to the other parts, the whole of
the parts constitutes one bill.
Sec. 179. Right of holders where different parts are negotiated. - Where two or more
parts of a set are negotiated to different holders in due course, the holder whose title
first accrues is, as between such holders, the true owner of the bill. But nothing in
this section affects the right of a person who, in due course, accepts or pays the parts
first presented to him.
Sec. 180. Liability of holder who indorses two or more parts of a set to different
persons. - Where the holder of a set indorses two or more parts to different persons
he is liable on every such part, and every indorser subsequent to him is liable on the
part he has himself indorsed, as if such parts were separate bills.
Sec. 181. Acceptance of bill drawn in sets. - The acceptance may be written on any
part and it must be written on one part only. If the drawee accepts more than one
part and such accepted parts negotiated to different holders in due course, he is liable
on every such part as if it were a separate bill.
Nigel Carmelo Q. Reago 24

Sec. 182. Payment by acceptor of bills drawn in sets. - When the acceptor of a bill
drawn in a set pays it without requiring the part bearing his acceptance to be
delivered up to him, and the part at maturity is outstanding in the hands of a holder
in due course, he is liable to the holder thereon.
Sec. 183. Effect of discharging one of a set. - Except as herein otherwise provided,
where any one part of a bill drawn in a set is discharged by payment or otherwise, the
whole bill is discharged.
XVI. PROMISSORY NOTES AND CHECKS
Sec. 184. Promissory note, defined. - A negotiable promissory note within the
meaning of this Act is an unconditional promise in writing made by one person to
another, signed by the maker, engaging to pay on demand, or at a fixed or
determinable future time, a sum certain in money to order or to bearer. Where a note
is drawn to the maker's own order, it is not complete until indorsed by him.
Sec. 185. Check, defined. - A check is a bill of exchange drawn on a bank payable on
demand. Except as herein otherwise provided, the provisions of this Act applicable to
a bill of exchange payable on demand apply to a check.
Sec. 186. Within what time a check must be presented. - A check must be presented
for payment within a reasonable time after its issue or the drawer will be discharged
from liability thereon to the extent of the loss caused by the delay.
Sec. 187. Certification of check; effect of. - Where a check is certified by the bank on
which it is drawn, the certification is equivalent to an acceptance.
Sec. 188. Effect where the holder of check procures it to be certified. - Where the
holder of a check procures it to be accepted or certified, the drawer and all indorsers
are discharged from liability thereon.
COMMERCIAL LAW 2018
Sec. 189. When check operates as an assignment. - A check of itself does not operate
as an assignment of any part of the funds to the credit of the drawer with the bank,
and the bank is not liable to the holder unless and until it accepts or certifies the check.
XVII. GENERAL PROVISIONS
Sec. 190. Short title. - This Act shall be known as the Negotiable Instruments Law.
Sec. 191. Definition and meaning of terms. - In this Act, unless the contract otherwise
requires
“Acceptance” means an acceptance completed by delivery or notification;
“Action” includes counterclaim and set-off;
“Bank” includes any person or association of persons carrying on the
business of banking, whether incorporated or not;
“Bearer” means the person in possession of a bill or note which is payable
to bearer;
“Bill” means bill of exchange, and note means negotiable promissory note;
“Delivery” means transfer of possession, actual or constructive, from one
person to another;
“Holder” means the payee or indorsee of a bill or note who is in possession
of it, or the bearer thereof;
“Indorsement” means an indorsement completed by delivery;
“Instrument” means negotiable instrument;
Nigel Carmelo Q. Reago 25
 COMMERCIAL LAW 2018

“Issue” means the first delivery of the instrument, complete in form, to a Sec. 198. Time when Act takes effect. - This Act shall take effect ninety days after its
person who takes it as a holder; publication in the Official Gazette of the Philippine Islands shall have been completed.

“Person” includes a body of persons, whether incorporated or not; Enacted: February 3, 1911

“Value” means valuable consideration;

“Written” includes printed, and writing includes print.

Sec. 192. Persons primarily liable on instrument. - The person primarily liable on an
instrument is the person who, by the terms of the instrument, is absolutely required
to pay the same. All other parties are secondarily liable.

Sec. 193. Reasonable time, what constitutes. - In determining what is a reasonable

time regard is to be had to the nature of the instrument, the usage of trade or
business with respect to such instruments, and the facts of the particular case.

Sec. 194. Time, how computed; when last day falls on holiday. - Where the day, or the
last day for doing any act herein required or permitted to be done falls on a Sunday
or on a holiday, the act may be done on the next succeeding secular or business day.

Sec. 195. Application of Act. - The provisions of this Act do not apply to negotiable
instruments made and delivered prior to the taking effect hereof.

Sec. 196. Cases not provided for in Act. - Any case not provided for in this Act shall be
governed by the provisions of existing legislation or in default thereof, by the rules of
the law merchant.

Sec. 197. Repeals. - All acts and laws and parts thereof inconsistent with this Act are
hereby repealed.

Nigel Carmelo Q. Reago 26


INSURANCE CODE
REPUBLIC ACT NO. 10607
AN ACT STRENGTHENING THE INSURANCE INDUSTRY,
FURTHER AMENDING PRESIDENTIAL DECREE NO. 612,
OTHERWISE KNOWN AS THE INSURANCE CODE , AS
AMENDED BY PRESIDENTIAL DECREE NOS. 1141, 1280,
1455, 1460, 1814 AND 1981, AND BATAS PAMBANSA
BLG. 874, AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in
Congress assembled:
Section 1. Presidential Decree No. 612, as amended, is hereby further amended to
read as follows:
GENERAL PROVISIONS
Section 1. This Decree shall be known as ‘The Insurance Code’.
Section 2. Whenever used in this Code, the following terms shall have the respective
meanings hereinafter set forth or indicated, unless the context otherwise requires:
(a) A contract of insurance is an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising
from an unknown or contingent event.
COMMERCIAL LAW 2018
A contract of suretyship shall be deemed to be an insurance contract, within
the meaning of this Code, only if made by a surety who or which, as such, is
doing an insurance business as hereinafter provided.
(b) The term doing an insurance business or transacting an insurance
business, within the meaning of this Code, shall include:
(1) Making or proposing to make, as insurer, any insurance contract;
(2) Making or proposing to make, as surety, any contract of
suretyship as a vocation and not as merely incidental to any other
legitimate business or activity of the surety;
(3) Doing any kind of business, including a reinsurance business,
specifically recognized as constituting the doing of an insurance
business within the meaning of this Code;
(4) Doing or proposing to do any business in substance equivalent to
any of the foregoing in a manner designed to evade the provisions of
this Code.
In the application of the provisions of this Code, the fact that no
profit is derived from the making of insurance contracts, agreements
or transactions or that no separate or direct consideration is received
therefor, shall not be deemed conclusive to show that the making
thereof does not constitute the doing or transacting of an insurance
business.
(c) As used in this Code, the term Commissioner means the Insurance
Commissioner.
Nigel Carmelo Q. Reago 27

CHAPTER I
THE CONTRACT OF INSURANCE
TITLE 1
WHAT MAY BE INSURED
Section 3. Any contingent or unknown event, whether past or future, which may
damnify a person having an insurable interest, or create a liability against him, may
be insured against, subject to the provisions of this chapter.
The consent of the spouse is not necessary for the validity of an insurance policy
taken out by a married person on his or her life or that of his or her children.
All rights, title and interest in the policy of insurance taken out by an original owner
on the life or health of the person insured shall automatically vest in the latter upon
the death of the original owner, unless otherwise provided for in the policy.
Section 4. The preceding section does not authorize an insurance for or against the
drawing of any lottery, or for or against any chance or ticket in a lottery drawing a
prize.
Section 5. All kinds of insurance are subject to the provisions of this chapter so far as
the provisions can apply.
TITLE 2
PARTIES TO THE CONTRACT
Section 6. Every corporation, partnership, or association, duly authorized to transact
insurance business as elsewhere provided in this Code, may be an insurer.
Section 7. Anyone except a public enemy may be insured.
COMMERCIAL LAW 2018
Section 8. Unless the policy otherwise provides, where a mortgagor of property
effects insurance in his own name providing that the loss shall be payable to the
mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemed
to be upon the interest of the mortgagor, who does not cease to be a party to the
original contract, and any act of his, prior to the loss, which would otherwise avoid
the insurance, will have the same effect, although the property is in the hands of the
mortgagee, but any act which, under the contract of insurance, is to be performed by
the mortgagor, may be performed by the mortgagee therein named, with the same
effect as if it had been performed by the mortgagor.
Section 9. If an insurer assents to the transfer of an insurance from a mortgagor to a
mortgagee, and, at the time of his assent, imposes further obligations on the assignee,
making a new contract with him, the acts of the mortgagor cannot affect the rights of
said assignee.
TITLE 3
INSURABLE INTEREST
Section 10. Every person has an insurable interest in the life and health:
(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly or in part for education or
support, or in whom he has a pecuniary interest;
(c) Of any person under a legal obligation to him for the payment of money,
or respecting property or services, of which death or illness might delay or
prevent the performance; and
(d) Of any person upon whose life any estate or interest vested in him
depends.
Nigel Carmelo Q. Reago 28

Section 11. The insured shall have the right to change the beneficiary he designated
in the policy, unless he has expressly waived this right in said policy. Notwithstanding
the foregoing, in the event the insured does not change the beneficiary during his
lifetime, the designation shall be deemed irrevocable.
Section 12. The interest of a beneficiary in a life insurance policy shall be forfeited
when the beneficiary is the principal, accomplice, or accessory in willfully bringing
about the death of the insured. In such a case, the share forfeited shall pass on to the
other beneficiaries, unless otherwise disqualified. In the absence of other
beneficiaries, the proceeds shall be paid in accordance with the policy contract. If the
policy contract is silent, the proceeds shall be paid to the estate of the insured.
Section 13. Every interest in property, whether real or personal, or any relation
thereto, or liability in respect thereof, of such nature that a contemplated peril might
directly damnify the insured, is an insurable interest.
Section 14. An insurable interest in property may consist in:
(a) An existing interest;
(b) An inchoate interest founded on an existing interest; or
(c) An expectancy, coupled with an existing interest in that out of which the
expectancy arises.
Section 15. A carrier or depository of any kind has an insurable interest in a thing
held by him as such, to the extent of his liability but not to exceed the value thereof.
Section 16. A mere contingent or expectant interest in any thing, not founded on an
actual right to the thing, nor upon any valid contract for it, is not insurable.
Section 17. The measure of an insurable interest in property is the extent to which
the insured might be damnified by loss or injury thereof.
COMMERCIAL LAW 2018
Section 18. No contract or policy of insurance on property shall be enforceable
except for the benefit of some person having an insurable interest in the property
insured.
Section 19. An interest in property insured must exist when the insurance takes
effect, and when the loss occurs, but need not exist in the meantime; and interest in
the life or health of a person insured must exist when the insurance takes effect, but
need not exist thereafter or when the loss occurs.
Section 20. Except in the cases specified in the next four sections, and in the cases of
life, accident, and health insurance, a change of interest in any part of a thing insured
unaccompanied by a corresponding change of interest in the insurance, suspends the
insurance to an equivalent extent, until the interest in the thing and the interest in
the insurance are vested in the same person.
Section 21. A change of interest in a thing insured, after the occurrence of an injury
which results in a loss, does not affect the right of the insured to indemnity for the
loss.
Section 22. A change of interest in one or more of several distinct things, separately
insured by one policy, does not avoid the insurance as to the others.
Section 23. A change of interest, by will or succession, on the death of the insured,
does not avoid an insurance; and his interest in the insurance passes to the person
taking his interest in the thing insured.
Section 24. A transfer of interest by one of several partners, joint owners, or owners
in common, who are jointly insured, to the others, does not avoid an insurance even
though it has been agreed that the insurance shall cease upon an alienation of the
thing insured.
Section 25. Every stipulation in a policy of insurance for the payment of loss whether
the person insured has or has not any interest in the property insured, or that the
Nigel Carmelo Q. Reago 29

policy shall be received as proof of such interest, and every policy executed by way of
gaming or wagering, is void.
TITLE 4
CONCEALMENT
Section 26. A neglect to communicate that which a party knows and ought to
communicate, is called a concealment.
Section 27. A concealment whether intentional or unintentional entitles the injured
party to rescind a contract of insurance.
Section 28. Each party to a contract of insurance must communicate to the other, in
good faith, all facts within his knowledge which are material to the contract and as to
which he makes no warranty, and which the other has not the means of ascertaining.
Section 29. An intentional and fraudulent omission, on the part of one insured, to
communicate information of matters proving or tending to prove the falsity of a
warranty, entitles the insurer to rescind.
Section 30. Neither party to a contract of insurance is bound to communicate
information of the matters following, except in answer to the inquiries of the other:
(a) Those which the other knows;
(b) Those which, in the exercise of ordinary care, the other ought to know,
and of which the former has no reason to suppose him ignorant;
(c) Those of which the other waives communication;
(d) Those which prove or tend to prove the existence of a risk excluded by a
warranty, and which are not otherwise material; and
COMMERCIAL LAW 2018
(e) Those which relate to a risk excepted from the policy and which are not
otherwise material.
Section 31. Materiality is to be determined not by the event, but solely by the
probable and reasonable influence of the facts upon the party to whom the
communication is due, in forming his estimate of the disadvantages of the proposed
contract, or in making his inquiries.
Section 32. Each party to a contract of insurance is bound to know all the general
causes which are open to his inquiry, equally with that of the other, and which may
affect the political or material perils contemplated; and all general usages of trade.
Section 33. The right to information of material facts may be waived, either by the
terms of insurance or by neglect to make inquiry as to such facts, where they are
distinctly implied in other facts of which information is communicated.
Section 34. Information of the nature or amount of the interest of one insured need
not be communicated unless in answer to an inquiry, except as prescribed by Section
51.
Section 35. Neither party to a contract of insurance is bound to communicate, even
upon inquiry, information of his own judgment upon the matters in question.
TITLE 5
REPRESENTATION
Section 36. A representation may be oral or written.
Section 37. A representation may be made at the time of, or before, issuance of the
policy.
Nigel Carmelo Q. Reago 30

Section 38. The language of a representation is to be interpreted by the same rules
as the language of contracts in general.
Section 39. A representation as to the future is to be deemed a promise, unless it
appears that it was merely a statement of belief or expectation.
Section 40. A representation cannot qualify an express provision in a contract of
insurance, but it may qualify an implied warranty.
Section 41. A representation may be altered or withdrawn before the insurance is
effected, but not afterwards.
Section 42. A representation must be presumed to refer to the date on which the
contract goes into effect.
Section 43. When a person insured has no personal knowledge of a fact, he may
nevertheless repeat information which he has upon the subject, and which he
believes to be true, with the explanation that he does so on the information of others;
or he may submit the information, in its whole extent, to the insurer; and in neither
case is he responsible for its truth, unless it proceeds from an agent of the insured,
whose duty it is to give the information.
Section 44. A representation is to be deemed false when the facts fail to correspond
with its assertions or stipulations.
Section 45. If a representation is false in a material point, whether affirmative or
promissory, the injured party is entitled to rescind the contract from the time when
the representation becomes false.
Section 46. The materiality of a representation is determined by the same rules as
the materiality of a concealment.
Section 47. The provisions of this chapter apply as well to a modification of a contract
of insurance as to its original formation.
COMMERCIAL LAW 2018
Section 48. Whenever a right to rescind a contract of insurance is given to the insurer
by any provision of this chapter, such right must be exercised previous to the
commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have
been in force during the lifetime of the insured for a period of two (2) years from the
date of its issue or of its last reinstatement, the insurer cannot prove that the policy
is void ab initio or is rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.
TITLE 6
THE POLICY
Section 49. The written instrument in which a contract of insurance is set forth, is
called a policy of insurance.
Section 50. The policy shall be in printed form which may contain blank spaces; and
any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary
to complete the contract of insurance shall be written on the blank spaces provided
therein.
Any rider, clause, warranty or endorsement purporting to be part of the contract of
insurance and which is pasted or attached to said policy is not binding on the insured,
unless the descriptive title or name of the rider, clause, warranty or endorsement is
also mentioned and written on the blank spaces provided in the policy.
Unless applied for by the insured or owner, any rider, clause, warranty or
endorsement issued after the original policy shall be countersigned by the insured or
owner, which countersignature shall be taken as his agreement to the contents of
such rider, clause, warranty or endorsement.
Nigel Carmelo Q. Reago 31

Notwithstanding the foregoing, the policy may be in electronic form subject to the
pertinent provisions of Republic Act No. 8792, otherwise known as the ‘Electronic
Commerce Act’ and to such rules and regulations as may be prescribed by the
Commissioner.
Section 51. A policy of insurance must specify:
(a) The parties between whom the contract is made;
(b) The amount to be insured except in the cases of open or running policies;
(c) The premium, or if the insurance is of a character where the exact
premium is only determinable upon the termination of the contract, a
statement of the basis and rates upon which the final premium is to be
determined;
(d) The property or life insured;
(e) The interest of the insured in property insured, if he is not the absolute
owner thereof;
(f) The risks insured against; and
(g) The period during which the insurance is to continue.
Section 52. Cover notes may be issued to bind insurance temporarily pending the
issuance of the policy. Within sixty (60) days after issue of a cover note, a policy shall
be issued in lieu thereof, including within its terms the identical insurance bound
under the cover note and the premium therefor.
Cover notes may be extended or renewed beyond such sixty (60) days with the
written approval of the Commissioner if he determines that such extension is not
contrary to and is not for the purpose of violating any provisions of this Code. The
Commissioner may promulgate rules and regulations governing such extensions for
COMMERCIAL LAW 2018
the purpose of preventing such violations and may by such rules and regulations
dispense with the requirement of written approval by him in the case of extension in
compliance with such rules and regulations.
Section 53. The insurance proceeds shall be applied exclusively to the proper interest
of the person in whose name or for whose benefit it is made unless otherwise
specified in the policy.
Section 54. When an insurance contract is executed with an agent or trustee as the
insured, the fact that his principal or beneficiary is the real party in interest may be
indicated by describing the insured as agent or trustee, or by other general words in
the policy.
Section 55. To render an insurance effected by one partner or part-owner, applicable
to the interest of his co-partners or other part-owners, it is necessary that the terms
of the policy should be such as are applicable to the joint or common interest.
Section 56. When the description of the insured in a policy is so general that it may
comprehend any person or any class of persons, only he who can show that it was
intended to include him, can claim the benefit of the policy.
Section 57. A policy may be so framed that it will inure to the benefit of whomsoever,
during the continuance of the risk, may become the owner of the interest insured.
Section 58. The mere transfer of a thing insured does not transfer the policy, but
suspends it until the same person becomes the owner of both the policy and the thing
insured.
Section 59. A policy is either open, valued or running.
Section 60. An open policy is one in which the value of the thing insured is not agreed
upon, and the amount of the insurance merely represents the insurer’s maximum
liability. The value of such thing insured shall be ascertained at the time of the loss.
Nigel Carmelo Q. Reago 32

Section 61. A valued policy is one which expresses on its face an agreement that the
thing insured shall be valued at a specific sum.
Section 62. A running policy is one which contemplates successive insurances, and
which provides that the object of the policy may be from time to time defined,
especially as to the subjects of insurance, by additional statements or indorsements.
Section 63. A condition, stipulation, or agreement in any policy of insurance, limiting
the time for commencing an action thereunder to a period of less than one (1) year
from the time when the cause of action accrues, is void.
Section 64. No policy of insurance other than life shall be cancelled by the insurer
except upon prior notice thereof to the insured, and no notice of cancellation shall be
effective unless it is based on the occurrence, after the effective date of the policy, of
one or more of the following:
(a) Nonpayment of premium;
(b) Conviction of a crime arising out of acts increasing the hazard insured
against;
(c) Discovery of fraud or material misrepresentation;
(d) Discovery of willful or reckless acts or omissions increasing the hazard
insured against;
(e) Physical changes in the property insured which result in the property
becoming uninsurable;
(f) Discovery of other insurance coverage that makes the total insurance in
excess of the value of the property insured; or
(g) A determination by the Commissioner that the continuation of the policy
would violate or would place the insurer in violation of this Code.
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Section 65. All notices of cancellation mentioned in the preceding section shall be in
writing, mailed or delivered to the named insured at the address shown in the policy,
or to his broker provided the broker is authorized in writing by the policy owner to
receive the notice of cancellation on his behalf, and shall state:
(a) Which of the grounds set forth in Section 64 is relied upon; and
(b) That, upon written request of the named insured, the insurer will furnish
the facts on which the cancellation is based.
Section 66. In case of insurance other than life, unless the insurer at least forty-five
(45) days in advance of the end of the policy period mails or delivers to the named
insured at the address shown in the policy notice of its intention not to renew the
policy or to condition its renewal upon reduction of limits or elimination of coverages,
the named insured shall be entitled to renew the policy upon payment of the
premium due on the effective date of the renewal. Any policy written for a term of
less than one (1) year shall be considered as if written for a term of one (1) year. Any
policy written for a term longer than one (1) year or any policy with no fixed expiration
date shall be considered as if written for successive policy periods or terms of one (1)
year.
TITLE 7
WARRANTIES
Section 67. A warranty is either expressed or implied.
Section 68. A warranty may relate to the past, the present, the future, or to any or
all of these.
Section 69. No particular form of words is necessary to create a warranty.
Nigel Carmelo Q. Reago 33

Section 70. Without prejudice to Section 51, every express warranty, made at or
before the execution of a policy, must be contained in the policy itself, or in another
instrument signed by the insured and referred to in the policy as making a part of it.
Section 71. A statement in a policy, of a matter relating to the person or thing insured,
or to the risk, as fact, is an express warranty thereof.
Section 72. A statement in a policy, which imparts that it is intended to do or not to
do a thing which materially affects the risk, is a warranty that such act or omission
shall take place.
Section 73. When, before the time arrives for the performance of a warranty relating
to the future, a loss insured against happens, or performance becomes unlawful at
the place of the contract, or impossible, the omission to fulfill the warranty does not
avoid the policy.
Section 74. The violation of a material warranty, or other material provision of a
policy, on the part of either party thereto, entitles the other to rescind.
Section 75. A policy may declare that a violation of specified provisions thereof shall
avoid it, otherwise the breach of an immaterial provision does not avoid the policy.
Section 76. A breach of warranty without fraud merely exonerates an insurer from
the time that it occurs, or where it is broken in its inception, prevents the policy from
attaching to the risk.
TITLE 8
PREMIUM
Section 77. An insurer is entitled to payment of the premium as soon as the thing
insured is exposed to the peril insured against. Notwithstanding any agreement to
the contrary, no policy or contract of insurance issued by an insurance company is
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valid and binding unless and until the premium thereof has been paid, except in the
case of a life or an industrial life policy whenever the grace period provision applies,
or whenever under the broker and agency agreements with duly licensed
intermediaries, a ninety (90)-day credit extension is given. No credit extension to a
duly licensed intermediary should exceed ninety (90) days from date of issuance of
the policy.
Section 78. Employees of the Republic of the Philippines, including its political
subdivisions and instrumentalities, and government-owned or -controlled
corporations, may pay their insurance premiums and loan obligations through salary
deduction: Provided, That the treasurer, cashier, paymaster or official of the entity
employing the government employee is authorized, notwithstanding the provisions
of any existing law, rules and regulations to the contrary, to make deductions from
the salary, wage or income of the latter pursuant to the agreement between the
insurer and the government employee and to remit such deductions to the insurer
concerned, and collect such reasonable fee for its services.
Section 79. An acknowledgment in a policy or contract of insurance or the receipt of
premium is conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until the premium
is actually paid.
Section 80. A person insured is entitled to a return of premium, as follows:
(a) To the whole premium if no part of his interest in the thing insured be
exposed to any of the perils insured against;
(b) Where the insurance is made for a definite period of time and the insured
surrenders his policy, to such portion of the premium as corresponds with the
unexpired time, at a pro rata rate, unless a short period rate has been agreed
upon and appears on the face of the policy, after deducting from the whole
premium any claim for loss or damage under the policy which has previously
accrued: Provided, That no holder of a life insurance policy may avail himself
Nigel Carmelo Q. Reago 34

of the privileges of this paragraph without sufficient cause as otherwise
provided by law.
Section 81. If a peril insured against has existed, and the insurer has been liable for
any period, however short, the insured is not entitled to return of premiums, so far
as that particular risk is concerned.
Section 82. A person insured is entitled to a return of the premium when the contract
is voidable, and subsequently annulled under the provisions of the Civil Code; or on
account of the fraud or misrepresentation of the insurer, or of his agent, or on
account of facts, or the existence of which the insured was ignorant of without his
fault; or when by any default of the insured other than actual fraud, the insurer never
incurred any liability under the policy.
A person insured is not entitled to a return of premium if the policy is annulled,
rescinded or if a claim is denied by reason of fraud.
Section 83. In case of an over insurance by several insurers other than life, the
insured is entitled to a ratable return of the premium, proportioned to the amount
by which the aggregate sum insured in all the policies exceeds the insurable value of
the thing at risk.
Section 84. An insurer may contract and accept payments, in addition to regular
premium, for the purpose of paying future premiums on the policy or to increase the
benefits thereof.
TITLE 9
LOSS
Section 85. An agreement not to transfer the claim of the insured against the insurer
after the loss has happened, is void if made before the loss except as otherwise
provided in the case of life insurance.
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Section 86. Unless otherwise provided by the policy, an insurer is liable for a loss of
which a peril insured against was the proximate cause, although a peril not
contemplated by the contract may have been a remote cause of the loss; but he is
not liable for a loss of which the peril insured against was only a remote cause.
Section 87. An insurer is liable where the thing insured is rescued from a peril insured
against that would otherwise have caused a loss, if, in the course of such rescue, the
thing is exposed to a peril not insured against, which permanently deprives the
insured of its possession, in whole or in part; or where a loss is caused by efforts to
rescue the thing insured from a peril insured against.
Section 88. Where a peril is especially excepted in a contract of insurance, a loss,
which would not have occurred but for such peril, is thereby excepted although the
immediate cause of the loss was a peril which was not excepted.
Section 89. An insurer is not liable for a loss caused by the willful act or through the
connivance of the insured; but he is not exonerated by the negligence of the insured,
or of the insurance agents or others.
TITLE 10
NOTICE OF LOSS
Section 90. In case of loss upon an insurance against fire, an insurer is exonerated, if
written notice thereof be not given to him by an insured, or some person entitled to
the benefit of the insurance, without unnecessary delay. For other non-life insurance,
the Commissioner may specify the period for the submission of the notice of loss.
Section 91. When a preliminary proof of loss is required by a policy, the insured is
not bound to give such proof as would be necessary in a court of justice; but it is
sufficient for him to give the best evidence which he has in his power at the time.
Nigel Carmelo Q. Reago 35

Section 92. All defects in a notice of loss, or in preliminary proof thereof, which the
insured might remedy, and which the insurer omits to specify to him, without
unnecessary delay, as grounds of objection, are waived.
Section 93. Delay in the presentation to an insurer of notice or proof of loss is waived
if caused by any act of him, or if he omits to take objection promptly and specifically
upon that ground.
Section 94. If the policy requires, by way of preliminary proof of loss, the certificate
or testimony of a person other than the insured, it is sufficient for the insured to use
reasonable diligence to procure it, and in case of the refusal of such person to give it,
then to furnish reasonable evidence to the insurer that such refusal was not induced
by any just grounds of disbelief in the facts necessary to be certified or testified.
TITLE 11
DOUBLE INSURANCE
Section 95. A double insurance exists where the same person is insured by several
insurers separately in respect to the same subject and interest.
Section 96. Where the insured in a policy other than life is over insured by double
insurance:
(a) The insured, unless the policy otherwise provides, may claim payment
from the insurers in such order as he may select, up to the amount for which
the insurers are severally liable under their respective contracts;
(b) Where the policy under which the insured claims is a valued policy, any
sum received by him under any other policy shall be deducted from the value
of the policy without regard to the actual value of the subject matter insured;
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(c) Where the policy under which the insured claims is an unvalued policy,
any sum received by him under any policy shall be deducted against the full
insurable value, for any sum received by him under any policy;
(d) Where the insured receives any sum in excess of the valuation in the case
of valued policies, or of the insurable value in the case of unvalued policies,
he must hold such sum in trust for the insurers, according to their right of
contribution among themselves;
(e) Each insurer is bound, as between himself and the other insurers, to
contribute ratably to the loss in proportion to the amount for which he is
liable under his contract.
TITLE 12
REINSURANCE
Section 97. A contract of reinsurance is one by which an insurer procures a third
person to insure him against loss or liability by reason of such original insurance.
Section 98. Where an insurer obtains reinsurance, except under automatic
reinsurance treaties, he must communicate all the representations of the original
insured, and also all the knowledge and information he possesses, whether previously
or subsequently acquired, which are material to the risk.
Section 99. A reinsurance is presumed to be a contract of indemnity against liability,
and not merely against damage.
Section 100. The original insured has no interest in a contract of reinsurance.
Nigel Carmelo Q. Reago 36

CHAPTER II
CLASSES OF INSURANCE
TITLE I
MARINE INSURANCE
SUB-TITLE 1-A
DEFINITION
Section 101. Marine Insurance includes:
(a) Insurance against loss of or damage to:
(1) Vessels, craft, aircraft, vehicles, goods, freights, cargoes,
merchandise, effects, disbursements, profits, moneys, securities,
choses in action, instruments of debts, valuable papers, bottomry,
and respondentia interests and all other kinds of property and
interests therein, in respect to, appertaining to or in connection with
any and all risks or perils of navigation, transit or transportation, or
while being assembled, packed, crated, baled, compressed or
similarly prepared for shipment or while awaiting shipment, or during
any delays, storage, transhipment, or reshipment incident thereto,
including war risks, marine builder’s risks, and all personal property
floater risks;
(2) Person or property in connection with or appertaining to a marine,
inland marine, transit or transportation insurance, including liability
for loss of or damage arising out of or in connection with the
construction, repair, operation, maintenance or use of the subject
matter of such insurance (but not including life insurance or surety
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bonds nor insurance against loss by reason of bodily injury to any
person arising out of ownership, maintenance, or use of automobiles);
(3) Precious stones, jewels, jewelry, precious metals, whether in
course of transportation or otherwise; and
(4) Bridges, tunnels and other instrumentalities of transportation
and communication (excluding buildings, their furniture and
furnishings, fixed contents and supplies held in storage); piers,
wharves, docks and slips, and other aids to navigation and
transportation, including dry docks and marine railways, dams and
appurtenant facilities for the control of waterways.
(b) Marine protection and indemnity insurance, meaning insurance against,
or against legal liability of the insured for loss, damage, or expense incident
to ownership, operation, chartering, maintenance, use, repair, or
construction of any vessel, craft or instrumentality in use of ocean or inland
waterways, including liability of the insured for personal injury, illness or
death or for loss of or damage to the property of another person.
SUB-TITLE 1-B
INSURABLE INTEREST
Section 102. The owner of a ship has in all cases an insurable interest in it, even when
it has been chartered by one who covenants to pay him its value in case of
loss: Provided, That in this case the insurer shall be liable for only that part of the loss
which the insured cannot recover from the charterer.
Section 103. The insurable interest of the owner of the ship hypothecated by
bottomry is only the excess of its value over the amount secured by bottomry.
Nigel Carmelo Q. Reago 37

Section 104. Freightage, in the sense of a policy of marine insurance, signifies all the
benefits derived by the owner, either from the chartering of the ship or its
employment for the carriage of his own goods or those of others.
Section 105. The owner of a ship has an insurable interest in expected freightage
which according to the ordinary and probable course of things he would have earned
but for the intervention of a peril insured against or other peril incident to the voyage.
Section 106. The interest mentioned in the last section exists, in case of a charter
party, when the ship has broken ground on the chartered voyage. If a price is to be
paid for the carriage of goods it exists when they are actually on board, or there is
some contract for putting them on board, and both ship and goods are ready for the
specified voyage.
Section 107. One who has an interest in the thing from which profits are expected to
proceed has an insurable interest in the profits.
Section 108. The charterer of a ship has an insurable interest in it, to the extent that
he is liable to be damnified by its loss.
SUB-TITLE 1-C
CONCEALMENT
Section 109. In marine insurance, each party is bound to communicate, in addition
to what is required by Section 28, all the information which he possesses, material to
the risk, except such as is mentioned in Section 30, and to state the exact and whole
truth in relation to all matters that he represents, or upon inquiry discloses or
assumes to disclose.
Section 110. In marine insurance, information of the belief or expectation of a third
person, in reference to a material fact, is material.
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Section 111. A person insured by a contract of marine insurance is presumed to have
knowledge, at the time of insuring, of a prior loss, if the information might possibly
have reached him in the usual mode of transmission and at the usual rate of
communication.
Section 112. A concealment in a marine insurance, in respect to any of the following
matters, does not vitiate the entire contract, but merely exonerates the insurer from
a loss resulting from the risk concealed:
(a) The national character of the insured;
(b) The liability of the thing insured to capture and detention;
(c) The liability to seizure from breach of foreign laws of trade;
(d) The want of necessary documents; and
(e) The use of false and simulated papers.
SUB-TITLE 1-D
REPRESENTATION
Section 113. If a representation by a person insured by a contract of marine insurance,
is intentionally false in any material respect, or in respect of any fact on which the
character and nature of the risk depends, the insurer may rescind the entire contract.
Section 114. The eventual falsity of a representation as to expectation does not, in
the absence of fraud, avoid a contract of marine insurance.
Nigel Carmelo Q. Reago 38

SUB-TITLE 1-E
IMPLIED WARRANTIES
Section 115. In every marine insurance upon a ship or freight, or freightage, or upon
any thing which is the subject of marine insurance, a warranty is implied that the ship
is seaworthy.
Section 116. A ship is seaworthy when reasonably fit to perform the service and to
encounter the ordinary perils of the voyage contemplated by the parties to the policy.
Section 117. An implied warranty of seaworthiness is complied with if the ship be
seaworthy at the time of the commencement of the risk, except in the following cases:
(a) When the insurance is made for a specified length of time, the implied
warranty is not complied with unless the ship be seaworthy at the
commencement of every voyage it undertakes during that time;
(b) When the insurance is upon the cargo which, by the terms of the policy,
description of the voyage, or established custom of the trade, is to be
transhipped at an intermediate port, the implied warranty is not complied
with unless each vessel upon which the cargo is shipped, or transhipped, be
seaworthy at the commencement of each particular voyage.
Section 118. A warranty of seaworthiness extends not only to the condition of the
structure of the ship itself, but requires that it be properly laden, and provided with a
competent master, a sufficient number of competent officers and seamen, and the
requisite appurtenances and equipment, such as ballasts, cables and anchors,
cordage and sails, food, water, fuel and lights, and other necessary or proper stores
and implements for the voyage.
Section 119. Where different portions of the voyage contemplated by a policy differ
in respect to the things requisite to make the ship seaworthy therefor, a warranty of
seaworthiness is complied with if, at the commencement of each portion, the ship is
seaworthy with reference to that portion.
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Section 120. When the ship becomes unseaworthy during the voyage to which an
insurance relates, an unreasonable delay in repairing the defect exonerates the
insurer on ship or shipowner’s interest from liability from any loss arising therefrom.
Section 121. A ship which is seaworthy for the purpose of an insurance upon the ship
may, nevertheless, by reason of being unfitted to receive the cargo, be unseaworthy
for the purpose of insurance upon the cargo.
Section 122. Where the nationality or neutrality of a ship or cargo is expressly
warranted, it is implied that the ship will carry the requisite documents to show such
nationality or neutrality and that it will not carry any documents which cast
reasonable suspicion thereon.
SUB-TITLE 1-F
THE VOYAGE AND DEVIATION
Section 123. When the voyage contemplated by a marine insurance policy is
described by the places of beginning and ending, the voyage insured is one which
conforms to the course of sailing fixed by mercantile usage between those places.
Section 124. If the course of sailing is not fixed by mercantile usage, the voyage
insured by a marine insurance policy is that way between the places specified, which
to a master of ordinary skill and discretion, would mean the most natural, direct and
advantageous.
Section 125. Deviation is a departure from the course of the voyage insured,
mentioned in the last two (2) sections, or an unreasonable delay in pursuing the
voyage or the commencement of an entirely different voyage.
Section 126. A deviation is proper:
Nigel Carmelo Q. Reago 39

(a) When caused by circumstances over which neither the master nor the
owner of the ship has any control;
(b) When necessary to comply with a warranty, or to avoid a peril, whether
or not the peril is insured against;
(c) When made in good faith, and upon reasonable grounds of belief in its
necessity to avoid a peril; or
(d) When made in good faith, for the purpose of saving human life or
relieving another vessel in distress.
Section 127. Every deviation not specified in the last section is improper.
Section 128. An insurer is not liable for any loss happening to the thing insured
subsequent to an improper deviation.
SUB-TITLE 1-G
LOSS
Section 129. A loss may be either total or partial.
Section 130. Every loss which is not total is partial.
Section 131. A total loss may be either actual or constructive.
Section 132. An actual total loss is caused by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by being broken up;
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(c) Any damage to the thing which renders it valueless to the owner for the
purpose for which he held it; or
(d) Any other event which effectively deprives the owner of the possession,
at the port of destination, of the thing insured.
Section 133. A constructive total loss is one which gives to a person insured a right
to abandon, under Section 141.
Section 134. An actual loss may be presumed from the continued absence of a ship
without being heard of. The length of time which is sufficient to raise this presumption
depends on the circumstances of the case.
Section 135. When a ship is prevented, at an intermediate port, from completing the
voyage, by the perils insured against, the liability of a marine insurer on the cargo
continues after they are thus reshipped.
Nothing in this section shall prevent an insurer from requiring an additional premium
if the hazard be increased by this extension of liability.
Section 136. In addition to the liability mentioned in the last section, a marine insurer
is bound for damages, expenses of discharging, storage, reshipment, extra freightage,
and all other expenses incurred in saving cargo reshipped pursuant to the last section,
up to the amount insured.
Nothing in this or in the preceding section shall render a marine insurer liable for any
amount in excess of the insured value or, if there be none, of the insurable value.
Section 137. Upon an actual total loss, a person insured is entitled to payment
without notice of abandonment.
Section 138. Where it has been agreed that an insurance upon a particular thing, or
class of things, shall be free from particular average, a marine insurer is not liable for
any particular average loss not depriving the insured of the possession, at the port of
Nigel Carmelo Q. Reago 40

destination, of the whole of such thing, or class of things, even though it becomes
entirely worthless; but such insurer is liable for his proportion of all general average
loss assessed upon the thing insured.
Section 139. An insurance confined in terms to an actual loss does not cover a
constructive total loss, but covers any loss, which necessarily results in depriving the
insured of the possession, at the port of destination, of the entire thing insured.
SUB-TITLE 1-H
ABANDONMENT
Section 140. Abandonment, in marine insurance, is the act of the insured by which,
after a constructive total loss, he declares the relinquishment to the insurer of his
interest in the thing insured.
Section 141. A person insured by a contract of marine insurance may abandon the
thing insured, or any particular portion thereof separately valued by the policy, or
otherwise separately insured, and recover for a total loss thereof, when the cause of
the loss is a peril insured against:
(a) If more than three-fourths (¾) thereof in value is actually lost, or would
have to be expended to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-
fourths (¾);
(c) If the thing insured is a ship, and the contemplated voyage cannot be
lawfully performed without incurring either an expense to the insured of
more than three-fourths (¾) the value of the thing abandoned or a risk which
a prudent man would not take under the circumstances; or
(d) If the thing insured, being cargo or freightage, and the voyage cannot be
performed, nor another ship procured by the master, within a reasonable
time and with reasonable diligence, to forward the cargo, without incurring
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the like expense or risk mentioned in the preceding subparagraph. But
freightage cannot in any case be abandoned unless the ship is also abandoned.
Section 142. An abandonment must be neither partial nor conditional.
Section 143. An abandonment must be made within a reasonable time after receipt
of reliable information of the loss, but where the information is of a doubtful
character, the insured is entitled to a reasonable time to make inquiry.
Section 144. Where the information upon which an abandonment has been made
proves incorrect, or the thing insured was so far restored when the abandonment was
made that there was then in fact no total loss, the abandonment becomes ineffectual.
Section 145. Abandonment is made by giving notice thereof to the insurer, which
may be done orally, or in writing: Provided, That if the notice be done orally, a written
notice of such abandonment shall be submitted within seven (7) days from such oral
notice.
Section 146. A notice of abandonment must be explicit, and must specify the
particular cause of the abandonment, but need state only enough to show that there
is probable cause therefor, and need not be accompanied with proof of interest or of
loss.
Section 147. An abandonment can be sustained only upon the cause specified in the
notice thereof.
Section 148. An abandonment is equivalent to a transfer by the insured of his interest
to the insurer, with all the chances of recovery and indemnity.
Section 149. If a marine insurer pays for a loss as if it were an actual total loss, he is
entitled to whatever may remain of the thing insured, or its proceeds or salvage, as if
there had been a formal abandonment.
Nigel Carmelo Q. Reago 41

Section 150. Upon an abandonment, acts done in good faith by those who were
agents of the insured in respect to the thing insured, subsequent to the loss, are at
the risk of the insurer, and for his benefit.
Section 151. Where notice of abandonment is properly given, the rights of the
insured are not prejudiced by the fact that the insurer refuses to accept the
abandonment.
Section 152. The acceptance of an abandonment may be either express or implied
from the conduct of the insurer. The mere silence of the insurer for an unreasonable
length of time after notice shall be construed as an acceptance.
Section 153. The acceptance of an abandonment, whether express or implied, is
conclusive upon the parties, and admits the loss and the sufficiency of the
abandonment.
Section 154. An abandonment once made and accepted is irrevocable, unless the
ground upon which it was made proves to be unfounded.
Section 155. On an accepted abandonment of a ship, freightage earned previous to
the loss belongs to the insurer of said freightage; but freightage subsequently earned
belongs to the insurer of the ship.
Section 156. If an insurer refuses to accept a valid abandonment, he is liable as upon
an actual total loss, deducting from the amount any proceeds of the thing insured
which may have come to the hands of the insured.
Section 157. If a person insured omits to abandon, he may nevertheless recover his
actual loss.
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SUB-TITLE 1-I
MEASURE OF INDEMNITY
Section 158. A valuation in a policy of marine insurance is conclusive between the
parties thereto in the adjustment of either a partial or total loss, if the insured has
some interest at risk, and there is no fraud on his part; except that when a thing has
been hypothecated by bottomry or respondentia, before its insurance, and without
the knowledge of the person actually procuring the insurance, he may show the real
value. But a valuation fraudulent in fact, entitles the insurer to rescind the contract.
Section 159. A marine insurer is liable upon a partial loss, only for such proportion of
the amount insured by him as the loss bears to the value of the whole interest of the
insured in the property insured.
Section 160. Where profits are separately insured in a contract of marine insurance,
the insured is entitled to recover, in case of loss, a proportion of such profits
equivalent to the proportion which the value of the property lost bears to the value
of the whole.
Section 161. In case of a valued policy of marine insurance on freightage or cargo, if
a part only of the subject is exposed to risk, the valuation applies only in proportion
to such part.
Section 162. When profits are valued and insured by a contract of marine insurance,
a loss of them is conclusively presumed from a loss of the property out of which they
are expected to arise, and the valuation fixes their amount.
Section 163. In estimating a loss under an open policy of marine insurance the
following rules are to be observed:
(a) The value of a ship is its value at the beginning of the risk, including all
articles or charges which add to its permanent value or which are necessary
to prepare it for the voyage insured;
Nigel Carmelo Q. Reago 42

(b) The value of the cargo is its actual cost to the insured, when laden on
board, or where the cost cannot be ascertained, its market value at the time
and place of lading, adding the charges incurred in purchasing and placing it
on board, but without reference to any loss incurred in raising money for its
purchase, or to any drawback on its exportation, or to the fluctuation of the
market at the port of destination, or to expenses incurred on the way or on
arrival;
(c) The value of freightage is the gross freightage, exclusive of primage,
without reference to the cost of earning it; and
(d) The cost of insurance is in each case to be added to the value thus
estimated.
Section 164. If cargo insured against partial loss arrives at the port of
destination in a damaged condition, the loss of the insured is deemed to be
the same proportion of the value which the market price at that port, of the
thing so damaged, bears to the market price it would have brought if sound.
Section 165. A marine insurer is liable for all the expenses attendant upon a loss
which forces the ship into port to be repaired; and where it is stipulated in the policy
that the insured shall labor for the recovery of the property, the insurer is liable for
the expense incurred thereby, such expense, in either case, being in addition to a total
loss, if that afterwards occurs.
Section 166. A marine insurer is liable for a loss falling upon the insured, through a
contribution in respect to the thing insured, required to be made by him towards a
general average loss called for by a peril insured against: Provided, That the liability
of the insurer shall be limited to the proportion of contribution attaching to his policy
value where this is less than the contributing value of the thing insured.
Section 167. When a person insured by a contract of marine insurance has a demand
against others for contribution, he may claim the whole loss from the insurer,
subrogating him to his own right to contribution. But no such claim can be made upon
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the insurer after the separation of the interests liable to contribution, nor when the
insured, having the right and opportunity to enforce contribution from others, has
neglected or waived the exercise of that right.
Section 168. In the case of a partial loss of ship or its equipment, the old materials
are to be applied towards payment for the new. Unless otherwise stipulated in the
policy, a marine insurer is liable for only two-thirds (2/3) of the remaining cost of
repairs after such deduction, except that anchors must be paid in full.
TITLE 2
FIRE INSURANCE
Section 169. As used in this Code, the term fire insurance shall include insurance
against loss by fire, lightning, windstorm, tornado or earthquake and other allied risks,
when such risks are covered by extension to fire insurance policies or under separate
policies.
Section 170. An alteration in the use or condition of a thing insured from that to
which it is limited by the policy made without the consent of the insurer, by means
within the control of the insured, and increasing the risks, entitles an insurer to
rescind a contract of fire insurance.
Section 171. An alteration in the use or condition of a thing insured from that to
which it is limited by the policy, which does not increase the risk, does not affect a
contract of fire insurance.
Section 172. A contract of fire insurance is not affected by any act of the insured
subsequent to the execution of the policy, which does not violate its provisions, even
though it increases the risk and is the cause of the loss.
Section 173. If there is no valuation in the policy, the measure of indemnity in an
insurance against fire is the expense it would be to the insured at the time of the
Nigel Carmelo Q. Reago 43

commencement of the fire to replace the thing lost or injured in the condition in
which it was at the time of the injury; but if there is a valuation in a policy of fire
insurance, the effect shall be the same as in a policy of marine insurance.
Section 174. Whenever the insured desires to have a valuation named in his policy,
insuring any building or structure against fire, he may require such building or
structure to be examined by an independent appraiser and the value of the insured’s
interest therein may then be fixed as between the insurer and the insured. The cost
of such examination shall be paid for by the insured. A clause shall be inserted in such
policy stating substantially that the value of the insured’s interest in such building or
structure has been thus fixed. In the absence of any change increasing the risk without
the consent of the insurer or of fraud on the part of the insured, then in case of a total
loss under such policy, the whole amount so insured upon the insured’s interest in
such building or structure, as stated in the policy upon which the insurers have
received a premium, shall be paid, and in case of a partial loss the full amount of the
partial loss shall be so paid, and in case there are two (2) or more policies covering
the insured’s interest therein, each policy shall contribute pro rata to the payment of
such whole or partial loss. But in no case shall the insurer be required to pay more
than the amount thus stated in such policy. This section shall not prevent the parties
from stipulating in such policies concerning the repairing, rebuilding or replacing of
buildings or structures wholly or partially damaged or destroyed.
Section 175. No policy of fire insurance shall be pledged, hypothecated, or
transferred to any person, firm or company who acts as agent for or otherwise
represents the issuing company, and any such pledge, hypothecation, or transfer
hereafter made shall be void and of no effect insofar as it may affect other creditors
of the insured.
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TITLE 3
CASUALTY INSURANCE
Section 176. Casualty insurance is insurance covering loss or liability arising from
accident or mishap, excluding certain types of loss which by law or custom are
considered as falling exclusively within the scope of other types of insurance such as
fire or marine. It includes, but is not limited to, employer’s liability insurance, motor
vehicle liability insurance, plate glass insurance, burglary and theft insurance,
personal accident and health insurance as written by non-life insurance companies,
and other substantially similar kinds of insurance.
TITLE 4
SURETYSHIP
Section 177. A contract of suretyship is an agreement whereby a party called the
surety guarantees the performance by another party called the principal or obligor of
an obligation or undertaking in favor of a third party called the obligee. It includes
official recognizances, stipulations, bonds or undertakings issued by any company by
virtue of and under the provisions of Act No. 536, as amended by Act No. 2206.
Section 178. The liability of the surety or sureties shall be joint and several with the
obligor and shall be limited to the amount of the bond. It is determined strictly by the
terms of the contract of suretyship in relation to the principal contract between the
obligor and the obligee.
Section 179. The surety is entitled to payment of the premium as soon as the contract
of suretyship or bond is perfected and delivered to the obligor. No contract of
suretyship or bonding shall be valid and binding unless and until the premium therefor
has been paid, except where the obligee has accepted the bond, in which case the
bond becomes valid and enforceable irrespective of whether or not the premium has
been paid by the obligor to the surety: Provided, That if the contract of suretyship or
bond is not accepted by, or filed with the obligee, the surety shall collect only a
Nigel Carmelo Q. Reago 44

reasonable amount, not exceeding fifty percent (50%) of the premium due thereon
as service fee plus the cost of stamps or other taxes imposed for the issuance of the
contract or bond: Provided, however, That if the nonacceptance of the bond be due
to the fault or negligence of the surety, no such service fee, stamps or taxes shall be
collected.
In the case of a continuing bond, the obligor shall pay the subsequent annual
premium as it falls due until the contract of suretyship is cancelled by the obligee or
by the Commissioner or by a court of competent jurisdiction, as the case may be.
Section 180. Pertinent provisions of the Civil Code of the Philippines shall be applied
in a suppletory character whenever necessary in interpreting the provisions of a
contract of suretyship.
TITLE 5
LIFE INSURANCE
Section 181. Life insurance is insurance on human lives and insurance appertaining
thereto or connected therewith.
Every contract or undertaking for the payment of annuities including contracts for
the payment of lump sums under a retirement program where a life insurance
company manages or acts as a trustee for such retirement program shall be
considered a life insurance contract for purposes of this Code.
Section 182. An insurance upon life may be made payable on the death of the person,
or on his surviving a specified period, or otherwise contingently on the continuance
or cessation of life.
Every contract or pledge for the payment of endowments or annuities shall be
considered a life insurance contract for purposes of this Code.
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In the absence of a judicial guardian, the father, or in the latter’s absence or
incapacity, the mother, of any minor, who is an insured or a beneficiary under a
contract of life, health, or accident insurance, may exercise, in behalf of said minor,
any right under the policy, without necessity of court authority or the giving of a bond,
where the interest of the minor in the particular act involved does not exceed Five
hundred thousand pesos (P500,000.00) or in such reasonable amount as may be
determined by the Commissioner. Such right may include, but shall not be limited to,
obtaining a policy loan, surrendering the policy, receiving the proceeds of the Policy,
and giving the minor’s consent to any transaction on the policy.
In the absence or in case of the incapacity of the father or mother, the grandparent,
the eldest brother or sister at least eighteen (18) years of age, or any relative who has
actual custody of the minor insured or beneficiary, shall act as a guardian without
need of a court order or judicial appointment as such guardian, as long as such person
is not otherwise disqualified or incapacitated. Payment made by the insurer pursuant
to this section shall relieve such insurer of any liability under the contract.
Section 183. The insurer in a life insurance contract shall be liable in case of suicide
only when it is committed after the policy has been in force for a period of two (2)
years from the date of its issue or of its last reinstatement, unless the policy provides
a shorter period: Provided, however, That suicide committed in the state of insanity
shall be compensable regardless of the date of commission.
Section 184. A policy of insurance upon life or health may pass by transfer, will or
succession to any person, whether he has an insurable interest or not, and such
person may recover upon it whatever the insured might have recovered.
Section 185. Notice to an insurer of a transfer or bequest thereof is not necessary to
preserve the validity of a policy of insurance upon life or health, unless thereby
expressly required.
Section 186. Unless the interest of a person insured is susceptible of exact pecuniary
measurement, the measure of indemnity under a policy of insurance upon life or
health is the sum fixed in the policy.
Nigel Carmelo Q. Reago 45

TITLE 6
MICROINSURANCE
Section 187. Microinsurance is a financial product or service that meets the risk
protection needs of the poor where:
(a) The amount of contributions, premiums, fees or charges, computed on a
daily basis, does not exceed seven and a half percent (7.5%) of the current
daily minimum wage rate for nonagricultural workers in Metro Manila; and
(b) The maximum sum of guaranteed benefits is not more than one thousand
(1,000) times of the current daily minimum wage rate for nonagricultural
workers in Metro Manila.
Section 188. No insurance company or mutual benefit association shall engage in the
business of microinsurance unless it possesses all the requirements as may be
prescribed by the Commissioner. The Commissioner shall issue such rules and
regulations governing microinsurance.
CHAPTER II-A
FINANCIAL REPORTING FRAMEWORK
Section 189. All companies regulated by the Commission, unless otherwise required
by law, should comply with the financial reporting frameworks adopted by the
Commission for purposes of creating the statutory financial reports and the annual
statements to be submitted to the Commission. Financial reporting framework means
a set of accounting and reporting principles, standards, interpretations and
pronouncements that must be adopted in the preparation and submission of the
statutory financial statements and reports required by the Commission. This financial
reporting framework is not the same as the financial reporting framework used to
prepare the financial statements that the Securities and Exchange Commission may
require. The main purpose of the statutory statements is to present important
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information about the level of risk and solvency situation of insurers. In prescribing
the applicable statutory financial reporting framework, the Commissioner shall take
into account international standards concerning solvency and insurance company
reporting as well as generally accepted actuarial principles concerning financial
reporting promulgated by the Actuarial Society of the Philippines.
The assets and investments discussed in Sections 204 to 215 shall be accounted for
in accordance with this section.
The valuation of reserves shall be accounted for in accordance with Title 5 of this
Code.
CHAPTER III
THE BUSINESS OF INSURANCE
TITLE 1
INSURANCE COMPANIES, ORGANIZATION,
CAPITALIZATION AND AUTHORIZATION
Section 190. For purposes of this Code, the term insurer or insurance company shall
include all partnerships, associations, cooperatives or corporations, including
government-owned or -controlled corporations or entities, engaged as principals in
the insurance business, excepting mutual benefit associations. Unless the context
otherwise requires, the term shall also include professional reinsurers defined in
Section 288. Domestic companyshall include companies formed, organized or existing
under the laws of the Philippines. Foreign company when used without limitation
shall include companies formed, organized, or existing under any laws other than
those of the Philippines.
Nigel Carmelo Q. Reago 46

Section 191. The provisions of the Corporation Code, as amended, shall apply to all
insurance corporations now or hereafter engaged in business in the Philippines
insofar as they do not conflict with the provisions of this chapter.
Section 192. No corporation, partnership, or association of persons shall transact any
insurance business in the Philippines except as agent of a corporation, partnership or
association authorized to do the business of insurance in the Philippines, unless
possessed of the capital and assets required of an insurance corporation doing the
same kind of business in the Philippines and invested in the same manner; unless the
Commissioner shall have granted it a certificate to the effect that it has complied with
all the provisions of this Code.
Every entity receiving any such certificate of authority shall be subject to the
insurance and other applicable laws of the Philippines and to the jurisdiction and
supervision of the Commissioner.
Section 193. No insurance company shall transact any insurance business in the
Philippines until after it shall have obtained a certificate of authority for that purpose
from the Commissioner upon application therefor and payment by the company
concerned of the fees hereinafter prescribed.
The Commissioner may refuse to issue a certificate of authority to any insurance
company if, in his judgment, such refusal will best promote the interest of the people
of this country. No such certificate of authority shall be granted to any such company
until the Commissioner shall have satisfied himself by such examination as he may
make and such evidence as he may require that such company is qualified by the laws
of the Philippines to transact business therein, that the grant of such authority
appears to be justified in the light of local economic requirements, and that the
direction and administration, as well as the integrity and responsibility of the
organizers and administrators, the financial organization and the amount of capital,
reasonably assure the safety of the interests of the policyholders and the public.
In order to maintain the quality of the management of the insurance companies and
afford better protection to policyholders and the public in general, any person of good
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moral character, unquestioned integrity and recognized competence may be elected
or appointed director or officer of insurance companies in accordance with the
pertinent provisions contained in the corporate governance circulars prescribed by
the Commissioner. In addition hereto, the Commissioner shall prescribe the
qualifications of directors, executive officers and other key officials of insurance
companies for purposes of this section.
No person shall concurrently be a Director and/or Officer of an insurance company
and an adjustment company.
Before issuing such certificate of authority, the Commissioner must be satisfied that
the name of the company is not that of any other known company transacting a
similar business in the Philippines, or a name so similar as to be calculated to mislead
the public. The Commissioner may issue rules and regulations on the use of names of
insurance companies and other supervised persons or entities.
The certificate of authority issued by the Commissioner shall expire on the last day
of December, three (3) years following its date of issuance, and shall be renewable
every three (3) years thereafter, subject to the company’s continuing compliance with
the provisions of this Code, circulars, instructions, rulings or decisions of the
Commission.
Every company receiving any such certificates of authority shall be subject to the
provisions of this Code and other related laws and to the jurisdiction and supervision
of the Commissioner.
No insurance company may be authorized to transact in the Philippines the business
of life and non-life insurance concurrently, unless specifically authorized to do so by
the Commissioner: Provided, That the terms life and non-lifeinsurance shall be
deemed to include health, accident and disability insurance.
No insurance company shall have equity in an adjustment company and neither shall
an adjustment company have equity in an insurance company.
Nigel Carmelo Q. Reago 47

No insurance company issued with a valid certificate of authority to transact
insurance business anywhere in the Philippines by the Insurance Commissioner, shall
be barred, prevented, or disenfranchised from issuing any insurance policy or from
transacting any insurance business within the scope or coverage of its certificate of
authority, anywhere in the Philippines, by any local government unit or authority, for
whatever guise or reason whatsoever, including under any kind of ordinance,
accreditation system, or scheme. Any local ordinance or local government unit
regulatory issuance imposing such restriction or disenfranchisement on any insurance
company shall be deemed null and void ab initio.
Section 194. Except as provided in Section 289, no new domestic life or non-life
insurance company shall, in a stock corporation, engage in business in the Philippines
unless possessed of a paid-up capital equal to at least One billion pesos
(P1,000,000,000.00): Provided, That a domestic insurance company already doing
business in the Philippines shall have a net worth by June 30, 2013 of Two hundred
fifty million pesos (P250,000,000.00). Furthermore, said company must have by
December 31, 2016, an additional Three hundred million pesos (P300,000,000.00) in
net worth; by December 31, 2019, an additional Three hundred fifty million pesos
(P350,000,000.00) in net worth; and by December 31, 2022, an additional Four
hundred million pesos (P400,000,000.00) in net worth.
The Commissioner may, as a pre-licensing requirement of a new insurance company,
in addition to the paid-up capital stock, require the stockholders to pay in cash to the
company in proportion to their subscription interests a contributed surplus fund of
not less than One hundred million pesos (P100,000,000.00). He may also require such
company to submit to him a business plan showing the company’s estimated receipts
and disbursements, as well as the basis therefor, for the next succeeding three (3)
years.
If organized as a mutual company, in lieu of such net worth, it must have available
total members equity in an amount to be determined by the Insurance Commission
above all liabilities for losses reported; expenses, taxes, legal reserve, and reinsurance
of all outstanding risks, and the contributed surplus fund equal to the amounts
required of stock corporations. A stock insurance company doing business in the
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Philippines may, subject to the pertinent law and regulation which now or hereafter
may be in force, alter its organization and transform itself into a mutual insurance
company.
The Secretary of Finance may, upon recommendation of the Commissioner, increase
such minimum paid-up capital stock or cash assets requirement under such terms and
conditions as he may impose, to an amount which, in his opinion, would reasonably
assure the safety of the interests of the policyholders and the public. The minimum
paid-up capital and net worth requirement must remain unimpaired for the
continuance of the license. The Commissioner may require the adoption of the risk-
based capital approach and other internationally accepted forms of capital
framework.
For the purpose of this section, net worth shall consist of:
(a) Paid-up capital;
(b) Retained earnings;
(c) Unimpaired surplus; and
(d) Revaluation of assets as may be approved by the Commissioner.
The Commission may adopt for purposes of compliance with capital build up
requirement under this Code the recognition as part of the capital account, capital
notes or debentures which are subordinate to all credits and senior only to common
capital stocks.
The President of the Philippines may order a periodic review every two (2) years the
capital structure set out above to determine the capital adequacy of the local
insurance industry from and after the integration and liberalization of the financial
services, including insurance, in the ASEAN Region. For this purpose, a review
committee consisting of representatives from the Department of Finance (DOF), the
Insurance Commission (IC), the National Economic and Development Authority
Nigel Carmelo Q. Reago 48

(NEDA), the Securities and Exchange Commission (SEC) and other agencies which the
President may designate shall conduct the review and may recommend to the
President to adopt for implementation the necessary capital adjustment.
Section 195. Every company must, before engaging in the business of insurance in
the Philippines, file with the Commissioner the following:
(a) A certified copy of the last annual statement or a verified financial
statement exhibiting the condition and affairs of such company;
(b) If incorporated under the laws of the Philippines, a copy of the articles of
incorporation and bylaws, and any amendments to either, certified by the
Securities and Exchange Commission to be a copy of that which is filed in its
Office;
(c) If incorporated under any laws other than those of the Philippines, a
certificate from the Securities and Exchange Commission showing that it is
duly registered in the mercantile registry of that Commission in accordance
with the Corporation Code. A copy of the articles of incorporation and bylaws,
and any amendments to either, if organized or formed under any law
requiring such to be filed, duly certified by the officer having the custody of
same, or if not so organized, a copy of the law, charter or deed of settlement
under which the deed of organization is made, duly certified by the proper
custodian thereof, or proved by affidavit to be a copy; also, a certificate under
the hand and seal of the proper officer of such state or country having
supervision of insurance business therein, if any there be, that such
corporation or company is organized under the laws of such state or country,
with the amount of capital stock or assets and legal reserve required by this
Code;
(d) If not incorporated and of foreign domicile, aside from the certificate
mentioned in paragraph (c) of this section, a certificate setting forth the
nature and character of the business, the location of the principal office, the
name of the individual or names of the persons composing the partnership or
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association, the amount of actual capital employed or to be employed therein,
and the names of all officers and persons by whom the business is or may be
managed.
The certificate must be verified by the affidavit of the chief officer, secretary, agent,
or manager of the company; and if there are any written articles of agreement of the
company, a copy thereof must accompany such certificate.
Section 196. The Commissioner must require as a condition precedent to the
transaction of insurance business in the Philippines by any foreign insurance company,
that such company file in his office a written power of attorney designating some
person who shall be a resident of the Philippines as its general agent, on whom any
notice provided by law or by any insurance policy, proof of loss, summons and other
legal processes may be served in all actions or other legal proceedings against such
company, and consenting that service upon such general agent shall be admitted and
held as valid as if served upon the foreign company at its home office. Any such
foreign company shall, as further condition precedent to the transaction of insurance
business in the Philippines, make and file with the Commissioner an agreement or
stipulation, executed by the proper authorities of said company in form and
substance as follows:
The (name of company) does hereby stipulate and agree in consideration of the
permission granted by the Insurance Commissioner to transact business in the
Philippines, that if at any time said company shall leave the Philippines, or cease to
transact business therein, or shall be without any agent in the Philippines on whom
any notice, proof of loss, summons, or legal process may be served, then in any action
or proceeding arising out of any business or transaction which occurred in the
Philippines, service of any notice provided by law, or insurance policy, proof of loss,
summons, or other legal process may be made upon the Insurance Commissioner,
and that such service upon the Insurance Commissioner shall have the same force
and effect as if made upon the company.
Whenever such service of notice, proof of loss, summons, or other legal process shall
be made upon the Commissioner, he must, within ten (10) days thereafter, transmit
Nigel Carmelo Q. Reago 49

by mail, postage paid, a copy of such notice, proof of loss, summons, or other legal
process to the company at its home or principal office. The sending of such copy by
the Commissioner shall be a necessary part of the service of the notice, proof of loss,
or other legal process.
Section 197. No insurance company organized or existing under the government or
laws other than those of the Philippines shall engage in business in the Philippines
unless possessed of unimpaired capital or assets and reserve of not less than One
billion pesos (P1,000,000,000.00), nor until it shall have deposited with the
Commissioner for the benefit and security of the policyholders and creditors of such
company in the Philippines, securities satisfactory to the Commissioner consisting of
good securities of the Philippines, including new issues of stock of registered
enterprises, as this term is defined in Executive Order No. 226 of 1987, as amended,
to the actual market value of not less than the amount herein required: Provided,
That at least fifty percent (50%) of such securities shall consist of bonds or other
instruments of debt of the Government of the Philippines, its political subdivisions
and instrumentalities, or of government-owned or -controlled corporations and
entities, including the Bangko Sentral ng Pilipinas: Provided, further, That the total
investment of a foreign insurance company in any registered enterprise shall not
exceed twenty percent (20%) of the net worth of said foreign insurance company nor
twenty percent (20%) of the capital of the registered enterprise, unless previously
authorized in writing by the Commissioner.
The Commissioner may, as a pre-licensing requirement of a new branch office of a
foreign insurance company, in addition to the required asset or net worth, require
the company to have an additional surplus fund in an amount to be determined by
the Insurance Commission.
For purposes of this Code, the net worth of a foreign insurance company shall refer
only to its net worth in the Philippines.
Section 198. The Commissioner shall hold the securities, deposited as required in the
immediately preceding section, for the benefit and security of all the policyholders
and creditors of the company depositing the same: Provided, That the Commissioner
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may as long as the company is solvent, permit the company to collect the interest or
dividends on the securities so deposited, and, from time to time, with his assent, to
withdraw any of such securities, upon depositing with said Commissioner other like
securities, the market value of which shall be equal to the market value of such as
may be withdrawn. In the event of any company ceasing to do business in the
Philippines, the securities deposited as aforesaid shall be returned to the company
upon the Commissioner’s written approval and only after the company has duly
proven in its application therefor that it has no further liability whatsoever under any
of its policies nor to any of its creditors in the Philippines.
Section 199. Every foreign company doing business in the Philippines shall set aside
an amount corresponding to the legal reserves of the policies written in the
Philippines and invest and keep the same therein in accordance with the provisions
of this section. The legal reserve therein required to be set aside shall be invested
only in the classes of Philippine securities described in Section 206: Provided, however,
That no investment in stocks or bonds of any single entity shall, in the aggregate
exceed twenty percent (20%) of the net worth of the investing company or twenty
percent (20%) of the capital of the issuing company, whichever is the lesser, unless
otherwise approved in writing by the Commissioner. The securities purchased and
kept in the Philippines under this section, shall not be sent out of the territorial
jurisdiction of the Philippines without the written consent of the Commissioner.
TITLE 2
SOLVENCY
Section 200. An insurance company doing business in the Philippines shall at all times
maintain the minimum paid-up capital, and net worth requirements as prescribed by
the Commissioner. Such solvency requirements shall be based on internationally
accepted solvency frameworks and adopted only after due consultation with the
insurance industry associations.
Nigel Carmelo Q. Reago 50

Whenever the aforementioned requirement be found to be less than that herein
required to be maintained, the Commissioner shall forthwith direct the company to
make good any such deficiency by cash, to be contributed by all stockholders of
record in proportion to their respective interests, and paid to the treasurer of the
company, within fifteen (15) days from receipt of the order: Provided, That the
company in the interim shall not be permitted to take any new risk of any kind or
character unless and until it make good any such deficiency: Provided; further, That a
stockholder who aside from paying the contribution due from him, pays the
contribution due from another stockholder by reason of the failure or refusal of the
latter to do so, shall have a lien on the certificates of stock of the insurance company
concerned appearing in its books in the name of the defaulting stockholder on the
date of default, as well as on any interests or dividends that have accrued or will
accrue to the said certificates of stock, until the corresponding payment or
reimbursement is made by the defaulting stockholder.
Section 201. No domestic insurance corporation shall declare or distribute any
dividend on its outstanding stocks unless it has met the minimum paid-up capital and
net worth requirements under Section 194 and except from profits attested in a
sworn statement to the Commissioner by the president or treasurer of the
corporation to be remaining on hand after retaining unimpaired:
(a) The entire paid-up capital stock;
(b) The solvency requirements defined by Section 200;
(c) In the case of life insurance corporations, the legal reserve fund required
by Section 217;
(d) In the case of corporations other than life, the legal reserve fund required
by Section 219; and
(e) A sum sufficient to pay all net losses reported, or in the course of
settlement, and all liabilities for expenses and taxes.
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Any dividend declared or distributed under the preceding paragraph shall be
reported to the Commissioner within thirty (30) days after such declaration or
distribution.
If the Commissioner finds that any such corporation has declared or distributed any
such dividend in violation of this section, he may order such corporation to cease and
desist from doing business until the amount of such dividend or the portion thereof
in excess of the amount allowed under this section has been restored to said
corporation.
The Commissioner shall prescribe solvency requirements for branches of foreign
insurance companies operating in the Philippines.
TITLE 3
ASSETS
Section 202. In any determination of the financial condition of any insurance
company doing business in the Philippines, there shall be allowed and admitted as
assets only such assets legally or beneficially owned by the insurance company
concerned as determined by the Commissioner which consist of:
(a) Cash in the possession of the insurance company or in transit under its
control, and the true and duly verified balance of any deposit of such
company in a financially sound bank or trust company duly authorized by the
Bangko Sentral ng Pilipinas.
(b) Investments in securities, including money market instruments, and in
real property acquired or held in accordance with and subject to the
applicable provisions of this Code and the income realized therefrom or
accrued thereon.
Nigel Carmelo Q. Reago 51

(c) Loans granted by the insurance company concerned to the extent of that
portion thereof adequately secured by non-speculative assets with readily
realizable values in accordance with and subject to the limitations imposed
by applicable provisions of this Code.
(d) Policy loans and other policy assets and liens on policies, contracts or
certificates of a life insurance company, in an amount not exceeding legal
reserves and other policy liabilities carried on each individual life insurance
policy, contract or certificate.
(e) The net amount of uncollected and deferred premiums and annuity
considerations in the case of a life insurance company which carries the full
mean tabular reserve liability.
(f) Reinsurance recoverable by the ceding insurer:
(1) From an insurer authorized to transact business in this country,
the full amount thereof; or
(2) From an insurer not authorized in this country, in an amount not
exceeding the liabilities carried by the ceding insurer for amounts
withheld under a reinsurance treaty with such unauthorized insurer
as security for the payment of obligations thereunder if such funds
are held subject to withdrawal by, and under the control of, the
ceding insurer. The Commissioner may prescribe the conditions
under which a ceding insurer may be allowed credit, as an asset or as
a deduction from loss and unearned premium reserves, for
reinsurance recoverable from an insurer not authorized in this
country but which presents satisfactory evidence that it meets the
applicable standards of solvency required in this country.
(g) Funds withheld by a ceding insurer under a reinsurance treaty, provided
reserves for unpaid losses and unearned premiums are adequately provided.
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(h) Deposits or amounts recoverable from underwriting associations,
syndicates and reinsurance funds, or from any suspended banking institution,
to the extent deemed by the Commissioner to be available for the payment
of losses and claims and values to be determined by him.
(i) Electronic data processing machines, as may be authorized by the
Commissioner to be acquired by the insurance company concerned, the
acquisition cost of which to be amortized in equal annual amounts within a
period of five (5) years from the date of acquisition thereof.
(j) Investments in mutual funds, real estate investment trusts, salary loans,
unit investment trust funds and special deposit accounts, subject to the
conditions as may be provided for by the Commissioner.
(k) Other assets, not inconsistent with the provisions of paragraphs (a) to (j)
hereof, which are deemed by the Commissioner to be readily realizable and
available for the payment of losses and claims at values to be determined by
him in a circular, rule or regulation.
Section 203. In addition to such assets as the Commissioner may from time to time
determine to be non-admitted assets of insurance companies doing business in the
Philippines, the following assets shall in no case be allowed as admitted assets of an
insurance company doing business in the Philippines, in any determination of its
financial condition:
(a) Goodwill, trade names, and other like intangible assets.
(b) Prepaid or deferred charges for expenses and commissions paid by such
insurance company.
(c) Advances to officers (other than policy loans), which are not adequately
secured and which are not previously authorized by the Commissioner, as
well as advances to employees, agents, and other persons on mere personal
security.
Nigel Carmelo Q. Reago 52

(d) Shares of stock of such insurance company, owned by it, or any equity
therein as well as loans secured thereby, or any proportionate interest in such
shares of stock through the ownership by such insurance company of an
interest in another corporation or business unit.
(e) Furniture, furnishing, fixtures, safes, equipment, library, stationery,
literature, and supplies.
(f) Items of bank credits representing checks, drafts or notes returned unpaid
after the date of statement.
(g) The amount, if any, by which the aggregate value of investments as
carried in the ledger assets of such insurance company exceeds the aggregate
value thereof as determined in accordance with the provisions of this Code
and/or the rules of the Commissioner.
All non-admitted assets and all other assets of doubtful value or character included
as ledger or non-ledger assets in any statement submitted by an insurance company
to the Commissioner, or in any insurance examiner’s report to him, shall also be
reported, to the extent of the value disallowed as deductions from the gross assets of
such insurance company, except where the Commissioner permits a reserve to be
carried among the liabilities of such insurance company in lieu of any such deduction.
TITLE 4
INVESTMENTS
Section 204. A life insurance company may lend to any of its policyholders upon the
security of the value of its policy such sum as may be determined pursuant to the
provisions of the policy.
No insurance company shall loan any of its money or deposits to any person,
corporation or association, except upon the security of any of the following:
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(a) First mortgage or deeds of trust of registered, unencumbered, improved
or unimproved real estate, including condominiums;
(b) First mortgages or deeds of trust of actually cultivated, improved and
unencumbered agricultural lands in the Philippines;
(c) Purchase money mortgages, lease purchase agreements or similar
securities executed or received by it on account of the sale or exchange of
real property acquired pursuant to Sections 206 and 208;
(d) Bonds or other instruments of indebtedness issued or guaranteed by the
Government of the Philippines or its political subdivisions authorized by law
to incur such obligations or issue such guarantees or of government-owned
or -controlled corporations and instrumentalities including the Bangko
Sentral ng Pilipinas; or
(e) Obligations issued or guaranteed by universal banks, commercial banks,
offshore banking units, investment houses or other financial intermediaries
duly registered with the Bangko Sentral ng Pilipinas; or
(f) Obligations issued or guaranteed by foreign banks or corporations, each
of which shall have total net worth of at least One hundred fifty million US
dollars ($US150,000,000.00) or such other higher net worth as may be
prescribed by the Insurance Commission, as shown in their financial
statements as of the immediately preceding fiscal year; or
(g) Assignments of monetary instruments such as cash deposits, deposit
certificates or other similar instruments of universal banks, commercial banks,
investment houses or other financial intermediaries duly registered with the
Bangko Sentral ng Pilipinas; or
(h) Pledges of shares of stock, bonds or other instruments of indebtedness
specified in Section 209; or
Nigel Carmelo Q. Reago 53

(i) Chattel mortgages over equipment not more than three (3) years old; and
(j) Such other security as may be approved by the Commissioner.
The loans provided in the preceding subsection shall be subject to the following
conditions:
(1) The amount of loan secured by real estate mortgage over a non-
agricultural land shall not exceed seventy percent (70%) of its appraised value,
and in the case of a loan secured by a real estate mortgage over an
agricultural land, the amount of loan shall not exceed forty percent (40%) of
its market value: Provided, That, in no case shall such loan have a maturity
period in excess of twenty-five (25) years;
(2) Unless approved by the Commissioner, no loan may be granted upon the
security of a mortgage on improved real estate if the improvements thereon
do not belong to the owner of the land, and the owner of the improvements
does not sign the deed of mortgage. However, if the owner of the land is the
Government of the Philippines or any of its political subdivisions and a long-
term lease has been executed in favor of the owner of the improvements, the
owner of the land need not be a party to the deed of mortgage. The expiration
date of the lease shall not, however, precede the maturity of the loan. The
phrase ‘improved real estate’ as used herein shall mean land with permanent
building or buildings erected thereon;
(3) Lease-agreements or similar securities received on the sale of real estate
property shall not exceed one hundred percent (100%) of the selling price of
said property, or one hundred percent (100%) of its market value at the time
of its disposition, whichever amount is lower. However, in no case shall such
agreement have a maturity period not exceeding thirty (30) years;
(4) Loans secured by shares of stock of solvent corporations or institutions
shall not exceed fifty percent (50%) of:
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(i) The weighted average market price for the one hundred eighty
(180) days preceding the approval of the loan for shares listed in the
stock exchange; and
(ii) For unlisted shares, the adjusted book value of such shares.
(5) Loans secured by the chattel mortgages over equipment shall not exceed
seventy percent (70%) of the market value of said equipment.
Section 205. No loan by any insurance company on the security of real estate shall
be made unless the title to such real estate shall have first been registered in
accordance with the existing Land Registration Act, or shall have been previously
registered under the provisions of the existing Mortgage Law and the lien or interest
of the insurance company as mortgagee has been registered.
Section 206. (a) An insurance company may purchase, hold, own and convey such
property, real and personal, as may have been mortgaged, pledged, or conveyed to it
in good faith in trust for its benefit by reason of money loaned by it in pursuance of
the regular business of the company, and such real or personal property as may have
been purchased by it at sales under pledges, mortgages or deeds of trust for its
benefit on account of money loaned by it; and such real and personal property as may
have been conveyed to it by borrowers in satisfaction and discharge of loans made by
the company in payment or by reason of any loan made by the company in payment
or by reason of any loan made by it shall be sold by the company within twenty (20)
years after the title thereto has been vested in it.
(b) An insurance company may purchase, hold, and own the following:
(1) Real properties which serve as its main place of business and/or branch
offices: Provided, That such investment shall not in the overall exceed twenty
percent (20%) of its net worth as shown by its latest financial statement
approved by the Commissioner.
Nigel Carmelo Q. Reago 54

(2) Bonds or other instruments of indebtedness of the Government of the
Philippines or its political subdivisions authorized by law to issue bonds at the
reasonable market value thereof.
(3) Bonds or other instruments of debt of government-owned or -controlled
corporations and entities, including the Bangko Sentral ng Pilipinas.
(4) Bonds, debentures or other instruments of indebtedness of any solvent
corporation or institution created or existing under the laws of the Philippines:
Provided, however, That the issuing, assuming or guaranteeing entity
or its predecessors shall not have defaulted in the payment of
interest on any of its securities and that during each of any three (3)
including the last two (2) of the five (5) fiscal years next preceding the
date of acquisition by such insurance company of such bonds,
debentures, or other instruments of indebtedness, the net earnings
of the issuing, assuming or guaranteeing institution available for its
fixed charges, as hereinafter defined, shall have been not less than
one and one-quarter (1¼) times the total of its fixed charges for such
year: Provided, further, That no life insurance company shall invest in
or loan upon the obligations of any one institution in the kinds
permitted under this subsection an amount in excess of twenty-five
percent (25%) of the total admitted assets of such insurer as of
December thirty-first next preceding the date of such investment.
As used in this subsection the term net earnings available for fixed
charges shall mean net income after deducting operating and maintenance
expenses, taxes other than income taxes, depreciation and depletion; but
excluding extraordinary nonrecurring items of income or expense appearing
in the regular financial statement of the issuing, assuming or guaranteeing
institution. The term fixed charges shall include interest on funded and
unfunded debt, amortization of debt discount, and rentals for leased
properties.
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(5) Preferred or guaranteed stocks of any solvent corporation or institution
created or existing under the laws of the Philippines: Provided, That if the
stocks are guaranteed, the amount of stocks so guaranteed is not in excess of
fifty percent (50%) of the amount of the preferred or common stocks, as the
case may be, of the guaranteeing corporation: Provided, finally, That no life
insurance company shall invest in or loan upon obligations of any one
institution in the kinds permitted under this subsection an amount in excess
of ten percent (10%) of the total admitted assets of such insurer as of
December thirty-first next preceding the date of such investment.
(6) Common stocks of any solvent corporation or institution created or
existing under the laws of the Philippines: Provided, however, That no life
insurance company shall invest in or loan upon the obligations of any one
corporation or institution in the kinds permitted under this subsection an
amount in excess of ten percent (10%) of the total admitted assets of such
insurer as of December thirty-first next preceding the date of such investment.
(7) Securities issued by a registered enterprise, as this term is defined in
Executive Order No. 226, otherwise known as the Omnibus Investments Code
of 1987, as amended: Provided, That the total investment of a domestic non-
life insurance company in any registered enterprise shall not exceed twenty
percent (20%) of the net worth of said insurance company as shown by its
aforesaid financial statement unless previously authorized by the
Commissioner.
(8) Certificates, notes and other obligations issued by the trustees or
receivers of any institution created or existing under the laws of the
Philippines which, or the assets of which, are being administered under the
direction of any court having jurisdiction: Provided, however, That such
certificates, notes or other obligations are adequately secured as to principal
and interests.
(9) Equipment trust obligations or certificates which are adequately secured
or other adequately secured instruments evidencing an interest in equipment
Nigel Carmelo Q. Reago 55

wholly or in part within the Philippines: Provided, however, That there is a
right to receive determined portions of rental, purchase or other fixed
obligatory payments for the use or purchase of such equipment.
(10) Any obligation of any corporation or institution created or existing under
the laws of the Philippines which is, on the date of acquisition by the insurer,
adequately secured and has qualities and characteristics wherein the
speculative elements are not predominant.
(11) Such other securities as may be approved by the Commissioner.
(c) Any domestic insurer which has outstanding insurance, annuity or reinsurance
contracts in currencies other than the national currency of the Philippines may invest
in, or otherwise acquire or loan upon securities and investments in such currency
which are substantially of the same kinds, classes and investment grades as those
eligible for investment under the foregoing subdivisions of this section; but the
aggregate amount of such investments and of such cash in such currency which is at
any time held by such insurer shall not exceed one and one-half (1½) times the
amount of its reserves and other obligations under such contracts or the amount
which such insurer is required by the law of any country or possession outside the
Republic of the Philippines to be invested in such country or possession, whichever
shall be greater.
Section 207. An insurance company may:
(1) Invest in equities of other financial institutions; and
(2) Engage in the buying and selling of long-term debt instruments: Provided,
That any or all of such investments shall be with the prior approval of the
Commissioner. Insurance companies may, however, invest in listed equities
of other financial institutions without need of prior approval by the
Commissioner.
Section 208. Any life insurance company may:
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(a) Acquire or construct housing projects and, in connection with any such
project, may acquire land or any interest therein by purchase, lease or
otherwise, or use land acquired pursuant to any other provision of this Code.
Such company may thereafter own, maintain, manage, collect or receive
income from, or sell and convey, any land or interest therein so acquired and
any improvements thereon. The aggregate book value of the investments of
any such company in all such projects shall not exceed at the time of such
investments twenty-five percent (25%) of the total admitted assets of such
company on the thirty-first day of December next preceding: Provided, That
the funds of the company for the payment of pending claims and obligations
shall not be used for such investments.
(b) Acquire real property, other than property to be used primarily for
providing housing and property for accommodation of its own business, as an
investment for the production of income, or may acquire real property to be
improved or developed for such investment purpose pursuant to a program
therefor, subject to the condition that the cost of each parcel of real property
so acquired under the authority of this paragraph (b), including the estimated
cost to the company of the improvement or development thereof, when
added to the book value of all other real property held by it pursuant to this
paragraph (b), shall not exceed twenty-five percent (25%) of its admitted
assets as of the thirty-first day of December next preceding.
Section 209. Every domestic insurance company shall, to the extent of an amount
equal in value to twenty-five percent (25%) of the minimum net worth required under
Section 194, invest its funds only in securities, satisfactory to the Commissioner,
consisting of bonds or other instruments of debt of the Government of the Philippines
or its political subdivisions or instrumentalities, or of government-owned or -
controlled corporations and entities, including the Bangko Sentral ng
Pilipinas: Provided, That such investments shall at all times be maintained free from
any lien or encumbrance: Provided, further, That such securities shall be deposited
with and held by the Commissioner for the faithful performance by the depositing
insurer of all its obligations under its insurance contracts. The provisions of Section
198 shall, so far as practicable, apply to the securities deposited under this section.
Nigel Carmelo Q. Reago 56

Except as otherwise provided in this Code, no judgment creditor or other claimant
shall have the right to levy upon any of the securities of the insurer held on deposit
under this section or held on deposit pursuant to the requirement of the
Commissioner.
Section 210. After satisfying the requirements contained in the preceding section,
any domestic non-life insurance company, shall invest, to an amount prescribed
below, its funds in, or otherwise, acquire or loan upon, only the classes of investments
described in Section 206, including securities issued by any registered enterprise, as
this term is defined in Executive Order No. 226, otherwise known as ‘The Omnibus
Investments Code of 1987′ and such other classes of investments as may be
authorized by the Commissioner for purposes of this section: Provided, That:
(a) No more than twenty percent (20%) of the net worth of such company as
shown by its latest financial statement approved by the Commissioner shall
be invested in the lot and building in which the insurance company conducts
its business; and
(b) The total investment of an insurance company in any registered
enterprise shall not exceed twenty percent (20%) of the net worth of said
insurance company as shown by its aforesaid financial statement nor twenty
percent (20%) of the paid-up capital of the registered enterprise excluding
the intended investment, unless previously authorized by the
Commissioner: Provided, further, That such investments, free from any lien
or encumbrance, shall be at least equal in amount to the aggregate amount
of: (1) its legal reserve, as provided in Section 219, and (2) its reserve fund
held for reinsurance as provided for in the pertinent treaty provision in the
case of reinsurance ceded to authorized insurers.
Section 211. After satisfying the requirements contained in Sections 197, 199, 209
and 210, any non-life insurance company may invest any portion of its funds
representing earned surplus in any of the investments described in Sections 204, 206
and 207, or in any securities issued by a registered enterprise mentioned in the
preceding sections: Provided, That no investment in stocks or bonds of any single
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entity shall in the aggregate, exceed twenty percent (20%) of the net worth of the
insurance company as shown in its latest financial statement approved by the
Commissioner or twenty percent (20%) of the paid-up capital of the issuing company,
whichever is lesser, unless otherwise approved by the Commissioner.
Section 212. After satisfying the minimum capital investment required in Section 209,
any life insurance company may invest its legal policy reserve, as provided in Section
217 or in Section 218, in any of the classes of securities or types of investments
described in Sections 204, 206, 207 and 208, subject to the limitations therein
contained, and in any securities issued by any registered enterprise mentioned in
Section 210, free from any lien or encumbrance, in such amounts as may be approved
by the Commissioner. Such company may likewise invest any portion of its earned
surplus in the aforesaid securities or investments subject to the aforesaid limitations.
Section 213. Any investment made in violation of the applicable provisions of this
title shall be considered non-admitted assets.
Section 214. (a) All bonds or other instruments of indebtedness having a fixed term
and rate of interest and held by any life insurance company authorized to do business
in this country, if amply secured and if not in default as to principal or interest, shall
be valued based on their amortized cost using effective interest method less
impairment and unrecoverable amount based on appropriate measurement methods
which are generally accepted in the industry and accepted by the Commissioner. The
Commissioner shall have the power to determine the eligibility of any such
investments for valuation on the basis of amortization, and may by regulation
prescribe or limit the classes of securities so eligible for amortization. All bonds or
other instruments of indebtedness which in the judgment of the Commissioner are
not amply secured shall not be eligible for amortization and shall be valued in
accordance with paragraph two. The Commissioner may, if he finds that the interest
of policyholders so permit or require, by official regulation permit or require any class
or classes of insurers, other than life insurance companies authorized to do business
in this country, to value their bonds or other instruments of indebtedness in
accordance with the foregoing rule.
Nigel Carmelo Q. Reago 57

(b) The investments of all insurers authorized to do business in this country, except
securities subject to amortization and except as otherwise provided in this chapter,
shall be valued, in the discretion of the Commissioner, at their amortized cost using
effective interest method less impairment and unrecoverable amount or at valuation
representing their fair market value. If the Commissioner finds that in view of the
character of investments of any insurer authorized to do business in this country it
would be prudent for such insurer to establish a special reserve for possible losses or
fluctuations in the values of its investments, he may require such insurer to establish
such reserve, reasonable in amount, and include a report thereon in any statement
or report of the financial condition of such insurer. The Commissioner may, in
connection with any examination or required financial statement of an authorized
insurer, require such insurer to furnish him complete financial statements and
audited report of the financial condition of any corporation of which the securities
are owned wholly or partly by such insurer and may cause an examination to be made
of any subsidiary or affiliate of such insurer as appropriate to specific investments as
provided in appropriate circulars issued by the Commissioner.
(c) Investments in equity of an insurance company shall be valued as follows:
(1) Listed stocks shall be valued at market value and periodically adjusted to
reflect market changes through a special valuation account to reflect their
realizable value when sold;
(2) Unlisted stocks shall be valued at adjusted book value based on the latest
unqualified audited financial statements of the company which issued such
stocks; and
(3) Stocks of a corporation under the control of the insurer shall be valued
using the equity method which is the cost plus or minus the share of the
controlling company in the earnings or losses of the controlled company after
acquisition of such stocks.
(d) The stock of an insurance company shall be valued at the lesser of its market value
or its book value as shown by its last approved audited financial statement or the last
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report on examination, whichever is more recent. The book value of a share of
common stock of an insurance company shall be ascertained by dividing (1) the
amount of its capital and surplus less the value of all of its preferred stock, if any,
outstanding, by (2) the number of shares of its common stock issued and outstanding.
Notwithstanding the foregoing provisions, an insurer may, at its option, value its
holdings of stock in a subsidiary insurance company in an amount not less than
acquisition cost if such acquisition cost is less than the value determined as
hereinbefore provided.
(e) Real estate acquired by foreclosure or by deed in lieu thereof, in the absence of a
recent appraisal deemed by the Commissioner to be reliable, shall not be valued at
an amount greater than the unpaid principal of the defaulted loan at the date of such
foreclosure or deed, together with any taxes and expenses paid or incurred by such
insurer at such time in connection with such acquisition, and the cost of additions or
improvements thereafter paid by such insurer and any amount or amounts thereafter
paid by such insurer or any assessments levied for improvements in connection with
the property.
(f) Purchase money mortgages received on dispositions of real property held
pursuant to Section 208 shall be valued in an amount equivalent to ninety percent
(90%) of the value of such real property. Purchase money mortgages received on
disposition of real property otherwise held shall be valued in an amount not
exceeding ninety percent (90%) of the value of such real property as determined by
an appraisal made by an appraiser at or about the time of disposition of such real
property.
(g) The stock of a subsidiary of an insurer shall be valued on the basis of the greater
of:
(1) The value of only such of the assets of such subsidiary as would constitute
lawful investments for the insurer if acquired or held directly by the insurer;
or
Nigel Carmelo Q. Reago 58

(2) Such other value determined pursuant to standards and cumulative
limitations, contained in a regulation to be promulgated by the Commissioner.
(h) Notwithstanding any provision contained in this section or elsewhere in this
chapter, if the Commissioner finds that the interests of policyholders so permit or
require, he may permit or require any class or classes of insurers authorized to do
business in this country to value their investments or any class or classes thereof as
of any date heretofore or hereafter in accordance with any applicable valuation or
method.
Section 215. It shall be the duty of the officers of the insurance company to report
within the first fifteen (15) days of every month all such investments as may be made
by them during the preceding month, and the Commissioner may, if such investments
or any of them seem injudicious to him, require the sale or disposal of the same. The
report shall also include a list of investments sold or disposed of by the company
during the same period.
TITLE 5
RESERVES
Section 216. Every life insurance company, doing business in the Philippines, shall
annually make a valuation of all policies, additions thereto, unpaid dividends, and all
other obligations outstanding on the thirty-first day of December of the preceding
year. All such valuations shall be made according to the standard adopted by the
company, as prescribed by the Commissioner in accordance with internationally
accepted actuarial standards, which standard shall be stated in its annual report.
Such standard of valuations shall be according to a standard table of mortality with
interest to be determined by the Insurance Commissioner. When the preliminary
term basis is used, the term insurance shall be limited to the first policy year.
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The results of such valuations shall be reported to the Commissioner on or before
the thirtieth day of April of each year accompanied by a sworn statement of a
designated company officer and stating the methods and assumptions used in arriving
at the values reported.
Section 217. The aggregate net value so ascertained of the policies of such company
shall be deemed its reserve liability, to provide for which it shall hold funds in secure
investments equal to such net value, above all its other liabilities; and it shall be the
duty of the Commissioner, after having verified, to such an extent as he may deem
necessary, the valuation of all policies in force, to satisfy himself that the company
has such amount in safe legal securities after all other debts and claims against it have
been provided for.
The reserve liability for variable contracts defined in Section 238 shall be established
in accordance with actuarial procedures that recognize the variable nature of the
benefits provided, and shall be approved by the Commissioner.
Section 218. Every life insurance company, conducted on the mutual plan or a plan
in which policyholders are by the terms of their policies entitled to share in the profits
or surplus shall, on all policies of life insurance heretofore or hereafter issued, under
the conditions of which the distribution of surplus is deferred to a fixed or specified
time and contingent upon the policy being in force and the insured living at that time,
annually ascertain the amount of the surplus to which all such policies as a separate
class are entitled, and shall annually apportion to such policies as a class the amount
of the surplus so ascertained, and carry the amount of such apportioned surplus, plus
the actual interest earnings and accretions to such fund, as a distinct and separate
liability to such class of policies on and for which the same was accumulated, and no
company or any of its officers shall be permitted to use any part of such apportioned
surplus fund for any purpose whatsoever other than for the express purpose for
which the same was accumulated.
Section 219. Every insurance company, other than life, shall maintain a reserve for
unearned premiums on its policies in force, which shall be charged as a liability in any
Nigel Carmelo Q. Reago 59

determination of its financial condition. Such reserve shall be calculated based on the
twenty-fourth (24th) method.
Section 220. In addition to its liabilities and reserves on contracts of insurance issued
by it, every insurance company shall be charged with the estimated amount of all of
its other liabilities, including taxes, expenses and other obligations due or accrued at
the date of statement, and including any special reserves required by the
Commissioner pursuant to the provisions of this Code.
TITLE 6
LIMIT OF SINGLE RISK
Section 221. No insurance company other than life, whether foreign or domestic,
shall retain any risk on any one subject of insurance in an amount exceeding twenty
percent (20%) of its net worth. For purposes of this section, the term subject of
insurance shall include all properties or risks insured by the same insurer that
customarily are considered by non-life company underwriters to be subject to loss or
damage from the same occurrence of any hazard insured against.
The Commissioner may issue regulations providing for a maximum limit on the
overall retained risks of insurers to serve as a catastrophe cover requirement for the
same.
Reinsurance ceded as authorized under the succeeding title shall be deducted in
determining the risk retained. As to surety risk, deduction shall also be made of the
amount assumed by any other company authorized to transact surety business and
the value of any security mortgaged, pledged, or held subject to the surety’s control
and for the surety’s protection.
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TITLE 7
REINSURANCE TRANSACTIONS
Section 222. An insurance company doing business in the Philippines may accept
reinsurances only of such risks, and retain risk thereon within such limits, as it is
otherwise authorized to insure.
Section 223. No insurance company doing business in the Philippines shall cede all or
part of any risks situated in the Philippines by way of reinsurance directly to any
foreign insurer not authorized to do business in the Philippines unless such foreign
insurer or, if the services of a nonresident broker are utilized, such nonresident broker
is represented in the Philippines by a resident agent duly registered with the
Commissioner as required in this Code.
The resident agent of such unauthorized foreign insurer or nonresident broker shall
immediately upon registration furnish the Commissioner with the annual statement
of such insurer, or of such company or companies where such broker may place
Philippine business as of the year preceding such registration, and annually thereafter
as soon as available.
Section 224. All insurance companies, both life and non-life, authorized to do
business in the Philippines shall cede their excess risks to other companies similarly
authorized to do business in the Philippines in such amounts and under such
arrangements as would be consistent with sound underwriting practices before they
enter into reinsurance arrangements with unauthorized foreign insurers.
Section 225. Any insurance company doing business in the Philippines desiring to
cede their excess risks to foreign insurance or reinsurance companies not authorized
to transact business in the Philippines may do so under such terms and conditions
which the Commissioner may prescribe.
Nigel Carmelo Q. Reago 60

Should any reinsurance agreement be for any reason cancelled or terminated, the
ceding company concerned shall inform the Commissioner in writing of such
cancellation or termination within thirty (30) days from the date of such cancellation
or termination or from the date notice or information of such cancellation or
termination is received by such company as the case may be.
Section 226. Every insurance company authorized to do business in the Philippines
shall report to the Commissioner on forms prescribed by him the particulars of
reinsurance treaties or any new treaties or changes in existing treaties within three
(3) months from their effectivity.
Section 227. No credit shall be allowed as an admitted asset or as a deduction from
liability, to any ceding insurer for reinsurance made, ceded, renewed, or otherwise
becoming effective after January 1, 1975, unless the reinsurance shall be payable by
the assuming insurer on the basis of the liability of the ceding insurer under the
contract or contracts reinsured without diminution because of the insolvency of the
ceding insurer nor unless under the contract or contracts of reinsurance the liability
for such reinsurance is assumed by the assuming insurer or insurers as of the same
effective date; nor unless the reinsurance agreement provides that payments by the
assuming insurer shall be made directly to the ceding insurer or to its liquidator,
receiver, or statutory successor except:
(a) Where the contract specifically provides another payee of such
reinsurance in the event of the insolvency of the ceding insurer; and
(b) Where the assuming insurer with the consent of the direct insured or
insureds has assumed such policy obligations of the ceding insurer as direct
obligations of the assuming insurer to the payees under such policies and in
substitution for the obligations of the ceding insurer to such payees.
Section 228. No life insurance company doing business in the Philippines shall
reinsure its whole risk on any individual life or joint lives, or substantially all of its
insurance in force, without having first obtained the written permission of the
Commissioner.
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TITLE 8
ANNUAL STATEMENT
Section 229. Every insurance company doing business in the Philippines shall
terminate its fiscal period on the thirty-first day of December every year, and shall
annually on or before the thirtieth day of April of each year render to the
Commissioner a statement signed and sworn to by the chief officer of such company
showing, in such form and details as may be prescribed by the Commissioner, the
exact condition of its affairs on the preceding thirty-first day of December.
The annual statement shall be prepared in accordance with the financial reporting
framework as determined by the Commissioner. In addition, the Commissioner may
require other relevant information. The form and details of such other relevant
information shall be prescribed by the Commissioner and shall form part of the
supplementary schedules to the annual statement.
Any entry in the statement which is found to be false shall constitute a misdemeanor
and the officer signing such statement shall be subject to the penalty provided for
under Section 442.
Section 230. Every insurance company authorized under Title 10 of this chapter to
issue, deliver or use variable contracts shall annually file with the Commissioner
separate annual statement of its separate variable accounts. Such statement shall be
on a form prescribed or approved by the Commissioner and shall include details as to
all of the income, disbursements, assets and liability items of and associated with the
said separate variable accounts. Said statement shall be under oath of two (2) officers
of the company and shall be filed simultaneously with the annual statement required
by the preceding section.
Section 231. Within thirty (30) days after receipt of the annual statement approved
by the Commissioner, every insurance company doing business in the Philippines shall
publish in a newspaper of general circulation, a full synopsis of its annual financial
statement showing fully the conditions of its business, and setting forth its resources
and liabilities in accordance with such form prescribed by the Commissioner.
Nigel Carmelo Q. Reago 61

The Commissioner shall have the authority to make, amend, and rescind such
accounting rules and regulations as may be necessary to carry out the provisions of
this Code, and define accounting, technical and trade terms used in this
Code: Provided, That such shall be in accordance with internationally accepted
accounting standards. Among other things, the Commissioner may prescribe the form
or forms in which required information shall be set forth, the items or details to be
shown in the balance sheet and income statement, and the methods to be followed
in the preparation of accounts, appraisal or valuation of assets and liabilities,
determination of recurring and nonrecurring income, differentiation of investment
and operating income, and in the preparation, where the Commissioner deems it
necessary or desirable, of consolidated balance sheets or income accounts of any
person directly or indirectly controlling or controlled by the insurance company.
TITLE 9
POLICY FORMS
Section 232. No policy, certificate or contract of insurance shall be issued or delivered
within the Philippines unless in the form previously approved by the Commissioner,
and no application form shall be used with, and no rider, clause, warranty or
endorsement shall be attached to, printed or stamped upon such policy, certificate or
contract unless the form of such application, rider, clause, warranty or endorsement
has been approved by the Commissioner.
Section 233. In the case of individual life or endowment insurance, the policy shall
contain in substance the following conditions:
(a) A provision that the policyholder is entitled to a grace period either of
thirty (30) days or of one (1) month within which the payment of any premium
after the first may be made, subject at the option of the insurer to an interest
charge not in excess of six percent (6%) per annum for the number of days of
grace elapsing before the payment of the premium, during which period of
grace the policy shall continue in full force, but in case the policy becomes a
COMMERCIAL LAW 2018
claim during the said period of grace before the overdue premium is paid, the
amount of such premium with interest may be deducted from the amount
payable under the policy in settlement;
(b) A provision that the policy shall be incontestable after it shall have been
in force during the lifetime of the insured for a period of two (2) years from
its date of issue as shown in the policy, or date of approval of last
reinstatement, except for nonpayment of premium and except for violation
of the conditions of the policy relating to military or naval service in time of
war;
(c) A provision that the policy shall constitute the entire contract between
the parties, but if the company desires to make the application a part of the
contract it may do so provided a copy of such application shall be indorsed
upon or attached to the policy when issued, and in such case the policy shall
contain a provision that the policy and the application therefor shall
constitute the entire contract between the parties;
(d) A provision that if the age of the insured is considered in determining the
premium and the benefits accruing under the policy, and the age of the
insured has been misstated, the amount payable under the policy shall be
such as the premium would have purchased at the correct age;
(e) If the policy is participating, a provision that the company shall
periodically ascertain and apportion any divisible surplus accruing on the
policy under conditions specified therein;
(f) A provision specifying the options to which the policyholder is entitled to
in the event of default in a premium payment after three (3) full annual
premiums shall have been paid. Such option shall consist of:
(1) A cash surrender value payable upon surrender of the policy
which shall not be less than the reserve on the policy, the basis of
which shall be indicated, for the then current policy year and any
Nigel Carmelo Q. Reago 62

dividend additions thereto, reduced by a surrender charge which
shall not be more than one-fifth (1/5) of the entire reserve or two and
one-half percent (2½%) of the amount insured and any dividend
additions thereto; and
(2) One or more paid-up benefits on a plan or plans specified in the
policy of such value as may be purchased by the cash surrender value.
(g) A provision that at any time after a cash surrender value is available under
the policy and while the policy is in force, the company will advance, on
proper assignment or pledge of the policy and on sole security thereof, a sum
equal to, or at the option of the owner of the policy, less than the cash
surrender value on the policy, at a specified rate of interest, not more than
the maximum allowed by law, to be determined by the company from time
to time, but not more often than once a year, subject to the approval of the
Commissioner; and that the company will deduct from such loan value any
existing indebtedness on the policy and any unpaid balance of the premium
for the current policy year, and may collect interest in advance on the loan to
the end of the current policy year, which provision may further provide that
such loan may be deferred for not exceeding six (6) months after the
application therefor is made;
(h) A table showing in figures cash surrender values and paid-up options
available under the policy each year upon default in premium payments,
during at least twenty (20) years of the policy beginning with the year in which
the values and options first become available, together with a provision that
in the event of the failure of the policyholder to elect one of the said options
within the time specified in the policy, one of said options shall automatically
take effect and no policyholder shall ever forfeit his right to same by reason
of his failure to so elect;
(i) In case the proceeds of a policy are payable in installments or as an annuity,
a table showing the minimum amounts of the installments or annuity
payments;
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(j) A provision that the policyholder shall be entitled to have the policy
reinstated at any time within three (3) years from the date of default of
premium payment unless the cash surrender value has been duly paid, or the
extension period has expired, upon production of evidence of insurability
satisfactory to the company and upon payment of all overdue premiums and
any indebtedness to the company upon said policy, with interest rate not
exceeding that which would have been applicable to said premiums and
indebtedness in the policy years prior to reinstatement.
Any of the foregoing provisions or portions thereof not applicable to single premium
or term policies shall to that extent not be incorporated therein; and any such policy
may be issued and delivered in the Philippines which in the opinion of the
Commissioner contains provisions on any one or more of the foregoing requirements
more favorable to the policyholder than hereinbefore required.
This section shall not apply to policies of group life or industrial life insurance.
Section 234. No policy of group life insurance shall be issued and delivered in the
Philippines unless it contains in substance the following provisions, or provisions
which in the opinion of the Commissioner are more favorable to the persons insured,
or at least as favorable to the persons insured and more favorable to the policyholders:
(a) A provision that the policyholder is entitled to a grace period of either
thirty (30) days or of one (1) month for the payment of any premium due after
the first, during which grace period the death benefit coverage shall continue
in force, unless the policyholder shall have given the insurer written notice of
discontinuance in advance of the date of discontinuance and in accordance
with the terms of the policy. The policy may provide that the policyholder
shall be liable for the payment of a pro rata premium for the time the policy
is in force during such grace period;
(b) A provision that the validity of the policy shall not be contested, except
for nonpayment of premiums after it has been in force for two (2) years from
its date of issue; and that no statement made by any insured under the policy
Nigel Carmelo Q. Reago 63

relating to his insurability shall be used in contesting the validity of the
insurance with respect to which such statement was made after such
insurance has been in force prior to the contest for a period of two (2) years
during such person’s lifetime nor unless contained in a written instrument
signed by him;
(c) A provision that a copy of the application, if any, of the policyholder shall
be attached to the policy when issued, that all statements made by the
policyholder or by persons insured shall be deemed representations and not
warranties, and that no statement made by any insured shall be used in any
contest unless a copy of the instrument containing the statement is or has
been furnished to such person or to his beneficiary;
(d) A provision setting forth the conditions, if any, under which the insurer
reserves the right to require a person eligible for insurance to furnish
evidence of individual insurability satisfactory to the insurer as a condition to
part or all of his coverage;
(e) A provision specifying an equitable adjustment of premiums or of benefits
or of both to be made in the event that the age of a person insured has been
misstated, such provision to contain a clear statement of the method of
adjustment to be used;
(f) A provision that any sum becoming due by reason of death of the person
insured shall be payable to the beneficiary designated by the insured, subject
to the provisions of the policy in the event that there is no designated
beneficiary, as to all or any part of such sum, living at the death of the insured,
and subject to any right reserved by the insurer in the policy and set forth in
the certificate to pay at its option a part of such sum not exceeding Five
hundred pesos (P500.00) to any person appearing to the insurer to be
equitably entitled thereto by reason of having incurred funeral or other
expenses incident to the last illness or, death of the person insured;
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(g) A provision that the insurer will issue to the policyholder for delivery to
each person insured a statement as to the insurance protection to which he
is entitled, to whom the insurance benefits are payable, and the rights set
forth in paragraphs (h), (i) and (j) following;
(h) A provision that if the insurance, or any portion of it, on a person covered
under the policy ceases because of termination of employment or of
membership in the class or classes eligible for coverage under the policy, such
person shall be entitled to have issued to him by the insurer, without
evidence of insurability, an individual policy of life insurance without
disability or other supplementary benefits, provided application for the
individual policy and payment of the first premium to the insurer shall be
made within thirty (30) days after such termination, and provided further that:
(1) The individual policy shall be on any one of the forms, except term
insurance, then customarily issued by the insurer at the age and for
an amount not in excess of the coverage under the group policy; and
(2) The premium on the individual policy shall be at the insurer’s then
customary rate applicable to the form and amount of the individual
policy, to the class of risk to which such person then belongs, and to
his age attained on the effective date of the individual policy.
(i) A provision that if the group policy terminates or is amended so as to
terminate the insurance of any class of insured persons, every person insured
thereunder at the date of such termination whose insurance terminates and
who has been so insured for five (5) years prior to such termination date shall
be entitled to have issued to him by the insurer an individual policy of life
insurance subject to the same limitations as set forth in paragraph (h), except
that the group policy may provide that the amount of such individual policy
shall not exceed the amount of the person’s life insurance protection ceasing;
(j) A provision that if a person insured under the group policy dies during the
thirty (30)-day period within which he would have been entitled to an
Nigel Carmelo Q. Reago 64

individual policy issued to him in accordance with paragraphs (h) and (i) above
and before such individual policy shall have become effective, the amount of
life insurance which he would have been entitled to have issued to him as an
individual policy shall be payable as a claim under the group policy whether
or not application for the individual policy or the payment of the first
premium has been made;
(k) In the case of a policy issued to a creditor to insure debtors of such
creditor, a provision that the insurer will furnish to the policyholder for
delivery to each debtor insured under the policy a form which will contain a
statement that the life of the debtor is insured under the policy and that any
death benefit paid thereunder by reason of his death shall be applied to
reduce or extinguish indebtedness.
The provisions of paragraphs (f) to (j) shall not apply to policies issued to a creditor
to insure his debtors. If a group life policy is on a plan of insurance other than term, it
shall contain a non-forfeiture provision or provisions which in the opinion of the
Commissioner is or are equitable to the insured or the policyholder: Provided, That
nothing herein contained shall be so construed as to require group life policies to
contain the same non-forfeiture provisions as are required of individual life policies.
Section 235. The term industrial life insurance as used in this Code shall mean that
form of life insurance under which the premiums are payable either monthly or
oftener, if the face amount of insurance provided in any policy is not more than five
hundred times that of the current statutory minimum daily wage in the City of Manila,
and if the words industrial policy are printed upon the policy as part of the descriptive
matter.
An industrial life policy shall not lapse for nonpayment of premium if such
nonpayment was due to the failure of the company to send its representative or agent
to the insured at the residence of the insured or at some other place indicated by him
for the purpose of collecting such premium: Provided, That the provisions of this
paragraph shall not apply when the premium on the policy remains unpaid for a
period of three (3) months or twelve (12) weeks after the grace period has expired.
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Section 236. In the case of industrial life insurance, the policy shall contain in
substance the following provisions:
(a) A provision that the insured is entitled to a grace period of four (4) weeks
within which the payment of any premium after the first may be made, except
that where premiums are payable monthly, the period of grace shall be either
one (1) month or thirty (30) days; and that during the period of grace, the
policy shall continue in full force, but if during such grace period the policy
becomes a claim, then any overdue and unpaid premiums may be deducted
from any amount payable under the policy in settlement;
(b) A provision that the policy shall be incontestable after it has been in force
during the lifetime of the insured for a specified period, not more than two
(2) years from its date of issue, except for nonpayment of premiums and
except for violation of the conditions of the policy relating to naval or military
service, or services auxiliary thereto, and except as to provisions relating to
benefits in the event of disability as defined in the policy, and those granting
additional insurance specifically against death by accident or by accidental
means, or to additional insurance against loss of, or loss of use of, specific
members of the body;
(c) A provision that the policy shall constitute the entire contract between
the parties, or if a copy of the application is endorsed upon and attached to
the policy when issued, a provision that the policy and the application
therefor shall constitute the entire contract between the parties, and in the
latter case, a provision that all statements made by the insured shall, in the
absence of fraud, be deemed representations and not warranties;
(d) A provision that if the age of the person insured, or the age of any person,
considered in determining the premium, or the benefits accruing under the
policy, has been misstated, any amount payable or benefit accruing under the
policy shall be such as the premium paid would have purchased at the correct
age;
Nigel Carmelo Q. Reago 65

(e) A provision that if the policy is a participating policy, the company shall
periodically ascertain and apportion any divisible surplus accruing on the
policy under the conditions specified therein;
(f) A provision that in the event of default in premium payments after three
(3) full years’ premiums have been paid, the policy shall be converted into a
stipulated form of insurance, and that in the event of default in premium
payments after five (5) full years’ premiums have been paid, a specified cash
surrender value shall be available, in lieu of the stipulated form of insurance,
at the option of the policyholder. The net value of such stipulated form of
insurance and the amount of such cash value shall not be less than the
reserve on the policy and dividend additions thereto, if any, at the end of the
last completed policy year for which premiums shall have been paid (the
policy to specify the mortality table, rate of interest and method of valuation
adopted to compute such reserve), exclusive of any reserve on disability
benefits and accidental death benefits, less an amount not to exceed two and
one-half percent (2½%) of the maximum amount insured by the policy and
dividend additions thereto, if any, when the issue age is under ten (10) years,
and less an amount not to exceed two and one-half percent (2½%) of the
current amount insured by the policy and dividend additions thereto, if any,
if the issue age is ten (10) years or older, and less any existing indebtedness
to the company on or secured by the policy;
(g) A provision that the policy may be surrendered to the company at its
home office within a period of not less than sixty (60) days after the due date
of a premium in default for the specified cash value: Provided, That the
insurer may defer payment for not more than six (6) months after the
application therefor is made;
(h) A table that shows in figures the nonforfeiture benefits available under
the policy every year upon default in payment of premiums during at least
the first twenty (20) years of the policy, such table to begin with the year in
which such values become available, and a provision that the company will
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furnish upon request an extension of such table beyond the year shown in
the policy;
(i) A provision that specifies which one of the stipulated forms of insurance
provided for under the provision of paragraph (f) of this section shall take
effect in the event of the insured’s failure, within sixty (60) days from the due
date of the premium in default, to notify the insurer in writing as to which
one of such forms he has selected;
(j) A provision that the policy may be reinstated at any time within two (2)
years from the due date of the premium in default unless the cash surrender
value has been paid or the period of extended term insurance expired, upon
production of evidence of insurability satisfactory to the company and
payment of arrears of premiums with interest at a rate not exceeding six
percent (6%) per annum payable annually;
(k) A provision that when a policy shall become a claim by death of the
insured, settlement shall be made upon receipt of due proof of death, or not
later than two (2) months after receipt of such proof;
(l) A title on the face and on the back of the policy correctly describing its
form;
(m) A space on the front or the back of the policy for the name of the
beneficiary designated by the insured with a reservation of the insured’s right
to designate or change the beneficiary after the issuance of the policy. The
policy may also provide that no designation or change of beneficiary shall be
binding on the insurer until endorsed on the policy by the insurer, and that
the insurer may refuse to endorse the name of any proposed beneficiary who
does not appear to the insurer to have an insurable interest in the life of the
insured. Such policy may also contain a provision that if the beneficiary
designated in the policy does not surrender the policy with due proof of death
within the period stated in the policy, which shall not be less than thirty (30)
days after the death of the insured, or if the beneficiary is the estate of the
Nigel Carmelo Q. Reago 66

insured, or is a minor, or dies before the insured, or is not legally competent
to give valid release, then the insurer may make any payment thereunder to
the executor or administrator of the insured, or to any of the insured’s
relatives by blood or legal adoption or connections by marriage or to any
person appearing to the insurer to be equitably entitled thereto by reason of
having incurred expense for the maintenance, medical attention or burial of
the insured; and
(n) A provision that when an industrial life insurance policy is issued providing
for accidental or health benefits, or both, in addition to life insurance, the
foregoing provisions shall apply only to the life insurance portion of the policy.
Any of the foregoing provisions or portions thereof not applicable to nonparticipating
or term policies shall to that extent not be incorporated therein. The foregoing
provisions shall not apply to policies issued or granted pursuant to the nonforfeiture
provisions prescribed in provisions of paragraphs (f) and (i) of this section, nor shall
provisions of paragraphs (f), (g), (h), and (i) hereof be required in term insurance of
twenty (20) years or less but such term policies shall specify the mortality table, rate
of interest, and method of computing reserves.
Section 237. No policy of industrial life insurance shall be issued or delivered in the
Philippines if it contains any of the following provisions:
(a) A provision that gives the insurer the right to declare the policy void
because the insured has had any disease or ailment, whether specified or not,
or because the insured has received institutional, hospital, medical or surgical
treatment or attention, except a provision which gives the insurer the right
to declare the policy void if the insured has, within two (2) years prior to the
issuance of the policy, received institutional, hospital, medical or surgical
treatment or attention and if the insured or the claimant under the policy fails
to show that the condition occasioning such treatment or attention was not
of a serious nature or was not material to the risk;
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(b) A provision that gives the insurer the right to declare the policy void
because the insured has been rejected for insurance, unless such right be
conditioned upon a showing by the insurer that knowledge of such rejection
would have led to a refusal by the insurer to make such contract;
(c) A provision that allows the company to pay the proceeds of the policy at
the death of the insured to any person other than the named beneficiary,
except in accordance with a standard provision as specified under the
provisions of paragraph (m) of the preceding section;
(d) A provision that limits the time within which any action at law or in equity
may be commenced to less than six (6) years after the cause of action shall
accrue; and
(e) A provision that specifies any mode of settlement at maturity of less value
than the amount insured by the policy plus dividend additions, if any, less any
indebtedness to the company on the policy and less any premium that may
by the terms of the policy be deducted, payments to be made in accordance
with the terms of the policy.
Nothing contained in this section nor in the provision of paragraph (b) of the
preceding section, relating to incontestability, shall be construed as prohibiting the
life insurance company from placing in its industrial life policies provisions limiting its
liability with respect to:
(1) Death resulting from aviation other than as a fare-paying passenger on a
regularly scheduled route between definitely established airports; and
(2) Military or naval service: Provided, That if the liability of the company is
limited as herein provided, such liability shall in no event be fixed at an
amount less than the reserve on the policy (excluding the reserve for any
additional benefits in the event of death by accident or accidental means or
for benefits in the event of any type of disability), less any indebtedness on
or secured by such policy; nor shall any provision of this section apply to any
Nigel Carmelo Q. Reago 67

provision in an industrial life insurance policy for additional benefits in the
event of death by accident or accidental means.
TITLE 10
VARIABLE CONTRACTS
Section 238. (a) No insurance company authorized to transact business in the
Philippines shall issue, deliver, sell or use any variable contract in the Philippines,
unless and until such company shall have satisfied the Commissioner that its financial
and general condition and its methods of operations, including the issue and sale of
variable contracts, are not and will not be hazardous to the public or to its policy and
contract owners. No foreign insurance company shall be authorized to issue, deliver
or sell any variable contract in the Philippines, unless it is likewise authorized to do so
by the laws of its domicile.
(b) The term variable contract shall mean any policy or contract on either a group or
on an individual basis issued by an insurance company providing for benefits or other
contractual payments or values thereunder to vary so as to reflect investment results
of any segregated portfolio of investments or of a designated separate account in
which amounts received in connection with such contracts shall have been placed and
accounted for separately and apart from other investments and accounts. This
contract may also provide benefits or values incidental thereto payable in fixed or
variable amounts, or both. It shall not be deemed to be a security or securities as
defined in The Securities Act, as amended, or in the Investment Company Act, as
amended, nor subject to regulations under said Acts.
(c) In determining the qualifications of a company requesting authority to issue,
deliver, sell or use variable contracts, the Commissioner shall always consider the
following:
(1) The history, financial and general condition of the company: Provided,
That such company, if a foreign company, must have deposited with the
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Commissioner for the benefit and security of its variable contract owners in
the Philippines, securities satisfactory to the Commissioner consisting of
bonds of the Government of the Philippines or its instrumentalities with an
actual market value of Two million pesos (P2,000,000.00);
(2) The character, responsibility and fitness of the officers and directors of
the company; and
(3) The law and regulation under which the company is authorized in the
state of domicile to issue such contracts.
(d) If after notice and hearing, the Commissioner shall find that the company is
qualified to issue, deliver, sell or use variable contracts in accordance with this Code
and the regulations and rules issued thereunder, the corresponding order of
authorization shall be issued. Any decision or order denying authority to issue, deliver,
sell or use variable contracts shall clearly and distinctly state the reasons and grounds
on which it is based.
Section 239. Any insurance company issuing variable contracts pursuant to this Code
may in its discretion issue contracts providing a combination of fixed amount and
variable amount of benefits and for option lump-sum payment of benefits.
Section 240. Every variable contract form delivered or issued for delivery in the
Philippines, and every certified form evidencing variable benefits issued pursuant to
any such contract on a group basis, and the application, rider and endorsement forms
applicable thereto and used in connection therewith, shall be subject to the prior
approval of the Commissioner.
Section 241. Illustration of benefits payable under any variable contract shall not
include or involve projections of past investment experience into the future and shall
conform with the rules and regulations promulgated by the Commissioner.
Section 242. Variable contracts may be issued on the industrial life basis, provided
that the pertinent provisions of this Code and of the rules and regulations of the
Nigel Carmelo Q. Reago 68

Commissioner governing variable contracts are complied with in connection with
such contracts.
Section 243. Every life insurance company authorized under the provisions of this
Code to issue, deliver, sell or use variable contracts shall, in connection with the same,
establish one or more separate accounts to be known as separate variable accounts.
All amounts received by the company in connection with any such contracts which
are required by the terms thereof, to be allocated or applied to one or more
designated separate variable accounts shall be placed in such designated account or
accounts. The assets and liabilities of each such separate variable account shall at all
times be clearly identifiable and distinguishable from the assets and liabilities in all
other accounts of the company. Notwithstanding any provision of law to the contrary,
the assets held in any such separate variable account shall not be chargeable with
liabilities arising out of any other business the company may conduct but shall be held
and applied exclusively for the benefit of the owners or beneficiaries of the variable
contracts applicable thereto. In the event of the insolvency of the company, the assets
of each such separate variable account shall be applied to the contractual claims of
the owners or beneficiaries of the variable contracts applicable thereto. Except as
otherwise specifically provided by the contract, no sale, exchange or other transfer of
assets may be made by a company, between any of its separate accounts or between
any other investment account and one or more of its separate accounts, unless in the
case of a transfer into a separate account, such transfer is made solely to establish
the account or to support the operation of the contracts with respect to the separate
account to which the transfer is made, or in case of a transfer from a separate account,
such transfer would not cause the remaining assets of the account to become less
than the reserves and other contract liabilities with respect to such separate account.
Such transfer, whether into or from a separate account, shall be made by a transfer
of cash, or by a transfer of securities having a valuation which could be readily
determined in the market place: Provided, That such transfer of securities is approved
by the Commissioner. The Commissioner may authorize other transfers among such
accounts, if, in his opinion, such transfers would not be inequitable. All amounts and
assets allocated to any such separate variable account shall be owned by the company
and with respect to the same the company shall not be nor hold itself out to be a
trustee.
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Section 244. Any insurance company which has established one or more separate
variable accounts pursuant to the preceding section may invest and reinvest all or any
part of the assets allocated to any such account in the securities and investments
authorized by Sections 204, 206, 207 and 208 for any of the funds of an insurance
company in such amount or amounts as may be approved by the Commissioner. In
addition thereto, such company may also invest in common stocks or other equities
which are listed on or admitted to trading in a securities exchange located in the
Philippines, or which are publicly held and traded in the over-the-counter market as
defined by the Commissioner and as to which market quotations have been
available: Provided, however, That no such company shall invest in excess of ten
percent (10%) of the assets of any such separate variable accounts in any one
corporation issuing such common stock. The assets and investments of such separate
variable accounts shall not be taken into account in applying the quantitative
investment limitations applicable to other investments of the company. In the
purchase of common capital stock or other equities, the insurer shall designate to the
broker, or to the seller if the purchase is not made through a broker, the specific
variable account for which the investment is made.
Section 245. Assets allocated to any separate variable account shall be valued at their
market value on the date of any valuation, or if there is no readily available market
value then in accordance with the terms of the variable contract applicable to such
assets, or if there are no such contract terms then in such manner as may be
prescribed by the rules and regulations of the Commissioner.
Section 246. The reserve liability for variable contracts shall be established in
accordance with actuarial procedures that recognize the variable nature of the
benefits provided, and shall be approved by the Commissioner.
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TITLE 11
CLAIMS SETTLEMENT
Section 247. (a) No insurance company doing business in the Philippines shall refuse,
without just cause, to pay or settle claims arising under coverages provided by its
policies, nor shall any such company engage in unfair claim settlement practices. Any
of the following acts by an insurance company, if committed without just cause and
performed with such frequency as to indicate a general business practice, shall
constitute unfair claim settlement practices:
(1) Knowingly misrepresenting to claimants pertinent facts or policy
provisions relating to coverage at issue;
(2) Failing to acknowledge with reasonable promptness pertinent
communications with respect to claims arising under its policies;
(3) Failing to adopt and implement reasonable standards for the prompt
investigation of claims arising under its policies;
(4) Not attempting in good faith to effectuate prompt, fair and equitable
settlement of claims submitted in which liability has become reasonably clear;
or
(5) Compelling policyholders to institute suits to recover amounts due under
its policies by offering without justifiable reason substantially less than the
amounts ultimately recovered in suits brought by them.
(b) Evidence as to numbers and types of valid and justifiable complaints to the
Commissioner against an insurance company, and the Commissioner’s complaint
experience with other insurance companies writing similar lines of insurance shall be
admissible in evidence in an administrative or judicial proceeding brought under this
section.
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(c) If it is found, after notice and an opportunity to be heard, that an insurance
company has violated this section, each instance of noncompliance with paragraph
(a) may be treated as a separate violation of this section and shall be considered
sufficient cause for the suspension or revocation of the company’s certificate of
authority.
Section 248. The proceeds of a life insurance policy shall be paid immediately upon
maturity of the policy, unless such proceeds are made payable in installments or as
an annuity, in which case the installments, or annuities shall be paid as they become
due: Provided, however, That in the case of a policy maturing by the death of the
insured, the proceeds thereof shall be paid within sixty (60) days after presentation
of the claim and filing of the proof of death of the insured. Refusal or failure to pay
the claim within the time prescribed herein will entitle the beneficiary to collect
interest on the proceeds of the policy for the duration of the delay at the rate of twice
the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is
based on the ground that the claim is fraudulent.
The proceeds of the policy maturing by the death of the insured payable to the
beneficiary shall include the discounted value of all premiums paid in advance of their
due dates, but are not due and payable at maturity.
Section 249. The amount of any loss or damage for which an insurer may be liable,
under any policy other than life insurance policy, shall be paid within thirty (30) days
after proof of loss is received by the insurer and ascertainment of the loss or damage
is made either by agreement between the insured and the insurer or by arbitration;
but if such ascertainment is not had or made within sixty (60) days after such receipt
by the insurer of the proof of loss, then the loss or damage shall be paid within ninety
(90) days after such receipt. Refusal or failure to pay the loss or damage within the
time prescribed herein will entitle the assured to collect interest on the proceeds of
the policy for the duration of the delay at the rate of twice the ceiling prescribed by
the Monetary Board, unless such failure or refusal to pay is based on the ground that
the claim is fraudulent.
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Section 250. In case of any litigation for the enforcement of any policy or contract of
insurance, it shall be the duty of the Commissioner or the Court, as the case may be,
to make a finding as to whether the payment of the claim of the insured has been
unreasonably denied or withheld; and in the affirmative case, the insurance company
shall be adjudged to pay damages which shall consist of attorney’s fees and other
expenses incurred by the insured person by reason of such unreasonable denial or
withholding of payment plus interest of twice the ceiling prescribed by the Monetary
Board of the amount of the claim due the insured, from the date following the time
prescribed in Section 248 or in Section 249, as the case may be, until the claim is fully
satisfied: Provided, That failure to pay any such claim within the time prescribed in
said sections shall be considered prima facie evidence of unreasonable delay in
payment.
Section 251. It is unlawful to:
(a) Present or cause to be presented any fraudulent claim for the payment of
a loss under a contract of insurance; and
(b) Fraudulently prepare, make or subscribe any writing with intent to
present or use the same, or to allow it to be presented in support of any such
claim. Any person who violates this section shall be punished by a fine not
exceeding twice the amount claimed or imprisonment of two (2) years, or
both, at the discretion of the court.
TITLE 12
EXAMINATION OF COMPANIES
Section 252. The Commissioner shall require every insurance company doing
business in the Philippines to keep its books, records, accounts and vouchers in such
manner that he or his authorized representatives may readily verify its annual
statements and ascertain whether the company is solvent and has complied with the
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provisions of this Code or the circulars, instructions, rulings or decisions of the
Commissioner.
Section 253. The Commissioner shall at least once a year and whenever he considers
the public interest so demands, cause an examination to be made into the affairs,
financial condition and method of business of every insurance company authorized
to transact business in the Philippines and of any other person, firm or corporation
managing the affairs and/or property of such insurance company. Such company, as
well as such managing person, firm or corporation, shall submit to the examiner all
such books, papers and securities as he may require and such examiner shall also have
the power to examine the officers of such company under oath touching its business
and financial condition, and the authority to transact business in the Philippines of
any such company shall be suspended by the Commissioner if such examination is
refused and such company shall not thereafter be allowed to transact further
business in the Philippines until it has fully complied with the provisions of this section.
Government-owned or -controlled corporations or entities engaged in social or
private insurance shall similarly be subject to such examination by the Commissioner
unless their respective charters otherwise provide.
TITLE 13
SUSPENSION OR REVOCATION OF AUTHORITY
Section 254. If the Commissioner is of the opinion upon examination of other
evidence that any domestic or foreign insurance company is in an unsound condition,
or that it has failed to comply with the provisions of law or regulations obligatory
upon it, or that its condition or method of business is such as to render its proceedings
hazardous to the public or to its policyholders, or that its net worth requirement, in
the case of a domestic stock company, or its available cash assets, in the case of a
domestic mutual company, or its security deposits, in the case of a foreign company,
is impaired or deficient, or that the margin of solvency required of such company is
deficient, the Commissioner is authorized to suspend or revoke all certificates of
Nigel Carmelo Q. Reago 71

authority granted to such insurance company, its officers and agents, and no new
business shall thereafter be done by such company or for such company by its agent
in the Philippines while such suspension, revocation or disability continues or until its
authority to do business is restored by the Commissioner. Before restoring such
authority, the Commissioner shall require the company concerned to submit to him
a business plan showing the company’s estimated receipts and disbursements, as well
as the basis therefor, for the next succeeding three (3) years.
TITLE 14
APPOINTMENT OF CONSERVATOR
Section 255. If at any time before, or after, the suspension or revocation of the
certificate of authority of an insurance company as provided in the preceding title,
the Commissioner finds that such company is in a state of continuing inability or
unwillingness to maintain a condition of solvency or liquidity deemed adequate to
protect the interest of policyholders and creditors, he may appoint a conservator to
take charge of the assets, liabilities, and the management of such company, collect
all moneys and debts due to said company and exercise all powers necessary to
preserve the assets of said company, reorganize the management thereof, and
restore its viability. The said conservator shall have the power to overrule or revoke
the actions of the previous management and board of directors of the said company,
any provision of law, or of the articles of incorporation or bylaws of the company, to
the contrary notwithstanding, and such other powers as the Commissioner shall
deem necessary.
The conservator may be another insurance company doing business in the
Philippines, any officer or officers of such company, or any other competent and
qualified person, firm or corporation. The remuneration of the conservator and other
expenses attendant to the conservation shall be borne by the insurance company
concerned.
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The conservator shall not be subject to any action, claim or demand by, or liability to,
any person in respect of anything done or omitted to be done in good faith in the
exercise, or in connection with the exercise, of the powers conferred on the
conservator.
The conservator appointed shall report and be responsible to the Commissioner until
such time as the Commissioner is satisfied that the insurance company can continue
to operate on its own and the conservatorship shall likewise be terminated should
the Commissioner, on the basis of the report of the conservator or of his own findings,
determine that the continuance in business of the insurance company would be
hazardous to policyholders and creditors, in which case the provisions of Title 15 shall
apply.
No insurance company, life or non-life, or any professional reinsurer, ordered to be
liquidated by the Commissioner under the provisions hereunder may be rehabilitated
or authorized to transact anew, insurance or reinsurance business, as the case may
be.
TITLE 15
PROCEEDINGS UPON INSOLVENCY
Section 256. Whenever, upon examination or other evidence, it shall be disclosed
that the condition of any insurance company doing business in the Philippines is one
of insolvency, or that its continuance in business would be hazardous to its
policyholders and creditors, the Commissioner shall forthwith order the company to
cease and desist from transacting business in the Philippines and shall designate a
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 benefit of
its policyholders and creditors, and exercise all the powers necessary for these
purposes including, but not limited to, bringing suits and foreclosing mortgages in the
name of the insurance company.
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The Commissioner shall thereupon determine within ninety (90) days whether the
insurance company may be reorganized or otherwise placed in such condition so that
it may be permitted to resume business with safety to its policyholders and creditors
and shall prescribe the conditions under which such resumption of business shall take
place as well as the time for fulfillment of such conditions. In such case, the expenses
and fees in the collection and administration of the insurance company shall be
determined by the Commissioner and shall be paid out of the assets of such company.
If the Commissioner shall determine and confirm within the said period that the
insurance company is insolvent, as defined hereunder, or cannot resume business
with safety to its policyholders and creditors, he shall, if the public interest requires,
order its liquidation, indicate the manner of its liquidation and approve a liquidation
plan and implement it immediately. The Commissioner shall designate a competent
and qualified person as liquidator who shall take over the functions of the receiver
previously designated and, with all convenient speed, reinsure all its outstanding
policies, convert the assets of the insurance company to cash, or sell, assign or
otherwise dispose of the same to the policyholders, creditors and other parties for
the purpose of settling the liabilities or paying the debts of such company and he may,
in the name of the company, institute such actions as may be necessary in the
appropriate court to collect and recover accounts and assets of the insurance
company, and to do such other acts as may be necessary to complete the liquidation
as ordered by the Commissioner.
The provisions of any law to the contrary notwithstanding, the actions of the
Commissioner under this section shall be final and executory, and can be set aside by
the court upon petition by the company and only if there is convincing proof that the
action is plainly arbitrary and made in bad faith. The Commissioner, through the
Solicitor General, shall then file the corresponding answer reciting the proceeding
taken and praying the assistance of the court in the liquidation of the company. No
restraining order or injunction shall be issued by the court enjoining the
Commissioner from implementing his actions under this section, unless there is
convincing proof that the action of the Commissioner 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 Commissioner in an
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amount to be fixed by the court. The restraining order or injunction shall be refused
or, if granted, shall be dissolved upon filing by the Commissioner, if he so desires, of
a bond in an amount twice the amount of the bond of the petitioner or plaintiff
conditioned that it will pay the damages which the petition or plaintiff may suffer by
the refusal or the dissolution of the injunction. The provisions of Rule 58 of the New
Rules of Court insofar as they are applicable shall govern the issuance and dissolution
of the restraining order or injunction contemplated in this section.
All proceedings under this title shall be given preference in the courts. The
Commissioner shall not be required to pay any fee to any public officer for filing,
recording, or in any manner authenticating any paper or instrument relating to the
proceedings.
As used in this title, the term Insolvency shall mean the inability of an insurance
company to pay its lawful obligations as they fall due in the usual and ordinary course
of business as may be shown by its failure to maintain the solvency requirements
under Section 200 of this Code.
Section 257. The receiver or the liquidator, as the case may be, designated under the
provisions of this title, shall not be subject to any action, claim or demand by, or
liability to, any person in respect of anything done or omitted to be done in good faith
in the exercise, or in connection with the exercise, of the powers conferred on such
receiver or liquidator.
TITLE 16
CONSOLIDATION AND MERGER OF
INSURANCE COMPANIES
Section 258. Upon prior notice to the Commissioner, two (2) or more domestic
insurance companies, acting through their respective boards of directors, may
negotiate to merge into a single corporation which shall be one of the constituent
corporations, or consolidate into a single corporation which shall be a new
Nigel Carmelo Q. Reago 73

corporation to be formed by the consolidation. A common agreement of the
proposed merger or consolidation shall be drawn up for submission to the
stockholders or members of the constituent companies for adoption and approval in
accordance with the provisions of the respective bylaws of the constituent companies
and all existing laws that may be pertinent.
Section 259. Such agreement shall include, aside from the proposed merger or
consolidation, provisions relative to the manner of transfer of assets to and
assumption of liabilities by the absorbing or acquiring company from the absorbed or
dissolved company or companies; the proposed articles of merger or consolidation
and bylaws of the surviving or acquiring company; the corporate name to be adopted
which should not be that of any other existing company transacting similar business
or one so similar as to be calculated to mislead the public; the rights of the
stockholders or members of the absorbed or dissolved companies; date of effectivity
of the merger or consolidation; and such particulars as may be necessary to explain
and make manifest the objects and purposes of the absorbing or acquiring company.
Section 260. Upon execution of such agreement to merge or consolidate by and
between or among the boards of directors of the constituent companies, notice
thereof shall be mailed immediately to their policyholders and creditors. The
company or companies to be absorbed or dissolved shall discharge all its accrued
liabilities; otherwise, such liabilities shall, with the consent of its creditors, be
transferred to and assumed by the absorbing or acquiring company, or such liabilities
be reinsured by the latter. In the case of such policies as are subject to cancellation
by the company or companies to be absorbed or dissolved, same may be cancelled
pursuant to the terms thereof in lieu of such transfer, assumption, or reinsurance.
Section 261. Upon approval or adoption in the meetings of the stockholders or
members called for the purpose in each of the constituent companies of the
agreement to merge or consolidate, all stockholders or members dissenting or
objecting to the merger or consolidation shall be paid the value of their shares by the
company concerned in accordance with the bylaws thereof.
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Section 262. Upon approval or adoption of the agreement to merge or consolidate
by the stockholders or members of the constituent companies, the corresponding
articles of merger or of consolidation shall be duly executed by the presidents and
attested by the corporate secretaries and shall bear the corporate seals of the
merging or consolidating companies setting forth:
(a) The plan of merger or the plan of consolidation;
(b) As to each corporation, the number of shares outstanding, or in case of
mutual corporations, the number of members; and
(c) As to each corporation, the number of shares or members voted for and
against such plan, respectively. Thereafter, a certified copy of such articles of
merger or consolidation, together with a certificate of approval or adoption
by the stockholders or members of such articles of merger or consolidation,
verified by affidavits of such officers and under the seal of the constituent
companies, shall be submitted to the Commissioner, together with such other
papers or documents which the Commissioner may require, for his
consideration.
Section 263. The articles of merger or of consolidation, signed and verified as
hereinabove required, shall be filed with the Securities and Exchange Commission for
its examination and approval.
Section 264. Upon receipt from the Securities and Exchange Commission of the
certificate of merger or of consolidation, the constituent companies shall surrender
to the Commissioner their respective certificates of authority to transact insurance
business. The absorbing or surviving company in case of merger, or the newly formed
company in case of consolidation, shall immediately file with the Commissioner the
corresponding application for issuance of a new certificate of authority to transact
insurance business, together with a certified copy of the certificate of merger or of
consolidation, and of the certificate of increase of stocks, if there is any, issued by the
Securities and Exchange Commission.
Nigel Carmelo Q. Reago 74

Section 265. Nothing in this title shall be construed to enlarge the powers of the
absorbing or surviving company in case of merger, or the newly formed company in
case of consolidation, except those conferred by the certificate of merger or of
consolidation and the articles of merger or of consolidation, or the amended articles
of incorporation, as registered with the Securities and Exchange Commission.
Section 266. No director, officer, or stockholder of any such constituent companies
shall receive any fee, commission, compensation, or other valuable consideration
whatsoever, directly or indirectly, or in any manner aiding, promoting or assisting in
such merger or consolidation.
Section 267. The merger or consolidation of companies under this Code shall be
subject to the provisions of the Corporation Code, and, in those cases specified in
Republic Act No. 5455, as amended, be further subject to the provisions of said law.
TITLE 17
MUTUALIZATION OF STOCK LIFE
INSURANCE COMPANIES
Section 268. Any domestic stock life insurance company doing business in the
Philippines may convert itself into an incorporated mutual life insurer. To that end it
may provide and carry out a plan for the acquisition of the outstanding shares of its
capital stock for the benefit of its policyholders, or any class or classes of its
policyholders, by complying with the requirements of this chapter.
Section 269. Such plan shall include appropriate proceedings for amending the
insurer’s articles of incorporation to give effect to the acquisition, by said insurer, for
the benefit of its policyholders or any class or classes thereof, of the outstanding
shares of its capital stock and the conversion of the insurer from a stock corporation
into a nonstock corporation for the benefit of its members. The members of such
nonstock corporation shall be the policyholders from time to time of the class or
classes for whose benefit the stock of the insurer was acquired, and the policyholders
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of such other class or classes as may be specified in such corporation’s articles of
incorporation as they may be amended from time to time. Such plan shall be:
(a) Adopted by a vote of a majority of the directors;
(b) Approved by the vote of the holders of at least a majority of the
outstanding shares at a special meeting of shareholders called for that
purpose, or by the written consent of such shareholders;
(c) Submitted to the Commissioner and approved by him in writing;
(d) Approved by a majority vote of all the policyholders of the class or classes
for whose benefit the stock is to be acquired voting at an election by the
policyholders called for that purpose, subject to the provisions of Section 271.
The terms policyholder or policyholders as used in this chapter shall be
deemed to mean the person or persons insured under an individual policy of
life insurance, or of health and accident insurance, or of any combination of
life, health and accident insurance. They shall also include the person or
persons to whom any annuity or pure endowment is presently or
prospectively payable by the terms of an individual annuity or pure
endowment contract, except where the policy or contract declares some
other person to be the owner or holder thereof, in which case such other
person shall be deemed policyholder. In any case where a policy or contract
names two or more persons as joint insured, payees, owners or holders
thereof, the persons so named shall be deemed collectively to be one (1)
policyholder for the purpose of this chapter. In any case where a policy or
contract shall have been assigned by assignment absolute on its face to an
assignee other than the insurer, and such assignment shall have been filed at
the principal office of the insurer at least thirty (30) days prior to the date of
any election or meeting referred to in this chapter, then such assignee shall
be deemed at such election or meeting to be the policyholder. For the
purpose of this chapter the terms policyholder and policyholders include the
employer to whom, or a president, secretary or other executive officer of any
corporation or association to which a master group policy has been issued,
Nigel Carmelo Q. Reago 75

but exclude the holders of certificates or policies issued under or in
connection with a master group policy. Beneficiaries under unmatured
contracts shall not as such be deemed to be policyholders; and
(e) Filed with the Commissioner after having been approved as provided in
this section.
Section 270. The Commissioner shall examine the plan submitted to him under the
provisions of subparagraph (c) of Section 269. He shall not approve such plan unless
in his opinion the rights and interests of the insurer, its policyholders and
shareholders are protected nor unless he is satisfied that the plan will be fair and
equitable in its operation.
Section 271. The election prescribed by subparagraph (d) of Section 269 shall be
called by the board of directors or the president, and every policyholder of the class
or classes for whose benefit the stock is to be acquired, whose insurance shall have
been in force for at least one (1) year prior to such election shall have one vote,
regardless of the number of policies or amount of insurance he holds, and regardless
of whether such policies are policies of life insurance or policies of health and accident
insurance or annuity contracts. Notice of such election shall be given to policyholders
entitled to vote by mail from the principal office of such insurer at least thirty (30)
days prior to the date set for such election, in a sealed envelope, postage prepaid,
addressed to each such policyholder at his last known address.
Voting shall be by one of the following methods:
(a) At a meeting of such policyholders, held pursuant to such notice, by ballot
in person or by proxy.
(b) If not by the method described in the preceding subparagraph, then by
mail pursuant to a procedure and on forms to be prescribed by such plan.
Such election shall be conducted under the direction and supervision of three (3)
impartial and disinterested inspectors appointed by the insurer and approved by the
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Commissioner. In case any person appointed as inspector fails to appear at such
meeting or fails or refuses to act at such election, the vacancy, if occurring in advance
of the convening of the meeting or in advance of the opening of the mail vote, may
be filled in the manner prescribed for the appointment of inspectors and, if occurring
at the meeting or during the canvass of the mail vote, may be filled by the person
acting as chairman of said meeting or designated for that purpose in such plan. The
decision, act or certificate of a majority of the inspectors shall be effective in all
respects as the decision, act or certificate of all. The inspectors of election shall
determine the number of policyholders, the voting power of each, the policyholders
represented at the meeting or voting by mail, the existence of a quorum and the
authenticity, validity and effect of proxies. They shall receive votes, hear and
determine all challenges and questions in any way arising in connection with the right
to vote, count and tabulate all votes, determine the result, and do such other acts as
are proper to conduct the vote with fairness to all policyholders. The inspectors of
election shall, before commencing performance of their duties, subscribe to and file
with the insurer and with the Commissioner an oath that they, and each of them, will
perform their duties impartially, in good faith, to the best of their ability and as
expeditiously as is practicable. On the request of the insurer, the Commissioner, a
policyholder or his proxy, the inspectors shall make a report in writing of any
challenge or question or matter determined by them and execute a certificate of any
fact found by them. They shall also certify the result of such vote to the insurer and
to the Commissioner. Any report or certificate made by them shall be prima
facie evidence of facts stated therein. All necessary expenses incurred in connection
with such election shall be paid by the insurer. For the purpose of this section, a
quorum shall consist of five percent (5%) of the policyholders of such insurer entitled
to vote at such election.
Section 272. In carrying out any such plan, the insurer may acquire any shares of its
own stock by gift, bequest or purchase. Any shares so acquired shall, unless as a result
of such acquisition all of the shares of the insurer shall have been acquired, be
acquired in trust for the policyholders of the class or classes for whose benefit the
plan provides that the stock of the insurer shall be acquired as hereinafter provided.
Such shares shall be assigned and transferred on the books of such insurer and
approved by the Commissioner. Such trustees shall hold such stock in trust until all of
Nigel Carmelo Q. Reago 76

the outstanding shares of capital stock of such insurer have been acquired, but for
not longer than thirty (30) years with such extensions of not more than five (5) years
each as may be granted by the Commissioner. Such extensions may be granted by the
Commissioner if the plan so provides and if in his opinion the plan of acquisition of all
of such stock can be completed within a reasonable period. Such trustees shall vote
such stock at all corporate meetings at which stockholders have the right to vote.
When all the outstanding shares of capital stock of such insurer have been acquired,
all said shares shall be cancelled, the certificate of amendment of the insurer’s articles
of incorporation giving effect thereto shall be filed in accordance with the provisions
of the Corporation Code, and the insurer shall become a nonstock corporation for the
profit of its members and such trust shall thereupon terminate. Thereafter such
corporation shall be conducted for the mutual benefit, ratably, of its policyholders of
the class or classes for whose benefit the stock was acquired and shall have power to
issue non-assessable policies on a reserve basis subject to all provisions of law
applicable to incorporated life insurers issuing non-assessable policies on a reserve
basis. Policies so issued may be upon the basis of full or partial participation therein
as agreed between the insurer and the insured.
Upon the termination of any such voting trust, either in accordance with its terms or
as hereinabove provided, such plan of mutualization shall terminate, unless
theretofore completed. Upon such termination, unless the plan of mutualization
provides for the disposition of the shares acquired by the insurer under such plan or
for the disposition of the proceeds thereof, the shares held by such trustees shall be
disposed of in accordance with an order of the court of competent jurisdiction in the
judicial district in which is located the principal office of such insurer, made upon a
verified petition of the Commissioner.
Section 273. Any such plan of mutualization may provide for the creation of a voting
trust under a trust agreement for the holding and voting by three (3) or more trustees
of any portion or all of the shares of the insurer not required upon the adoption of
such plan. The voting trustees shall be named in accordance with such plan or, if no
provision is made therein for the naming of such trustees, then by the insurer. The
voting trust agreement and voting trustees shall be subject to the approval of the
Commissioner. Any or all of the trustees under such voting trust agreement may be
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the same person or persons as any or all of the trustees referred to in Section 272.
Such voting trust agreement shall provide that in the event of acquisition by the
insurer of any of the shares of stock held thereunder in accordance with the
provisions of the plan, such shares so acquired together with the voting rights thereof
shall be transferred by the trustees named under the provisions of this section to the
trustees named under the provisions of Section 272. Any voting trust agreement
created pursuant to the provisions of this section may be made irrevocable for not
longer than thirty (30) years and thereafter until the termination of the trust provided
for in Section 272. The trust created pursuant to the provisions of this section shall
terminate in any event upon termination of the trust provided for in Section 272.
Upon the termination of the trust created pursuant to the provisions of this section,
any shares held in such trust shall revert to the persons entitled thereto by law.
Section 274. Every payment for the acquisition of any shares of the capital stock of
such insurer, the purchase price of which is not fixed by such plan, shall be subject to
the prior approval of the Commissioner. Neither such plan, nor any such payment,
may be approved by the Commissioner unless he finds that the rights and interests of
the insurer, its policyholders, and shareholders are protected.
Section 275. The trustees referred to in Section 272 shall file with such insurer and
with the Commissioner a verified acceptance of their appointments and verified
declarations that they will faithfully discharge their duties as such trustees. All
dividends and other sums received by said trustees on the shares held by them, after
paying the necessary expenses of executing their trust, shall be immediately repaid
to such insurer for the benefit of all who are, or may become, policyholders of such
insurance of the class or classes for whose benefit the stock of such insurer was
acquired and entitled to participate in the profits thereof and shall be added to and
become part of the assets of such insurer.
Section 276. If, at any time within the period provided in the plan for the acquisition
of the outstanding shares of stock of the insurer, ninety percent (90%) thereof has
already been acquired and transferred to the trustees under the plan, the insurer by
a vote of a majority of the directors may determine to make an offer, with the
permission of the Commissioner and subject to such requirement as he may specify,
Nigel Carmelo Q. Reago 77

to acquire by purchase all of the shares not theretofore acquired under the plan, at a
specified price which the insurer considers to be their fair value as of the date of
making such offer.
If the offer to acquire is permitted by the Commissioner, the insurer shall make a
written offer by registered mail to each shareholder whose shares have not
theretofore been acquired under the plan or otherwise, offering to acquire all his
shares at such price if accepted in writing within thirty (30) days after the mailing of
such offer. Any shareholder accepting such offer within the time therefor shall, within
sixty (60) days after his acceptance, transfer to the insurer the certificates
representing such shares and, upon doing so, shall be paid by the insurer the amount
of such offer for his shares. Any share so acquired shall be assigned and transferred
to the trustees under the plan and held by them as shares acquired pursuant to the
plan.
Each shareholder who does not accept such offer to acquire his shares within the
time stated in such offer for acceptance thereof shall within fifteen (15) days after the
expiration of such offer apply to the Secretary of Finance for a determination of the
fair value of his shares as of the date of making such offer. The Secretary of Finance
may himself, after due notice and hearing, determine upon the evidence received the
fair value of the shares as of the date of making such offer, or appoint three (3)
impartial and disinterested persons to appraise the fair value of such shares with such
direction as he shall deem proper and necessary to expedite the proceedings. Upon
completion of the appraisal proceedings, the appraisers shall file with the Secretary
of Finance their report in writing stating the fair value of such shares as of the date of
the making of such offer and setting forth their findings in support of such statement.
The appraisers shall furnish each party to the proceedings a copy of their appraisal
report, and within ten (10) days after receipt thereof, any such party may signify his
objection, if any, to the report or move for the approval thereof. Upon the expiration
of the period of ten (10) days referred to above, the report shall be set for hearing,
after which the Secretary of Finance shall issue an order adopting, modifying or
rejecting the report, in whole or in part, or he may receive further evidence or may
recommit it with instructions. Whenever the Secretary of Finance shall determine in
any manner, as aforesaid, the fair value of such shares, he may also determine the
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terms of payment thereof by the insurer. The expenses incidental to the proceedings
including charges of the appraisers, if any, shall be paid equally by the insurer and the
shareholder.
The findings of the Secretary of Finance on all questions of fact raised at the hearing
of the application for determination of the fair value of such shares shall be conclusive
upon all parties to the proceedings. The order of the Secretary of Finance determining
the fair value of the shares and the terms of payment thereof shall have the force and
effect of a judgment which shall be appealable on any question of law. Such order
shall become final and executory fifteen (15) days after receipt thereof by the parties
to the proceedings.
Upon any such order becoming final and from which no appeal is pending, or when
the time to appeal therefrom has expired, each shareholder party to the proceedings
shall transfer his shares to the insurer and surrender to the said insurer the
certificates representing such shares and the insurer shall make payment therefor as
provided in such order. Any shares so acquired by the insurer shall be assigned and
transferred to the trustees and held by them as shares acquired pursuant to the plan.
Any shareholder who does not apply to the Secretary of Finance in the manner and
within the time hereinbefore prescribed shall be deemed to have accepted the offer
referred to above, effective, however, upon the expiration of the time hereinabove
prescribed for making such application, and such shareholder’s time for accepting
such offer shall, for that purpose only, be deemed to have been extended accordingly.
Any offer to acquire shares made pursuant to this section shall, except as otherwise
provided herein, be irrevocable until all proceedings upon such offer have been
completed or all shares have otherwise been earlier acquired by the insurer.
Any shareholder who has expressly or impliedly accepted the plan or the offer to
acquire his shares not theretofore acquired under the plan, and any shareholder who
has rejected such plan or such offer and has applied, as aforesaid, to the Secretary of
Finance for a determination of the fair value of his shares subsequent to which an
agreement has been reached or a final order issued fixing such fair value but who fails
Nigel Carmelo Q. Reago 78

to surrender his certificates for cancellation upon payment of the amount to which
he is entitled, may be compelled to do so by an order of the Secretary of Finance for
that purpose and such order may provide that upon failure of such shareholder to
surrender such certificates for cancellation, such order shall stand in lieu of such
surrender and cancellation.
Section 277. Such insurer, after mutualization, shall be a continuation of the original
insurer, and such mutualization shall not affect such insurer’s certificate of authority
nor existing suits, rights or contracts except as provided in said plan for the acquisition
of the outstanding shares of the capital stock of such insurer, approved as provided
in this chapter. Such insurer, after mutualization, shall exercise all the rights and
powers and shall perform all the duties conferred or imposed by law upon insurers
writing the classes of insurance written by it, and to protect rights and contracts
existing prior to mutualization, subject to the effect of said plan. The board of
directors of such insurer, prior to mutualization, may adopt amendments to its bylaws
to take effect upon mutualization.
Section 278. (a) An annual meeting of members shall be held at ten o’clock in the
morning of the fourth Tuesday of March of each year at the principal office of the
insurer, unless a different time or place is provided in the bylaws.
(b) Special meetings of the members, for any purpose or purposes whatsoever, may
be called at any time by the president, or by the board of directors, or by one or more
members holding not less than one-fifth (1/5) of the voting power of such insurer, or
by such other officers or persons as the bylaws authorize.
(c) Notice of all meetings of members whether annual or special shall be given in
writing to the members entitled to vote by the secretary, or an assistant secretary, or
other person charged with that duty, or if there be no such officer, or in case of his
neglect or refusal, by any director or member. At the option of the insurer such notice
may be imprinted on premium notices or receipts or on both.
A notice may be given by such insurer to any member either personally, or by mail,
or other means of written communication, charges prepaid, addressed to such
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member at his address appearing on the books of the insurer, or given by him to the
insurer for the purpose of notice. If a member gives no address, notice shall be
deemed to have been given him if sent by mail or other means of written
communication addressed to the place where the principal office of the insurer is
situated, or if published at least once in some newspaper of general circulation in the
place in which said office is located.
Notice of any meeting of members shall be sent to each member entitled thereto not
less than seven (7) days before such meeting, unless the bylaws provide otherwise.
Notice of any meeting of members shall specify the place, the day and the hour of
the meeting and the general nature of the business to be transacted.
Notice of an annual meeting to be held at the time and place specified in
subparagraph (a) of this section shall be sufficiently given if published at least once in
each of four (4) successive weeks in a newspaper of general circulation in the place in
which the principal office of such insurer is located, and if so published no other notice
of such meeting shall be required.
(d) The presence in person or by proxy of five percent (5%) of the members entitled
to vote at any meeting shall constitute a quorum for the transaction of business,
including the amendment of the articles of incorporation and/or the bylaws unless
otherwise provided by the bylaws.
(e) Each such member shall have one (1) vote at any meeting of members regardless
of the number of policies or the amount of insurance that such member holds and
regardless of whether such policies are policies of life insurance, or of health and
accident insurance, or both. Any member entitled to vote shall have the right to do
so either in person or by an agent or agents authorized by a written proxy executed
by such person or his duly authorized agent and filed with the secretary of such
insurer.
(f) The directors of the insurer in office at the time the insurer is mutualized as
provided in this chapter shall continue in office until the first annual meeting of
Nigel Carmelo Q. Reago 79

members. At the first annual meeting of members and at each annual meeting
thereafter, directors shall be elected by the members for the term or terms
authorized by this chapter.
(g) The articles of incorporation or the bylaws may provide that the directors may be
divided into two (2) or more classes whose terms of office shall expire at different
times, but no terms shall continue longer than six (6) years. In the absence of such
provisions, each director, except members of the board of directors at the time the
insurer is mutualized, shall be elected for a term of one (1) year. All directors shall
hold office for a term for which they are elected and until their successors are elected
and qualified. A director may, but need not be a member or policyholder of the
insurer of which he is acting as director. Vacancies in the board of directors may be
filled by a majority of the remaining directors, though less than a quorum, and each
director so elected shall hold office until the next annual meeting.
(h) All insurers mutualized under the provisions of this chapter shall be subject to all
other applicable provisions of this Code. The provisions of the Corporation Code shall
apply in a suppletory manner.
Section 279. The provisions of Commonwealth Act No. 83, otherwise known as the
Securities Act, as amended, shall not apply to any of the following:
(a) Shares of the capital stock of such insurer acquired as provided in Section
272 and assigned and transferred to the trustees as is provided in said section,
and the assignment and transfer of said shares as so provided;
(b) Any certificate or other instrument issued to a policyholder of such
mutualized insurer conferring or evidencing membership in such mutualized
insurer or conferring or evidencing such member’s right to participate in the
profits or share in the assets of such mutualized insurer by virtue of his
membership therein, and the issuance of such certificate or other instrument;
(c) The plan for the acquisition of the outstanding shares of the capital stock
of such insurer authorized by the provisions of this chapter, the submission
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of said plan to the Commissioner and to the policyholders of such insurer as
provided in this chapter, and the approval and carrying out of said plan or any
part thereof in accordance with the provisions of this chapter.
Section 280. A domestic mutual life insurance company doing business in the
Philippines may convert itself into an incorporated stock life insurance company by
demutualization. To that end, it may provide and carry out a plan for the conversion
by complying with the requirements of this title.
The conversion of a domestic mutual life insurance company to an incorporated stock
life insurance company shall be carried out pursuant to a conversion plan duly
approved by the Commissioner.
The Commissioner shall promulgate such rules and regulations as he or she may
deem necessary to carry out the provisions of this title, after due consultation with
representatives of the insurance industry.
All converted insurers under the provisions of this title shall be subject to all other
applicable provisions of this Code. The provisions of the Corporation Code shall apply
in a suppletory manner.
TITLE 18
WITHDRAWAL OF FOREIGN
INSURANCE COMPANIES
Section 281. A foreign insurance company doing business in the Philippines, upon
payment of the fee hereinafter prescribed and surrender to the Commissioner of its
certificate of authority, may apply to withdraw from the Philippines. Such application
shall be duly executed in writing, accompanied by evidence of due authority for such
execution, properly acknowledged.
Nigel Carmelo Q. Reago 80

Section 282. The Commissioner shall publish the application for withdrawal once a
week for three (3) consecutive weeks in a newspaper of general circulation in the
Philippines. The expenses of such publication shall be paid by the insurance company
filing such application.
Section 283. Every foreign insurance company desiring to withdraw from the
Philippines shall, prior to such withdrawal, discharge its liabilities to policyholders and
creditors in this country. In case of its policies insuring residents of the Philippines, it
shall cause the primary liabilities under such policies to be reinsured and assumed by
another insurance company authorized to transact business in the Philippines. In the
case of such policies as are subject to cancellation by the withdrawing company, it
may cancel such policies pursuant to the terms thereof in lieu of such reinsurance and
assumption of liabilities.
Section 284. The Commissioner shall cause an examination of the books and records
of the withdrawing company, and if, upon such examination, the Commissioner finds
that the insurer has no outstanding liabilities to policyholders and creditors in the
Philippines, and no policies uncancelled; or its primary liabilities have been reinsured
or assumed by another insurance company authorized to transact business in the
Philippines, as required in the preceding section, it shall cancel the withdrawing
company’s certificate of authority, if unexpired, and shall permit the insurer to
withdraw. The cost and expenses of all such examination shall be paid as prescribed
in Section 440.
Section 285. Upon the failure of such withdrawing insurance company or its agents
in the Philippines to pay the expenses of such publication within thirty (30) days after
the presentation of the bill therefor, the Commissioner shall collect such fee from the
deposit furnished in accordance with the provisions of Section 197.
Section 286. A foreign life insurance company that withdraws from the Philippines
shall be considered a servicing insurance company if its business transactions are
confined to accepting periodic premium payments from, or granting policy loans and
paying cash surrender values of outstanding policies to, or reviving lapsed policies of,
Philippine policyholders, and such other related services.
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Section 287. No company shall act as a servicing insurance company until after it shall
have obtained a special certificate of authority to act as such from the Commissioner
upon application therefor and payment by the company of the fees hereinafter
prescribed. Such certificate shall expire on the last day of December of the third year
and shall be renewed, while the company continues to service its policyholders, and
to comply with all the applicable provisions of law and regulations.
TITLE 19
PROFESSIONAL REINSURERS
Section 288. Except as otherwise provided in this Code, no partnership, association
or corporation shall transact any business in the Philippines as a professional reinsurer
until it shall have obtained a certificate of authority for that purpose from the
Commissioner upon application therefor and payment by such entity of the fees
hereinafter prescribed. As used in this Code, the term ‘professional reinsurer’ shall
mean any entity that transacts solely and exclusively reinsurance business in the
Philippines.
The Commissioner may refuse to issue a certificate of authority to any such entity
when such refusal will best promote public interest. No such certificate of authority
shall be granted to any such entity unless and until the Commissioner is satisfied by
such examination and such evidence as may be required that such entity is qualified
by the laws of the Philippines to transact business therein as a professional reinsurer.
Before issuing such certificate of authority, the Commissioner must be satisfied that
the name of the applicant is not that of any other known company transacting
insurance or reinsurance business in the Philippines, or a name so similar as to be
calculated to mislead the public.
Such certificate of authority shall expire on the last day of December the third year
following its issuance unless it is renewed.
Nigel Carmelo Q. Reago 81

Every such partnership, association, or corporation receiving such certificate of
authority shall be subject to the provisions of this Code and other related laws, and
to the jurisdiction and supervision of the Commissioner.
Section 289. Any partnership, association, or corporation authorized to transact
solely reinsurance business must have a capitalization of at least Three billion pesos
(P3,000,000,000.00) paid in cash of which at least fifty percent (50%) is paid-up and
the remaining portion thereof is contributed surplus, which in no case shall be less
than Four hundred million pesos (P400,000,000.00) or such capitalization as may be
determined by the Secretary of Finance, upon the recommendation of the
Commissioner: Provided, That twenty-five percent (25%) of the paid-up capital must
be invested in securities satisfactory to the Commissioner consisting of bonds or other
instruments of debt of the Government of the Philippines or its political subdivisions
or instrumentalities, or of government-owned or -controlled corporations and
entities, including the Bangko Sentral ng Pilipinas, and deposited with the
Commissioner, and the remaining seventy-five percent (75%) in such other securities
as may be allowed and permitted by the Commissioner, which securities shall at all
times be maintained free from any lien or encumbrance: Provided, further, That the
aforesaid capital requirement is without prejudice to other requirements to be
imposed under any risk-based capital method that may be adopted by the
Commissioner: Provided, finally, That the provisions of this chapter applicable to
insurance companies shall as far as practicable be likewise applicable to professional
reinsurers.
TITLE 20
HOLDING COMPANIES
Section 290. As used in this title, the following terms shall have the respective
meanings hereinafter set forth unless the context shall otherwise require:
(a) Person means an individual, partnership, firm, association, corporation,
trust, any similar entity or any combination of the foregoing acting in concert.
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(b) Control, including the terms controlling, controlled by and under common
control with, means the possession directly or indirectly of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities by a contract other than
a commercial contract for goods or non-management services or otherwise.
Subject to Section 292, control shall be presumed to exist if any person
directly or indirectly owns, controls or holds with the power to vote forty
percent (40%) or more of the voting securities of any other person: Provided,
That no person shall be deemed to control another person solely by reason
of his being an officer or director of such other person.
(c) Holding company means any person who directly or indirectly controls
any authorized insurer.
(d) Controlled insurer means an authorized insurer controlled directly or
indirectly by a holding company.
(e) Controlled person means any person, other than a controlled insurer, who
is controlled directly or indirectly by a holding company.
(f) Holding company system means a holding company together with its
controlled insurers and controlled persons.
Section 291. Notwithstanding paragraph (b) of Section 290, the Commissioner may
determine after notice and opportunity to be heard, that a person exercises directly
or indirectly either alone or pursuant to an agreement with one or more other
persons such a controlling influence over the management or policies of an
authorized insurer as to make it necessary or appropriate in the public interest or for
the protection of policyholders or stockholders of the insurer that the person be
deemed to control the insurer.
Section 292. The Commissioner may determine upon application that any person,
either alone or pursuant to agreement with one or more other persons, does not or
will not upon the taking of some proposed action control another person. The filing
Nigel Carmelo Q. Reago 82

of an application hereunder in good faith by any person shall relieve the applicant
from any obligation or liability imposed by this title with respect to the subject of the
application, except as contained in Section 302, until the Commissioner has acted
upon the application. Within thirty (30) days or such further period as he may
prescribe, the Commissioner may prospectively revoke or modify his determination,
after notice and opportunity to be heard, whenever in his judgment, revocation or
modification is consistent with this title.
Section 293. Notwithstanding any other provisions of this title, the following shall
not be deemed holding companies:
(a) Authorized insurers or reinsurers or their subsidiaries; and
(b) The Government of the Philippines, or any political subdivision, agency or
instrumentality thereof, or any corporation which is wholly owned directly or
indirectly by one or more of the foregoing.
The Commissioner may conditionally or unconditionally exempt any specified person
or class of persons from any of the obligations or liabilities imposed under this title, if
and to the extent he finds the exemption necessary or appropriate in the public
interest or not adverse to the interests of policyholders or stockholders and
consistent with the purposes of this title.
Section 294. (a) Every person who on the date this Code takes effect is a controlled
insurer and every person who thereafter becomes a controlled insurer, shall, within
sixty (60) days thereafter, or within thirty (30) days after becoming a controlled
insurer, whichever is later, register with the Commissioner. Such registration shall be
amended within thirty (30) days following any change in the identity of its holding
company. The Commissioner may grant one or more reasonable extensions of the
time to register.
(b) Every registrant shall furnish the Commissioner with the following information
concerning its holding company:
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(1) A copy of its charter or articles of incorporation and its bylaws;
(2) The identities of its principal shareholders, officers, directors and
controlled persons; and
(3) Information as to its capital structure and financial condition, and a
description of its principal business activities.
Section 295. Every controlled insurer shall file with the Commissioner such reports
or material as he may direct for the purpose of disclosing information concerning the
operations of persons within the holding company system which may materially
affect the operations, management or financial condition of the insurer.
Section 296. Every holding company and every controlled person within a holding
company system shall be subject to examination by order of the Commissioner if he
has cause to believe that the operations of such persons may materially affect the
operations, management or financial condition of any controlled insurer with the
system and that he is unable to obtain relevant information from such controlled
insurer. The grounds relied upon by the Commissioner for such examination shall be
stated in his order, which order shall be subject to judicial review only at the instance
of the person sought to be examined. Such examination shall be confined to matters
specified in the order. The cost of such examination shall be assessed against the
person examined and no portion thereof shall thereafter be reimbursed to it directly
or indirectly by the controlled insurer.
Section 297. The Commissioner shall keep the contents of each report made
pursuant to this title and any information obtained by him in connection therewith
confidential and shall not make the same public without the prior written consent of
the controlled insurer to which it pertains unless the Commissioner after notice and
an opportunity to be heard shall determine that the interests of policyholders,
stockholders or the public will be served by the publication thereof. In any action or
proceeding by the Commissioner against the person examined or any other person
within the same holding company system a report of such examination published by
him shall be admissible as evidence of the facts stated therein.
Nigel Carmelo Q. Reago 83

Section 298. Transactions within a holding company system to which a controlled
insurer is a party shall be subject to the following:
(a) The terms shall be fair and equitable;
(b) Charges or fees for services performed shall be reasonable;
(c) Expenses incurred and payments received shall be allocated to the insurer
on an equitable basis in conformity with customary insurance accounting
practices consistently applied.
The books, accounts and records of each party to all such transactions shall be
maintained as to clearly and accurately disclose the nature and details of the
transactions including such accounting information as is necessary to support the
reasonableness of the charges or fees to the respective parties.
Section 299. The prior written approval of the Commissioner shall be required for the
following transactions between a controlled insurer and any person in its holding
company system: sales, purchases, exchanges, loans or extensions of credit, or
investments, involving five percent (5%) or more of the insurer’s admitted assets as
of the thirty-first day of December next preceding.
Section 300. The following transactions between a controlled insurer and any person
in its holding company system may not be entered into unless the insurer has notified
the Commissioner in writing of its intention to enter into any such transaction at least
thirty (30) days prior thereto, or such shorter period as he may permit, and he has not
disapproved it within such period:
(a) Sales, purchases, exchanges, loans or extensions of credit, or investments,
involving more than one-half of one percent (½%) but less than five percent
(5%) of the insurer’s admitted assets as of the thirty-first day of December
next preceding;
(b) Reinsurance treaties or agreements;
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(c) Rendering of services on a regular or systematic basis; or
(d) Any material transaction, specified by regulation, which the
Commissioner determines may adversely affect the interest of the insurer’s
policyholders or stockholders or of the public.
Nothing herein contained shall be deemed to authorize or permit any transaction
which, in the case of a non-controlled insurer, would be otherwise contrary to law.
Section 301. The Commissioner, in reviewing transactions pursuant to Sections 299
and 300, shall consider whether the transactions comply with the standard set forth
in Section 298 and whether they may adversely affect the interests of policyholders.
This section shall not apply to transactions subject to other sections of this Code
which impose notice or approval requirements greater than those prescribed by this
title.
Section 302. (a) No person, other than an authorized insurer, shall acquire control of
any domestic insurer, whether by purchase of its securities or otherwise, except:
(1) After twenty (20) days written notice to its insurer or such shorter period
as the Commissioner may permit, of its intention to acquire control; and
(2) With the prior written approval of the Commissioner.
(b) The Commissioner shall disapprove the acquisition of control of a domestic
insurer if he determines, after notice and an opportunity to be heard, that such action
is reasonably necessary to protect the interest of the people of this country. The
following shall be the only factors to be considered by him in reaching the foregoing
determination:
(1) The financial condition of the acquiring person and the insurer;
(2) The trustworthiness of the acquiring person or any of its officers or
directors;
Nigel Carmelo Q. Reago 84

(3) A plan for the proper and effective conduct of the insurer’s operations;
(4) The source of the funds or assets for the acquisition;
(5) The fairness of any exchange of stock, assets, cash or other consideration
for the stock or assets to be received;
(6) Whether the effect of the acquisition may be substantially to lessen
competition in any line of commerce in insurance or to tend to create a
monopoly therein; and
(7) Whether the acquisition is likely to be hazardous or prejudicial to the
insurer’s policyholders or stockholders.
(c) The following conditions affecting any controlled insurer, regardless of when such
control has been acquired, are violations of this title:
(1) The controlling person or any of its officers or directors have
demonstrated untrustworthiness; and
(2) The effect of retention of control may be substantially to lessen
competition in any line of commerce in insurance in this country or to tend
to create a monopoly therein. If, after notice and an opportunity to be heard,
the Commissioner determines that any of the foregoing violations exists, he
shall reduce his findings to writing and shall issue an order based thereon and
cause the same to be served upon the insurer and upon all persons affected
thereby directing any person found to be in violation thereof to take
appropriate action to cure such violation. Upon the failure of any such person
to comply with such order, Section 306 shall become applicable.
(d) The Commissioner may require the submission of such information as he deems
necessary to determine whether any acquisition or retention of control complies with
this title and may require, as a condition of approval of such acquisition or retention
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of control, that all or any portion of such information be disclosed to the insurer’s
stockholders.
(e) Unless subject to registration under Section 294 or unless acquisition of its control
is subject to paragraphs (a) and (b) hereof, every authorized insurer shall notify the
Commissioner in writing of the identity of any person whom the insurer then knows
or has reason to believe controls or has taken any action, other than preliminary
negotiations or discussion, to acquire control of the insurer.
Section 303. (a) Notwithstanding the control of an authorized insurer by any person,
the officers and directors of the insurer shall not thereby be relieved of any obligation
or liability to which they would otherwise be subject by law, and the insurer shall be
managed so as to assure its separate operating identity consistent with this title.
(b) Nothing herein shall preclude an authorized insurer from having or sharing a
common management or cooperative or joint use of personnel, property or services
with one or more other persons under arrangements meeting the standards of
Section 298.
Section 304. To the extent that any information or material is set forth in forms or
other matter on file with any government agency or in a registration form filed with
the Commissioner by another person within the same holding company system, the
controlled insurer may comply with the registration or reporting requirements of this
title by referring in its registration form or report to such other filed matter and
attaching a copy thereof certified by the insurer as a true and complete copy, to such
registration form or report or, if such other filed matter is on file with the
Commissioner, incorporating such matter by reference.
Section 305. No holding company or controlled person shall directly or indirectly or
through another person do or cause to be done for or in behalf of the controlled
insurer any act intended to affect the insurance operations of the insurer which, if
done by the insurer, would violate any provision of this Code.
Nigel Carmelo Q. Reago 85

Section 306. In addition to any other penalty provided by law, the Commissioner may,
upon the willful failure of any person within a holding company system to comply
with this title or any regulation or order promulgated hereunder:
(a) Proceed under Title 14 or Title 15, Chapter III of this Code with respect to
insurer within the holding company system; or
(b) Revoke or refuse to renew the authority to do business in this country of
an insurer within the holding company system or refuse to issue such
authority to any other insurer in the system; or
(c) Direct that, in addition to any other penalty provided by law, such person
forfeit to the people of this country a sum not less than Five thousand pesos
(P5,000.00) for a first violation and Twenty-five thousand pesos (P25,000.00)
for any subsequent violation. An additional sum not less than Twenty-five
thousand pesos (P25,000.00) shall be imposed for each month during which
any such violation shall continue.
CHAPTER IV
SALES AGENCIES AND TECHNICAL SERVICES
TITLE 1
INSURANCE AGENTS AND INSURANCE BROKERS
Section 307. No insurance company doing business in the Philippines, nor any agent
thereof, shall pay any commission or other compensation to any person for services
in obtaining insurance, unless such person shall have first procured from the
Commissioner a license to act as an insurance agent of such company or as an
insurance broker as hereinafter provided.
No person shall act as an insurance agent or as an insurance broker in the solicitation
or procurement of applications for insurance, or receive for services in obtaining
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insurance, any commission or other compensation from any insurance company
doing business in the Philippines, or any agent thereof, without first procuring a
license so to act from the Commissioner, which must be renewed every three (3)
years thereafter. Such license shall be issued by the Commissioner only upon the
written application of the person desiring it, such application if for a license to act as
insurance agent, being approved or endorsed by the company such person desires to
represent, and shall be upon a form prescribed by the Commissioner giving such
information as he may require, and upon payment of the corresponding fee
hereinafter prescribed. The Commissioner shall satisfy himself as to the competence
and trustworthiness of the applicant and shall have the right to refuse to issue or
renew and to suspend or revoke any such license in his discretion. The license shall
expire after the thirty-first day of December of the third year following the date of
issuance unless it is renewed.
Licenses may be renewed in the case of the company represented by such agents,
and in the case of insurance brokers, upon the application of the said brokers,
themselves.
Section 308. The provisions of Sections 307 and 309 shall apply to an employee who
shall be engaged to sell insurance products by an insurance company.
Section 309. Any person who for compensation solicits or obtains insurance on
behalf of any insurance company or transmits for a person other than himself an
application for a policy or contract of insurance to or from such company or offers or
assumes to act in the negotiating of such insurance shall be an insurance agent within
the intent of this section and shall thereby become liable to all the duties,
requirements, liabilities and penalties to which an insurance agent is subject.
An insurance agent is an independent contractor and not an employee of the
company represented. ‘Insurance agent’ includes an agency leader, agency manager,
or their equivalent.
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Since the insurance industry is imbued with public interest, the insurance companies
upon approval of the Commissioner may exercise wide latitude in supervising the
activities of their insurance agents to ensure the protection of the insuring public.
Section 310. Any person who for any compensation, commission or other thing of
value acts or aids in any manner in soliciting, negotiating or procuring the making of
any insurance contract or in placing risk or taking out insurance, on behalf of an
insured other than himself, shall be an insurance broker within the intent of this Code,
and shall thereby become liable to all the duties, requirements, liabilities and
penalties to which an insurance broker is subject.
Section 311. Every applicant for an insurance broker’s license shall file with the
application and shall thereafter maintain in force while so licensed, a bond in favor of
the people of the Republic of the Philippines executed by a company authorized to
become surety upon official recognizances, stipulations, bonds and undertakings. The
bond shall be in such amount as may be fixed by the Commissioner, but in no case
less than Five hundred thousand pesos (P500,000.00), and shall be conditioned upon
full accounting and due payment to the person entitled thereto of funds coming into
the broker’s possession through insurance transactions under license. The bond shall
remain in force until released by the Commissioner, or until cancelled by the surety.
Without prejudice to any liability previously incurred thereunder, the surety may
cancel the bond on thirty (30) days advance written notice to both the broker and the
Commissioner.
Upon approval of the application, the applicant must also file two (2) errors and
omissions (professional liability or professional indemnity) policies issued separately
by two (2) insurance companies authorized to do business in the Philippines,
satisfactory to the Commissioner to indemnify the applicant against any claim or
claims for breach of duty as insurance broker which may be made against him by
reason of any negligent act, error or omission, whenever or wherever committed or
alleged to have been committed, on the part of the applicant or any person who has
been, is now, or may hereafter during the subsistence of the policies be employed by
the said applicant in his capacity as insurance broker: Provided, That the filing of any
claim or claims under one of such policies shall preclude the filing of the said claim or
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claims under the other policy. The said policies shall be in such amounts as may be
prescribed by the Commissioner, depending upon the size or amount of the broking
business of the applicant, but in no case shall the amount of each of such policies be
less than Five hundred thousand pesos (P500,000.00).
Section 312. The Commissioner shall, in order to determine the competence of every
applicant to have the kind of license applied for, require such applicant to submit to
a written examination and to pass the same to the satisfaction of the Commissioner.
The Commissioner may delegate or authorize the administration of the examination
to an independent organization, subject to such conditions that the Commissioner
may provide.
Section 313. An applicant for the written examination mentioned in the preceding
section must be of good moral character and must not have been convicted of any
crime involving moral turpitude. He must satisfactorily show to the Commissioner
that he has been trained in the kind of insurance contemplated in the license applied
for. Such examination may be waived if it is shown to the satisfaction of the
Commissioner that the applicant has undergone extensive education and/or training
in insurance.
Section 314. An application for the issuance or renewal of a license to act as an
insurance agent or insurance broker may be refused, or such license, if already issued
or renewed, shall be suspended or revoked if the Commissioner finds that the
applicant for, or holder of, such license:
(a) Has willfully violated any provision of this Code; or
(b) Has intentionally made a material misstatement in the application to
qualify for such license; or
(c) Has obtained or attempted to obtain a license by fraud or
misrepresentation; or
(d) Has been guilty of fraudulent or dishonest practices; or
Nigel Carmelo Q. Reago 87

(e) Has misappropriated or converted to his own use or illegally withheld
moneys required to be held in a fiduciary capacity; or
(f) Has not demonstrated trustworthiness and competence to transact
business as an insurance agent or insurance broker in such manner as to
safeguard the public; or
(g) Has materially misrepresented the terms and conditions of policies or
contracts of insurance which he seeks to sell or has sold; or
(h) Has failed to pass the written examination prescribed, if not otherwise
exempt from taking the same.
In addition to the foregoing causes, no license to act as insurance agent or insurance
broker shall be renewed if the holder thereof has not been actively engaged as such
agent or broker in accordance with such rules as the Commissioner may prescribe.
Section 315. The premium, or any portion thereof, which an insurance agent or
insurance broker collects from an insured and which is to be paid to an insurance
company because of the assumption of liability through the issuance of policies or
contracts of insurance, shall be held by the agent or broker in a fiduciary capacity and
shall not be misappropriated or converted to his own use or illegally withheld by the
agent or broker.
Any insurance company which delivers to an insurance agent or insurance broker a
policy or contract of insurance shall be deemed to have authorized such agent or
broker to receive on its behalf payment of any premium which is due on such policy
or contract of insurance at the time of its issuance or delivery or which becomes due
thereon.
In order to ensure faithful performance by the insurance agent or insurance broker
of these fiduciary responsibilities, the Insurance Commissioner shall prescribe the
minimum terms and conditions on such matters in the standard agency or brokers
agreement between the agents and/or the broker with the insurance companies.
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Section 316. Any provision of existing laws to the contrary notwithstanding, no
person shall, within the Philippines, sell or offer for sale a variable contract or do or
perform any act or thing in the sale, negotiation, making or consummating of any
variable contract other than for himself unless such person shall have a valid and
current license from the Commissioner authorizing such person to act as a variable
contract agent. No such license shall be issued unless and until the Commissioner is
satisfied, after examination that such person is by training, knowledge, ability and
character qualified to act as such agent. Any such license may be withdrawn and
cancelled by the Commissioner after notice and hearing, if he shall find that the holder
thereof does not then have the qualifications required for the issuance of such license.
Section 317. It shall be unlawful for any person, company or corporation in the
Philippines to act as general agent of any insurance company unless he is empowered
by a written power of attorney duly executed by such insurance company, and
registered with the Commissioner to receive notices, summons and legal processes
for and in behalf of the insurance company concerned in connection with actions or
other legal proceedings against said insurance company. It shall be the duty of said
general agent to notify the Commissioner of his post office address in the Philippines,
or any change thereof. Notices, summons, or processes of any kind sent by registered
mail to the last registered address of such general agent of the company concerned
or to the Commissioner shall be sufficient service and deemed as if served on the
insurance company itself.
Section 318. Except as otherwise provided by law or treaty, it shall be unlawful for
any person, partnership, association or corporation in the Philippines, for himself or
itself, or for some other person, partnership, association or corporation, either to
procure, receive or forward applications of insurance in, or to issue or to deliver or
accept policies or contracts of insurance of or for, any insurance company or
companies not authorized to transact business in the Philippines, covering risks, life
or non-life, situated in the Philippines; and any such person, partnership, association
or corporation violating the provisions of this section shall be deemed guilty of a penal
offense, and upon conviction thereof, shall for each such offense be punished by a
fine of Two hundred fifty thousand pesos (P250,000.00), or imprisonment of six (6)
Nigel Carmelo Q. Reago 88

months, or both, at the discretion of the court: Provided, That the provisions of this
section shall not apply to reinsurance.
TITLE 2
REINSURANCE BROKERS
Section 319. Except as provided in the next succeeding title, no person shall act as
reinsurance broker in the Philippines unless he is authorized as such by the
Commissioner.
A reinsurance broker is one who, for compensation, not being a duly authorized
agent, employee or officer of an insurer in which any reinsurance is effected, acts or
aids in any manner in negotiating contracts of reinsurance, or placing risks of effecting
reinsurance, for any insurance company authorized to do business in the Philippines.
Section 320. Upon application and payment of the corresponding fee hereinafter
prescribed, and the filing of two (2) errors and omissions (professional liability or
professional indemnity) policies hereinafter described, a person may, if found
qualified, be issued a license to act as reinsurance broker by the Commissioner. No
such license shall be valid after December 31 of the third year following its issuance
unless it is renewed.
The errors and omissions (professional liability or professional indemnity) policies
mentioned above shall indemnify the applicant against any claim or claims for breach
of duty as reinsurance broker which may be made against him by reason of any
negligent act, error or omission, whenever or wherever committed or alleged to have
been committed, on the part of the applicant or any person who has been, is now, or
may hereafter during the subsistence of the policies be employed by the said
applicant in his capacity as reinsurance broker: Provided, That the filing of any claim
or claims under one of such policies shall preclude the filing of the said claim or claims
under the other policy. The said policies shall be issued separately by two (2)
insurance companies authorized to do business in the Philippines and shall be in such
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amounts as may be prescribed by the Insurance Commissioner, depending upon the
size or amount of the broking business of the applicant, but in no case shall the
amount of each of such policies be less than Five hundred thousand pesos
(P500,000.00).
Section 321. The Commissioner may recall, suspend or revoke the license granted to
a reinsurance broker for violation of any existing law, rule and regulation, or any
provision of this Code after due notice and hearing.
TITLE 3
RESIDENT AGENTS
Section 322. No person shall act as resident agent, as hereinafter defined, unless he
is registered as such with the Commissioner.
Section 323. The term resident agent, as used in this title, is one duly appointed by a
foreign insurer or broker not authorized to do business in the Philippines to receive
in its behalf notices, summons and legal processes in connection with actions or other
legal proceedings against such foreign insurer or broker.
Section 324. The application for a certificate of registration as resident agent filed
with the Commissioner must be accompanied with a copy of the power of attorney,
duly notarized and authenticated by the Philippine Consul in the place where such
foreign insurer or broker is domiciled, empowering the applicant to act as resident
agent and to receive notices, summons and legal processes for and in behalf of such
foreign insurer or broker in connection with any action or legal proceeding against
such foreign insurer or broker.
Section 325. It shall be the duty of such resident agent to notify immediately the
Commissioner of any change of his office address.
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Section 326. A certificate of registration issued to a resident agent shall expire on the
thirty-first day of December of the third year following its issuance unless it is
renewed.
The Commissioner may, after due notice and hearing, recall or cancel the certificate
of registration issued to a resident agent for violation of any existing law, rule or
regulation, or any provision of this Code.
TITLE 4
NON-LIFE COMPANY UNDERWRITER
Section 327. No person shall act, and no company shall employ any person, as non-
life company underwriter, whose duty and responsibility it shall be to select, evaluate
and accept risks for, and to determine the terms and conditions, including those
pertaining to amounts of retentions, under which such risks are to be accepted by the
company, unless such underwriter is registered as such with the Commissioner.
Section 328. Every non-life insurance company doing business in the Philippines must
maintain at all times a register of risks accepted and a claims register for each line of
risks engaged in by such non-life insurance company with such entries therein as are
now or as may hereafter be required by the Commissioner, and it shall be the
responsibility of the underwriter on the particular line of risk involved to see to it that
the said registers are well maintained and kept, and that all entries therein are
properly and correctly recorded. Such registers shall be open to inspection and
examination of duly authorized representatives of the Commissioner at all times
during business hours.
Section 329. No person shall be registered with the Commissioner, unless such
person shall be at least twenty-one (21) years of age on the date of such registration;
a resident of the Philippines; of good moral character and with no conviction of any
crime involving moral turpitude; has had at the time such registration is made at least
two (2) years of underwriting work in the particular line of risk involved; and has
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passed such qualifying written examination that the Commissioner shall conduct at
such time and in such place as he may decide to hold for applicants desiring to act as
underwriters.
Such examination shall not be required of any person who has served as non-life
company underwriter for a period of at least five (5) years, if the Commissioner is
satisfied of the applicant’s competence as shown by the results of his underwriting
work in the non-life insurance company or companies that employed him in that
capacity. The minimum underwriting experience herein required may be reduced or
waived if it is shown to the satisfaction of the Commissioner that the non-life
company underwriter has undergone extensive education and/or training in
insurance.
Section 330. Any applicant who misrepresents or omits any material fact in his
application for registration as a non-life company underwriter, or commits any
dishonest act in taking or in connection with the qualifying written examination for
underwriters, shall be barred from being registered as such non-life company
underwriter and, if already registered, his registration shall be cancelled and the
certificate of registration issued in his favor shall be recalled immediately by the
Commissioner.
In the event that the certificate of authority of a non-life insurance company to
transact business is suspended or revoked due to business failure arising largely from
the imprudent and injudicious acceptance of risks by the underwriter concerned, the
registration of such underwriter shall likewise be cancelled and his certificate of
registration shall be recalled by the Commissioner, and no similar certificate shall
thereafter be issued in his favor.
Section 331. No certificate of registration issued to an underwriter shall be valid after
December 31 of the third year following its issuance unless it is renewed.
The Commissioner may, after due notice and hearing, also suspend or cancel such
certificate for violation of existing laws, rules and regulations or of any provisions of
this Code.
Nigel Carmelo Q. Reago 90

TITLE 5
ADJUSTERS
Section 332. No person, partnership, association, or corporation shall act as an
adjuster, as hereinafter defined, unless authorized so to act by virtue of a license
issued or renewed by the Commissioner pursuant to the provisions of this
Code: Provided, That in the case of a natural person, he must be a Filipino citizen and
in the case of a partnership, association or corporation, at least sixty percent (60%) of
its capital must be owned by citizens of the Philippines.
Section 333. An adjuster may be an independent adjuster or a public adjuster.
The term independent adjuster means any person, partnership, association or
corporation which, for money, commission or any other thing of value, acts for or on
behalf of an insurer in the adjusting of claims arising under insurance contracts or
policies issued by such insurer.
The term public adjuster means any person, partnership, association or corporation
which, for money, commission or any other thing of value, acts on behalf of an insured
in negotiating for, or effecting, the settlement of a claim or claims of the said insured
arising under insurance contracts or policies, or which advertises for or solicits
employment as an adjuster of such claims.
Section 334. For every line of insurance claim adjustment, adjusters shall be licensed
either as independent adjusters or as public adjusters. No adjuster shall act on behalf
of an insurer unless said adjuster is licensed as an independent adjuster; and no
adjuster shall act on behalf of an insured unless said adjuster is licensed as a public
adjuster: Provided, however, That when a firm or person has been licensed as a public
adjuster, he shall not be granted another license as independent adjuster and vice
versa.
No license, however, shall be required of any company adjuster who is a salaried
employee of an insurance company for the adjustment of claims filed under policies
issued by such insurance company.
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Section 335. Such license or any renewal thereof may be issued by the Commissioner
upon written application filed by the person interested on the form or forms
prescribed by the Commissioner, which shall contain such information as he may
require, and upon payment of the corresponding fee hereinafter prescribed.
Section 336. The Commissioner shall conduct, at such times, and in such places as he
may decide to hold, written examinations to determine the competence and ability
of applicants desiring to act as adjuster of insurance claims.
Section 337. No adjuster’s license issued hereunder shall be valid after December 31
of the third year following the issuance of such license unless it is renewed.
Section 338. Nothing contained in this title shall apply to any duly licensed attorney-
at-law who acts or aids in adjusting insurance claims as an incident to the practice of
his profession and who does not advertise himself as an adjuster.
Section 339. The Commissioner may suspend or revoke any adjuster’s license if, after
giving notice and hearing to the adjuster concerned, the Commissioner finds that the
said adjuster:
(a) Has violated any provision of this Code and of the circulars, rulings and
instructions of the Commissioner or has violated any law in the course of his
dealings as an adjuster; or
(b) Has made a material misstatement in the application for such license; or
(c) Has been guilty of fraudulent or dishonest practices; or
(d) Has demonstrated his incompetence or untrustworthiness to act as
adjuster; or
(e) Has made patently unjust valuation of loss; or
Nigel Carmelo Q. Reago 91

(f) Has failed to make a report of the adjustment he proposed within sixty
(60) days from the date of the filing of the claim by the insured with the
insurer, unless prevented so to do by reasons beyond his control; or
(g) Has refused to allow an examination into his affairs or method of doing
business as hereinafter provided.
Section 340. Every adjuster shall submit to the Commissioner a quarterly report of
all losses which are the subject of adjustment effected by him during each month in
the form prescribed by the Commissioner. The report shall be filed within one (1)
month after the end of each quarter.
Section 341. Every adjuster shall keep his or its books, records, reports, accounts, and
vouchers in such manner that the Commissioner or his duly authorized
representatives may readily verify the quarterly reports of the said adjuster and
ascertain whether the said adjuster has complied with the provisions of law or
regulations obligatory upon him or whether the method of doing business of the said
adjuster has been fair, just and honest.
Section 342. The Commissioner shall, at least once a year and whenever he considers
the public interest so demands, cause an examination to be made into the affairs and
method of doing business of every adjuster.
Section 343. Any violation of any provision of this title shall be punished by a fine of
not less than Ten thousand pesos (P10,000.00), or by imprisonment at the discretion
of the court: Provided, That, in case of a partnership, association or corporation, the
said penalty shall be imposed upon the partner, president, manager, managing
director, director or person in charge of its business or responsible for the violation.
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TITLE 6
ACTUARIES
Section 344. No life insurance company shall be licensed to do business in the
Philippines nor shall any life insurance company doing business in the Philippines be
allowed to continue doing such business unless they shall engage the services of an
actuary duly accredited with the Commissioner who shall, during his tenure of office,
be directly responsible for the direction and supervision of all actuarial work
connected with or that may be involved in the business of the insurance company.
The Commissioner may also require non-life insurance companies to engage the
services of an accredited actuary, in accordance with the rules and regulations that
the Commissioner will formulate.
Section 345. Any person may be officially accredited by the Commissioner to act as
an actuary in any life insurance company or in any mutual benefit association
authorized to do business in the Philippines upon application therefor and the
payment of the corresponding fee hereinafter prescribed: Provided, That:
(a) He is a fellow of good standing of the Actuarial Society of the Philippines
at the time of his appointment and remains in such good standing during the
tenure of his engagement; or
(b) In the case of one who is not a fellow of the Actuarial Society of the
Philippines, he meets all the requirements of the said Society for
accreditation as a fellow of the Society, and has been given permission by the
pertinent government authorities in the Philippines to render services in the
Philippines, in the event that he is not a citizen of the Philippines.
The registration of the actuary shall be suspended or revoked by the Commissioner
on the following grounds:
(1) Failure to adequately perform required functions and duties under this
Code;
Nigel Carmelo Q. Reago 92

(2) Failure to disclose conflict of interest;
(3) Failure to comply with the Code of Conduct of the Actuarial Society of the
Philippines; or
(4) Such other grounds that may be determined by the Commissioner.
No actuary engaged by a life insurance company shall be at the same time a
stockholder or a director of the board, chief executive officer or chief financial officer
of the company or hold any position that the Commissioner may determine to have
an inherent conflict of interest to the position of an actuary.
No certificate of registration issued under this title shall be valid after December 31
of the third year following its issuance unless it is renewed.
Section 346. The following documents, which are from time to time submitted to the
Commissioner by a life insurance company authorized to do business in the
Philippines, shall be duly certified by an accredited actuary employed by such
company:
(a) Policy reserves, claims or loss reserves and net due and deferred
premiums.
(b) Statements of bases and net premiums, loading for gross premiums, and
on non-forfeiture values and reserves, when applying for approval of gross
premiums, reserves and non-forfeiture values.
(c) Policies of insurance under any plan submitted to the Commissioner as
required by law.
(d) Annual statements and valuation reports submitted to the Commissioner
as required by law.
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(e) Financial projection showing the probable income and outgo and reserve
requirements, enumerating the actuarial assumptions and bases of
projections.
(f) Valuation of annuity funds or retirement plans.
The Commissioner may also require non-life insurance companies to submit, from
time to time, similar documents which shall be duly certified by an accredited actuary
employed by such company.
Any life insurance company authorized to do business in the Philippines may employ
any person who is not officially accredited under either of the qualifications for any
kind of actuarial work: Provided, That he shall not, at any time, have the authority to
certify to the correctness of the foregoing documents.
Section 347. No accredited actuary shall serve more than one client or employer at
the same time. However, one already in the employ of an insurance company may be
allowed by the Commissioner to serve a mutual benefit association or any other
insurance company, provided the following conditions are first complied with:
(a) That the request to engage his services by the other employer is in writing;
(b) That his present employer acquiesced to it in writing; and
(c) That he furnishes the Commissioner with copies of said request and
acquiescence.
No external auditor shall be engaged by supervised persons or entities unless it has
been issued an accreditation certificate by the Commissioner. The accreditation
certificate shall be valid until December 31 of the third year from issuance unless it is
revoked or suspended. The Commissioner shall issue rules and regulations to govern
the accreditation of the external auditor and the revocation or suspension of the
accreditation.
Nigel Carmelo Q. Reago 93

TITLE 7
RATING ORGANIZATION AND RATE MAKING
Section 348. Every organization which now exists or which may hereafter be formed
for the purpose of making rates to be used by more than one insurance company
authorized to do business in the Philippines shall be known as a rating organization.
The term rate as used in this title shall generally mean the ratio of the premium to
the amount insured and shall include, as the context may require, either the
consideration to be paid or charged for insurance contracts, including surety bonds,
or the elements and factors forming the basis for the determination or application of
the same, or both.
Section 349. Every rating organization which now exists or which may hereafter be
formed shall be subject to the provisions of this title.
Section 350. No rating organization hereafter formed shall commence rate-making
operations until it shall have obtained a license from the Commissioner. Before
obtaining such license, such rating organization shall file with the Commissioner a
notice of its intention to commence rate-making operations, a copy of its constitution,
articles of agreement or association, or of incorporation, and its bylaws, a list of
insurance companies that have agreed to become members or subscribers, and such
other information concerning such rating organization and its operations as may be
required by the Commissioner. If the Commissioner finds that the organization has
complied with the provisions of law and that it has a sufficient number of members
or subscribers and is otherwise qualified to function as a rating organization, the
Commissioner may issue a license to such rating organization authorizing it to make
rates for the kinds of insurance or subdivisions thereof as may be specified in such
license. No license issued to a rating organization shall be valid after December 31 of
the third year following its issuance unless it is renewed. No rating organization which
now exists and is not licensed pursuant to this section shall continue rate-making
operations until it shall have obtained from the Commissioner a license which he may
issue if satisfied that such organization is complying with the provisions of this title.
Every rating organization shall notify the Commissioner promptly of every change in:
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(a) Its constitution, its articles of agreement or association or its certificate
of incorporation, and its bylaws, rules and regulations governing the conduct
of its business; and
(b) Its list of members and subscribers.
A member means an insurer who participates in or is entitled to participate in the
management of a rating organization.
A subscriber means an insurer which is furnished at its request with rates and rating
manuals by a rating organization of which it is not a member.
Section 351. Each rating organization shall furnish its rating service without
discrimination to all of its members and subscribers, and shall, subject to reasonable
rules and regulations, permit any insurance company doing business in the Philippines,
not admitted to membership, to become a subscriber to its rating services for any
kind of insurance or subdivisions thereof. Notice of proposed changes in such rules
and regulations shall be given to subscribers. The reasonableness of any rule or
regulation in its application to subscribers, or the refusal of any rating organization to
admit an insurance company as a subscriber, shall, at the request of any subscriber
or any such insurance company, be reviewed by the Commissioner at a hearing held
upon at least ten (10) days’ written notice to such rating organization and to such
subscriber or insurance company. The Commissioner may, after such hearing, issue
an appropriate order.
Section 352. No rating organization or any other association shall refuse to do
business with, or prohibit or prevent the payment of commissions to, any person
licensed as an insurance broker pursuant to the provisions of Title 1 of this chapter.
Section 353. Rating organizations shall be subject to examination by the
Commissioner, as often as he may deem such examination expedient, pursuant to the
provisions of this Code applicable to the examination of insurance companies. He
shall cause such an examination of each rating organization to be made at least once
in every five (5) years.
Nigel Carmelo Q. Reago 94

Section 354. The Commissioner may suspend or revoke the license of any rating
organization which fails to comply with his order within the time limited by such order,
or any extension thereof which he may grant. The Commissioner may determine
when a suspension of license shall become effective and it shall remain in effect for
the period fixed by him, unless he modifies or rescinds such suspension.
Section 355. Any rating organization may subscribe for or purchase actuarial,
technical or other services, and such services shall be available to all members and
subscribers without discrimination.
Section 356. Any rating organization may provide for the examination of policies,
daily reports, binders, renewal certificates, endorsements or other instruments of
insurance, or the cancellation thereof, and may make reasonable rules governing
their submission. Such rules shall contain a provision that in the event an insurance
company does not within sixty (60) days furnish satisfactory evidence to the rating
organization of the correction of any error or omission previously called to its
attention by the rating organization, it shall be the duty of the rating organization to
notify the Commissioner thereof. All information so submitted for examination shall
be confidential.
Section 357. Cooperation among rating organizations or among rating organizations
and insurers in rate making or in other matters within the scope of this title is hereby
authorized, provided the filings resulting from such cooperation are subject to all
provisions of this title which are applicable to filings generally. The Commissioner may
review such cooperative activities and practices and if he finds that any such activity
or practice is unfair or unreasonable or otherwise inconsistent with the provisions of
this title, he may issue a written order specifying in what respects such activity or
practice is unfair or unreasonable or otherwise inconsistent with the provisions of this
title, and requiring the discontinuance of such activity or practice.
Section 358. Every rating organization and every insurance company which makes
and files its own rates, shall make rates for all risks rated by such organization or
insurance company in accordance with the following provisions:
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(a) Basic classification, manual, minimum, class, or schedule rates or rating
plans, shall be made and adopted for all such risks. Any departure from such
rates shall be in accordance with schedules, rating plans and rules filed with
the Commissioner;
(b) Rates shall be reasonable and adequate for the class of risks to which they
apply;
(c) No rate shall discriminate unfairly between risks involving essentially the
same hazards and expense elements or between risks in the application of
like charges and credits;
(d) Consideration shall be given to the past and prospective loss experience,
including the conflagration and catastrophe hazards, if any, to all factors
reasonably attributable to the class of risks, to a reasonable profit, to
commissions paid during the most recent annual period and to past and
prospective other expenses. In case of fire insurance rates, consideration
shall be given to the experience of the fire insurance business during a period
of not less than five (5) years next preceding the year in which the review is
made;
(e) Risk may be grouped by classifications for the establishment of rates and
minimum premiums. Classification rates may be modified to produce rates
for individual risks in accordance with rating plans which establish standards
for measuring variations in hazards or expense provisions, or both. Such
standards may measure any difference among risks that can be demonstrated
to have a probable effect upon losses or expenses.
Section 359. No rating organization and no insurance company which makes and files
its own rates shall make or promulgate any rate or schedule of rates which is to be
applied to any fire risk on the condition that the whole amount of insurance on any
risk or any specified part thereof shall be placed with the members of or subscribers
to such rating organization or with such insurer.
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Section 360. Every insurance company doing business in the Philippines shall
annually file with the rating organization of which it is a member or subscriber, or
with such other agency as the Commissioner may designate, a statistical report
showing a classification schedule of its premiums and losses on all kinds or types of
insurance business to which Section 358 is applicable, and such other information as
the Commissioner may deem necessary or expedient for the administration of the
provisions of this title.
Section 361. Every non-life rating organization and every non-life insurance company
doing business in the Philippines shall file with the Commissioner, except as to risks
which by general custom of the business are not written according to manual rates or
rating plans, every rate manual, schedule of rates, classification of risks, rating plan,
and every other rating rule and every modification of any of the foregoing which it
proposes to use. An insurance company may satisfy its obligation to make such filings
for any kind or type of insurance by becoming a member of or subscriber to a rating
organization which makes such filings for such kind or type of insurance, and by
authorizing the Commissioner to accept such filings of the rating organization on
behalf of such insurance company.
Section 362. Every manual or schedule of rates and every rating plan filed as provided
in the preceding section shall state or clearly indicate the character and extent of the
coverage to which any such rate or any modification thereof will be applied.
Section 363. The Commissioner shall review filings as soon as reasonably possible
after they have been made in order to determine whether they meet the
requirements of this title. When a filing is not accompanied by the information upon
which the insurance company supports such filing, and the Commissioner does not
have sufficient information to determine whether such filing meets the requirements
of this title, he shall require such insurance company to furnish the information upon
which it supports such filing. The information furnished in support of a filing may
include:
(a) The experience or judgment of the insurance company or rating
organization making the filing;
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(b) Its interpretation of any statistical data it relies upon;
(c) The experience of other insurance companies or rating organization; or
(d) Any other relevant factors.
Section 364. If the Commissioner finds that any rate filings theretofore filed with him
do not comply with the provisions of this title or that they provide rates or rules which
are inadequate, excessive, unfairly discriminatory or otherwise unreasonable, he may
order the same withdrawn and at the expiration of sixty (60) days thereafter the same
shall be deemed no longer on file. Before making any such finding and order, the
Commissioner shall give notice, not less than ten (10) days in advance, and a hearing,
to the rating organization, or to the insurer, which filed the same. Such order shall not
affect any contract or policy made or issued prior to the expiration of such sixty (60)-
day period.
Section 365. No member or subscriber of a rating organization, and no insurance
company doing business in the Philippines, or agent, employee or other
representative of such company, and no insurance broker shall charge or demand a
rate or receive a premium which deviates from the rates, rating plans, classifications,
schedules, rules and standards, made and last filed by a rating organization or by or
on behalf of the insurance company, or shall issue or make any policy or contract
involving a violation of such rate filings.
Section 366. Notwithstanding any other provisions of this title, upon the written
application of the insurer, stating his reasons therefor, filed with and approved by the
Commissioner, a rate in excess of that provided by a filing otherwise applicable may
be used on any specific risk.
Section 367. Whenever the Commissioner shall determine, after notice and a hearing,
that the rates charged or filed on any class of risks are excessive, discriminatory,
inadequate or unreasonable, he shall order that such rates be appropriately adjusted.
For the purpose of applying the provisions of this section, the Commissioner may from
time to time approve reasonable classifications of risks for any or all such classes,
Nigel Carmelo Q. Reago 96

having due regard to the past and prospective loss experience, including conflagration
or catastrophe hazards, if any, to all other relevant factors and to a reasonable profit.
Section 368. Nothing contained in this title shall be construed as requiring any insurer
to become a member of or subscriber to any rating organization.
Section 369. Agreements may be made among insurance companies with respect to
the equitable apportionment among them of insurance which may be afforded
applicants who are in good faith entitled to but are unable to procure such insurance
through ordinary methods and such insurance companies may agree among
themselves on the use of reasonable rates and modifications for such insurance, such
agreements and rate modifications to be subject to the approval of the
Commissioner: Provided, however, That the provisions of this section shall not be
deemed to apply to workmen’s compensation insurance.
Section 370. No insurance company doing business in the Philippines or any agent
thereof, no insurance broker, and no employee or other representative of any such
insurance company, agent, or broker, shall make, procure or negotiate any contract
of insurance or agreement as to policy contract, other than is plainly expressed in the
policy or other written contract issued or to be issued as evidence thereof, or shall
directly or indirectly, by giving or sharing a commission or in any manner whatsoever,
pay or allow or offer to pay or allow to the insured or to any employee of such insured,
either as an inducement to the making of such insurance or after such insurance has
been effected, any rebate from the premium which is specified in the policy, or any
special favor or advantage in the dividends or other benefits to accrue thereon, or
shall give or offer to give any valuable consideration or inducement of any kind,
directly or indirectly, which is not specified in such policy or contract of insurance; nor
shall any such company, or any agent thereof, as to any policy or contract of insurance
issued, make any discrimination against any Filipino in the sense that he is given less
advantageous rates, dividends or other policy conditions or privileges than are
accorded to other nationals because of his race.
Section 371. No insurance company doing business in the Philippines, and no officer,
director, or agent thereof, and no insurance broker or any other person, partnership
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or corporation shall issue or circulate or cause or permit to be issued or circulated any
literature, illustration, circular or statement of any sort misrepresenting the terms of
any policy issued by any insurance company of the benefits or advantages promised
thereby, or any misleading estimate of the dividends or share of surplus to be
received thereon, or shall use any name or title of any policy or class of policies
misrepresenting the true nature thereof; nor shall any such company or agent thereof,
or any other person, partnership or corporation make any misleading representation
or incomplete comparison of policies to any person insured in such company for the
purpose of inducing or tending to induce such person to lapse, forfeit, or surrender
his said insurance.
Section 372. If the Commissioner, after notice and hearing, finds that any insurance
company, rating organization, agent, broker or other person has violated any of the
provisions of this title, it shall order the payment of a fine not to exceed Twenty-five
thousand pesos (P25,000.00) for each such offense, and shall immediately suspend
or revoke the license issued to such insurance company, rating organization, agent,
or broker. The issuance, procurement or negotiation of a single policy or contract of
insurance shall be deemed a separate offense.
TITLE 8
PROVISION COMMON TO AGENTS,
BROKERS AND ADJUSTERS
Section 373. A license issued to a partnership, association or corporation to act as an
insurance agent, general agent, insurance broker, reinsurance broker, or adjuster
shall authorize only the individual named in the license who shall qualify therefor as
though an individual licensee. The Commissioner shall charge, and the licensee shall
pay, a full additional license fee as to each respective individual so named in such
license in excess of one.
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Licenses and certificates of registration issued under the provisions of this chapter
may be renewed by the filing of notices of intention on forms to be prescribed by the
Commissioner and payment of the fees therefor.
Section 374. The Commissioner, in consultation with the duly accredited associations
representing the insurance industry, shall adopt and promulgate a code of conduct to
promote integrity, honesty and ethical business practices among insurance agents,
distributors and other intermediaries.
TITLE 9
BANCASSURANCE
Section 375. The term bancassurance shall mean the presentation and sale to bank
customers by an insurance company of its insurance products within the premises of
the head office of such bank duly licensed by the Bangko Sentral ng Pilipinas or any of
its branches under such rules and regulations which the Commissioner and the
Bangko Sentral ng Pilipinas may promulgate. To engage in bancassurance
arrangement, a bank is not required to have equity ownership of the insurance
company. No insurance company shall enter into a bancassurance arrangement
unless it possesses all the requirements as may be prescribed by the Commissioner
and the Bangko Sentral ng Pilipinas.
No insurance product under this section, whether life or non-life, shall be issued or
delivered unless in the form previously approved by the Commissioner.
Section 376. Personnel tasked to present and sell insurance products within the bank
premises shall be duly licensed by the Commissioner and shall be subject to the rules
and regulations of this Act.
Section 377. The Commissioner and the Bangko Sentral ng Pilipinas shall promulgate
rules and regulations to effectively supervise the business of bancassurance.
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CHAPTER V
SECURITY FUND
Section 378. There is hereby created a fund to be known as the Security Fund which
shall be used in the payment of allowed claims against an insurance company
authorized to transact business in the Philippines remaining unpaid by reason of the
insolvency of such company. The said Fund may also be used to reinsure the policy of
the insolvent insurer in any solvent insurer authorized to do business in the
Philippines as provided in Section 256. The Fund may likewise be used to pay insured
claims which otherwise would not be compensable under the provisions of the policy.
No payment from the Security Fund shall, however, be made to any person who owns
or controls ten percent (10%) or more of the voting shares of stock of the insolvent
insurer and no payment on any one claim shall exceed Twenty thousand pesos
(P20,000.00).
Section 379. Such Fund shall consist of all payments made to the Fund by insurance
companies authorized to do business in the Philippines. Payments made by life
insurance companies shall be treated separately from those made by non-life
insurance companies and the corresponding fund shall be called Life Account and
Non-Life Account, respectively, and shall be held and administered as such by the
Commissioner in accordance with the provisions of this title. The Life Account shall be
utilized exclusively for disbursements that refer to life insurance companies, while the
Non-Life Account shall be utilized exclusively for disbursements that refer to non-life
insurance companies.
Section 380. All insurance companies doing business in the Philippines shall
contribute to the Security Fund, Life or Non-Life Account, as the case may be, the
aggregate amount of Five million pesos (P5,000,000.00) for each Account. The
contributions of the life insurance companies and of the non-life insurance companies
shall be in direct proportion to the ratio between a particular life insurance company
or a particular non-life insurance company’s net worth and the aggregate net worth
of all life insurance companies or all non-life insurance companies, as the case may
Nigel Carmelo Q. Reago 98

be, as shown in their latest financial statements approved by the Commissioner. This
proportion applied to the Five million pesos (P5,000,000.00) shall be the contribution
of a particular company to the corresponding Account of the Security Fund.
The amount of Five million pesos (P5,000,000.00) in each Account shall be in the form
of a revolving trust fund. The respective contributions of the companies shall remain
as admitted assets in their books and any disbursement therefrom shall be deducted
proportionately from the contributions of each company which will be allowed as
deductions for income tax purposes. Any earnings of the Fund shall be turned over to
the contributing companies in proportion to their contributions.
In the case of disbursements of funds from the Fund as provided in the foregoing
paragraph, the life and non-life companies, as the case may be, shall replenish the
amount disbursed in direct proportion to the individual company’s net worth and the
aggregate net worth of the life or non-life companies, as the case may be. However,
in no case shall the Fund exceed the aggregate amount of Ten million pesos
(P10,000,000.00), or Five million pesos (P5,000,000.00) for each Account.
Should the Fund, Life or Non-Life Account, as the case may be, be inadequate for a
disbursement as provided for, then the Life or Non-Life companies, as the case may
be, shall contribute to the Fund their respective shares in the proportion previously
mentioned.
Section 381. The Commissioner may adopt, amend, and enforce all reasonable rules
and regulations necessary for the proper administration of the Fund and of the
Accounts. In the event any insurer shall fail to make any payment required by this title,
or that any payment made is incorrect, he shall have full authority to examine all the
books and records of the insurer for the purpose of ascertaining the facts and shall
determine the correct amount to be paid and may proceed in any court of competent
jurisdiction to recover for the benefit of the Fund or of the Account concerned any
sum shown to be due upon such examination and determination. Any insurer which
fails to make any payment to the Fund or to the Account concerned when due, shall
thereby forfeit to said Fund or Account concerned a penalty of five percent (5%) of
the amount determined to be due as provided by this title, plus one percent (1%) of
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such amount for each month of delay or fraction thereof, after the expiration of the
first month of such delay, but the Commissioner, if satisfied that the delay was
excusable, may remit all or any part of such penalty. The Commissioner, in his
discretion, may suspend or revoke the certificate of authority to do business in the
Philippines of any insurance company which shall fail to comply with this title or to
pay any penalty imposed in accordance therewith.
Section 382. The Accounts created by this title shall be separate and apart from each
other and from any other fund. The Treasurer of the Philippines shall be the custodian
of the Life Account and Non-Life Account of the Security Fund; and all disbursements
from any Account shall be made by the Treasurer of the Philippines upon vouchers
signed by the Commissioner or his deputy, as hereinafter provided. The moneys of
said Account may be invested by the Commissioner only in bonds or other
instruments of debt of the Government of the Philippines or its political subdivisions
or instrumentalities. The Commissioner may sell any of the securities in which an
Account is invested, if advisable, for its proper administration or in the best interest
of such Account.
Section 383. Payments from either the Life Insurance Account or Non-Life Account,
as the case may be, shall be made by the Treasurer of the Philippines to the
Commissioner, upon the authority of appropriate certificate filed with him by the
Commissioner acting in such capacity.
Section 384. The Commissioner may, in his discretion, designate or appoint a duly
authorized representative or representatives to appear and defend before any court
or other body or official having jurisdiction any or all actions or proceedings against
principals or assureds on insurance policies or contracts issued to them where the
insurer has become insolvent or unable to meet its insurance obligations. The
Commissioner shall have, as of the date of insolvency of such insurer or as of the date
of its inability to meet its insurance obligations, only the rights which such insurer
would have had if it had not become insolvent or unable to meet its insurance
obligations. For the purpose of this title, the Commissioner shall have power to
employ such counsel, clerks and assistants as he may deem necessary.
Nigel Carmelo Q. Reago 99

Section 385. The expense of administering an Account shall be paid out of the
Account concerned. The Commissioner shall serve as administrator of the Fund and
of the Accounts without additional compensation, but may be allowed and paid from
the Account concerned expenses incurred in the performance of his duties in
connection with said Account. The compensation of those persons employed by the
Commissioner shall be deemed administration expense payable from the Account
concerned. The Commissioner shall include in his annual report to the Secretary of
Finance a statement of the expenses of administration of the Fund and of the Life
Account and Non-Life Account for the preceding year.
CHAPTER VI
COMPULSORY MOTOR VEHICLE
LIABILITY INSURANCE
Section 386. For purposes of this chapter:
(a) Motor Vehicle is any vehicle as defined in Section 3, paragraph (a) of
Republic Act No. 4136, otherwise known as the ‘Land Transportation and
Traffic Code’.
(b) Passenger is any fare paying person being transported and conveyed in
and by a motor vehicle for transportation of passengers for compensation,
including persons expressly authorized by law or by the vehicle’s operator or
his agents to ride without fare.
(c) Third party is any person other than a passenger as defined in this section
and shall also exclude a member of the household, or a member of the family
within the second degree of consanguinity or affinity, of a motor vehicle
owner or land transportation operator, as likewise defined herein, or his
employee in respect of death, bodily injury, or damage to property arising out
of and in the course of employment.
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(d) Owner or motor vehicle owner means the actual legal owner of a motor
vehicle, in whose name such vehicle is duly registered with the Land
Transportation Office;
(e) Land transportation operator means the owner or owners of motor
vehicles for transportation of passengers for compensation, including school
buses.
(f) Insurance policy or Policy refers to a contract of insurance against
passenger and third-party liability for death or bodily injuries and damage to
property arising from motor vehicle accidents.
Section 387. It shall be unlawful for any land transportation operator or owner of a
motor vehicle to operate the same in the public highways unless there is in force in
relation thereto a policy of insurance or guaranty in cash or surety bond issued in
accordance with the provisions of this chapter to indemnify the death, bodily injury,
and/or damage to property of a third-party or passenger, as the case may be, arising
from the use thereof.
Section 388. The Commissioner shall furnish the Land Transportation Office with a
list of insurance companies authorized to issue the policy of insurance or surety bond
required by this chapter.
Section 389. The Land Transportation Office shall not allow the registration or
renewal of registration of any motor vehicle without first requiring from the land
transportation operator or motor vehicle owner concerned the presentation and
filing of a substantiating documentation in a form approved by the Commissioner
evidencing that the policy of insurance or guaranty in cash or surety bond required by
this chapter is in effect.
Section 390. Every land transportation operator and every owner of a motor vehicle
shall, before applying for the registration or renewal of registration of any motor
vehicle, at his option, either secure an insurance policy or surety bond issued by any
Nigel Carmelo Q. Reago 100

insurance company authorized by the Commissioner or make a cash deposit in such
amount as herein required as limit of liability for purposes specified in Section 387.
(a) In the case of a land transportation operator, the insurance guaranty in
cash or surety bond shall cover liability for death or bodily injuries of third-
parties and/or passengers arising out of the use of such vehicle in the amount
not less than Twelve thousand pesos (P12,000.00) per passenger or third-
party and an amount, for each of such categories, in any one accident of not
less than that set forth in the following scale:
(1) Motor vehicles with an authorized capacity of twenty-six (26) or
more passengers: Fifty thousand pesos (P50,000.00);
(2) Motor vehicles with an authorized capacity of from twelve (12) to
twenty-five (25) passengers: Forty thousand pesos (P40,000.00);
(3) Motor vehicles with an authorized capacity of from six (6) to
eleven (11) passengers: Thirty thousand pesos (P30,000.00);
(4) Motor vehicles with an authorized capacity of five (5) or less
passengers: Five thousand pesos (P5,000.00) multiplied by the
authorized capacity.
Provided, however, That such cash deposit made to, or surety bond posted
with, the Commissioner shall be resorted to by him in cases of accidents the
indemnities for which to third-parties and/or passengers are not settled
accordingly by the land transportation operator and, in that event, the said
cash deposit shall be replenished or such surety bond shall be restored within
sixty (60) days after impairment or expiry, as the case may be, by such land
transportation operator, otherwise, he shall secure the insurance policy
required by this chapter. The aforesaid cash deposit may be invested by the
Commissioner in readily marketable government bonds, and/or securities.
to the provisions of this chapter shall be paid without the necessity of proving fault
or negligence of any kind: Provided, That for purposes of this section:
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(b) In the case of an owner of a motor vehicle, the insurance or guaranty in
cash or surety bond shall cover liability for death or injury to third-parties in
an amount not less than that set forth in the following scale in any one
accident:
(1) Private Cars
(i) Bantam: Twenty thousand pesos (P20,000.00);
(ii) Light: Twenty thousand pesos (P20,000.00); and
(iii) Heavy: Thirty thousand pesos (P30,000.00).
(2) Other Private Vehicles
(i) Tricycles, motorcycles and scooters: Twelve thousand
pesos (P12,000.00);
(ii) Vehicles with an unladen weight of 2,600 kilos or less:
Twenty thousand pesos (P20,000.00);
(iii) Vehicles with an unladen weight of between 2,601 kilos
and 3,930 kilos: Thirty thousand pesos (P30,000.00); and
(iv) Vehicles with an unladen weight over 3,930 kilos: Fifty
thousand pesos (P50,000.00).
The Commissioner may, if warranted, set forth schedule of
indemnities for the payment of claims for death or bodily injuries
with the coverages set forth herein.
Section 391. Any claim for death or injury to any passenger or third-party pursuant
Nigel Carmelo Q. Reago 101

(a) The total indemnity in respect of any person shall not be less than Fifteen
thousand pesos (P15,000.00);
(b) The following proofs of loss, when submitted under oath, shall be
sufficient evidence to substantiate the claim:
(1) Police report of accident; and
(2) Death certificate and evidence sufficient to establish the proper
payee; or
(3) Medical report and evidence of medical or hospital disbursement
in respect of which refund is claimed;
(c) Claim may be made against one motor vehicle only. In the case of an
occupant of a vehicle, claim, shall lie against the insurer of the vehicle in
which the occupant is riding, mounting or dismounting from. In any other
case, claim shall lie against the insurer of the directly offending vehicle. In all
cases, the right of the party paying the claim to recover against the owner of
the vehicle responsible for the accident shall be maintained.
Section 392. No land transportation operator or owner of motor vehicle shall be
unreasonably denied the policy of insurance or surety bond required by this chapter
by the insurance companies authorized to issue the same, otherwise, the Land
Transportation Office shall require from said land transportation operator or owner
of the vehicle, in lieu of a policy of insurance or surety bond, a certificate that a cash
deposit has been made with the Commissioner in such amount required as limits of
indemnity in Section 390 to answer for the passenger and/or third-party liability of
such land transportation operator or owner of the vehicle.
No insurance company may issue the policy of insurance or surety bond required
under this chapter unless so authorized under existing laws.
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The authority to engage in the casualty and/or surety lines of business of an
insurance company that refuses to issue or renew, without just cause, the insurance
policy or surety bond therein required shall be withdrawn immediately.
Section 393. No cancellation of the policy shall be valid unless written notice thereof
is given to the land transportation operator or owner of the vehicle and to the Land
Transportation Office at least fifteen (15) days prior to the intended effective date
thereof. Upon receipt of such notice, the Land Transportation Office, unless it receives
evidence of a new valid insurance or guaranty in cash or surety bond as prescribed in
this chapter, or an endorsement of revival of the cancelled one, shall order the
immediate confiscation of the plates of the motor vehicle covered by such cancelled
policy. The same may be reissued only upon presentation of a new insurance policy
or that a guaranty in cash or surety bond has been made or posted with the
Commissioner and which meets the requirements of this chapter, or an endorsement
or revival of the cancelled one.
Section 394. If the cancellation of the policy or surety bond is contemplated by the
land transportation operator or owner of the vehicle, he shall, before the policy or
surety bond ceases to be effective, secure a similar policy of insurance or surety bond
to replace the policy or surety bond to be cancelled or make a cash deposit in
sufficient amount with the Commissioner, and without any gap, file the required
documentation with the Land Transportation Office, and notify the insurance
company concerned of the cancellation of its policy or surety bond.
Section 395. In case of change of owner ship of a motor vehicle, or change of the
engine of an insured vehicle, there shall be no need of issuing a new policy until the
next date of registration or renewal of registration of such vehicle, and: Provided, That
the insurance company shall agree to continue the policy, such change of ownership
or such change of the engine shall be indicated in a corresponding endorsement by
the insurance company concerned, and a signed duplicate of such endorsement shall,
within a reasonable time, be filed with the Land Transportation Office.
Section 396. In the settlement and payment of claims, the indemnity shall not be
availed of by any accident victim or claimant as an instrument of enrichment by
Nigel Carmelo Q. Reago 102

reason of an accident, but as an assistance or restitution insofar as can fairly be
ascertained.
Section 397. Any person having any claim upon the policy issued pursuant to this
chapter shall, without any unnecessary delay, present to the insurance company
concerned a written notice of claim setting forth the nature, extent and duration of
the injuries sustained as certified by a duly licensed physician. Notice of claim must
be filed within six (6) months from the date of accident, otherwise, the claim shall be
deemed waived. Action or suit for recovery of damage due to loss or injury must be
brought, in proper cases, with the Commissioner or the courts within one (1) year
from denial of the claim, otherwise, the claimant’s right of action shall prescribe.
Section 398. The insurance company concerned shall forthwith ascertain the truth
and extent of the claim and make payment within five (5) working days after reaching
an agreement. If no agreement is reached, the insurance company shall pay only the
no-fault indemnity provided in Section 391 without prejudice to the claimant from
pursuing his claim further, in which case, he shall not be required or compelled by the
insurance company to execute any quit claim or document releasing it from liability
under the policy of insurance or surety bond issued.
In case of any dispute in the enforcement of the provisions of any policy issued
pursuant to this chapter, the adjudication of such dispute shall be within the original
and exclusive jurisdiction of the Commissioner, subject to the limitations provided in
Section 439.
Section 399. It shall be unlawful for a land transportation operator or owner of motor
vehicle to require his or its drivers or other employees to contribute in the payment
of premiums.
Section 400. No government office or agency having the duty of implementing the
provisions of this chapter nor any official or employee thereof shall act as agent in
procuring the insurance policy or surety bond provided for herein. The commission of
an agent procuring the said policy or bond shall in no case exceed ten percent (10%)
of the amount of the premiums therefor.
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Section 401. Any land transportation operator or owner of motor vehicle or any other
person violating any of the provisions of the preceding sections shall be punished by
a fine of not less than Five hundred pesos (P500.00) and/or imprisonment for not
more than six (6) months. The violation of Section 390 by a land transportation
operator shall be a sufficient cause for the revocation of the certificate of public
convenience issued by the Land Transportation Franchising and Regulatory Board
covering the vehicle concerned.
Section 402. Whenever any violation of the provisions of this chapter is committed
by a corporation or association, or by a government office or entity, the executive
officer or officers of said corporation, association or government office or entity who
shall have knowingly permitted, or failed to prevent, said violation shall be held liable
as principals.
CHAPTER VII
MUTUAL BENEFIT ASSOCIATIONS AND
TRUSTS FOR CHARITABLE USES
TITLE 1
MUTUAL BENEFIT ASSOCIATIONS
Section 403. Any society, association or corporation, without capital stock, formed
or organized not for profit but mainly for the purpose of paying sick benefits to
members, or of furnishing financial support to members while out of employment, or
of paying to relatives of deceased members of fixed or any sum of money, irrespective
of whether such aim or purpose is carried out by means of fixed dues or assessments
collected regularly from the members, or of providing, by the issuance of certificates
of insurance, payment of its members of accident or life insurance benefits out of
such fixed and regular dues or assessments, but in no case shall include any society,
association, or corporation with such mutual benefit features and which shall be
carried out purely from voluntary contributions collected not regularly and/or no
Nigel Carmelo Q. Reago 103

fixed amount from whomsoever may contribute, shall be known as a mutual benefit
association within the intent of this Code.
Any society, association, or corporation principally organized as a labor union shall
be governed by the Labor Code notwithstanding any mutual benefit feature
provisions in its charter as incident to its organization.
In no case shall a mutual benefit association be organized and authorized to transact
business as a charitable or benevolent organization, and whenever it has this feature
as incident to its existence, the corresponding charter provision shall be revised to
conform with the provision of this section. Mutual benefit association, already
licensed to transact business as such on the date this Code becomes effective, having
charitable or benevolent feature shall abandon such incidental purpose upon
effectivity of this Code if they desire to continue operating as such mutual benefit
associations.
Section 404. A mutual benefit association, before it may transact as such, must first
secure a license from the Commissioner. The application for such license shall be filed
with the Commissioner together with certified true copies of the articles of
incorporation or the constitution and bylaws of the association, and all amendments
thereto, and such other documents or testimonies as the Commissioner may require.
No license shall be granted to a mutual benefit association until the Commissioner
shall have been satisfied by such examination as he may make and such evidence as
he may require that the association is qualified under existing laws to operate and
transact business as such. The Commissioner may refuse to issue a license to any
mutual benefit association if, in his judgment, such refusal will best promote the
interest of the members of such association and of the people of this country. Any
license issued shall expire on the last day of December of the third year following its
issuance and, upon proper application, may be renewed if the association is
continuing to comply with existing laws, rules and regulations, orders, instructions,
rulings and decisions of the Commissioner. Every association receiving any such
license shall be subject to the supervision of the Commissioner: Provided, That no
such license shall be granted to any such association if such association has no actuary.
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Section 405. No mutual benefit association shall be issued a license to operate as
such unless it has constituted and established a Guaranty Fund by depositing with the
Commissioner an initial minimum amount of Five million pesos (P5,000,000.00) in
cash, or in government securities with a total value equal to such amount, to answer
for any valid benefit claim of any of its members.
All moneys received by the Commissioner for this purpose must be deposited by him
in interest-bearing deposits with any bank or banks authorized to transact business in
the Philippines for the account of the particular association constituting the Guaranty
Fund.
Any accrual to such fund, be it interest earned or dividend additions on moneys or
securities so deposited, may, with the prior approval of the Commissioner, be
withdrawn by the association if there is no pending benefit claim against it, including
interest thereon or dividend additions thereto.
The Commissioner, prior to or after licensing a mutual benefit association, may
require such association to increase its Guaranty Fund from the initial minimum
amount required to an amount equal to the capital investment required of an existing
domestic insurance company under Section 209 of this Code.
Section 406. Every mutual benefit association licensed to do business as such shall
issue membership certificates to its members specifying the benefits to which such
members are entitled.
Such certificates, together with the articles of incorporation of the association or its
constitution and bylaws, and all existing laws as may be pertinent shall constitute the
agreement, as of the date of its issuance, between the association and the member.
The membership certificate shall be in a form previously approved by the
Commissioner.
Section 407. A mutual benefit association may, by reinsurance agreement, cede in
whole or in part any individual risk or risks under certificates of insurance issued by it,
only to a life insurance company authorized to transact business or to a professional
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reinsurer authorized to accept life risks in the Philippines: Provided, That a copy of the
draft of such reinsurance agreement shall be submitted to the Commissioner for his
approval. The association may take credit for the reserves on such ceded risks to the
extent reinsured.
Section 408. The constitution or bylaws of a mutual benefit association must
distinctly state the purpose for which dues and/or assessments are made and
collected and the portion thereof which may be used for expenses.
Death benefit and other relief funds shall be created and used exclusively for paying
benefits due the members under their respective membership certificates. A general
fund shall likewise be created and used for expenses of administration of the
association.
A mutual benefit association shall only maintain free and unassigned surplus of not
more than twenty percent (20%) of its total liabilities as verified by the Commissioner.
Any amount in excess shall be returned to the members by way of dividends,
enhancing the equity value or providing benefits in kind and other relevant services.
In addition, subject to the approval of the Commissioner, a mutual benefit association
may allocate a portion for capacity building and research and development such as
developing new products and services, upgrading and improving operating systems
and equipment and continuing member education.
Section 409. Every outstanding membership certificate must have an equity value
equivalent to at least fifty percent (50%) of the total contributions collected thereon.
The equity value only applies to basic life insurance product and excludes optional
products.
Section 410. Every mutual benefit association must accumulate and maintain, out of
the periodic dues collected from its members, sufficient reserves for the payment of
claims or obligations for which it shall hold funds in securities satisfactory to the
Commissioner consisting of bonds of the Government of the Philippines, or any of its
political subdivisions and instrumentalities, or in such other good securities as may be
approved by the Commissioner.
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The reserve liability shall be established in accordance with actuarial procedures and
shall be approved by the Commissioner.
The articles of incorporation or the constitution and bylaws of a mutual benefit
association must provide that if its reserve as to all or any class of certificates becomes
impaired, its board of directors or trustees may require that there shall be paid by the
members to the association the amount of the members’ equitable proportion of
such deficiency as ascertained by said board and that if the payment be not made it
shall stand as an indebtedness against the membership certificates of the defaulting
members and draw interest not to exceed five percent (5%) per annum compounded
annually.
Section 411. A mutual benefit association may invest such portion of its funds as shall
not be required to meet pending claims and other obligations in any of the classes of
investments or types of securities in which life insurance companies doing business
in the Philippines may invest.
It may also grant loans to members on the security of a pledge or chattel mortgage
of personal properties of the borrowers, or in the absence thereof, on the security of
the membership certificate of the borrowing members, in which event such loan shall
become a first lien on the proceeds thereof.
Section 412. The Commissioner or any of his duly designated representatives, shall
have the power of visitation, audit and examination into the affairs, financial
condition, and methods of doing business of all mutual benefit associations, and he
shall cause such examination to be made at least once every two (2) years or
whenever it may be deemed proper and necessary. Free access to the books, records
and documents of the association shall be accorded to the Commissioner, or to his
representatives, in such manner that the Commissioner or his representatives may
readily verify or determine the true affairs, financial condition, and method of doing
business of such association. In the course of such examination, the Commissioner or
his duly designated representatives shall have authority to administer oaths and take
testimony or other evidence on any matter relating to the affairs of the association.
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All minutes of the proceedings of the board of directors or trustees of the association,
and those of the regular or special meetings of the members, shall be taken, and a
copy thereof, in English or in Pilipino, shall be submitted to the Commissioner’s
representatives or examiners in the course of such examination.
A copy of the findings of such examination, together with the recommendations of
the Commissioner, shall be furnished the association for its information and
compliance, and the same shall be taken up immediately in the meetings of the board
of directors or trustees and of the members of the association.
Section 413. Every mutual benefit association shall, annually on or before the
thirtieth day of April of each year, render to the Commissioner an annual statement
in such form and detail as may be prescribed by the Commissioner, signed and sworn
to by the president, secretary, treasurer, and actuary of the association, showing the
exact condition of its affairs on the preceding thirty-first day of December.
Section 414. No money, aid or benefit to be paid, provided or tendered by any mutual
benefit association, shall be liable to attachment, garnishment, or other process, or
be seized, taken, appropriated, or applied by any legal or equitable process to pay any
debt or liability of a member or beneficiary, or any other person who may have a right
thereunder, either before or after payment.
Section 415. Any member of a mutual benefit association shall have the right at all
times to change the beneficiary or beneficiaries or add another beneficiary or other
beneficiaries in accordance with the rules and regulations of the association unless
he has expressly waived this right in the membership certificate. Every association
may, under such rules as it may adopt, limit the scope of beneficiaries and provide
that no beneficiary shall have or obtain any vested interest in the proceeds of any
certificate until the certificate has become due and payable under the terms of the
membership certificate.
Section 416. Any chapter affiliate independently licensed as a mutual benefit
association may consolidate or merge with any other similar chapter affiliate or with
the mother association.
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Section 417. Any mutual benefit association may be converted into and licensed as a
mutual life insurance company by complying with the requirements of the pertinent
provisions of this Code and submitting the specific plan for such conversion to the
Commissioner for his approval. Such plan, as approved, shall then be submitted to
the members either in the regular meeting or in a special meeting called for the
purpose for their adoption. The affirmative vote of at least two-thirds (2/3) of all the
members shall be necessary in order to consider such plan as adopted.
No such conversion shall take effect unless and until approved by the Commissioner.
Section 418. No mutual benefit association shall be dissolved without first notifying
the Commissioner and furnishing him with a certified copy of the resolution
authorizing the dissolution, duly adopted by the affirmative vote of two-thirds (2/3)
of the members at a meeting called for that purpose, the financial statements as of
the date of the resolution, and such other papers or documents as may be required
by the Commissioner.
No dissolution shall proceed until and unless approved by the Commissioner and all
proceedings in connection therewith shall be witnessed and attested by his duly
designated representative.
No mutual benefit association shall be officially declared as dissolved until after the
Commissioner so certifies that all outstanding claims against the association have
been duly settled and liquidated.
Section 419. The Commissioner shall, after notice and hearing, have the power either
to suspend or revoke the license issued to a mutual benefit association if he finds that
the association has:
(a) Failed to comply with any provision of this Code;
(b) Failed to comply with any other law or regulation obligatory upon it;
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(c) Failed to comply with any order, ruling, instruction, requirement or
recommendation of the Commissioner;
(d) Exceeded its power to the prejudice of its members;
(e) Conducted its business fraudulently or hazardously;
(f) Rendered its affairs and condition to one of insolvency; or
(g) Failed to carry out its aims and purposes for which it was organized due
to any cause.
After receipt of the order from the Commissioner suspending or revoking the license,
the association must immediately exert efforts to remove such cause or causes which
brought about the order and, upon proper showing, may apply with the
Commissioner for the lifting of the order and restoration or revival of the license so
revoked or suspended.
Section 420. For failure to remove such cause or causes which brought about the
suspension or revocation of the license of a mutual benefit association, the
Commissioner shall apply under this Code for an order from the proper court to
liquidate such association.
The provisions of Titles 14 and 15, Chapter III, pertaining to the appointment of a
conservator and proceedings upon insolvency of an insurance company shall, insofar
as practicable, apply to mutual benefit associations.
Section 421. To secure the enforcement of any provision under this title, the
Commissioner may issue such rules, rulings, instructions, orders and circulars.
Section 422. The violation of any provision of this title shall subject the person
violating or the officer of the association responsible therefor to a fine of not less than
Ten thousand pesos (P10,000.00), or imprisonment of not exceeding three (3) years,
or both such fine and imprisonment, at the discretion of the court.
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Section 423. All provisions of this Code governing life insurance companies and such
other provisions whenever practicable and necessary, shall be applicable to mutual
benefit associations.
TITLE 2
TRUSTS FOR CHARITABLE USES
Section 424. The term trust for charitable uses, within the intent of this Code, shall
include, all the real or personal properties or funds, as well as those acquired with the
fruits or income therefrom or in exchange or substitution thereof, given to or received
by any person, corporation, association, foundation, or entity, except the National
Government, its instrumentalities or political subdivisions, for charitable, benevolent,
educational, pious, religious, or other uses for the benefit of the public at large or a
particular portion thereof or for the benefit of an indefinite number of persons.
Section 425. The term trustee shall include any individual, corporation, association,
foundation, or entity, except the National Government, its instrumentalities or
political subdivisions, in charge of, or acting for, or concerned with the administration
of, the trust referred to in the section immediately preceding and with the proper
application of trust property.
Section 426. The term trust property shall include all real or personal properties or
funds pertaining to the trust as well as those acquired with the fruits or income
therefrom or in exchange or substitution thereof.
Section 427. All trustees shall, before entering in the performance of the duties of
their trust, obtain a certificate of registration from the Commissioner. The registration
shall expire on December 31 of the third year following its issuance unless it is
renewed.
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All provisions of this Code governing mutual benefit associations and such other
provisions herein, whenever practicable and necessary, shall be applicable to trusts
for charitable uses.
Section 428. The treasurer of a charitable trust shall file a fidelity bond in the amount
commensurate with the value of the trust property in his custody, as may be
determined by the Commissioner.
CHAPTER VIII
TRUST BUSINESS IN GENERAL
Section 429. An insurance company may engage in limited trust business, consisting
of managing funds pertaining only to retirement and pre-need plans, provided it has
secured a license to do so from the Bangko Sentral ng Pilipinas. This trust business
shall be separate and distinct from the general business of the insurance company
and shall be subject to rules and regulations as may be promulgated by the Bangko
Sentral ng Pilipinas in consultation with the Commissioner.
CHAPTER IX
REGISTRATION, RESPONSIBILITIES AND
OVERSIGHT OF SELF-REGULATORY
ORGANIZATIONS
Section 430. The Commissioner shall have the power to register as a self-regulatory
organization, or otherwise grant licenses, and to regulate, supervise, examine,
suspend or otherwise discontinue, as a condition for the operation of organizations
whose operations are related to or connected with the insurance market such as, but
not limited to, associations of insurance companies, whether life or non-life,
reinsurers, actuaries, agents, brokers, dealers, mutual benefit associations, trusts,
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rating agencies, and other persons regulated by the Commissioner, which are
engaged in the business regulated by this Code.
The Commissioner may prescribe rules and regulations which are necessary or
appropriate in the public interest or for the protection of investors to govern self-
regulatory organizations and other organizations licensed or regulated pursuant to
the authority granted hereunder including, but not limited to, the requirement of
cooperation within and among all participants in the insurance market to ensure
transparency and facilitate exchange of information.
Section 431. An association cannot be registered as a self-regulatory organization
unless the Commissioner determines that:
(a) The association is so organized and has the capacity to be able to carry
out the purposes of this Code and to comply with, and to enforce compliance
by its members and persons associated with its members, with the provisions
of this Code, the rules and regulations thereunder, and the rules of the
association.
(b) The rules of the association, notwithstanding anything in the Corporation
Code to the contrary, provide the following:
(1) Qualifications and the disqualifications on membership of the
association;
(2) A fair representation of its members to serve on the board of
directors of the association and the administration of its affairs, and
that any natural person associated with a juridical entity that is a
member shall also be deemed to be a member for this purpose;
(3) The president of the association and at least two (2) independent
directors as members of the board of directors of the association;
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(4) Equitable allocation of reasonable dues, fees, and other charges
among members and other persons using any facility or system which
the association operates or controls;
(5) The prevention of fraudulent and manipulative acts and practices
to protect the insuring public and the promotion of just and equitable
principles of business;
(6) Members and persons associated with its members subject to
discipline for violation of any provision of this Code, the rules or
regulations thereunder, or the rules of the association;
(7) Fair procedure for the disciplining of members and persons
associated with members; and
(8) The prohibition or limitation of access to services offered by the
association or a member thereof.
Section 432. A self-regulatory organization may examine and verify the qualifications
of an applicant to become a member in accordance with procedures established by
the rules of the association.
A self-regulatory organization shall deny membership or condition the membership
of an entity, if it does not meet the standards of financial responsibility, operational
capability, training, experience, or competence that are prescribed by the rules of the
association; or has engaged, and there is a reasonable likelihood it will again engage,
in acts or practices inconsistent with just and equitable principles of fair trade.
A self-regulatory organization may deny membership to an entity not engaged in a
type of business in which the rules of the association require members to be engaged.
Section 433. Upon the filing of an application for registration as a self-regulatory
organization under this title, the Commissioner shall have ninety (90) days within
which to either grant registration or institute a proceeding to determine whether
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registration should be denied. In the event proceedings are instituted, the
Commissioner shall have two hundred seventy (270) days within which to conclude
such proceedings at which time he shall, by order, grant or deny such registration.
Section 434. Every self-regulatory organization shall comply with the provisions of
this Code, the rules and regulations thereunder, and its own rules, and enforce
compliance therewith by its members, persons associated with its members or its
participants, notwithstanding any provision of the Corporation Code to the contrary.
Section 435. Each self-regulatory organization shall submit to the Commissioner for
prior approval any proposed rule or amendment thereto, together with a concise
statement of the reason and effect of the proposed amendment.
Within sixty (60) days after submission of a proposed amendment, the Commissioner
shall, by order, approve the proposed amendment. Otherwise, the same may be
made effective by the self-regulatory organization.
In the event of an emergency requiring action for the protection of the insuring public,
a self-regulatory organization may put a proposed amendment into effect
summarily: Provided, however, That a copy of the same shall be immediately
submitted to the Commissioner.
The Commissioner is further authorized, if after making appropriate request in
writing to a self-regulatory organization that such organization effect on its own
behalf specified changes in its rules and practices and, after due notice and hearing,
it determines that such changes have not been effected, and that such changes are
necessary, by rule or regulation or by order, may alter, abrogate or supplement the
rules of such self-regulatory organization insofar as necessary or appropriate to effect
such changes in respect of such matters as:
(a) Safeguards in respect of the financial responsibility of members and
adequate provision against the evasion of financial responsibility through the
use of corporate forms or special partnerships;
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(b) The supervision of market practices;
(c) The manner, method and place of soliciting business;
(d) The fixing of reasonable rates of fees, interest, listing and other charges,
but not rates of commission; and self-regulatory organization; and
(e) The supervision, auditing and disciplining of members.
In addition to the general powers of the Commissioner over the entities under
supervision, the Commissioner, after due notice and hearing, is authorized, in the
public interest and to protect the insuring public:
(1) To suspend for a period not exceeding twelve (12) months or to revoke
the registration of a self-regulatory organization, or to censure or impose
limitations on the activities, functions and operations of such self-regulatory
organization, if the Commission finds that such a self-regulatory organization
has willfully violated or is unable to comply with any provision of this Code or
of the rules and regulations thereunder, or its own rules, or has failed to
enforce compliance therewith by a member of, person associated with a
member, or a participant in such self-regulatory organization;
(2) To expel from a self-regulatory organization any member thereof or any
participant therein who is found to have willfully violated any provision of this
Code or suspend for a period not exceeding twelve (12) months for violation
of any provision of this Code or any other law administered by the
Commission, or the rules and regulations thereunder, or effected, directly or
indirectly, any transaction for any person who, such member or participant
had reason to believe, was violating in respect of such transaction any of such
provisions; and
(3) To remove from office or censure any officer or director of a self-
regulatory organization if it finds that such officer or director has violated any
provision of this Code, any other law administered by the Commissioner, the
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rules or regulations thereunder and the rules of such self-regulatory
organization, or has abused his authority, or without reasonable justification
or excuse has failed to enforce compliance with any of such provisions.
Section 436. (a) A self-regulatory organization is authorized to discipline a member
of or participant in such self-regulatory organization, or any person associated with a
member, including suspending or expelling such member or participant, or
suspending or barring such person from being associated with a member, if engaged
in acts or practices inconsistent with just and equitable principles of fairness or in
willful violation of any provision of this Code, any other law administered by the
Commission, the rules or regulations thereunder, or the rules of the self-regulatory
organization. In any disciplinary proceeding by a self-regulatory organization (other
than a summary proceeding pursuant to paragraph (b) of this section) the self-
regulatory organization shall bring specific charges, provide notice to the person
charged, afford the person charged with an opportunity to defend against the charges,
and keep a record of the proceedings. A determination to impose a disciplinary
sanction shall be supported by a written statement of the offense, a summary of the
evidence presented and a statement of the sanction imposed.
(b) A self-regulatory organization may summarily:
(1) Suspend a member, participant or person associated with a member who
has been or is expelled or suspended from any other self-regulatory
organization; or
(2) Suspend a member who the self-regulatory organization finds to be in
such financial or operating difficulty that the member or participant cannot
be permitted to continue to do business as a member with safety to investors,
creditors, other members, participants or the self-regulatory
organization: Provided, That the self-regulatory organization immediately
notifies the Commission of the action taken. Any person aggrieved by a
summary action pursuant to this paragraph shall be promptly afforded an
opportunity for a hearing by the association in accordance with the preceding
paragraph. The Commissioner, by order, may stay a summary action on his
Nigel Carmelo Q. Reago 110

own or upon application by any person aggrieved thereby, if the
Commissioner determines summarily or after due notice and hearing (which
hearing may consist solely of the submission of affidavits or presentation of
oral arguments), that a stay is consistent with the public interest and the
protection of the insuring public.
(c) A self-regulatory organization shall promptly notify the Commission of any
disciplinary sanction on any member thereof or participant therein, any denial of
membership or participation in such organization, or the imposition of any
disciplinary sanction on a person associated with a member or a bar of such person
from becoming so associated. Within thirty (30) days after such notice, any aggrieved
person may appeal to the Commissioner from, or the Commissioner on its own
motion within such period, may institute review of, the decision of the self-regulatory
organization, at the conclusion of which, after due notice and hearing (which may
consist solely of review of the record before the self-regulatory organization), the
Commissioner shall affirm, modify or set aside the sanction. In such proceeding, the
Commissioner shall determine whether the aggrieved person has engaged or omitted
to engage in the acts and practices as found by the self-regulatory organization,
whether such acts and practices constitute willful violations of this Code, any other
law administered by the Commission, the rules or regulations thereunder, or the rules
of the self-regulatory organization as specified by such organization, whether such
provisions were applied in a manner consistent with the purposes of this Code, and
whether, with due regard for the public interest and the protection of investors, the
sanction is excessive or oppressive.
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CHAPTER X
THE INSURANCE COMMISSIONER
TITLE 1
ADMINISTRATIVE AND ADJUDICATORY POWERS
Section 437. The Insurance Commissioner shall be appointed by the President of the
Republic of the Philippines for a term of six (6) years without reappointment and who
shall serve as such until the successor shall have been appointed and qualified. If the
Insurance Commissioner is removed before the expiration of his term of office, the
reason for the removal must be published.
The Insurance Commissioner shall have the duty to see that all laws relating to
insurance, insurance companies and other insurance matters, mutual benefit
associations, and trusts for charitable uses are faithfully executed and to perform the
duties imposed upon him by this Code, and shall, notwithstanding any existing laws
to the contrary, have sole and exclusive authority to regulate the issuance and sale of
variable contracts as defined in Section 238 hereof and to provide for the licensing of
persons selling such contracts, and to issue such reasonable rules and regulations
governing the same.
The Commissioner may issue such rulings, instructions, circulars, orders and
decisions as may be deemed necessary to secure the enforcement of the provisions
of this Code, to ensure the efficient regulation of the insurance industry in accordance
with global best practices and to protect the insuring public. Except as otherwise
specified, decisions made by the Commissioner shall be appealable to the Secretary
of Finance.
In addition to the foregoing, the Commissioner shall have the following powers and
functions:
(a) Formulate policies and recommendations on issues concerning the
insurance industry, advise Congress and other government agencies on all
Nigel Carmelo Q. Reago 111

aspects of the insurance industry and propose legislation and amendments
thereto;
(b) Approve, reject, suspend or revoke licenses or certificates of registration
provided for by this Code;
(c) Impose sanctions for the violation of laws and the rules, regulations and
orders issued pursuant thereto;
(d) Prepare, approve, amend or repeal rules, regulations and orders, and
issue opinions and provide guidance on and supervise compliance with such
rules, regulations and orders;
(e) Enlist the aid and support of, and/or deputize any and all enforcement
agencies of the government in the implementation of its powers and
functions under this Code;
(f) Issue cease and desist orders to prevent fraud or injury to the insuring
public;
(g) Punish for contempt of the Commissioner, both direct and indirect, in
accordance with the pertinent provisions of and penalties prescribed by the
Rules of Court;
(h) Compel the officers of any registered insurance corporation or
association to call meetings of stockholders or members thereof under its
supervision;
(i) Issue subpoena duces tecum and summon witnesses to appear in any
proceeding 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;
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(j) Suspend or revoke, after proper notice and hearing, the license or
certificate of authority of any entity or person under its regulation, upon any
of the grounds provided by law;
(k) Conduct an examination to determine compliance with laws and
regulations if the circumstances so warrant as determined by appropriate
rules and regulations;
(l) Investigate not oftener than once a year from the last date of examination
to determine whether an institution is conducting its business on a safe and
sound basis: Provided, That, the deficiencies/irregularities found by or
discovered by an audit shall be immediately addressed;
(m) Inquire into the solvency and liquidity of the institutions under its
supervision and enforce prompt corrective action;
(n) To retain and utilize, in addition to its annual budget, all fees, charges and
other income derived from the regulation of insurance companies and other
supervised persons or entities;
(o) To fix and assess fees, charges and penalties as the Commissioner may
find reasonable in the exercise of regulation; and
(p) 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
express powers granted the Commission to achieve the objectives and
purposes of this Code.
The Commission shall indemnify the Commissioner, Deputy Commissioner, and other
officials of the Commission, including personnel performing supervision and
examination functions, for all costs and expenses reasonably incurred by such persons
in connection with any civil or criminal actions, suits or proceedings to which they
may be made a party to by the reason of the performance of their duties and
Nigel Carmelo Q. Reago 112

functions, unless they are finally adjudged in such actions, suits or proceedings to be
liable for negligence or misconduct.
In the event of settlement or compromise, indemnification shall be provided only in
connection with such matters covered by the settlement as to which the Commission
is advised by external counsel that the persons 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 Commission in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
Commissioner, Deputy Commissioner, officer or employee to repay the amount
advanced should it ultimately be determined by the Commission that the person is
not entitled to be indemnified.
Section 438. In addition to the administrative sanctions provided elsewhere in this
Code, the Insurance Commissioner is hereby authorized, at his discretion, to impose
upon insurance companies, their directors and/or officers and/or agents, for any
willful failure or refusal to comply with, or violation of any provision of this Code, or
any order, instruction, regulation, or ruling of the Insurance Commissioner, or any
commission or irregularities, and/or conducting business in an unsafe or unsound
manner as may be determined by the Insurance Commissioner, the following:
(a) Fines not less than Five thousand pesos (P5,000.00) and not more than
Two hundred thousand pesos (P200,000.00); and
(b) Suspension, or after due hearing, removal of directors and/or officers
and/or agents.
Section 439. The Commissioner shall have the power to adjudicate claims and
complaints involving any loss, damage or liability for which an insurer may be
answerable under any kind of policy or contract of insurance, or for which such
insurer may be liable under a contract of suretyship, or for which a reinsurer may be
sued under any contract of reinsurance it may have entered into; or for which a
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mutual benefit association may be held liable under the membership certificates it
has issued to its members, where the amount of any such loss, damage or liability,
excluding interest, cost and attorney’s fees, being claimed or sued upon any kind of
insurance, bond, reinsurance contract, or membership certificate does not exceed in
any single claim Five million pesos (P5,000,000.00).
The power of the Commissioner does not cover the relationship between the
insurance company and its agents/brokers but is limited to adjudicating claims and
complaints filed by the insured against the insurance company.
The Commissioner may authorize any officer or group of officers under him to
conduct investigation, inquiry and/or hearing and decide claims and he may issue
rules governing the conduct of adjudication and resolution of cases. The Rules of
Court shall have suppletory application.
The party filing an action pursuant to the provisions of this section thereby submits
his person to the jurisdiction of the Commissioner. The Commissioner shall acquire
jurisdiction over the person of the impleaded party or parties in accordance with and
pursuant to the provisions of the Rules of Court.
The authority to adjudicate granted to the Commissioner under this section shall be
concurrent with that of the civil courts, but the filing of a complaint with the
Commissioner shall preclude the civil courts from taking cognizance of a suit involving
the same subject matter.
Any decision, order or ruling rendered by the Commissioner after a hearing shall have
the force and effect of a judgment. Any party may appeal from a final order, ruling or
decision of the Commissioner by filing with the Commissioner within thirty (30) days
from receipt of copy of such order, ruling or decision a notice of appeal to the Court
of Appeals in the manner provided for in the Rules of Court for appeals from the
Regional Trial Court to the Court of Appeals.
For the purpose of any proceeding under this section, the Commissioner, or any
officer thereof designated by him is empowered to administer oaths and affirmation,
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subpoena witnesses, compel their attendance, take evidence, and require the
production of any books, papers, documents, or contracts or other records which are
relevant or material to the inquiry.
A full and complete record shall be kept of all proceedings had before the
Commissioner, or the officers thereof designated by him, and all testimony shall be
taken down and transcribed by a stenographer appointed by the Commissioner.
In order to promote party autonomy in the resolution of cases, the Commissioner
shall establish a system for resolving cases through the use of alternative dispute
resolution.
TITLE 2
FEES AND OTHER SOURCES OF FUNDS
Section 440. (a) For the issuance or renewal of certificates of authority, licenses and
certificates of registration, pursuant to pertinent provisions of this Code, the
Commissioner shall collect and receive fees which shall be not less than the following:
For each certificate of authority issued to an insurance company doing
business in the Philippines, Two hundred pesos (P200.00).
For each special certificate of authority issued to a servicing insurance
company, One hundred pesos (P100.00).
For each license issued to a general agent of an insurance company, Fifty
pesos (P50.00).
For each license issued to an insurance agent, Twenty-five pesos (P25.00).
For each license issued to an agent of variable contract policy, Twenty-five
pesos (P25.00).
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For each license issued to an insurance broker, One hundred pesos (P100.00).
For each license issued to a reinsurance broker, One hundred pesos
(P100.00).
For each license issued to an insurance adjuster, One hundred pesos
(P100.00).
For each certificate of registration issued to an actuary, Fifty pesos (P50.00).
For each certificate of registration issued to a resident agent, Fifty pesos
(P50.00).
For each license issued to a rating organization, One hundred pesos
(P100.00).
For each certificate of registration issued to a non-life company underwriter,
Fifty pesos (P50.00).
For each license issued to a mutual benefit association, Ten pesos (P10.00).
For each certificate of registration issued to a trust for charitable uses, Ten
pesos (P10.00).
All certificates of authority and all other licenses, as well as all certificates of
registration, issued to any person, partnership, association or corporation under the
pertinent provisions of this Code for which no expiration date has been prescribed,
shall expire on the last day of December of the third year from its issuance and shall
be renewed upon application therefor and payment of the corresponding fee, if the
licensee or holder of such license or certificate is continuing to comply with all the
applicable provisions of existing laws, and of rules, instructions, orders and decisions
of the Commissioner.
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(b) For the filing of the annual statement referred to in Section 229, the
Commissioner shall collect and receive from the insurance company so filing a fee of
not less than Five hundred pesos (P500.00): Provided, That a fine of not less than One
hundred pesos (P100.00) shall be imposed and collected by the Commissioner for
each week of delay, or any fraction thereof, in the filing of the annual statement.
For the filing of annual statement referred to in Section 413, the Commissioner shall
collect and receive from the mutual benefit association so filing a fee of not less than
Ten pesos (P10.00): Provided, That a fine of not less than Ten pesos (P10.00) shall be
imposed and collected by the Commissioner for each week of delay, or any fraction
thereof, in the filing of the annual statement.
(c) For the examination prescribed in Section 253, the Commissioner shall collect and
receive fees according to the amount of its total assets, in the case of a domestic
company, or of its assets in the Philippines, in the case of a foreign company, not less
than the amount as follows:
(1) Two million pesos or more but less than Four million pesos, Four hundred
pesos (P400.00);
(2) Four million pesos or more but less than Six million pesos, Eight hundred
pesos (P800.00);
(3) Six million pesos or more but less than Eight million pesos, One thousand
two hundred pesos (P1,200.00);
(4) Eight million pesos or more but less than Ten million pesos, One thousand
six hundred pesos (P1,600.00);
(5) Ten million pesos or more, Two thousand pesos (P2,000.00);
Provided, That if the said examination is made in places outside the Metropolitan
Manila area, besides these fees, the Commissioner shall require of the company
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examined the payment of the actual and necessary travelling and subsistence
expenses of the examiner or examiners concerned.
For the examination prescribed in Section 412, the Commissioner shall collect and
receive a minimum fee of not less than One hundred pesos (P100.00) from the mutual
benefit association examined: Provided, That if such association has total assets of
more than One hundred thousand pesos (P100,000.00), an additional fee of not less
than Ten pesos (P10.00) for every Fifty thousand pesos (P50,000.00) in excess thereof
shall be imposed:
(d) For the filing of an application to withdraw from the Philippines under Title 18,
the Commissioner shall collect and receive from the foreign company so withdrawing
a fee of not less than One thousand pesos (P1,000.00).
(e) The Commissioner may fix and collect fees or charges for documents, transcripts,
or other materials which may be furnished by him not in excess of reasonable cost.
Section 441. The Commissioner, in accordance with the rules and regulations of the
Department of Budget and Management and other relevant regulatory agencies, shall
source the salary, allowances and other expenses from the retained amount of the
fees, charges, penalties and other income from the regulation of insurance companies
and other covered persons and entities, and from the Insurance Fund, which is
created out of the proceeds of taxes on insurance premiums mentioned in Section
255 of the National Internal Revenue Code, as amended.
MISCELLANEOUS PROVISIONS
Section 442. Any person, company or corporation subject to the supervision and
control of the Commissioner who violates any provision of this Code, for which no
penalty is provided, shall be deemed guilty of a penal offense, and upon conviction
be punished by a fine not exceeding Two hundred thousand pesos (P200,000.00) or
imprisonment of six (6) months, or both, at the discretion of the court.
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If the offense is committed by a company or corporation, the officers, directors, or Section 448. This Code shall take effect fifteen (15) days following its publication in a
other persons responsible for its operation, management, or administration, unless it newspaper of general circuation.
can be proved that they have taken no part in the commission of the offense, shall
likewise be guilty of a penal offense, and upon conviction be punished by a fine not
exceeding Two hundred thousand pesos (P200,000.00) or imprisonment of six (6)
months, or both, at the discretion of the court.

Section 443. All criminal actions for the violation of any of the provisions of this Code
shall prescribe after three (3) years from the discovery of such violation: Provided,
That such actions shall in any event prescribe after ten (10) years from the
commission of such violation.

Section 444. Any person, partnership, association or corporation heretofore

authorized, licensed or registered by the Commissioner shall be deemed to have been
authorized, licensed or registered under the provisions of this Code and shall be
governed by the provisions thereof: Provided, however, That where any such person,
partnership, association or corporation is affected by the new requirements of this
Code, said person, partnership, association or corporation shall, unless otherwise
herein provided, be given a period of one (1) year from the effectivity of this Code
within which to comply with the same.

Section 445. Transitory Provision. – Renewal of existing licenses, certificates of

authority or accreditation which will expire on June 30, 2013 shall be valid until
December 31, 2015. Thereafter, renewal shall be filed on the last day of December
every third year following the date of expiry of the license, certificate of authority or
accreditation.

Section 446. Repealing Clause. – Except as expressly provided by this Code, all laws,
decrees, orders, rules and regulations or parts thereof, inconsistent with any
provision of this Code shall be deemed repealed, amended or modified accordingly.

Section 447. Separability Clause. – If any provision of this Code or any part hereof be
declared invalid or unconstitutional, the remainder of the law or other provisions not
otherwise affected shall remain valid and subsisting.

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CIVIL CODE PROVISIONS ON TRANSPORATTION LAW
SECTION 4
Common Carriers (n)
SUBSECTION 1. General Provisions
Article 1732. Common carriers are persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods or both, by
land, water, or air, for compensation, offering their services to the public.
Article 1733. Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to all the
circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further expressed in
articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for
the safety of the passengers is further set forth in articles 1755 and 1756.
SUBSECTION 2. Vigilance Over Goods
Article 1734. Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
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(5) Order or act of competent public authority.
Article 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the
preceding article, if the goods are lost, destroyed or deteriorated, common carriers
are presumed to have been at fault or to have acted negligently, unless they prove
that they observed extraordinary diligence as required in article 1733.
Article 1736. The extraordinary responsibility of the common carrier lasts from the
time the goods are unconditionally placed in the possession of, and received by the
carrier for transportation until the same are delivered, actually or constructively, by
the carrier to the consignee, or to the person who has a right to receive them, without
prejudice to the provisions of article 1738.
Article 1737. The common carrier's duty to observe extraordinary diligence over the
goods remains in full force and effect even when they are temporarily unloaded or
stored in transit, unless the shipper or owner has made use of the right of stoppage
in transitu.
Article 1738. The extraordinary liability of the common carrier continues to be
operative even during the time the goods are stored in a warehouse of the carrier at
the place of destination, until the consignee has been advised of the arrival of the
goods and has had reasonable opportunity thereafter to remove them or otherwise
dispose of them.
Article 1739. In order that the common carrier may be exempted from responsibility,
the natural disaster must have been the proximate and only cause of the loss.
However, the common carrier must exercise due diligence to prevent or minimize loss
before, during and after the occurrence of flood, storm or other natural disaster in
order that the common carrier may be exempted from liability for the loss,
destruction, or deterioration of the goods. The same duty is incumbent upon the
common carrier in case of an act of the public enemy referred to in article 1734, No.
2.
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Article 1740. If the common carrier negligently incurs in delay in transporting the
goods, a natural disaster shall not free such carrier from responsibility.
Article 1741. If the shipper or owner merely contributed to the loss, destruction or
deterioration of the goods, the proximate cause thereof being the negligence of the
common carrier, the latter shall be liable in damages, which however, shall be
equitably reduced.
Article 1742. Even if the loss, destruction, or deterioration of the goods should be
caused by the character of the goods, or the faulty nature of the packing or of the
containers, the common carrier must exercise due diligence to forestall or lessen the
loss.
Article 1743. If through the order of public authority the goods are seized or
destroyed, the common carrier is not responsible, provided said public authority had
power to issue the order.
Article 1744. A stipulation between the common carrier and the shipper or owner
limiting the liability of the former for the loss, destruction, or deterioration of the
goods to a degree less than extraordinary diligence shall be valid, provided it be:
(1) In writing, signed by the shipper or owner;
(2) Supported by a valuable consideration other than the service rendered by
the common carrier; and
(3) Reasonable, just and not contrary to public policy.
Article 1745. Any of the following or similar stipulations shall be considered
unreasonable, unjust and contrary to public policy:
(1) That the goods are transported at the risk of the owner or shipper;
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(2) That the common carrier will not be liable for any loss, destruction, or
deterioration of the goods;
(3) That the common carrier need not observe any diligence in the custody of
the goods;
(4) That the common carrier shall exercise a degree of diligence less than that
of a good father of a family, or of a man of ordinary prudence in the vigilance
over the movables transported;
(5) That the common carrier shall not be responsible for the acts or omission
of his or its employees;
(6) That the common carrier's liability for acts committed by thieves, or of
robbers who do not act with grave or irresistible threat, violence or force, is
dispensed with or diminished;
(7) That the common carrier is not responsible for the loss, destruction, or
deterioration of goods on account of the defective condition of the car,
vehicle, ship, airplane or other equipment used in the contract of carriage.
Article 1746. An agreement limiting the common carrier's liability may be annulled by
the shipper or owner if the common carrier refused to carry the goods unless the
former agreed to such stipulation.
Article 1747. If the common carrier, without just cause, delays the transportation of
the goods or changes the stipulated or usual route, the contract limiting the common
carrier's liability cannot be availed of in case of the loss, destruction, or deterioration
of the goods.
Article 1748. An agreement limiting the common carrier's liability for delay on
account of strikes or riots is valid.
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Article 1749. A stipulation that the common carrier's liability is limited to the value of
the goods appearing in the bill of lading, unless the shipper or owner declares a
greater value, is binding.
Article 1750. A contract fixing the sum that may be recovered. by the owner or
shipper for the loss, destruction, or deterioration of the goods is valid, if it is
reasonable and just under the circumstances, and has been fairly and freely agreed
upon.
Article 1751. The fact that the common carrier has no competitor along the line or
route, or a part thereof, to which the contract refers shall be taken into consideration
on the question of whether or not a stipulation limiting the common carrier's liability
is reasonable, just and in consonance with public policy.
Article 1752. Even when there is an agreement limiting the liability of the common
carrier in the vigilance over the goods, the common carrier is disputably presumed to
have been negligent in case of their loss, destruction or deterioration.
Article 1753. The law of the country to which the goods are to be transported shall
govern the liability of the common carrier for their loss, destruction or deterioration.
Article 1754. The provisions of articles 1733 to 1753 shall apply to the passenger's
baggage which is not in his personal custody or in that of his employee. As to other
baggage, the rules in articles 1998 and 2000 to 2003 concerning the responsibility of
hotel-keepers shall be applicable.
SUBSECTION 3. Safety of Passengers
Article 1755. A common carrier is bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very cautious
persons, with a due regard for all the circumstances.
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Article 1756. In case of death of or injuries to passengers, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that
they observed extraordinary diligence as prescribed in articles 1733 and 1755.
Article 1757. The responsibility of a common carrier for the safety of passengers as
required in articles 1733 and 1755 cannot be dispensed with or lessened by
stipulation, by the posting of notices, by statements on tickets, or otherwise.
Article 1758. When a passenger is carried gratuitously, a stipulation limiting the
common carrier's liability for negligence is valid, but not for wilful acts or gross
negligence.
The reduction of fare does not justify any limitation of the common carrier's liability.
Article 1759. Common carriers are liable for the death of or injuries to passengers
through the negligence or wilful acts of the former's employees, although such
employees may have acted beyond the scope of their authority or in violation of the
orders of the common carriers.
This liability of the common carriers does not cease upon proof that they exercised
all the diligence of a good father of a family in the selection and supervision of their
employees.
Article 1760. The common carrier's responsibility prescribed in the preceding article
cannot be eliminated or limited by stipulation, by the posting of notices, by
statements on the tickets or otherwise.
Article 1761. The passenger must observe the diligence of a good father of a family
to avoid injury to himself.
Article 1762. The contributory negligence of the passenger does not bar recovery of
damages for his death or injuries, if the proximate cause thereof is the negligence of
the common carrier, but the amount of damages shall be equitably reduced.
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Article 1763. A common carrier is responsible for injuries suffered by a passenger on

account of the wilful acts or negligence of other passengers or of strangers, if the
common carrier's employees through the exercise of the diligence of a good father of
a family could have prevented or stopped the act or omission.

SUBSECTION 4. Common Provisions

Article 1764. Damages in cases comprised in this Section shall be awarded in

accordance with Title XVIII of this Book, concerning Damages. Article 2206 shall also
apply to the death of a passenger caused by the breach of contract by a common
carrier.

Article 1765. The Public Service Commission may, on its own motion or on petition of
any interested party, after due hearing, cancel the certificate of public convenience
granted to any common carrier that repeatedly fails to comply with his or its duty to
observe extraordinary diligence as prescribed in this Section.

Article 1766. In all matters not regulated by this Code, the rights and obligations of
common carriers shall be governed by the Code of Commerce and by special laws.

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CARRIAGE OF GOODS BY SEA ACT
COMMONWEALTH ACT No. 65
IN ACT TO DECLARE THAT PUBLIC ACT NUMBERED FIVE
HUNDRED AND TWENTY-ONE, KNOWN AS "CARRIAGE
OF GOODS BY SEA ACT," ENACTED BY THE SEVENTY-
FOURTH CONGRESS OF THE UNITED STATES, BE
ACCEPTED, AS IT IS HEREBY ACCEPTED BY THE NATIONAL
ASSEMBLY
WHEREAS, the Seventy-fourth Congress of the United States enacted Public Act
Numbered Five hundred and twenty-one, entitled:
"Carriage of Goods by Sea Act";
WHEREAS, the primordial purpose of the said Acts is to bring about uniformity in
ocean bills of lading and to give effect to the Brussels Treaty, signed by the United
States with other powers;
WHEREAS, the Government of the United States has left it to the Philippine
Government to decide whether or not the said Act shall apply to carriage of goods by
sea in foreign trade to and from Philippine ports;
WHEREAS, the said Act of Congress contains advanced legislation, which is in
consonance with modern maritime rules and the practices of the great shipping
countries of the world;
WHEREAS, shipping companies, shippers, and marine insurance companies, and
various chambers of commerce, which are directly affected by such legislation, have
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expressed their desire that said Congressional Act be made applicable and extended
to the Philippines; therefore,
Be it enacted by the National Assembly of the Philippines:
Section 1. That the provisions of Public Act Numbered Five hundred and twenty-one
of the Seventy-fourth Congress of the United States, approved on April sixteenth,
nineteen hundred and thirty-six, be accepted, as it is hereby accepted to be made
applicable to all contracts for the carriage of goods by sea to and from Philippine ports
in foreign trade: Provided, That nothing in the Act shall be construed as repealing any
existing provision of the Code of Commerce which is now in force, or as limiting its
application.
Section 2. This Act shall take effect upon its approval.
Approved: October 22,1936.
An Act Relating to the Carriage of Goods by Sea.
Be it enacted by the Senate and House of Representatives of the United States of
America in Congress assembled, That every bill of landing or similar document of title
which is evidence of a contract for the carriage of goods by sea to or from ports of the
United States, in foreign trade, shall have effect subject to the provisions of the Act.
TITLE I
Section 1. When used in this Act —
(a) The term "carrier" includes the owner or the charterer who enters into a
contract of carriage with a shipper.
(b) The term "contract of carriage" applies only to contracts of carriage
covered by a bill of lading or any similar document of title, insofar as such
document relates to the carriage of goods by sea, including any bill of lading
Nigel Carmelo Q. Reago 121

or any similar document as aforesaid issued under or pursuant to a charter
party from the moment at which such bill of lading or similar document of
title regulates the relations between a carrier and a holder of the same.
(c) The term "goods" includes goods, wares, merchandise, and articles of
every kind whatsoever, except live animals and cargo which by the contract
of carriage is stated as being carried on deck and is so carried.
(d) The term "ship" means any vessel used for the carriage of goods by sea.
(e) The term "carriage of goods" covers the period from the time when the
goods are loaded on to the time when they are discharged from the ship.
RISKS
Section 2. Subject to the provisions of section 6, under every contract of carriage of
goods by sea, the carrier in relation to the loading handling, stowage, carriage,
custody, care, and discharge of such goods, shall be subject to the responsibilities and
liabilities and entitled to the rights and immunities hereinafter set forth.
RESPONSIBILITIES AND LIABILITIES
Section 3. (1) The carrier shall be bound, before and at the beginning of the voyage,
to exercise due diligence to —
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;
(c) Make the holds, refrigerating and cooling chambers, and all other
parts of the ship in which goods are carried, fit and safe for their
reception carriage and preservation.
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(2) The carrier shall properly and carefully load, handle, stow, carry, keep,
care for, and discharge the goods carried.
(3) After receiving the goods into his charge the carrier, or the master or agent
of the carrier, shall, on demand of the shipper, issue to the shipper a bill of
lading showing among other things —
(a) The leading marks necessary for identification of the goods as the
same are furnished in writing by the shipper before the loading of
such goods starts, provided such marks are stamped or otherwise
shown clearly upon the goods if uncovered, or on the cases or
coverings in which such goods are contained, in such a manner as
should ordinarily remain legible until the end of the voyage.
(b) Either the number of packages or pieces, or the quantity or weight,
as the case may be, as furnished in writing by the shipper.
(c) The apparent order and condition of the goods: Provided, That no
carrier, master, or agent of the carrier, shall be bound to state or
show in the bill of lading any marks, number, quantity, or weight
which he has reasonable ground for suspecting not accurately to
represent the goods actually received, or which he has had no
reasonable means of checking.
(4) Such a bill of lading shall be prima facie evidence of the receipt by the
carrier of the goods as therein described in accordance with paragraphs (3)
(a), (b), and (c) of this section: Provided, That nothing in this Act shall be
construed as repealing or limiting the application of any part of the Act, as
amended, entitled "An Act relating to bills of lading in interstate and foreign
commerce," approved August 29, 1916 (U. S. C. title 49, secs. 81-124),
commonly known as the "Pomerene Bills of Lading Act."
(5) The shipper shall be deemed to have guaranteed to the carrier the
accuracy at the time of shipment of the marks, number, quantity, and weight,
Nigel Carmelo Q. Reago 122

as furnished by him; and the shipper shall indemnify the carrier against all
loss damages, and expenses arising or resulting from inaccuracies in such
particulars. The right of the carrier to such indemnity shall in no way limit his
responsibility and liability under the contract of carriage or to any person
other than the shipper.
(6) Unless notice of loss or damage and the general nature of such loss or
damage be given in writing to the carrier or his agent at the port of discharge
before or at the time of the removal of the goods into the custody of the
person entitled to delivery thereof under the contract of carriage, such
removal shall be prima facie evidence of the delivery by the carrier of the
goods as described in the bill of lading. If the loss or damage is not apparent,
the notice must be given within three days of the delivery.
Said notice of loss or damage maybe endorsed upon the receipt for the goods
given by the person taking delivery thereof.
The notice in writing need not be given if the state of the goods has at the
time of their receipt been the subject of joint survey or inspection.
In any event the carrier and the ship shall be discharged from all liability in
respect of loss or damage unless suit is brought within one year after delivery
of the goods or the date when the goods should have been delivered:
Provided, That if a notice of loss or damage, either apparent or concealed, is
not given as provided for in this section, that fact shall not affect or prejudice
the right of the shipper to bring suit within one year after the delivery of the
goods or the date when the goods should have been delivered
In the case of any actual or apprehended loss or damage the carrier and the
receiver shall give all reasonable facilities to each other for inspecting and
tallying the goods.
(7) After the goods are loaded the bill of lading to be issued by the carrier,
master, or agent of the carrier to the shipper shall, if the shipper so demands,
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be a "shipped" bill of lading Provided, That if the shipper shall have previously
taken up any document of title to such goods, he shall surrender the same as
against the issue of the "shipped" bill of lading, but at the option of the carrier
such document of title may be noted at the port of shipment by the carrier,
master, or agent with name or name the names of the ship or ships upon
which the goods have been shipped and the date or dates of shipment, and
when so noted the same shall for the purpose of this section be deemed to
constitute a "shipped" bill of lading.
(8) Any clause, covenant, or agreement in a contract of carriage relieving the
carrier or the ship from liability for loss or damage to or in connection with
the goods, arising from negligence, fault, or failure in the duties and
obligations provided in this section, or lessening such liability otherwise than
as provided in this Act, shall be null and void and of no effect. A benefit of
insurance in favor of the carrier, or similar clause, shall be deemed to be a
clause relieving the carrier from liability.
RIGHTS AND IMMUNITIES
Section 4. (1) Neither the carrier nor the ship shall be liable for loss or damage arising
or resulting from unseaworthiness unless caused by want of due diligence on the part
of the carrier to make the ship seaworthy, and to secure that the ship is properly
manned, equipped, and supplied, and to make to the holds, refrigerating and cool
chambers, and all other parts of the ship in which goods are carried fit and safe for
their reception, carriage, and preservation in accordance with the provisions of
paragraph (1) of section 3. Whenever loss or damage has resulted from
unseaworthiness, the burden of proving the exercise of due diligence shall be on the
carrier or other persons claiming exemption under the section.
(2) Neither the carrier nor the ship shall be responsible for loss or damage
arising or resulting from —
Nigel Carmelo Q. Reago 123

(a) Act, neglect, or default of the master, mariner, pilot, or the
servants of the carrier in the navigation or in the management of the
ship;
(b) Fire, unless caused by the actual fault or privity of the carrier;
(c) Perils, dangers, and accidents of the sea or other navigable waters;
(d) Act of God;
(e) Act of war,
(f) Act of public enemies;
(g) Arrest or restraint of princes, rulers, or people, or seizure under
legal process;
(h) Quarantine restrictions;
(i) Act or omission of the shipper or owner of the goods, his agent or
representative;
(j) Strikes or lockouts or stoppage or restraint of labor from whatever
cause, whether partial or general; Provided, That nothing herein
contained shall be construed to relieve a carrier from responsibility
for the carrier's own acts;
(k) Riots and civil commotions
(l) Saving or attempting to save life or property at sea;
(m) Wastage in bulk or weight or any other loss or damage arising
from inherent defect, quality, or vice of the goods;
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(n) Insufficiency of packing;
(o) Insufficiency of inadequacy of marks;
(p) Latent defects not discoverable by due diligence; and
(q) Any other cause arising without the actual fault and privity of the
carrier and without the fault or neglect of the agents or servants of
the carrier, but the burden of proof shall be on the person claiming
the benefit of this exception to show that neither the actual fault or
privity of the carrier nor the fault or neglect of the agents or servants
of the carrier contributed to the loss or damage.
(3) The shipper shall not be responsible for loss or damage sustained by the
carrier or the ship arising from any cause without the act, fault, or neglect of
the shipper, his agents, or servants.
(4) Any deviation in saving or attempting to save life or property at sea, or
any reasonable deviation shall not be deemed to be an infringement or
breach of this Act or of the contract of carriage, and the carrier shall not be
liable for any loss or damage resulting therefrom: Provided, however, That if
the deviation is for the purpose of loading cargo or unloading cargo or
passengers it shall, prima facie, be regarded as unreasonable.
(5) Neither the carrier nor the ship shall in any event be or become liable for
any loss or damage to or in connection with the transportation of goods in an
amount exceeding $600 per package lawful money of the United States, or in
case of goods not shipped in packages, per customary freight unit, or the
equivalent of that sum in other currency, unless the nature and value of such
goods have been declared by the shipper before shipment and inserted in the
bill of lading. This declaration, if embodied in the bill of lading, shall be prima
facie evidence, but shall not be conclusive on the carrier.
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By agreement between the carrier, master, or agent of the carrier, and the
shipper another maximum amount than that mentioned in this paragraph
may be fixed: Provided, That such maximum shall not be less than the figure
above named. In no event shall the carrier be liable for more than the amount
of damage actually sustained.
Neither the carrier nor the ship shall be responsible in any event for loss or
damage to or in connection with the transportation of the goods if the nature
or value thereof has been knowingly and fraudulently misstated by the
shipper in the bill of lading.
(6) Goods of an inflammable, explosive, or dangerous nature to the shipment
whereof the carrier, master or agent of the carrier, has not consented with
knowledge of their nature and character, may at any time before discharge
be landed at any place or destroyed or rendered innocuous by the carrier
without compensation, and the shipper of such goods shall be liable for all
damages and expenses directly or indirectly arising out of or resulting from
such shipment. If any such goods shipped with such knowledge and consent
shall become a danger to the ship or cargo, they may in like manner be landed
at any place, or destroyed or rendered innocuous by the carrier without
liability on the part of the carrier except to general average, if any.
SURRENDER OF RIGHTS AND IMMUNITIES AND INCREASE OF RESPONSIBILITIES
AND LIABILITIES
Section 5. A carrier shall be at liberty to surrender in whole or in part all or any of his
rights and immunities or to increase any of his responsibilities and liabilities under
this Act, provided such surrender or increase shall be embodied in the bill of lading
issued to the shipper.
The provisions of this Act shall not be applicable to charter parties; but if bills of lading
are issued in the case of a ship under charter party, they shall comply with the terms
of this Act. Nothing in this Act shall be held to prevent the insertion in a bill of lading
of any lawful provision regarding general average.
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SPECIAL CONDITIONS
Section 6. Notwithstanding the provisions of the preceding sections, a carrier, master
or agent of the carrier, and a shipper shall, in regard to any particular goods be at
liberty to enter into any agreement in any terms as to the responsibility and liability
of the carrier for such goods, and as to the rights and immunities of the carrier in
respect of such goods, or his obligation as to seaworthiness (so far as the stipulation
regarding seaworthiness is not contrary to public policy), or the care or diligence of
his servants or agents in regard to the loading, handling stowage, carriage, custody,
care, and discharge of the goods carried by sea: Provided, That in this case no bill of
lading has been or shall be issued and that the terms agreed shall be embodied in a
receipt which shall be a non-negotiable document and shall be marked as such.
Any agreement so entered into shall have full legal effect: Provided, That this section
shall not apply to ordinary commercial shipments made in the ordinary course of
trade but only to other shipments where the character or condition of the property
to be carried or the circumstances, terms, and conditions under which the carriage is
to be performed are such as reasonably to justify a special agreement.
Section 7. Nothing contained in this Act shall prevent a carrier or a shipper from
entering into any agreement, stipulation, condition, reservation, or exemption as to
the responsibility and liability of the carrier or the ship for the loss or damage to or in
connection with the custody and care and handling of goods prior to the loading on
and subsequent to the discharge from the ship on which the goods are carried by sea.
Section 8. The provisions of this Act shall not affect the rights and obligations of the
carrier under the provisions of the Shipping Act, 1916, or under the provisions of
section 4281 to 4289, inclusive, of the Revised Statutes of the United States, or of any
amendments thereto; or under the provisions of any other enactment for the time
being in force relating to the limitation of the liability of the owners of seagoing
vessels.
Nigel Carmelo Q. Reago 125

TITLE II
Section 9. Nothing contained in this Act shall be construed as permitting a common
carrier by water to discriminate between competing shippers similarly place in time
and circumstances, either (a) with respect to the right to demand and receive bills of
lading subject to the provisions of this Act; or (b) when issuing such bills of lading,
either in the surrender of any of the carrier's rights and immunities or in the increase
of any of the carrier's responsibilities and liabilities pursuant to section 6, title I, of
this Act or (c) in any other way prohibited by the Shipping Act, 1916, s amended.
Section 10. Section 25 of the Interstate Commerce Act is hereby amended by adding
the following proviso at the end of paragraph 4 thereof: "Provided, however, That
insofar as any bill of lading authorized hereunder relates to the carriage of goods by
sea, such bill of lading shall be subject to the provisions of the Carriage of Goods by
Sea Act."
Section 11. Where under the customs of any trade the weight of any bulk cargo
inserted in the bill of lading is a weight ascertained or accepted by a third party other
than the carrier or the shipper, and the fact that the weight is so ascertained or
accepted is stated in the bill of lading, then, notwithstanding any thing in this Act, the
bill of lading shall not be deemed to be prima facie evidence against the carrier of the
receipt of goods of the weight so inserted in the bill of lading, and the accuracy
thereof at the time of shipment shall not be deemed to have been guaranteed by the
shipper.
Section 12. Nothing in this Act shall be construed as superseding any part of the Act
entitled "An act relating to navigation of vessels, bills of lading, and to certain
obligations, duties, and rights in connection with the carriage of property," approved
February 13,1893, or of any other law which would be applicable in the absence of
this Act, insofar as they relate to the duties, responsibilities, and liabilities of the ship
or carrier prior to the time when the goods are loaded on or after the time they are
discharged from the ship.
COMMERCIAL LAW 2018
Section 13. This Act shall apply to all contracts for carriage of goods by sea to or from
ports of the United States in foreign trade. As used in this Act the term "United States"
includes its districts, territories, and possessions: Provided, however, That the
Philippine legislature may by law exclude its application to transportation to or from
ports of the Philippine Islands. The term "foreign trade" means the transportation of
goods between the ports of the United States and ports of foreign countries. Nothing
in this Act shall be held to apply to contracts for carriage of goods by sea between any
port of the United States or its possessions, and any other port of the United States
or its possession: Provided, however, That any bill of lading or similar document of
title which is evidence of a contract for the carriage of goods by sea between such
ports, containing an express statement that it shall be subject to the provisions of this
Act, shall be subjected hereto as fully as if subject hereto as fully as if subject hereto
by the express provisions of this Act: Provided, further, That every bill of lading or
similar document of title which is evidence of a contract for the carriage of goods by
sea from ports of the United States, in foreign trade, shall contain a statement that it
shall have effect subject to the provisions of this Act.
Section 14. Upon the certification of the Secretary of Commerce that the foreign
commerce of the United States in its competition with that of foreign nations is
prejudiced the provisions, or any of them, of Title I of this Act, or by the laws of any
foreign country or countries relating to the carriage of goods by sea, the President of
the United States, may, from time to time, by proclamation, suspend any or all
provisions of Title I of this Act for such periods of time or indefinitely as may be
designated in the proclamation. The President may at any time rescind such
suspension of Title I hereof, and any provisions thereof which may have been
suspended shall thereby be reinstated and again apply to contracts thereafter made
for the carriage of goods by sea. Any proclamation of suspension or rescission of any
such suspension shall take effect on a date named therein, which date shall be not
less than ten days from the issue of the proclamation.
Any contract for the carriage of goods by sea, subject to the provisions of this Act,
effective during any period when title I hereof, or any part thereof, is suspended, shall
be subject to all provisions of law now or hereafter applicable to that part of Title I
which may have thus been suspended.
Nigel Carmelo Q. Reago 126
 COMMERCIAL LAW 2018

Section 15. This Act shall take effect ninety days after the date of its approval; but
nothing in this Act shall apply during a period not to exceed one year following its
approval to any contract for the carriage of goods by sea, made before the date on
which this Act is approved, nor to any bill of lading or similar document of title issued,
whether before or after such date of approval in pursuance of any such contract as
aforesaid.

Section 16. This Act may be cited as the "Carriage of Goods by Sea Act."

Approved, April 16, 1936.

Nigel Carmelo Q. Reago 127


WARSAW CONVENTION
Convention for the Unification of Certain Rules
Relating to International Carriage by Air, Signed at
Warsaw on 12 October 1929
Chapter I - Scope - Definitions
Article 1--1. This Convention applies to all international carriage of persons,
luggage or goods performed by aircraft for reward. It applies equally to
gratuitous carriage by aircraft performed by an air transport undertaking.
2. For the purposes of this Convention the expression "international carriage"
means any carriage in which, according to the contract made by the parties, the
place of departure and the place of destination, whether or not there be a break
in the carriage or a transhipment, are situated either within the territories of
two High Contracting Parties, or within the territory of a single High Contracting
Party, if there is an agreed stopping place within a territory subject to the
sovereignty, suzerainty, mandate or authority of another Power, even though
that Power is not a party to this Convention. A carriage without such an agreed
stopping place between territories subject to the sovereignty, suzerainty,
mandate or authority of the same High Contracting Party is not deemed to be
international for the purposes of this Convention.
3. A carriage to be performed by several successive air carriers is deemed, for
the purposes of this Convention, to be one undivided carriage, if it has been
regarded by the parties as a single operation, whether it had been agreed upon
under the form of a single contract or of a series of contracts, and it does not
lose its international character merely because one contract or a series of
contracts is to be performed entirely within a territory subject to the sovereignty,
suzerainty, mandate or authority of the same High Contracting Party
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Article 2-- 1. This Convention applies to carriage performed by the State or by
legally constituted public bodies provided it falls within the conditions laid down
in Article 1.
2. This Convention does not apply to carriage performed under the terms of any
international postal Convention.
Chapter II - Documents of Carriage
Section I - Passenger Ticket
Article 3-- 1. For the carriage of passengers the carrier must deliver a passenger
ticket which shall contain the following particulars:-
(a) the place and date of issue;
(b) the place of departure and of destination;
(c) the agreed stopping places, provided that the carrier may reserve the
right to alter the stopping places in case of necessity, and that if he
exercises that right, the alteration shall not have the effect of depriving
the carriage of its international character;
(d) the name and address of the carrier or carriers;
(e) a statement that the carriage is subject to the rules relating to
liability established by this Convention.
2. The absence, irregularity or loss of the passenger ticket does not affect the
existence or the validity of the contract of carriage, which shall none the less be
subject to the rules of this Convention. Nevertheless, if the carrier accepts a
passenger without a passenger ticket having been delivered he shall not be
entitled to avail himself of those provisions of this Convention which exclude or
limit his liability.
Nigel Carmelo Q. Reago 128

Section II - Luggage Ticket
Article 4-- 1. For the carriage of luggage, other than small personal objects of
which the passenger takes charge himself, the carrier must deliver a luggage
ticket.
2. The luggage ticket shall be made out in duplicate, one part for the passenger
and the other part for the carrier.
3. The luggage ticket shall contain the following particulars:-
(a) the place and date of issue;
(b) the place of departure and of destination;
(c) the name and address of the carrier or carriers;
(d) the number of the passenger ticket;
(e) a statement that delivery of the luggage will be made to the bearer
of the luggage ticket;
(f) the number and weight of the packages;
(g) the amount of the value declared in accordance with Article 22(2);
(h) a statement that the carriage is subject to the rules relating to
liability established by this Convention.
4. The absence, irregularity or loss of the luggage ticket does not affect the
existence or the validity of the contract of carriage, which shall none the less be
subject to the rules of this Convention. Nevertheless, if the carrier accepts
luggage without a luggage ticket having been delivered, or if the luggage ticket
does not contain the particulars set out at (d), (f) and (h) above, the carrier shall
not be entitled to avail himself of those provisions of the Convention which
exclude or limit his liability.
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Section III - Air Consignment Note
Article 5--1. Every carrier of goods has the right to require the consignor to make
out and hand over to him a document called an "air consignment note"; every
consignor has the right to require the carrier to accept this document.
2. The absence, irregularity or loss of this document does not affect the
existence or the validity of the contract of carriage which shall, subject to the
provisions of Article 9, be none the less governed by the rules of this Convention.
Article 6--1. The air consignment note shall be made out by the consignor in
three original parts and be handed over with the goods.
2. The first part shall be marked "for the carrier," and shall be signed by the
consignor. The second part shall be marked "for the consignee"; it shall be
signed by the consignor and by the carrier and shall accompany the goods. The
third part shall be signed by the carrier and handed by him to the consignor after
the goods have been accepted.
3. The carrier shall sign on acceptance of the goods.
4. The signature of the carrier may be stamped; that of the consignor may be
printed or stamped.
5. If, at the request of the consignor, the carrier makes out the air consignment
note, he shall be deemed, subject to proof to the contrary, to have done so on
behalf of the consignor.
Article 7—The carrier of goods has the right to require the consignor to make
out separate consignment notes when there is more than one package.
Article 8--The air consignment note shall contain the following particulars:-
(a) the place and date of its execution;
(b) the place of departure and of destination;
(c) the agreed stopping places, provided that the carrier may reserve the
right to alter the stopping places in case of necessity, and that if he
Nigel Carmelo Q. Reago 129

exercises that right the alteration shall not have the effect of depriving
the carriage of its international character;
(d) the name and address of the consignor;
(e) the name and address of the first carrier;
(f) the name and address of the consignee, if the case so requires;
(g) the nature of the goods;
(h) the number of the packages, the method of packing and the
particular marks or numbers upon them;
(i) the weight, the quantity and the volume or dimensions of the goods;
(j) the apparent condition of the goods and of the packing;
(k) the freight, if it has been agreed upon, the date and place of payment,
and the person who is to pay it;
(l) if the goods are sent for payment on delivery, the price of the goods,
and, if the case so requires, the amount of the expenses incurred;
(m) the amount of the value declared in accordance with Article 22 (2);
(n) the number of parts of the air consignment note;
(o) the documents handed to the carrier to accompany the air
consignment note;
(p) the time fixed for the completion of the carriage and a brief note of
the route to be followed, if these matters have been agreed upon;
(q) a statement that the carriage is subject to the rules relating to
liability established by this Convention.
COMMERCIAL LAW 2018
Article 9--If the carrier accepts goods without an air consignment note having
been made out, or if the air consignment note does not contain all the
particulars set out in Article 8(a) to (i) inclusive and (q), the carrier shall not be
entitled to avail himself of the provisions of this Convention which exclude or
limit his liability.
Article 10--1. The consignor is responsible for the correctness of the particulars
and statements relating to the goods which he inserts in the air consignment
note.
2. The consignor will be liable for all damage suffered by the carrier or any other
person by reason of the irregularity, incorrectness or incompleteness of the said
particulars and statements.
Article 11--1. The air consignment note is prima facie evidence of the conclusion
of the contract, of the receipt of the goods and of the conditions of carriage.
2. The statements in the air consignment note relating to the weight, dimensions
and packing of the goods, as well as those relating to the number of packages,
are prima facie evidence of the facts stated; those relating to the quantity,
volume and condition of the goods do not constitute evidence against the
carrier except so far as they both have been, and are stated in the air
consignment note to have been, checked by him in the presence of the
consignor, or relate to the apparent condition of the goods.
Article 12--1. Subject to his liability to carry out all his obligations under the
contract of carriage, the consignor has the right to dispose of the goods by
withdrawing them at the aerodrome of departure or destination, or by stopping
them in the course of the journey on any landing, or by calling for them to be
delivered at the place of destination or in the course of the journey to a person
other than the consignee named in the air consignment note, or by requiring
them to be returned to the aerodrome of departure. He must not exercise this
right of disposition in such a way as to prejudice the carrier or other consignors
and he must repay any expenses occasioned by the exercise of this right.
2. If it is impossible to carry out the orders of the consignor the carrier must so
inform him forthwith.
Nigel Carmelo Q. Reago 130

3. If the carrier obeys the orders of the consignor for the disposition of the goods
without requiring the production of the part of the air consignment note
delivered to the latter, he will be liable, without prejudice to his right of recovery
from the consignor, for any damage which may be caused thereby to any person
who is lawfully in possession of that part of the air consignment note.
4. The right conferred on the consignor ceases at the moment when that of the
consignee begins in accordance with Article 13. Nevertheless, if the consignee
declines to accept the consignment note or the goods, or if he cannot be
communicated with, the consignor resumes his right of disposition.
Article 13--1. Except in the circumstances set out in the preceding Article, the
consignee is entitled, on arrival of the goods at the place of destination, to
require the carrier to hand over to him the air consignment note and to deliver
the goods to him, on payment of the charges due and on complying with the
conditions of carriage set out in the air consignment note.
2. Unless it is otherwise agreed, it is the duty of the carrier to give notice to the
consignee as soon as the goods arrive.
3. If the carrier admits the loss of the goods, or if the goods have not arrived at
the expiration of seven days after the date on which they ought to have arrived,
the consignee is entitled to put into force against the carrier the rights which
flow from the contract of carriage.
Article 14--The consignor and the consignee can respectively enforce all the
rights given them by Articles 12 and 13, each in his own name, whether he is
acting in his own interest or in the interest of another, provided that he carries
out the obligations imposed by the contract.
Article 15--1. Articles 12, 13 and 14 do not affect either the relations of the
consignor or the consignee with each other or the mutual relations of third
parties whose rights are derived either from the consignor or from the
consignee.
2. The provisions of Articles 12, 13 and 14 can only be varied by express provision
in the air consignment note.
COMMERCIAL LAW 2018
Article 16--1. The consignor must furnish such information and attach to the air
consignment note such documents as are necessary to meet the formalities of
customs, octroi or police before the goods can be delivered to the consignee.
The consignor is liable to the carrier for any damage occasioned by the absence,
insufficiency or irregularity of any such information or documents, unless the
damage is due to the fault of the carrier or his agents.
2. The carrier is under no obligation to enquire into the correctness or sufficiency
of such information or documents.
Chapter III - Liability of the Carrier
Article 17--The carrier is liable for damage sustained in the event of the death
or wounding of a passenger or any other bodily injury suffered by a passenger,
if the accident which caused the damage so sustained took place on board the
aircraft or in the course of any of the operations of embarking or disembarking.
Article 18---1. The carrier is liable for damage sustained in the event of the
destruction or loss of, or of damage to, any registered luggage or any goods, if
the occurrence which caused the damage so sustained took place during the
carriage by air.
2. The carriage by air within the meaning of the preceding paragraph comprises
the period during which the luggage or goods are in charge of the carrier,
whether in an aerodrome or on board an aircraft, or, in the case of a landing
outside an aerodrome, in any place whatsoever.
3. The period of the carriage by air does not extend to any carriage by land, by
sea or by river performed outside an aerodrome. If, however, such a carriage
takes place in the performance of a contract for carriage by air, for the purpose
of loading, delivery or transshipment, any damage is presumed, subject to proof
to the contrary, to have been the result of an event which took place during the
carriage by air.
Article 19--The carrier is liable for damage occasioned by delay in the carriage
by air of passengers, luggage or goods.
Nigel Carmelo Q. Reago 131

Article 20--1. The carrier is not liable if he proves that he and his agents have
taken all necessary measures to avoid the damage or that it was impossible for
him or them to take such measures.
2. In the carriage of goods and luggage the carrier is not liable if he proves that
the damage was occasioned by negligent pilotage or negligence in the handling
of the aircraft or in navigation and that, in all other respects, he and his agents
have taken all necessary measures to avoid the damage.
Article 21--If the carrier proves that the damage was caused by or contributed
to by the negligence of the injured person the Court may, in accordance with
the provisions of its own law, exonerate the carrier wholly or partly from his
liability.
Article 22--1. In the carriage of passengers the liability of the carrier for each
passenger is limited to the sum of 125,000 francs. Where, in accordance with
the law of the Court seised of the case, damages may be awarded in the form of
periodical payments, the equivalent capital value of the said payments shall not
exceed 125,000 francs. Nevertheless, by special contract, the carrier and the
passenger may agree to a higher limit of liability.
2. In the carriage of registered luggage and of goods, the liability of the carrier
is limited to a sum of 250 francs per kilogram, unless the consignor has made, at
the time when the package was handed over to the carrier, a special declaration
of the value at delivery and has paid a supplementary sum if the case so requires.
In that case the carrier will be liable to pay a sum not exceeding the declared
sum, unless he proves that that sum is greater than the actual value to the
consignor at delivery.
3. As regards objects of which the passenger takes charge himself the liability of
the carrier is limited to 5,000 francs per passenger.
4. The sums mentioned above shall be deemed to refer to the French franc
consisting of 65 « milligrams gold of millesimal fineness 900. These sums may be
converted into any national currency in round figures.
COMMERCIAL LAW 2018
Article 23--Any provision tending to relieve the carrier of liability or to fix a lower
limit than that which is laid down in this Convention shall be null and void, but
the nullity of any such provision does not involve the nullity of the whole
contract, which shall remain subject to the provisions of this Convention.
Article 24--1. In the cases covered by Articles 18 and 19 any action for damages,
however founded, can only be brought subject to the conditions and limits set
out in this Convention.
2. In the cases covered by Article 17 the provisions of the preceding paragraph
also apply, without prejudice to the questions as to who are the persons who
have the right to bring suit and what are their respective rights.
Article 25--1. The carrier shall not be entitled to avail himself of the provisions
of this Convention which exclude or limit his liability, if the damage is caused by
his wilful misconduct or by such default on his part as, in accordance with the
law of the Court seised of the case, is considered to be equivalent to wilful
misconduct.
2. Similarly the carrier shall not be entitled to avail himself of the said provisions,
if the damage is caused as aforesaid by any agent of the carrier acting within the
scope of his employment.
Article 26--1. Receipt by the person entitled to delivery of luggage or goods
without complaint is prima facie evidence that the same have been delivered in
good condition and in accordance with the document of carriage.
2. In the case of damage, the person entitled to delivery must complain to the
carrier forthwith after the discovery of the damage, and, at the latest, within
three days from the date of receipt in the case of luggage and seven days from
the date of receipt in the case of goods. In the case of delay the complaint must
be made at the latest within fourteen days from the date on which the luggage
or goods have been placed at his disposal.
3. Every complaint must be made in writing upon the document of carriage or by
separate notice in writing despatched within the times aforesaid.
Nigel Carmelo Q. Reago 132

4. Failing complaint within the times aforesaid, no action shall lie against the
carrier, save in the case of fraud on his part.
Article 27--In the case of the death of the person liable, an action for damages
lies in accordance with the terms of this Convention against those legally
representing his estate.
Article 28--1. An action for damages must be brought, at the option of the
plaintiff, in the territory of one of the High Contracting Parties, either before the
Court having jurisdiction where the carrier is ordinarily resident, or has his
principal place of business, or has an establishment by which the contract has
been made or before the Court having jurisdiction at the place of destination.
2. Questions of procedure shall be governed by the law of the Court seised of
the case.
Article 29--1. The right to damages shall be extinguished if an action is not
brought within two years, reckoned from the date of arrival at the destination,
or from the date on which the aircraft ought to have arrived, or from the date
on which the carriage stopped.
2. The method of calculating the period of limitation shall be determined by the
law of the Court seised of the case.
Article 30--1. In the case of carriage to be performed by various successive
carriers and falling within the definition set out in the third paragraph of Article
1, each carrier who accepts passengers, luggage or goods is subjected to the
rules set out in this Convention, and is deemed to be one of the contracting
parties to the contract of carriage in so far as the contract deals with that part
of the carriage which is performed under his supervision.
2. In the case of carriage of this nature, the passenger or his representative can
take action only against the carrier who performed the carriage during which
the accident or the delay occurred, save in the case where, by express
agreement, the first carrier has assumed liability for the whole journey.
COMMERCIAL LAW 2018
3. As regards luggage or goods, the passenger or consignor will have a right of
action against the first carrier, and the passenger or consignee who is entitled
to delivery will have a right of action against the last carrier, and further, each
may take action against the carrier who performed the carriage during which
the destruction, loss, damage or delay took place. These carriers will be jointly
and severally liable to the passenger or to the consignor or consignee.
Chapter IV - Provisions Relating to Combined Carriage
Article 31--1. In the case of combined carriage performed partly by air and partly
by any other mode of carriage, the provisions of this Convention apply only to
the carriage by air, provided that the carriage by air falls within the terms of
Article 1.
2. Nothing in this Convention shall prevent the parties in the case of combined
carriage from inserting in the document of air carriage conditions relating to
other modes of carriage, provided that the provisions of this Convention are
observed as regards the carriage by air.
Chapter V - General and Final Provisions
Article 32--Any clause contained in the contract and all special agreements
entered into before the damage occurred by which the parties purport to
infringe the rules laid down by this Convention, whether by deciding the law to
be applied, or by altering the rules as to jurisdiction, shall be null and void.
Nevertheless for the carriage of goods arbitration clauses are allowed, subject
to this Convention, if the arbitration is to take place within one of the
jurisdictions referred to in the first paragraph of Article 28.
Article 33--Nothing contained in this Convention shall prevent the carrier either
from refusing to enter into any contract of carriage, or from making regulations
which do not conflict with the provisions of this Convention.
Article 34--This Convention does not apply to international carriage by air
performed by way of experimental trial by air navigation undertakings with the
view to the establishment of a regular line of air navigation, nor does it apply to
Nigel Carmelo Q. Reago 133
 COMMERCIAL LAW 2018

carriage performed in extraordinary circumstances outside the normal scope of Article 39--1. Any one of the High Contracting Parties may denounce this
an air carrier's business. Convention by a notification addressed to the Government of the Republic of
Poland, which will at once inform the Government of each of the High
Article 35--The expression "days" when used in this Convention means current
Contracting Parties.
days not working days.
2. Denunciation shall take effect six months after the notification of
Article 36--The Convention is drawn up in French in a single copy which shall
denunciation, and shall operate only as regards the Party who shall have
remain deposited in the archives of the Ministry for Foreign Affairs of Poland
proceeded to denunciation.
and of which one duly certified copy shall be sent by the Polish Government to
the Government of each of the High Contracting Parties. Article 40--1. Any High Contracting Party may, at the time of signature or of
deposit of ratification or of accession declare that the acceptance which he gives
Article 37--1. This Convention shall be ratified. The instruments of ratification
to this Convention does not apply to all or any of his colonies, protectorates,
shall be deposited in the archives of the Ministry for Foreign Affairs of Poland,
territories under mandate, or any other territory subject to his sovereignty or
which will notify the deposit to the Government of each of the High Contracting
his authority, or any territory under his suzerainty.
Parties.
2. Accordingly any High Contracting Party may subsequently accede separately
2. As soon as this Convention shall have been ratified by five of the High
in the name of all or any of his colonies, protectorates, territories under
Contracting Parties it shall come into force as between them on the ninetieth
mandate or any other territory subject to his sovereignty or to his authority or
day after the deposit of the fifth ratification. Thereafter it shall come into force
any territory under his suzerainty which has been thus excluded by his original
between the High Contracting Parties who shall have ratified and the High
declaration.
Contracting Party who deposits his instrument of ratification on the ninetieth
day after the deposit. 3. Any High Contracting Party may denounce this Convention, in accordance
with its provisions, separately or for all or any of his colonies, protectorates,
3. It shall be the duty of the Government of the Republic of Poland to notify to
territories under mandate or any other territory subject to his sovereignty or to
the Government of each of the High Contracting Parties the date on which this
his authority, or any other territory under his suzerainty.
Convention comes into force as well as the date of the deposit of each
ratification. Article 41--Any High Contracting Party shall be entitled not earlier than two
years after the coming into force of this Convention to call for the assembling of
Article 38--1. This Convention shall, after it has come into force, remain open
a new international Conference in order to consider any improvements which
for accession by any State.
may be made in this Convention. To this end he will communicate with the
2. The accession shall be effected by a notification addressed to the Government Government of the French Republic which will take the necessary measures to
of the Republic of Poland, which will inform the Government of each of the High make preparations for such Conference.
Contracting Parties thereof.
This Convention done at Warsaw on the 12th October, 1929, shall remain open
3. The accession shall take effect as from the ninetieth day after the notification for signature until the 31st January, 1930.
made to the Government of the Republic of Poland.

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Additional Protocol
Additional Protocol (With reference to Article 2)

The High Contracting Parties reserve to themselves the right to declare at the
time of ratification or of accession that the first paragraph of Article 2 of this
Convention shall not apply to international carriage by air performed directly by
the State, its colonies, protectorates or mandated territories or by any other
territory under its sovereignty, suzerainty or authority."

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THE CORPORATION CODE OF THE PHILIPPINES
BP 68
TITLE I
GENERAL PROVISIONS
DEFINITIONS AND CLASSIFICATIONS
Section 1. Title of the Code. – This Code shall be known as "The Corporation Code of
the Philippines." (n)
Section 2. Corporation defined. – A corporation is an artificial being created by
operation of law, having the right of succession and the powers, attributes and
properties expressly authorized by law or incident to its existence. (2)
Section 3. Classes of corporations. – Corporations formed or organized under this
Code may be stock or non-stock corporations. Corporations which have capital stock
divided into shares and are authorized to distribute to the holders of such shares
dividends or allotments of the surplus profits on the basis of the shares held are stock
corporations. All other corporations are non-stock corporations. (3a)
Section 4. Corporations created by special laws or charters. – Corporations created by
special laws or charters shall be governed primarily by the provisions of the special
law or charter creating them or applicable to them, supplemented by the provisions
of this Code, insofar as they are applicable. (n)
Section 5. Corporators and incorporators, stockholders and members. – Corporators
are those who compose a corporation, whether as stockholders or as members.
Incorporators are those stockholders or members mentioned in the articles of
incorporation as originally forming and composing the corporation and who are
signatories thereof.
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Corporators in a stock corporation are called stockholders or shareholders.
Corporators in a non-stock corporation are called members. (4a)
Section 6. Classification of shares. – The shares of stock of stock corporations may be
divided into classes or series of shares, or both, any of which classes or series of shares
may have such rights, privileges or restrictions as may be stated in the articles of
incorporation: Provided, That no share may be deprived of voting rights except those
classified and issued as "preferred" or "redeemable" shares, unless otherwise
provided in this Code: Provided, further, That there shall always be a class or series of
shares which have complete voting rights. Any or all of the shares or series of shares
may have a par value or have no par value as may be provided for in the articles of
incorporation: Provided, however, That banks, trust companies, insurance companies,
public utilities, and building and loan associations shall not be permitted to issue no-
par value shares of stock.
Preferred shares of stock issued by any corporation may be given preference in the
distribution of the assets of the corporation in case of liquidation and in the
distribution of dividends, or such other preferences as may be stated in the articles
of incorporation which are not violative of the provisions of this Code: Provided, That
preferred shares of stock may be issued only with a stated par value. The board of
directors, where authorized in the articles of incorporation, may fix the terms and
conditions of preferred shares of stock or any series thereof: Provided, That such
terms and conditions shall be effective upon the filing of a certificate thereof with the
Securities and Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully paid and non-
assessable and the holder of such shares shall not be liable to the corporation or to
its creditors in respect thereto: Provided; That shares without par value may not be
issued for a consideration less than the value of five (P5.00) pesos per share: Provided,
further, That the entire consideration received by the corporation for its no-par value
shares shall be treated as capital and shall not be available for distribution as
dividends.
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A corporation may, furthermore, classify its shares for the purpose of insuring
compliance with constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and stated in the
certificate of stock, each share shall be equal in all respects to every other share.
Where the articles of incorporation provide for non-voting shares in the cases allowed
by this Code, the holders of such shares shall nevertheless be entitled to vote on the
following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or
substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or
other corporations;
7. Investment of corporate funds in another corporation or business in
accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote necessary to
approve a particular corporate act as provided in this Code shall be deemed to refer
only to stocks with voting rights. (5a)
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Section 7. Founders’ shares. – Founders’ shares classified as such in the articles of
incorporation may be given certain rights and privileges not enjoyed by the owners
of other stocks, provided that where the exclusive right to vote and be voted for in
the election of directors is granted, it must be for a limited period not to exceed five
(5) years subject to the approval of the Securities and Exchange Commission. The five-
year period shall commence from the date of the aforesaid approval by the Securities
and Exchange Commission. (n)
Section 8. Redeemable shares. – Redeemable shares may be issued by the
corporation when expressly so provided in the articles of incorporation. They may be
purchased or taken up by the corporation upon the expiration of a fixed period,
regardless of the existence of unrestricted retained earnings in the books of the
corporation, and upon such other terms and conditions as may be stated in the
articles of incorporation, which terms and conditions must also be stated in the
certificate of stock representing said shares. (n)
Section 9. Treasury shares. – Treasury shares are shares of stock which have been
issued and fully paid for, but subsequently reacquired by the issuing corporation by
purchase, redemption, donation or through some other lawful means. Such shares
may again be disposed of for a reasonable price fixed by the board of directors. (n)
TITLE II
INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS
Section 10. Number and qualifications of incorporators. – Any number of natural
persons not less than five (5) but not more than fifteen (15), all of legal age and a
majority of whom are residents of the Philippines, may form a private corporation for
any lawful purpose or purposes. Each of the incorporators of s stock corporation must
own or be a subscriber to at least one (1) share of the capital stock of the corporation.
(6a)
Section 11. Corporate term. – A corporation shall exist for a period not exceeding fifty
(50) years from the date of incorporation unless sooner dissolved or unless said
period is extended. The corporate term as originally stated in the articles of
Nigel Carmelo Q. Reago 137

incorporation may be extended for periods not exceeding fifty (50) years in any single
instance by an amendment of the articles of incorporation, in accordance with this
Code; Provided, That no extension can be made earlier than five (5) years prior to the
original or subsequent expiry date(s) unless there are justifiable reasons for an earlier
extension as may be determined by the Securities and Exchange Commission. (6)
Section 12. Minimum capital stock required of stock corporations. – Stock
corporations incorporated under this Code shall not be required to have any
minimum authorized capital stock except as otherwise specifically provided for by
special law, and subject to the provisions of the following section.
Section 13. Amount of capital stock to be subscribed and paid for the purposes of
incorporation. – At least twenty-five percent (25%) of the authorized capital stock as
stated in the articles of incorporation must be subscribed at the time of incorporation,
and at least twenty-five (25%) per cent of the total subscription must be paid upon
subscription, the balance to be payable on a date or dates fixed in the contract of
subscription without need of call, or in the absence of a fixed date or dates, upon call
for payment by the board of directors: Provided, however, That in no case shall the
paid-up capital be less than five Thousand (P5,000.00) pesos. (n)
Section 14. Contents of the articles of incorporation. – All corporations organized
under this code shall file with the Securities and Exchange Commission articles of
incorporation in any of the official languages duly signed and acknowledged by all of
the incorporators, containing substantially the following matters, except as otherwise
prescribed by this Code or by special law:
1. The name of the corporation;
2. The specific purpose or purposes for which the corporation is being
incorporated. Where a corporation has more than one stated purpose, the
articles of incorporation shall state which is the primary purpose and which
is/are the secondary purpose or purposes: Provided, That a non-stock
corporation may not include a purpose which would change or contradict its
nature as such;
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3. The place where the principal office of the corporation is to be located,
which must be within the Philippines;
4. The term for which the corporation is to exist;
5. The names, nationalities and residences of the incorporators;
6. The number of directors or trustees, which shall not be less than five (5)
nor more than fifteen (15);
7. The names, nationalities and residences of persons who shall act as
directors or trustees until the first regular directors or trustees are duly
elected and qualified in accordance with this Code;
8. If it be a stock corporation, the amount of its authorized capital stock in
lawful money of the Philippines, the number of shares into which it is divided,
and in case the share are par value shares, the par value of each, the names,
nationalities and residences of the original subscribers, and the amount
subscribed and paid by each on his subscription, and if some or all of the
shares are without par value, such fact must be stated;
9. If it be a non-stock corporation, the amount of its capital, the names,
nationalities and residences of the contributors and the amount contributed
by each; and
10. Such other matters as are not inconsistent with law and which the
incorporators may deem necessary and convenient.
The Securities and Exchange Commission shall not accept the articles of incorporation
of any stock corporation unless accompanied by a sworn statement of the Treasurer
elected by the subscribers showing that at least twenty-five (25%) percent of the
authorized capital stock of the corporation has been subscribed, and at least twenty-
five (25%) of the total subscription has been fully paid to him in actual cash and/or in
property the fair valuation of which is equal to at least twenty-five (25%) percent of
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the said subscription, such paid-up capital being not less than five thousand FIFTH: That the names, nationalities and residences of the incorporators of the
(P5,000.00) pesos. corporation are as follows:

Section 15. Forms of Articles of Incorporation. – Unless otherwise prescribed by NAME NATIONALITY RESIDENCE
special law, articles of incorporation of all domestic corporations shall comply
substantially with the following form: ___________________ ___________________ ___________________
___________________ ___________________ ___________________
ARTICLES OF INCORPORATION
OF ___________________ ___________________ ___________________
___________________ ___________________ ___________________
__________________________
(Name of Corporation) ___________________ ___________________ ___________________

KNOW ALL MEN BY THESE PRESENTS: SIXTH: That the number of directors or trustees of the corporation shall be _______;
and the names, nationalities and residences of the first directors or trustees of the
The undersigned incorporators, all of legal age and a majority of whom are residents corporation are as follows:
of the Philippines, have this day voluntarily agreed to form a (stock) (non-stock)
corporation under the laws of the Republic of the Philippines;
NAME NATIONALITY RESIDENCE
AND WE HEREBY CERTIFY: ___________________ ___________________ ___________________
___________________ ___________________ ___________________
FIRST: That the name of said corporation shall be "_____________________, INC. or
CORPORATION"; ___________________ ___________________ ___________________

SECOND: That the purpose or purposes for which such corporation is incorporated ___________________ ___________________ ___________________
are: (If there is more than one purpose, indicate primary and secondary purposes); ___________________ ___________________ ___________________

THIRD: That the principal office of the corporation is located in the City/Municipality
SEVENTH: That the authorized capital stock of the corporation is
of ________________________, Province of _______________________, Philippines;
______________________ (P___________) PESOS in lawful money of the Philippines,
divided into __________ shares with the par value of ____________________
FOURTH: That the term for which said corporation is to exist is _____________ years
(P_____________) Pesos per share.
from and after the date of issuance of the certificate of incorporation;
(In case all the share are without par value):

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That the capital stock of the corporation is ______________ shares without par value. ___________________ ___________________ ___________________
(In case some shares have par value and some are without par value): That the capital
stock of said corporation consists of _____________ shares of which
______________ shares are of the par value of _________________ (P____________) (Modify Nos. 8 and 9 if shares are with no par value. In case the corporation is non-
PESOS each, and of which _________________ shares are without par value. stock, Nos. 7, 8 and 9 of the above articles may be modified accordingly, and it is
sufficient if the articles state the amount of capital or money contributed or donated
by specified persons, stating the names, nationalities and residences of the
EIGHTH: That at least twenty five (25%) per cent of the authorized capital stock above
contributors or donors and the respective amount given by each.)
stated has been subscribed as follows:
TENTH: That _____________________ has been elected by the subscribers as
Name of Nationality No. of Shares Amount Treasurer of the Corporation to act as such until his successor is duly elected and
Subscriber Subscribed Subscribed
qualified in accordance with the by-laws, and that as such Treasurer, he has been
___________________ ___________________ ___________________ ___________________ authorized to receive for and in the name and for the benefit of the corporation, all
subscription (or fees) or contributions or donations paid or given by the subscribers
___________________ ___________________ ___________________ ___________________ or members.
___________________ ___________________ ___________________ ___________________
ELEVENTH: (Corporations which will engage in any business or activity reserved for
___________________ ___________________ ___________________ ___________________ Filipino citizens shall provide the following):
___________________ ___________________ ___________________ ___________________
"No transfer of stock or interest which shall reduce the ownership of Filipino citizens
___________________ ___________________ ___________________ ___________________ to less than the required percentage of the capital stock as provided by existing laws
shall be allowed or permitted to be recorded in the proper books of the corporation
NINTH: That the above-named subscribers have paid at least twenty-five (25%) and this restriction shall be indicated in all stock certificates issued by the
percent of the total subscription as follows: corporation."

IN WITNESS WHEREOF, we have hereunto signed these Articles of Incorporation, this

Name of Amount Subscribed Total __________ day of ________________, 19 ______ in the City/Municipality of
Subscriber Paid-In
____________________, Province of ________________________, Republic of the
___________________ ___________________ ___________________ Philippines.

___________________ ___________________ ___________________

___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________
___________________ ___________________ ___________________

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 COMMERCIAL LAW 2018

________________________________
(Names and signatures of the incorporators)
SIGNED IN THE PRESENCE OF:
___________________
(Notarial Acknowledgment)
SUBSCRIBED AND SWORN to before me, a Notary Public, for and in the
City/Municipality of___________________Province of _____________________,
this _______ day of ___________, 19 _____; by __________________ with Res. Cert.
No. ___________ issued at _______________________ on ____________, 19 ______
NOTARY PUBLIC
___________________
My commission expires on _________, 19 _____
Doc. No. _________;

TREASURER’S AFFIDAVIT Page No. _________;

REPUBLIC OF THE PHILIPPINES) Book No. ________;

CITY/MUNICIPALITY OF ) S.S. Series of 19____ (7a)

PROVINCE OF ) Section 16. Amendment of Articles of Incorporation. – Unless otherwise prescribed by

I, ____________________, being duly sworn, depose and say:
That I have been elected by the subscribers of the corporation as Treasurer thereof,
to act as such until my successor has been duly elected and qualified in accordance
with the by-laws of the corporation, and that as such Treasurer, I hereby certify under
oath that at least 25% of the authorized capital stock of the corporation has been
subscribed and at least 25% of the total subscription has been paid, and received by
me, in cash or property, in the amount of not less than P5,000.00, in accordance with
the Corporation Code.
____________________
(Signature of Treasurer)
this Code or by special law, and for legitimate purposes, any provision or matter
stated in the articles of incorporation may be amended by a majority vote of the
board of directors or trustees and the vote or written assent of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock, without
prejudice to the appraisal right of dissenting stockholders in accordance with the
provisions of this Code, or the vote or written assent of at least two-thirds (2/3) of
the members if it be a non-stock corporation.
The original and amended articles together shall contain all provisions required by
law to be set out in the articles of incorporation. Such articles, as amended shall be
indicated by underscoring the change or changes made, and a copy thereof duly
certified under oath by the corporate secretary and a majority of the directors or
trustees stating the fact that said amendment or amendments have been duly
approved by the required vote of the stockholders or members, shall be submitted to
the Securities and Exchange Commission.

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The amendments shall take effect upon their approval by the Securities and Exchange
Commission or from the date of filing with the said Commission if not acted upon
within six (6) months from the date of filing for a cause not attributable to the
corporation.
Section 17. Grounds when articles of incorporation or amendment may be rejected or
disapproved. – The Securities and Exchange Commission may reject the articles of
incorporation or disapprove any amendment thereto if the same is not in compliance
with the requirements of this Code: Provided, That the Commission shall give the
incorporators a reasonable time within which to correct or modify the objectionable
portions of the articles or amendment. The following are grounds for such rejection
or disapproval:
1. That the articles of incorporation or any amendment thereto is not
substantially in accordance with the form prescribed herein;
2. That the purpose or purposes of the corporation are patently
unconstitutional, illegal, immoral, or contrary to government rules and
regulations;
3. That the Treasurer’s Affidavit concerning the amount of capital stock
subscribed and/or paid is false;
4. That the percentage of ownership of the capital stock to be owned by
citizens of the Philippines has not been complied with as required by existing
laws or the Constitution.
No articles of incorporation or amendment to articles of incorporation of banks,
banking and quasi-banking institutions, building and loan associations, trust
companies and other financial intermediaries, insurance companies, public utilities,
educational institutions, and other corporations governed by special laws shall be
accepted or approved by the Commission unless accompanied by a favorable
recommendation of the appropriate government agency to the effect that such
articles or amendment is in accordance with law. (n)
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Section 18. Corporate name. – No corporate name may be allowed by the Securities
and Exchange Commission if the proposed name is identical or deceptively or
confusingly similar to that of any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or contrary to existing laws.
When a change in the corporate name is approved, the Commission shall issue an
amended certificate of incorporation under the amended name. (n)
Section 19. Commencement of corporate existence. – A private corporation formed
or organized under this Code commences to have corporate existence and juridical
personality and is deemed incorporated from the date the Securities and Exchange
Commission issues a certificate of incorporation under its official seal; and thereupon
the incorporators, stockholders/members and their successors shall constitute a body
politic and corporate under the name stated in the articles of incorporation for the
period of time mentioned therein, unless said period is extended or the corporation
is sooner dissolved in accordance with law. (n)
Section 20. De facto corporations. – The due incorporation of any corporation
claiming in good faith to be a corporation under this Code, and its right to exercise
corporate powers, shall not be inquired into collaterally in any private suit to which
such corporation may be a party. Such inquiry may be made by the Solicitor General
in a quo warranto proceeding. (n)
Section 21. Corporation by estoppel. – All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general partners for all
debts, liabilities and damages incurred or arising as a result thereof: Provided,
however, That when any such ostensible corporation is sued on any transaction
entered by it as a corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.
On who assumes an obligation to an ostensible corporation as such, cannot resist
performance thereof on the ground that there was in fact no corporation. (n)
Section 22. Effects on non-use of corporate charter and continuous inoperation of a
corporation. – If a corporation does not formally organize and commence the
Nigel Carmelo Q. Reago 142

transaction of its business or the construction of its works within two (2) years from
the date of its incorporation, its corporate powers cease and the corporation shall be
deemed dissolved. However, if a corporation has commenced the transaction of its
business but subsequently becomes continuously inoperative for a period of at least
five (5) years, the same shall be a ground for the suspension or revocation of its
corporate franchise or certificate of incorporation. (19a)
This provision shall not apply if the failure to organize, commence the transaction of
its businesses or the construction of its works, or to continuously operate is due to
causes beyond the control of the corporation as may be determined by the Securities
and Exchange Commission.
TITLE III
BOARD OF DIRECTORS/TRUSTEES AND OFFICERS
Section 23. The board of directors or trustees. – Unless otherwise provided in this
Code, the corporate powers of all corporations formed under this Code shall be
exercised, all business conducted and all property of such corporations controlled and
held by the board of directors or trustees to be elected from among the holders of
stocks, or where there is no stock, from among the members of the corporation, who
shall hold office for one (1) year until their successors are elected and qualified. (28a)
Every director must own at least one (1) share of the capital stock of the corporation
of which he is a director, which share shall stand in his name on the books of the
corporation. Any director who ceases to be the owner of at least one (1) share of the
capital stock of the corporation of which he is a director shall thereby cease to be a
director. Trustees of non-stock corporations must be members thereof. A majority of
the directors or trustees of all corporations organized under this Code must be
residents of the Philippines.
Section 24. Election of directors or trustees. – At all elections of directors or trustees,
there must be present, either in person or by representative authorized to act by
written proxy, the owners of a majority of the outstanding capital stock, or if there be
no capital stock, a majority of the members entitled to vote. The election must be by
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ballot if requested by any voting stockholder or member. 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, at the time fixed in the by-laws, in his own name
on the stock books of the corporation, or where the by-laws are silent, at the time of
the election; and said stockholder may vote such number of shares for as many
persons as there are directors to be elected or he may cumulate said shares and give
one candidate as many votes as the number of directors to be elected multiplied by
the number of his shares shall equal, or he may distribute them on the same principle
among as many candidates as he shall see fit: Provided, That the total number of votes
cast by him shall not exceed the number of shares owned by him as shown in the
books of the corporation multiplied by the whole number of directors to be elected:
Provided, however, That no delinquent stock shall be voted. Unless otherwise
provided in the articles of incorporation or in the by-laws, members of corporations
which have no capital stock may cast as many votes as there are trustees to be elected
but may not cast more than one vote for one candidate. Candidates receiving the
highest number of votes shall be declared elected. Any meeting of the stockholders
or members called for an election may adjourn from day to day or from time to time
but not sine die or indefinitely if, for any reason, no election is held, or if there are not
present or represented by proxy, at the meeting, the owners of a majority of the
outstanding capital stock, or if there be no capital stock, a majority of the members
entitled to vote. (31a)
Section 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.
The directors or trustees and officers to be elected shall perform the duties enjoined
on them by law and the by-laws of the corporation. Unless the articles of
incorporation or the by-laws provide for a greater majority, a majority of the number
of directors or trustees as fixed in the articles of incorporation shall constitute a
Nigel Carmelo Q. Reago 143

quorum for the transaction of corporate business, and every decision of at least a
majority of the directors or trustees present at a meeting at which there is a quorum
shall be valid as a corporate act, except for the election of officers which shall require
the vote of a majority of all the members of the board.
Directors or trustees cannot attend or vote by proxy at board meetings. (33a)
Section 26. Report of election of directors, trustees and officers. – Within thirty (30)
days after the election of the directors, trustees and officers of the corporation, the
secretary, or any other officer of the corporation, shall submit to the Securities and
Exchange Commission, the names, nationalities and residences of the directors,
trustees, and officers elected. Should a director, trustee or officer die, resign or in any
manner cease to hold office, his heirs in case of his death, the secretary, or any other
officer of the corporation, or the director, trustee or officer himself, shall immediately
report such fact to the Securities and Exchange Commission. (n)
Section 27. Disqualification of directors, trustees or officers. – No person convicted by
final judgment of an offense punishable by imprisonment for a period exceeding six
(6) years, or a violation of this Code committed within five (5) years prior to the date
of his election or appointment, shall qualify as a director, trustee or officer of any
corporation. (n)
Section 28. Removal of directors or trustees. – Any director or trustee of a corporation
may be removed from office by a vote of the stockholders holding or representing at
least two-thirds (2/3) of the outstanding capital stock, or if the corporation be a non-
stock corporation, by a vote of at least two-thirds (2/3) of the members entitled to
vote: Provided, That such removal shall take place either at a regular meeting of the
corporation or at a special meeting called for the purpose, and in either case, after
previous notice to stockholders or members of the corporation of the intention to
propose such removal at the meeting. A special meeting of the stockholders or
members of a corporation for the purpose of removal of directors or trustees, or any
of them, must be called by the secretary on order of the president or on the written
demand of the stockholders representing or holding at least a majority of the
outstanding capital stock, or, if it be a non-stock corporation, on the written demand
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of a majority of the members entitled to vote. Should the secretary fail or refuse to
call the special meeting upon such demand or fail or refuse to give the notice, or if
there is no secretary, the call for the meeting may be addressed directly to the
stockholders or members by any stockholder or member of the corporation signing
the demand. Notice of the time and place of such meeting, as well as of the intention
to propose such removal, must be given by publication or by written notice prescribed
in this Code. Removal may be with or without cause: Provided, That removal without
cause may not be used to deprive minority stockholders or members of the right of
representation to which they may be entitled under Section 24 of this Code. (n)
Section 29. Vacancies in the office of director or trustee. – Any vacancy occurring in
the board of directors or trustees other than by removal by the stockholders or
members or by expiration of term, may be filled by the vote of at least a majority of
the remaining directors or trustees, if still constituting a quorum; otherwise, said
vacancies must be filled by the stockholders in a regular or special meeting called for
that purpose. A director or trustee so elected to fill a vacancy shall be elected only or
the unexpired term of his predecessor in office.
Any directorship or trusteeship to be filled by reason of an increase in the number of
directors or trustees shall be filled only by an election at a regular or at a special
meeting of stockholders or members duly called for the purpose, or in the same
meeting authorizing the increase of directors or trustees if so stated in the notice of
the meeting. (n)
Section 30. Compensation of directors. – In the absence of any provision in the by-
laws fixing their compensation, the directors shall not receive any compensation, as
such directors, except for reasonable per diems: Provided, however, That any such
compensation other than per diems may be granted to directors by the vote of the
stockholders representing at least a majority of the outstanding capital stock at a
regular or special stockholders’ meeting. In no case shall the total yearly
compensation of directors, as such directors, exceed ten (10%) percent of the net
income before income tax of the corporation during the preceding year. (n)
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Section 31. Liability of directors, trustees or officers. - Directors or trustees who
willfully 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 acquire, 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. (n)
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
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(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. (n)
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. (n)
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. (n)
Section 35. Executive committee. – The by-laws of a corporation may create an
executive committee, composed of not less than three members of the board, to be
appointed by the board. Said committee may act, by majority vote of all its members,
on such specific matters within the competence of the board, as may be delegated to
it in the by-laws or on a majority vote of the board, except with respect to: (1)
approval of any action for which shareholders’ approval is also required; (2) the filing
of vacancies in the board; (3) the amendment or repeal of by-laws or the adoption of
new by-laws; (4) the amendment or repeal of any resolution of the board which by its
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express terms is not so amendable or repealable; and (5) a distribution of cash
dividends to the shareholders.
TITLE IV
POWERS OF CORPORATIONS
Section 36. Corporate powers and capacity. – Every corporation incorporated under
this Code has the power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time stated in the
articles of incorporation and the certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the provisions of
this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and to
amend or repeal the same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers and to
sell stocks to subscribers and to sell treasury stocks in accordance with the
provisions of this Code; and to admit members to the corporation if it be a
non-stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge,
mortgage and otherwise deal with such real and personal property, including
securities and bonds of other corporations, as the transaction of the lawful
business of the corporation may reasonably and necessarily require, subject
to the limitations prescribed by law and the Constitution;
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8. To enter into merger or consolidation with other corporations as provided
in this Code;
9. To make reasonable donations, including those for the public welfare or
for hospital, charitable, cultural, scientific, civic, or similar purposes: Provided,
That no corporation, domestic or foreign, shall give donations in aid of any
political party or candidate or for purposes of partisan political activity;
10. To establish pension, retirement, and other plans for the benefit of its
directors, trustees, officers and employees; and
11. To exercise such other powers as may be essential or necessary to carry
out its purpose or purposes as stated in the articles of incorporation. (13a)
Section 37. Power to extend or shorten corporate term. – A private corporation may
extend or shorten its term as stated in the articles of incorporation when approved
by a majority vote of the board of directors or trustees and ratified at a meeting by
the stockholders representing at least two-thirds (2/3) of the outstanding capital
stock or by at least two-thirds (2/3) of the members in case of non-stock corporations.
Written notice of the proposed action and of the time and place of the meeting shall
be addressed to each stockholder or member at his place of residence as shown on
the books of the corporation and deposited to the addressee in the post office with
postage prepaid, or served personally: Provided, That in case of extension of
corporate term, any dissenting stockholder may exercise his appraisal right under the
conditions provided in this code. (n)
Section 38. Power to increase or decrease capital stock; incur, create or increase
bonded indebtedness. – No corporation shall increase or decrease its capital stock or
incur, create or increase any bonded indebtedness unless approved by a majority vote
of the board of directors and, at a stockholder’s meeting duly called for the purpose,
two-thirds (2/3) of the outstanding capital stock shall favor the increase or diminution
of the capital stock, or the incurring, creating or increasing of any bonded
indebtedness. Written notice of the proposed increase or diminution of the capital
stock or of the incurring, creating, or increasing of any bonded indebtedness and of
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the time and place of the stockholder’s meeting at which the proposed increase or
diminution of the capital stock or the incurring or increasing of any bonded
indebtedness is to be considered, must be addressed to each stockholder at his place
of residence as shown on the books of the corporation and deposited to the
addressee in the post office with postage prepaid, or served personally.
A certificate in duplicate must be signed by a majority of the directors of the
corporation and countersigned by the chairman and the secretary of the stockholders’
meeting, setting forth:
(1) That the requirements of this section have been complied with;
(2) The amount of the increase or diminution of the capital stock;
(3) If an increase of the capital stock, the amount of capital stock or number
of shares of no-par stock thereof actually subscribed, the names, nationalities
and residences of the persons subscribing, the amount of capital stock or
number of no-par stock subscribed by each, and the amount paid by each on
his subscription in cash or property, or the amount of capital stock or number
of shares of no-par stock allotted to each stock-holder if such increase is for
the purpose of making effective stock dividend therefor authorized;
(4) Any bonded indebtedness to be incurred, created or increased;
(5) The actual indebtedness of the corporation on the day of the meeting;
(6) The amount of stock represented at the meeting; and
(7) The vote authorizing the increase or diminution of the capital stock, or the
incurring, creating or increasing of any bonded indebtedness.
Any increase or decrease in the capital stock or the incurring, creating or
increasing of any bonded indebtedness shall require prior approval of the
Securities and Exchange Commission.
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One of the duplicate certificates shall be kept on file in the office of the
corporation and the other shall be filed with the Securities and Exchange
Commission and attached to the original articles of incorporation. From and
after approval by the Securities and Exchange Commission and the issuance
by the Commission of its certificate of filing, the capital stock shall stand
increased or decreased and the incurring, creating or increasing of any
bonded indebtedness authorized, as the certificate of filing may declare:
Provided, That the Securities and Exchange Commission shall not accept for
filing any certificate of increase of capital stock unless accompanied by the
sworn statement of the treasurer of the corporation lawfully holding office at
the time of the filing of the certificate, showing that at least twenty-five (25%)
percent of such increased capital stock has been subscribed and that at least
twenty-five (25%) percent of the amount subscribed has been paid either in
actual cash to the corporation or that there has been transferred to the
corporation property the valuation of which is equal to twenty-five (25%)
percent of the subscription: Provided, further, That no decrease of the capital
stock shall be approved by the Commission if its effect shall prejudice the
rights of corporate creditors.
Non-stock corporations may incur or create bonded indebtedness, or
increase the same, with the approval by a majority vote of the board of
trustees and of at least two-thirds (2/3) of the members in a meeting duly
called for the purpose.
Bonds issued by a corporation shall be registered with the Securities and
Exchange Commission, which shall have the authority to determine the
sufficiency of the terms thereof. (17a)
Section 39. Power to deny pre-emptive right. – All stockholders of a stock corporation
shall enjoy pre-emptive right to subscribe to all issues or disposition of shares of any
class, in proportion to their respective shareholdings, unless such right is denied by
the articles of incorporation or an amendment thereto: Provided, That such pre-
emptive right shall not extend to shares to be issued in compliance with laws requiring
stock offerings or minimum stock ownership by the public; or to shares to be issued
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in good faith with the approval of the stockholders representing two-thirds (2/3) of
the outstanding capital stock, in exchange for property needed for corporate
purposes or in payment of a previously contracted debt.
Section 40. Sale or other disposition of assets. – Subject to the provisions of existing
laws on illegal combinations and monopolies, a corporation may, by a majority vote
of its board of directors or trustees, sell, lease, exchange, mortgage, pledge or
otherwise dispose of all or substantially all of its property and assets, including its
goodwill, upon such terms and conditions and for such consideration, which may be
money, stocks, bonds or other instruments for the payment of money or other
property or consideration, as its board of directors or trustees may deem expedient,
when authorized by the vote of the stockholders representing at least two-thirds (2/3)
of the outstanding capital stock, or in case of non-stock corporation, by the vote of at
least to two-thirds (2/3) of the members, in a stockholder’s or member’s meeting duly
called for the purpose. Written notice of the proposed action and of the time and
place of the meeting shall be addressed to each stockholder or member at his place
of residence as shown on the books of the corporation and deposited to the
addressee in the post office with postage prepaid, or served personally: Provided,
That any dissenting stockholder may exercise his appraisal right under the conditions
provided in this Code.
A sale or other disposition shall be deemed to cover substantially all the corporate
property and assets if thereby the corporation would be rendered incapable of
continuing the business or accomplishing the purpose for which it was incorporated.
After such authorization or approval by the stockholders or members, the board of
directors or trustees may, nevertheless, in its discretion, abandon such sale, lease,
exchange, mortgage, pledge or other disposition of property and assets, subject to
the rights of third parties under any contract relating thereto, without further action
or approval by the stockholders or members.
Nothing in this section is intended to restrict the power of any corporation, without
the authorization by the stockholders or members, to sell, lease, exchange, mortgage,
pledge or otherwise dispose of any of its property and assets if the same is necessary
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in the usual and regular course of business of said corporation or if the proceeds of
the sale or other disposition of such property and assets be appropriated for the
conduct of its remaining business.
In non-stock corporations where there are no members with voting rights, the vote
of at least a majority of the trustees in office will be sufficient authorization for the
corporation to enter into any transaction authorized by this section.
Section 41. Power to acquire own shares. – A stock corporation shall have the power
to purchase or acquire its own shares for a legitimate corporate purpose or purposes,
including but not limited to the following cases: Provided, That the corporation has
unrestricted retained earnings in its books to cover the shares to be purchased or
acquired:
1. To eliminate fractional shares arising out of stock dividends;
2. To collect or compromise an indebtedness to the corporation, arising out
of unpaid subscription, in a delinquency sale, and to purchase delinquent
shares sold during said sale; and
3. To pay dissenting or withdrawing stockholders entitled to payment for
their shares under the provisions of this Code. (a)
Section 42. Power to invest corporate funds in another corporation or business or for
any other purpose. – Subject to the provisions of this Code, a private corporation may
invest its funds in any other corporation or business or for any purpose other than
the primary purpose for which it was organized when approved by a majority of the
board of directors or trustees and ratified by the stockholders representing at least
two-thirds (2/3) of the outstanding capital stock, or by at least two thirds (2/3) of the
members in the case of non-stock corporations, at a stockholder’s or member’s
meeting duly called for the purpose. Written notice of the proposed investment and
the time and place of the meeting shall be addressed to each stockholder or member
at his place of residence as shown on the books of the corporation and deposited to
the addressee in the post office with postage prepaid, or served personally: Provided,
Nigel Carmelo Q. Reago 148

That any dissenting stockholder shall have appraisal right as provided in this Code:
Provided, however, That where the investment by the corporation is reasonably
necessary to accomplish its primary purpose as stated in the articles of incorporation,
the approval of the stockholders or members shall not be necessary. (17 1/2a)
Section 43. Power to declare dividends. - The board of directors of a stock corporation
may declare dividends out of the unrestricted retained earnings which shall be
payable in cash, in property, or in stock to all stockholders on the basis of outstanding
stock held by them: Provided, That any cash dividends due on delinquent stock shall
first be applied to the unpaid balance on the subscription plus costs and expenses,
while stock dividends shall be withheld from the delinquent stockholder until his
unpaid subscription is fully paid: Provided, further, That no stock dividend shall be
issued without the approval of stockholders representing not less than two-thirds
(2/3) of the outstanding capital stock at a regular or special meeting duly called for
the purpose. (16a)
Stock corporations are prohibited from retaining surplus profits in excess of one
hundred (100%) percent of their paid-in capital stock, except: (1) when justified by
definite corporate expansion projects or programs approved by the board of directors;
or (2) when the corporation is prohibited under any loan agreement with any financial
institution or creditor, whether local or foreign, from declaring dividends without
its/his consent, and such consent has not yet been secured; or (3) when it can be
clearly shown that such retention is necessary under special circumstances obtaining
in the corporation, such as when there is need for special reserve for probable
contingencies. (n)
Section 44. Power to enter into management contract. – No corporation shall
conclude a management contract with another corporation unless such contract shall
have been approved by the board of directors and by stockholders owning at least
the majority of the outstanding capital stock, or by at least a majority of the members
in the case of a non-stock corporation, of both the managing and the managed
corporation, at a meeting duly called for the purpose: Provided, That (1) where a
stockholder or stockholders representing the same interest of both the managing and
the managed corporations own or control more than one-third (1/3) of the total
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outstanding capital stock entitled to vote of the managing corporation; or (2) where
a majority of the members of the board of directors of the managing corporation also
constitute a majority of the members of the board of directors of the managed
corporation, then the management contract must be approved by the stockholders
of the managed corporation owning at least two-thirds (2/3) of the total outstanding
capital stock entitled to vote, or by at least two-thirds (2/3) of the members in the
case of a non-stock corporation. No management contract shall be entered into for a
period longer than five years for any one term.
The provisions of the next preceding paragraph shall apply to any contract whereby a
corporation undertakes to manage or operate all or substantially all of the business
of another corporation, whether such contracts are called service contracts,
operating agreements or otherwise: Provided, however, That such service contracts
or operating agreements which relate to the exploration, development, exploitation
or utilization of natural resources may be entered into for such periods as may be
provided by the pertinent laws or regulations. (n)
Section 45. Ultra vires acts of corporations. – No corporation under this Code shall
possess or exercise any corporate powers except those conferred by this Code or by
its articles of incorporation and except such as are necessary or incidental to the
exercise of the powers so conferred. (n)
TITLE V
BY LAWS
Section 46. Adoption of by-laws. – Every corporation formed under this Code must,
within one (1) month after receipt of official notice of the issuance of its certificate of
incorporation by the Securities and Exchange Commission, adopt a code of by-laws
for its government not inconsistent with this Code. For the adoption of by-laws by the
corporation the affirmative vote of the stockholders representing at least a majority
of the outstanding capital stock, or of at least a majority of the members in case of
non-stock corporations, shall be necessary. The by-laws shall be signed by the
stockholders or members voting for them and shall be kept in the principal office of
the corporation, subject to the inspection of the stockholders or members during
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office hours. A copy thereof, duly certified to by a majority of the directors or trustees
countersigned by the secretary of the corporation, shall be filed with the Securities
and Exchange Commission which shall be attached to the original articles of
incorporation.
Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted
and filed prior to incorporation; in such case, such by-laws shall be approved and
signed by all the incorporators and submitted to the Securities and Exchange
Commission, together with the articles of incorporation.
In all cases, by-laws shall be effective only upon the issuance by the Securities and
Exchange Commission of a certification that the by-laws are not inconsistent with this
Code.
The Securities and Exchange Commission shall not accept for filing the by-laws or any
amendment thereto of any bank, banking institution, building and loan association,
trust company, insurance company, public utility, educational institution or other
special corporations governed by special laws, unless accompanied by a certificate of
the appropriate government agency to the effect that such by-laws or amendments
are in accordance with law. (20a)
Section 47. Contents of by-laws. – Subject to the provisions of the Constitution, this
Code, other special laws, and the articles of incorporation, a private corporation may
provide in its by-laws for:
1. The time, place and manner of calling and conducting regular or special
meetings of the directors or trustees;
2. The time and manner of calling and conducting regular or special meetings
of the stockholders or members;
3. The required quorum in meetings of stockholders or members and the
manner of voting therein;
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4. The form for proxies of stockholders and members and the manner of
voting them;
5. The qualifications, duties and compensation of directors or trustees,
officers and employees;
6. The time for holding the annual election of directors of trustees and the
mode or manner of giving notice thereof;
7. The manner of election or appointment and the term of office of all officers
other than directors or trustees;
8. The penalties for violation of the by-laws;
9. In the case of stock corporations, the manner of issuing stock certificates;
and
10. Such other matters as may be necessary for the proper or convenient
transaction of its corporate business and affairs. (21a)
Section 48. Amendments to by-laws. – The board of directors or trustees, by a
majority vote thereof, and the owners of at least a majority of the outstanding capital
stock, or at least a majority of the members of a non-stock corporation, at a regular
or special meeting duly called for the purpose, may amend or repeal any by-laws or
adopt new by-laws. The owners of two-thirds (2/3) of the outstanding capital stock
or two-thirds (2/3) of the members in a non-stock corporation may delegate to the
board of directors or trustees the power to amend or repeal any by-laws or adopt
new by-laws: Provided, That any power delegated to the board of directors or
trustees to amend or repeal any by-laws or adopt new by-laws shall be considered as
revoked whenever stockholders owning or representing a majority of the outstanding
capital stock or a majority of the members in non-stock corporations, shall so vote at
a regular or special meeting.
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Whenever any amendment or new by-laws are adopted, such amendment or new by-
laws shall be attached to the original by-laws in the office of the corporation, and a
copy thereof, duly certified under oath by the corporate secretary and a majority of
the directors or trustees, shall be filed with the Securities and Exchange Commission
the same to be attached to the original articles of incorporation and original by-laws.
The amended or new by-laws shall only be effective upon the issuance by the
Securities and Exchange Commission of a certification that the same are not
inconsistent with this Code. (22a and 23a)
TITLE VI
MEETINGS
Section 49. Kinds of meetings. – Meetings of directors, trustees, stockholders, or
members may be regular or special. (n)
Section 50. Regular and special meetings of stockholders or members. - Regular
meetings of stockholders or members shall be held annually on a date fixed in the by-
laws, or if not so fixed, on any date in April of every year as determined by the board
of directors or trustees: Provided, That written notice of regular meetings shall be
sent to all stockholders or members of record at least two (2) weeks prior to the
meeting, unless a different period is required by the by-laws.
Special meetings of stockholders or members shall be held at any time deemed
necessary or as provided in the by-laws: Provided, however, That at least one (1) week
written notice shall be sent to all stockholders or members, unless otherwise
provided in the by-laws.
Notice of any meeting may be waived, expressly or impliedly, by any stockholder or
member.
Whenever, for any cause, there is no person authorized to call a meeting, the
Securities and Exchange Commission, upon petition of a stockholder or member on a
showing of good cause therefor, may issue an order to the petitioning stockholder or
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member directing him to call a meeting of the corporation by giving proper notice
required by this Code or by the by-laws. The petitioning stockholder or member shall
preside thereat until at least a majority of the stockholders or members present have
chosen one of their number as presiding officer. (24, 26)
Section 51. Place and time of meetings of stockholders of members. – Stockholder’s
or member’s meetings, whether regular or special, shall be held in the city or
municipality where the principal office of the corporation is located, and if practicable
in the principal office of the corporation: Provided, That Metro Manila shall, for
purposes of this section, be considered a city or municipality.
Notice of meetings shall be in writing, and the time and place thereof stated therein.
All proceedings had and any business transacted at any meeting of the stockholders
or members, if within the powers or authority of the corporation, shall be valid even
if the meeting be improperly held or called, provided all the stockholders or members
of the corporation are present or duly represented at the meeting. (24 and 25)
Section 52. Quorum in meetings. – Unless otherwise provided for in this Code or in
the by-laws, a quorum shall consist of the stockholders representing a majority of the
outstanding capital stock or a majority of the members in the case of non-stock
corporations. (n)
Section 53. Regular and special meetings of directors or trustees. – Regular meetings
of the board of directors or trustees of every corporation shall be held monthly, unless
the by-laws provide otherwise.
Special meetings of the board of directors or trustees may be held at any time upon
the call of the president or as provided in the by-laws.
Meetings of directors or trustees of corporations may be held anywhere in or outside
of the Philippines, unless the by-laws provide otherwise. Notice of regular or special
meetings stating the date, time and place of the meeting must be sent to every
director or trustee at least one (1) day prior to the scheduled meeting, unless
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otherwise provided by the by-laws. A director or trustee may waive this requirement,
either expressly or impliedly. (n)
Section 54. Who shall preside at meetings. – The president shall preside at all
meetings of the directors or trustee as well as of the stockholders or members, unless
the by-laws provide otherwise. (n)
Section 55. Right to vote of pledgors, mortgagors, and administrators. – In case of
pledged or mortgaged shares in stock corporations, the pledgor or mortgagor shall
have the right to attend and vote at meetings of stockholders, unless the pledgee or
mortgagee is expressly given by the pledgor or mortgagor such right in writing which
is recorded on the appropriate corporate books. (n)
Executors, administrators, receivers, and other legal representatives duly appointed
by the court may attend and vote in behalf of the stockholders or members without
need of any written proxy. (27a)
Section 56. Voting in case of joint ownership of stock. – In case of shares of stock
owned jointly by two or more persons, in order to vote the same, the consent of all
the co-owners shall be necessary, unless there is a written proxy, signed by all the co-
owners, authorizing one or some of them or any other person to vote such share or
shares: Provided, That when the shares are owned in an "and/or" capacity by the
holders thereof, any one of the joint owners can vote said shares or appoint a proxy
therefor. (n)
Section 57. Voting right for treasury shares. – Treasury shares shall have no voting
right as long as such shares remain in the Treasury. (n)
Section 58. Proxies. – Stockholders and members may vote in person or by proxy in
all meetings of stockholders or members. Proxies shall in writing, signed by the
stockholder or member and filed 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. (n)
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Section 59. Voting trusts. – One or more stockholders of a stock corporation may
create a voting trust for the purpose of conferring upon a trustee or trustees the right
to vote and other rights pertaining to the shares for a period not exceeding five (5)
years at any time: Provided, That in the case of a voting trust specifically required as
a condition in a loan agreement, said voting trust may be for a period exceeding five
(5) years but shall automatically expire upon full payment of the loan. A voting trust
agreement must be in writing and notarized, and shall specify the terms and
conditions thereof. A certified copy of such agreement shall be filed with the
corporation and with the Securities and Exchange Commission; otherwise, said
agreement is ineffective and unenforceable. The certificate or certificates of stock
covered by the voting trust agreement shall be cancelled and new ones shall be issued
in the name of the trustee or trustees stating that they are issued pursuant to said
agreement. In the books of the corporation, it shall be noted that the transfer in the
name of the trustee or trustees is made pursuant to said voting trust agreement.
The trustee or trustees shall execute and deliver to the transferors voting trust
certificates, which shall be transferable in the same manner and with the same effect
as certificates of stock.
The voting trust agreement filed with the corporation shall be subject to examination
by any stockholder of the corporation in the same manner as any other corporate
book or record: Provided, That both the transferor and the trustee or trustees may
exercise the right of inspection of all corporate books and records in accordance with
the provisions of this Code.
Any other stockholder may transfer his shares to the same trustee or trustees upon
the terms and conditions stated in the voting trust agreement, and thereupon shall
be bound by all the provisions of said agreement.
No voting trust agreement shall be entered into for the purpose of circumventing the
law against monopolies and illegal combinations in restraint of trade or used for
purposes of fraud.
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Unless expressly renewed, all rights granted in a voting trust agreement shall
automatically expire at the end of the agreed period, and the voting trust certificates
as well as the certificates of stock in the name of the trustee or trustees shall thereby
be deemed cancelled and new certificates of stock shall be reissued in the name of
the transferors.
The voting trustee or trustees may vote by proxy unless the agreement provides
otherwise. (36a)
TITLE VII
STOCKS AND STOCKHOLDERS
Section 60. Subscription contract. – Any contract for the acquisition of unissued stock
in an existing corporation or a corporation still to be formed shall be deemed a
subscription within the meaning of this Title, notwithstanding the fact that the parties
refer to it as a purchase or some other contract. (n)
Section 61. Pre-incorporation subscription. – A subscription for shares of stock of a
corporation still to be formed shall be irrevocable for a period of at least six (6)
months from the date of subscription, unless all of the other subscribers consent to
the revocation, or unless the incorporation of said corporation fails to materialize
within said period or within a longer period as may be stipulated in the contract of
subscription: Provided, That no pre-incorporation subscription may be revoked after
the submission of the articles of incorporation to the Securities and Exchange
Commission. (n)
Section 62. Consideration for stocks. – Stocks shall not be issued for a consideration
less than the par or issued price thereof. Consideration for the issuance of stock may
be any or a combination of any two or more of the following:
1. Actual cash paid to the corporation;
Section 63. Certificate of stock and transfer of shares. – The capital stock of stock
corporations shall be divided into shares for which certificates signed by the president
or vice president, countersigned by the secretary or assistant secretary, and sealed
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2. Property, tangible or intangible, actually received by the corporation and
necessary or convenient for its use and lawful purposes at a fair valuation
equal to the par or issued value of the stock issued;
3. Labor performed for or services actually rendered to the corporation;
4. Previously incurred indebtedness of the corporation;
5. Amounts transferred from unrestricted retained earnings to stated capital;
and
6. Outstanding shares exchanged for stocks in the event of reclassification or
conversion.
Where the consideration is other than actual cash, or consists of intangible
property such as patents of copyrights, the valuation thereof shall initially be
determined by the incorporators or the board of directors, subject to
approval by the Securities and Exchange Commission.
Shares of stock shall not be issued in exchange for promissory notes or future
service.
The same considerations provided for in this section, insofar as they may be
applicable, may be used for the issuance of bonds by the corporation.
The issued price of no-par value shares may be fixed in the articles of
incorporation or by the board of directors pursuant to authority conferred
upon it by the articles of incorporation or the by-laws, or in the absence
thereof, by the stockholders representing at least a majority of the
outstanding capital stock at a meeting duly called for the purpose. (5 and 16)
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with the seal of the corporation shall be issued in accordance with the by-laws. Shares
of stock so issued are personal property and may be transferred by delivery of the
certificate or certificates indorsed by the owner or his attorney-in-fact or other person
legally authorized to make the transfer. No transfer, however, shall be valid, except
as between the parties, until the transfer is recorded in the books of the corporation
showing the names of the parties to the transaction, the date of the transfer, the
number of the certificate or certificates and the number of shares transferred.
No shares of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation. (35)
Section 64. Issuance of stock certificates. – No certificate of stock shall be issued to a
subscriber until the full amount of his subscription together with interest and
expenses (in case of delinquent shares), if any is due, has been paid. (37)
Section 65. Liability of directors for watered stocks. – Any director or officer of a
corporation consenting to the issuance of stocks for a consideration less than its par
or issued value or for a consideration in any form other than cash, valued in excess of
its fair value, or who, having knowledge thereof, does not forthwith express his
objection in writing and file the same with the corporate secretary, shall be solidarily,
liable with the stockholder concerned to the corporation and its creditors for the
difference between the fair value received at the time of issuance of the stock and
the par or issued value of the same. (n)
Section 66. Interest on unpaid subscriptions. – Subscribers for stock shall pay to the
corporation interest on all unpaid subscriptions from the date of subscription, if so
required by, and at the rate of interest fixed in the by-laws. If no rate of interest is
fixed in the by-laws, such rate shall be deemed to be the legal rate. (37)
Section 67. Payment of balance of subscription. – Subject to the provisions of the
contract of subscription, the board of directors of any stock corporation may at any
time declare due and payable to the corporation unpaid subscriptions to the capital
stock and may collect the same or such percentage thereof, in either case with
accrued interest, if any, as it may deem necessary.
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Payment of any unpaid subscription or any percentage thereof, together with the
interest accrued, if any, shall be made on the date specified in the contract of
subscription or on the date stated in the call made by the board. Failure to pay on
such date shall render the entire balance due and payable and shall make the
stockholder liable for interest at the legal rate on such balance, unless a different rate
of interest is provided in the by-laws, computed from such date until full payment. If
within thirty (30) days from the said date no payment is made, all stocks covered by
said subscription shall thereupon become delinquent and shall be subject to sale as
hereinafter provided, unless the board of directors orders otherwise. (38)
Section 68. Delinquency sale. – The board of directors may, by resolution, order the
sale of delinquent stock and shall specifically state the amount due on each
subscription plus all accrued interest, and the date, time and place of the sale which
shall not be less than thirty (30) days nor more than sixty (60) days from the date the
stocks become delinquent.
Notice of said sale, with a copy of the resolution, shall be sent to every delinquent
stockholder either personally or by registered mail. The same shall furthermore be
published once a week for two (2) consecutive weeks in a newspaper of general
circulation in the province or city where the principal office of the corporation is
located.
Unless the delinquent stockholder pays to the corporation, on or before the date
specified for the sale of the delinquent stock, the balance due on his subscription,
plus accrued interest, costs of advertisement and expenses of sale, or unless the
board of directors otherwise orders, said delinquent stock shall be sold at public
auction to such bidder who shall offer to pay the full amount of the balance on the
subscription together with accrued interest, costs of advertisement and expenses of
sale, for the smallest number of shares or fraction of a share. The stock so purchased
shall be transferred to such purchaser in the books of the corporation and a certificate
for such stock shall be issued in his favor. The remaining shares, if any, shall be
credited in favor of the delinquent stockholder who shall likewise be entitled to the
issuance of a certificate of stock covering such shares.
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Should there be no bidder at the public auction who offers to pay the full amount of
the balance on the subscription together with accrued interest, costs of
advertisement and expenses of sale, for the smallest number of shares or fraction of
a share, the corporation may, subject to the provisions of this Code, bid for the same,
and the total amount due shall be credited as paid in full in the books of the
corporation. Title to all the shares of stock covered by the subscription shall be vested
in the corporation as treasury shares and may be disposed of by said corporation in
accordance with the provisions of this Code. (39a-46a)
Section 69. When sale may be questioned. – No action to recover delinquent stock
sold can be sustained upon the ground of irregularity or defect in the notice of sale,
or in the sale itself of the delinquent stock, unless the party seeking to maintain such
action first pays or tenders to the party holding the stock the sum for which the same
was sold, with interest from the date of sale at the legal rate; and no such action shall
be maintained unless it is commenced by the filing of a complaint within six (6)
months from the date of sale. (47a)
Section 70. Court action to recover unpaid subscription. – Nothing in this Code shall
prevent the corporation from collecting by action in a court of proper jurisdiction the
amount due on any unpaid subscription, with accrued interest, costs and expenses.
(49a)
Section 71. Effect of delinquency. – No delinquent stock shall be voted for or be
entitled to vote or to representation at any stockholder’s meeting, nor shall the
holder thereof be entitled to any of the rights of a stockholder except the right to
dividends in accordance with the provisions of this Code, until and unless he pays the
amount due on his subscription with accrued interest, and the costs and expenses of
advertisement, if any. (50a)
Section 72. Rights of unpaid shares. – Holders of subscribed shares not fully paid
which are not delinquent shall have all the rights of a stockholder. (n)
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Section 73. Lost or destroyed certificates. – The following procedure shall be followed
for the issuance by a corporation of new certificates of stock in lieu of those which
have been lost, stolen or destroyed:
1. The registered owner of a certificate of stock in a corporation or his legal
representative shall file with the corporation an affidavit in triplicate setting
forth, if possible, the circumstances as to how the certificate was lost, stolen
or destroyed, the number of shares represented by such certificate, the serial
number of the certificate and the name of the corporation which issued the
same. He shall also submit such other information and evidence which he
may deem necessary;
2. After verifying the affidavit and other information and evidence with the
books of the corporation, said corporation shall publish a notice in a
newspaper of general circulation published in the place where the
corporation has its principal office, once a week for three (3) consecutive
weeks at the expense of the registered owner of the certificate of stock which
has been lost, stolen or destroyed. The notice shall state the name of said
corporation, the name of the registered owner and the serial number of said
certificate, and the number of shares represented by such certificate, and
that after the expiration of one (1) year from the date of the last publication,
if no contest has been presented to said corporation regarding said certificate
of stock, the right to make such contest shall be barred and said corporation
shall cancel in its books the certificate of stock which has been lost, stolen or
destroyed and issue in lieu thereof new certificate of stock, unless the
registered owner files a bond or other security in lieu thereof as may be
required, effective for a period of one (1) year, for such amount and in such
form and with such sureties as may be satisfactory to the board of directors,
in which case a new certificate may be issued even before the expiration of
the one (1) year period provided herein: Provided, That if a contest has been
presented to said corporation or if an action is pending in court regarding the
ownership of said certificate of stock which has been lost, stolen or destroyed,
the issuance of the new certificate of stock in lieu thereof shall be suspended
Nigel Carmelo Q. Reago 155

until the final decision by the court regarding the ownership of said certificate
of stock which has been lost, stolen or destroyed.
Except in case of fraud, bad faith, or negligence on the part of the corporation
and its officers, no action may be brought against any corporation which shall
have issued certificate of stock in lieu of those lost, stolen or destroyed
pursuant to the procedure above-described. (R.A. 201a)
TITLE VIII
CORPORATE BOOKS AND RECORDS
Section 74. Books to be kept; stock transfer agent. – Every corporation shall keep and
carefully preserve at its principal office a record of all business transactions and
minutes of all meetings of stockholders or members, or of the board of directors or
trustees, in which shall be set forth in detail the time and place of holding the meeting,
how authorized, the notice given, whether the meeting was regular or special, if
special its object, those present and absent, and every act done or ordered done at
the meeting. Upon the demand of any director, trustee, stockholder or member, the
time when any director, trustee, stockholder or member entered or left the meeting
must be noted in the minutes; and on a similar demand, the yeas and nays must be
taken on any motion or proposition, and a record thereof carefully made. The protest
of any director, trustee, stockholder or member on any action or proposed action
must be recorded in full on his demand.
The records of all business transactions of the corporation and the minutes of any
meetings shall be open to inspection by any director, trustee, stockholder or member
of the corporation at reasonable hours on business days and he may demand, in
writing, for a copy of excerpts from said records or minutes, at his expense.
Any officer or agent of the corporation who shall refuse to allow any director, trustees,
stockholder or member of the corporation to examine and copy excerpts from its
records or minutes, in accordance with the provisions of this Code, shall be liable to
such director, trustee, stockholder or member for damages, and in addition, shall be
guilty of an offense which shall be punishable under Section 144 of this Code:
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Provided, That if such refusal is made pursuant to a resolution or order of the board
of directors or trustees, the liability under this section for such action shall be imposed
upon the directors or trustees who voted for such refusal: and Provided, further, That
it shall be a defense to any action under this section that the person demanding to
examine and copy excerpts from the corporation’s records and minutes has
improperly used any information secured through any prior examination of the
records or minutes of such corporation or of any other corporation, or was not acting
in good faith or for a legitimate purpose in making his demand.
Stock corporations must also keep a book to be known as the "stock and transfer
book", in which must be kept a record of all stocks in the names of the stockholders
alphabetically arranged; the installments paid and unpaid on all stock for which
subscription has been made, and the date of payment of any installment; a statement
of every alienation, sale or transfer of stock made, the date thereof, and by and to
whom made; and such other entries as the by-laws may prescribe. The stock and
transfer book shall be kept in the principal office of the corporation or in the office of
its stock transfer agent and shall be open for inspection by any director or stockholder
of the corporation at reasonable hours on business days.
No stock transfer agent or one engaged principally in the business of registering
transfers of stocks in behalf of a stock corporation shall be allowed to operate in the
Philippines unless he secures a license from the Securities and Exchange Commission
and pays a fee as may be fixed by the Commission, which shall be renewable annually:
Provided, That a stock corporation is not precluded from performing or making
transfer of its own stocks, in which case all the rules and regulations imposed on stock
transfer agents, except the payment of a license fee herein provided, shall be
applicable. (51a and 32a; P.B. No. 268.)
Section 75. Right to financial statements. – Within ten (10) days from receipt of a
written request of any stockholder or member, the corporation shall furnish to him
its most recent financial statement, which shall include a balance sheet as of the end
of the last taxable year and a profit or loss statement for said taxable year, showing
in reasonable detail its assets and liabilities and the result of its operations.
Nigel Carmelo Q. Reago 156

At the regular meeting of stockholders or members, the board of directors or trustees
shall present to such stockholders or members a financial report of the operations of
the corporation for the preceding year, which shall include financial statements, duly
signed and certified by an independent certified public accountant.
However, if the paid-up capital of the corporation is less than P50,000.00, the
financial statements may be certified under oath by the treasurer or any responsible
officer of the corporation. (n)
TITLE IX
MERGER AND CONSOLIDATION
Section 76. Plan or merger of consolidation. – Two or more corporations may merge
into a single corporation which shall be one of the constituent corporations or may
consolidate into a new single corporation which shall be the consolidated corporation.
The board of directors or trustees of each corporation, party to the merger or
consolidation, shall approve a plan of merger or consolidation setting forth the
following:
1. The names of the corporations proposing to merge or consolidate,
hereinafter referred to as the constituent corporations;
2. The terms of the merger or consolidation and the mode of carrying the
same into effect;
3. A statement of the changes, if any, in the articles of incorporation of the
surviving corporation in case of merger; and, with respect to the consolidated
corporation in case of consolidation, all the statements required to be set
forth in the articles of incorporation for corporations organized under this
Code; and
4. Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or desirable. (n)
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Section 77. Stockholder’s or member’s approval. – Upon approval by majority vote of
each of the board of directors or trustees of the constituent corporations of the plan
of merger or consolidation, the same shall be submitted for approval by the
stockholders or members of each of such corporations at separate corporate
meetings duly called for the purpose. Notice of such meetings shall be given to all
stockholders or members of the respective corporations, at least two (2) weeks prior
to the date of the meeting, either personally or by registered mail. Said notice shall
state the purpose of the meeting and shall include a copy or a summary of the plan
of merger or consolidation. The affirmative vote of stockholders representing at least
two-thirds (2/3) of the outstanding capital stock of each corporation in the case of
stock corporations or at least two-thirds (2/3) of the members in the case of non-
stock corporations shall be necessary for the approval of such plan. Any dissenting
stockholder in stock corporations may exercise his appraisal right in accordance with
the Code: Provided, That if after the approval by the stockholders of such plan, the
board of directors decides to abandon the plan, the appraisal right shall be
extinguished.
Any amendment to the plan of merger or consolidation may be made, provided such
amendment is approved by majority vote of the respective boards of directors or
trustees of all the constituent corporations and ratified by the affirmative vote of
stockholders representing at least two-thirds (2/3) of the outstanding capital stock or
of two-thirds (2/3) of the members of each of the constituent corporations. Such plan,
together with any amendment, shall be considered as the agreement of merger or
consolidation. (n)
Section 78. Articles of merger or consolidation. – After the approval by the
stockholders or members as required by the preceding section, articles of merger or
articles of consolidation shall be executed by each of the constituent corporations, to
be signed by the president or vice-president and certified by the secretary or assistant
secretary of each corporation setting forth:
1. The plan of the merger or the plan of consolidation;
Nigel Carmelo Q. Reago 157

2. As to stock corporations, the number of shares outstanding, or in the case
of non-stock corporations, the number of members; and
3. As to each corporation, the number of shares or members voting for and
against such plan, respectively. (n)
Section 79. Effectivity of merger or consolidation. – The articles of merger or of
consolidation, signed and certified as herein above required, shall be submitted to
the Securities and Exchange Commission in quadruplicate for its approval: Provided,
That in the case of merger or consolidation of banks or banking institutions, building
and loan associations, trust companies, insurance companies, public utilities,
educational institutions and other special corporations governed by special laws, the
favorable recommendation of the appropriate government agency shall first be
obtained. If the Commission is satisfied that the merger or consolidation of the
corporations concerned is not inconsistent with the provisions of this Code and
existing laws, it shall issue a certificate of merger or of consolidation, at which time
the merger or consolidation shall be effective.
If, upon investigation, the Securities and Exchange Commission has reason to believe
that the proposed merger or consolidation is contrary to or inconsistent with the
provisions of this Code or existing laws, it shall set a hearing to give the corporations
concerned the opportunity to be heard. Written notice of the date, time and place of
hearing shall be given to each constituent corporation at least two (2) weeks before
said hearing. The Commission shall thereafter proceed as provided in this Code. (n)
Section 80. Effects of merger or consolidation. – The merger or consolidation shall
have the following effects:
1. The constituent corporations shall become a single corporation which, in
case of merger, shall be the surviving corporation designated in the plan of
merger; and, in case of consolidation, shall be the consolidated corporation
designated in the plan of consolidation;
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2. The separate existence of the constituent corporations shall cease, except
that of the surviving or the consolidated corporation;
3. The surviving or the consolidated corporation shall possess all the rights,
privileges, immunities and powers and shall be subject to all the duties and
liabilities of a corporation organized under this Code;
4. The surviving or the consolidated corporation shall thereupon and
thereafter possess all the rights, privileges, immunities and franchises of each
of the constituent corporations; and all property, real or personal, and all
receivables due on whatever account, including subscriptions to shares and
other choses in action, and all and every other interest of, or belonging to, or
due to each constituent corporation, shall be deemed transferred to and
vested in such surviving or consolidated corporation without further act or
deed; and
5. The surviving or consolidated corporation shall be responsible and liable
for all the liabilities and obligations of each of the constituent corporations in
the same manner as if such surviving or consolidated corporation had itself
incurred such liabilities or obligations; and any pending claim, action or
proceeding brought by or against any of such constituent corporations may
be prosecuted by or against the surviving or consolidated corporation. The
rights of creditors or liens upon the property of any of such constituent
corporations shall not be impaired by such merger or consolidation. (n)
TITLE X
APPRAISAL RIGHT
Section 81. Instances of appraisal right. – Any stockholder of a corporation shall have
the right to dissent and demand payment of the fair value of his shares in the
following instances:
1. In case any amendment to the articles of incorporation has the effect of
changing or restricting the rights of any stockholder or class of shares, or of
Nigel Carmelo Q. Reago 158

authorizing preferences in any respect superior to those of outstanding
shares of any class, or of extending or shortening the term of corporate
existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other
disposition of all or substantially all of the corporate property and assets as
provided in the Code; and
3. In case of merger or consolidation. (n)
Section 82. How right is exercised. – The appraisal right may be exercised by any
stockholder who shall have voted against the proposed corporate action, by making
a written demand on the corporation within thirty (30) days after the date on which
the vote was taken for payment of the fair value of his shares: Provided, That failure
to make the demand within such period shall be deemed a waiver of the appraisal
right. If the proposed corporate action is implemented or affected, the corporation
shall pay to such stockholder, upon surrender of the certificate or certificates of stock
representing his shares, the fair value thereof as of the day prior to the date on which
the vote was taken, excluding any appreciation or depreciation in anticipation of such
corporate action.
If within a period of sixty (60) days from the date the corporate action was approved
by the stockholders, the withdrawing stockholder and the corporation cannot agree
on the fair value of the shares, it shall be determined and appraised by three (3)
disinterested persons, one of whom shall be named by the stockholder, another by
the corporation, and the third by the two thus chosen. The findings of the majority of
the appraisers shall be final, and their award shall be paid by the corporation within
thirty (30) days after such award is made: Provided, That no payment shall be made
to any dissenting stockholder unless the corporation has unrestricted retained
earnings in its books to cover such payment: and Provided, further, That upon
payment by the corporation of the agreed or awarded price, the stockholder shall
forthwith transfer his shares to the corporation. (n)
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Section 83. Effect of demand and termination of right. – From the time of demand for
payment of the fair value of a stockholder’s shares until either the abandonment of
the corporate action involved or the purchase of the said shares by the corporation,
all rights accruing to such shares, including voting and dividend rights, shall be
suspended in accordance with the provisions of this Code, except the right of such
stockholder to receive payment of the fair value thereof: Provided, That if the
dissenting stockholder is not paid the value of his shares within 30 days after the
award, his voting and dividend rights shall immediately be restored. (n)
Section 84. When right to payment ceases. – No demand for payment under this Title
may be withdrawn unless the corporation consents thereto. If, however, such
demand for payment is withdrawn with the consent of the corporation, or if the
proposed corporate action is abandoned or rescinded by the corporation or
disapproved by the Securities and Exchange Commission where such approval is
necessary, or if the Securities and Exchange Commission determines that such
stockholder is not entitled to the appraisal right, then the right of said stockholder to
be paid the fair value of his shares shall cease, his status as a stockholder shall
thereupon be restored, and all dividend distributions which would have accrued on
his shares shall be paid to him. (n)
Section 85. Who bears costs of appraisal. – The costs and expenses of appraisal shall
be borne by the corporation, unless the fair value ascertained by the appraisers is
approximately the same as the price which the corporation may have offered to pay
the stockholder, in which case they shall be borne by the latter. In the case of an
action to recover such fair value, all costs and expenses shall be assessed against the
corporation, unless the refusal of the stockholder to receive payment was unjustified.
(n)
Section 86. Notation on certificates; rights of transferee. – Within ten (10) days after
demanding payment for his shares, a dissenting stockholder shall submit the
certificates of stock representing his shares to the corporation for notation thereon
that such shares are dissenting shares. His failure to do so shall, at the option of the
corporation, terminate his rights under this Title. If shares represented by the
certificates bearing such notation are transferred, and the certificates consequently
Nigel Carmelo Q. Reago 159

cancelled, the rights of the transferor as a dissenting stockholder under this Title shall
cease and the transferee shall have all the rights of a regular stockholder; and all
dividend distributions which would have accrued on such shares shall be paid to the
transferee. (n)
TITLE XI
NON-STOCK CORPORATIONS
Section 87. Definition. – For the purposes of this Code, a non-stock corporation is one
where no part of its income is distributable as dividends to its members, trustees, or
officers, subject to the provisions of this Code on dissolution: Provided, That any profit
which a non-stock corporation may obtain as an incident to its operations shall,
whenever necessary or proper, be used for the furtherance of the purpose or
purposes for which the corporation was organized, subject to the provisions of this
Title.
The provisions governing stock corporation, when pertinent, shall be applicable to
non-stock corporations, except as may be covered by specific provisions of this Title.
(n)
Section 88. Purposes. – Non-stock corporations may be formed or organized for
charitable, religious, educational, professional, cultural, fraternal, literary, scientific,
social, civic service, or similar purposes, like trade, industry, agricultural and like
chambers, or any combination thereof, subject to the special provisions of this Title
governing particular classes of non-stock corporations. (n)
CHAPTER
MEMBERS
Section 89. Right to vote. – The right of the members of any class or classes to vote
may be limited, broadened or denied to the extent specified in the articles of
incorporation or the by-laws. Unless so limited, broadened or denied, each member,
regardless of class, shall be entitled to one vote.
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Unless otherwise provided in the articles of incorporation or the by-laws, a member
may vote by proxy in accordance with the provisions of this Code. (n)
Voting by mail or other similar means by members of non-stock corporations may be
authorized by the by-laws of non-stock corporations with the approval of, and under
such conditions which may be prescribed by, the Securities and Exchange Commission.
Section 90. Non-transferability of membership. – Membership in a non-stock
corporation and all rights arising therefrom are personal and non-transferable, unless
the articles of incorporation or the by-laws otherwise provide. (n)
Section 91. Termination of membership. – Membership shall be terminated in the
manner and for the causes provided in the articles of incorporation or the by-laws.
Termination of membership shall have the effect of extinguishing all rights of a
member in the corporation or in its property, unless otherwise provided in the articles
of incorporation or the by-laws. (n)
CHAPTER II
TRUSTEES AND OFFICES
Section 92. Election and term of trustees. – Unless otherwise provided in the articles
of incorporation or the by-laws, the board of trustees of non-stock corporations,
which may be more than fifteen (15) in number as may be fixed in their articles of
incorporation or by-laws, shall, as soon as organized, so classify themselves that the
term of office of one-third (1/3) of their number shall expire every year; and
subsequent elections of trustees comprising one-third (1/3) of the board of trustees
I shall be held annually and trustees so elected shall have a term of three (3) years.
Trustees thereafter elected to fill vacancies occurring before the expiration of a
particular term shall hold office only for the unexpired period.
No person shall be elected as trustee unless he is a member of the corporation.
Unless otherwise provided in the articles of incorporation or the by-laws, officers of
a non-stock corporation may be directly elected by the members. (n)
Nigel Carmelo Q. Reago 160

Section 93. Place of meetings. – The by-laws may provide that the members of a non-
stock corporation may hold their regular or special meetings at any place even outside
the place where the principal office of the corporation is located: Provided, That
proper notice is sent to all members indicating the date, time and place of the meeting:
and Provided, further, That the place of meeting shall be within the Philippines. (n)
CHAPTER III
DISTRIBUTION OF ASSETS IN NON-STOCK CORPORATIONS
Section 94. Rules of distribution. – In case dissolution of a non-stock corporation in
accordance with the provisions of this Code, its assets shall be applied and distributed
as follows:
1. All liabilities and obligations of the corporation shall be paid, satisfied and
discharged, or adequate provision shall be made therefore;
2. Assets held by the corporation upon a condition requiring return, transfer
or conveyance, and which condition occurs by reason of the dissolution, shall
be returned, transferred or conveyed in accordance with such requirements;
3. Assets received and held by the corporation subject to limitations
permitting their use only for charitable, religious, benevolent, educational or
similar purposes, but not held upon a condition requiring return, transfer or
conveyance by reason of the dissolution, shall be transferred or conveyed to
one or more corporations, societies or organizations engaged in activities in
the Philippines substantially similar to those of the dissolving corporation
according to a plan of distribution adopted pursuant to this Chapter;
4. Assets other than those mentioned in the preceding paragraphs, if any,
shall be distributed in accordance with the provisions of the articles of
incorporation or the by-laws, to the extent that the articles of incorporation
or the by-laws, determine the distributive rights of members, or any class or
classes of members, or provide for distribution; and
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5. In any other case, assets may be distributed to such persons, societies,
organizations or corporations, whether or not organized for profit, as may be
specified in a plan of distribution adopted pursuant to this Chapter. (n)
Section 95. Plan of distribution of assets. – A plan providing for the distribution of
assets, not inconsistent with the provisions of this Title, may be adopted by a non-
stock corporation in the process of dissolution in the following manner:
The board of trustees shall, by majority vote, adopt a resolution recommending a plan
of distribution and directing the submission thereof to a vote at a regular or special
meeting of members having voting rights. Written notice setting forth the proposed
plan of distribution or a summary thereof and the date, time and place of such
meeting shall be given to each member entitled to vote, within the time and in the
manner provided in this Code for the giving of notice of meetings to members. Such
plan of distribution shall be adopted upon approval of at least two-thirds (2/3) of the
members having voting rights present or represented by proxy at such meeting. (n)
TITLE XII
CLOSE CORPORATIONS
Section 96. Definition and applicability of Title. - A close corporation, within the
meaning of this Code, is one whose articles of incorporation provide that: (1) All the
corporation’s issued stock of all classes, exclusive of treasury shares, shall be held of
record by not more than a specified number of persons, not exceeding twenty (20);
(2) all the issued stock of all classes shall be subject to one or more specified
restrictions on transfer permitted by this Title; and (3) The corporation shall not list
in any stock exchange or make any public offering of any of its stock of any class.
Notwithstanding the foregoing, a corporation shall not be deemed a close
corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned
or controlled by another corporation which is not a close corporation within the
meaning of this Code.
Any corporation may be incorporated as a close corporation, except mining or oil
companies, stock exchanges, banks, insurance companies, public utilities, educational
Nigel Carmelo Q. Reago 161

institutions and corporations declared to be vested with public interest in accordance
with the provisions of this Code.
The provisions of this Title shall primarily govern close corporations: Provided, That
the provisions of other Titles of this Code shall apply suppletorily except insofar as
this Title otherwise provides.
Section 97. Articles of incorporation. – The articles of incorporation of a close
corporation may provide:
1. For a classification of shares or rights and the qualifications for owning or
holding the same and restrictions on their transfers as may be stated therein,
subject to the provisions of the following section;
2. For a classification of directors into one or more classes, each of whom may
be voted for and elected solely by a particular class of stock; and
3. For a greater quorum or voting requirements in meetings of stockholders
or directors than those provided in this Code.
The articles of incorporation of a close corporation may provide that the business of
the corporation shall be managed by the stockholders of the corporation rather than
by a board of directors. So long as this provision continues in effect:
1. No meeting of stockholders need be called to elect directors;
2. Unless the context clearly requires otherwise, the stockholders of the
corporation shall be deemed to be directors for the purpose of applying the
provisions of this Code; and
3. The stockholders of the corporation shall be subject to all liabilities of
directors.
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The articles of incorporation may likewise provide that all officers or employees or
that specified officers or employees shall be elected or appointed by the stockholders,
instead of by the board of directors.
Section 98. Validity of restrictions on transfer of shares. – Restrictions on the right to
transfer shares must appear in the articles of incorporation and in the by-laws as well
as in the certificate of stock; otherwise, the same shall not be binding on any
purchaser thereof in good faith. Said restrictions shall not be more onerous than
granting the existing stockholders or the corporation the option to purchase the
shares of the transferring stockholder with such reasonable terms, conditions or
period stated therein. If upon the expiration of said period, the existing stockholders
or the corporation fails to exercise the option to purchase, the transferring
stockholder may sell his shares to any third person.
Section 99. Effects of issuance or transfer of stock in breach of qualifying conditions. -
1. If stock of a close corporation is issued or transferred to any person who is
not entitled under any provision of the articles of incorporation to be a holder
of record of its stock, and if the certificate for such stock conspicuously shows
the qualifications of the persons entitled to be holders of record thereof, such
person is conclusively presumed to have notice of the fact of his ineligibility
to be a stockholder.
2. If the articles of incorporation of a close corporation states the number of
persons, not exceeding twenty (20), who are entitled to be holders of record
of its stock, and if the certificate for such stock conspicuously states such
number, and if the issuance or transfer of stock to any person would cause
the stock to be held by more than such number of persons, the person to
whom such stock is issued or transferred is conclusively presumed to have
notice of this fact.
3. If a stock certificate of any close corporation conspicuously shows a
restriction on transfer of stock of the corporation, the transferee of the stock
Nigel Carmelo Q. Reago 162

is conclusively presumed to have notice of the fact that he has acquired stock
in violation of the restriction, if such acquisition violates the restriction.
4. Whenever any person to whom stock of a close corporation has been
issued or transferred has, or is conclusively presumed under this section to
have, notice either (a) that he is a person not eligible to be a holder of stock
of the corporation, or (b) that transfer of stock to him would cause the stock
of the corporation to be held by more than the number of persons permitted
by its articles of incorporation to hold stock of the corporation, or (c) that the
transfer of stock is in violation of a restriction on transfer of stock, the
corporation may, at its option, refuse to register the transfer of stock in the
name of the transferee.
5. The provisions of subsection (4) shall not be applicable if the transfer of
stock, though contrary to subsections (1), (2) or (3), has been consented to by
all the stockholders of the close corporation, or if the close corporation has
amended its articles of incorporation in accordance with this Title.
6. The term "transfer", as used in this section, is not limited to a transfer for
value.
7. The provisions of this section shall not impair any right which the transferee
may have to rescind the transfer or to recover under any applicable warranty,
express or implied.
Section 100. Agreements by stockholders. -
1. Agreements by and among stockholders executed before the formation
and organization of a close corporation, signed by all stockholders, shall
survive the incorporation of such corporation and shall continue to be valid
and binding between and among such stockholders, if such be their intent, to
the extent that such agreements are not inconsistent with the articles of
incorporation, irrespective of where the provisions of such agreements are
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contained, except those required by this Title to be embodied in said articles
of incorporation.
2. An agreement between two or more stockholders, if in writing and signed
by the parties thereto, may provide that in exercising any voting rights, the
shares held by them shall be voted as therein provided, or as they may agree,
or as determined in accordance with a procedure agreed upon by them.
3. No provision in any written agreement signed by the stockholders, relating
to any phase of the corporate affairs, shall be invalidated as between the
parties on the ground that its effect is to make them partners among
themselves.
4. A written agreement among some or all of the stockholders in a close
corporation shall not be invalidated on the ground that it so relates to the
conduct of the business and affairs of the corporation as to restrict or
interfere with the discretion or powers of the board of directors: Provided,
That such agreement shall impose on the stockholders who are parties
thereto the liabilities for managerial acts imposed by this Code on directors.
5. To the extent that the stockholders are actively engaged in the
management or operation of the business and affairs of a close corporation,
the stockholders shall be held to strict fiduciary duties to each other and
among themselves. Said stockholders shall be personally liable for corporate
torts unless the corporation has obtained reasonably adequate liability
insurance.
Section 101. When board meeting is unnecessary or improperly held. - Unless the by-
laws provide otherwise, any action by the directors of a close corporation without a
meeting shall nevertheless be deemed valid if:
1. Before or after such action is taken, written consent thereto is signed by all
the directors; or
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2. All the stockholders have actual or implied knowledge of the action and
make no prompt objection thereto in writing; or
3. The directors are accustomed to take informal action with the express or
implied acquiescence of all the stockholders; or
4. All the directors have express or implied knowledge of the action in
question and none of them makes prompt objection thereto in writing.
If a director’s meeting is held without proper call or notice, an action taken therein
within the corporate powers is deemed ratified by a director who failed to attend,
unless he promptly files his written objection with the secretary of the corporation
after having knowledge thereof.
Section 102. Pre-emptive right in close corporations. – The pre-emptive right of
stockholders in close corporations shall extend to all stock to be issued, including
reissuance of treasury shares, whether for money, property or personal services, or
in payment of corporate debts, unless the articles of incorporation provide otherwise.
Section 103. Amendment of articles of incorporation. – Any amendment to the
articles of incorporation which seeks to delete or remove any provision required by
this Title to be contained in the articles of incorporation or to reduce a quorum or
voting requirement stated in said articles of incorporation shall not be valid or
effective unless approved by the affirmative vote of at least two-thirds (2/3) of the
outstanding capital stock, whether with or without voting rights, or of such greater
proportion of shares as may be specifically provided in the articles of incorporation
for amending, deleting or removing any of the aforesaid provisions, at a meeting duly
called for the purpose.
Section 104. Deadlocks. – Notwithstanding any contrary provision in the articles of
incorporation or by-laws or agreement of stockholders of a close corporation, if the
directors or stockholders are so divided respecting the management of the
corporation’s business and affairs that the votes required for any corporate action
cannot be obtained, with the consequence that the business and affairs of the
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corporation can no longer be conducted to the advantage of the stockholders
generally, the Securities and Exchange Commission, upon written petition by any
stockholder, shall have the power to arbitrate the dispute. In the exercise of such
power, the Commission shall have authority to make such order as it deems
appropriate, including an order: (1) cancelling or altering any provision contained in
the articles of incorporation, by-laws, or any stockholder’s agreement; (2) cancelling,
altering or enjoining any resolution or act of the corporation or its board of directors,
stockholders, or officers; (3) directing or prohibiting any act of the corporation or its
board of directors, stockholders, officers, or other persons party to the action; (4)
requiring the purchase at their fair value of shares of any stockholder, either by the
corporation regardless of the availability of unrestricted retained earnings in its books,
or by the other stockholders; (5) appointing a provisional director; (6) dissolving the
corporation; or (7) granting such other relief as the circumstances may warrant.
A provisional director shall be an impartial person who is neither a stockholder nor a
creditor of the corporation or of any subsidiary or affiliate of the corporation, and
whose further qualifications, if any, may be determined by the Commission. A
provisional director is not a receiver of the corporation and does not have the title
and powers of a custodian or receiver. A provisional director shall have all the rights
and powers of a duly elected director of the corporation, including the right to notice
of and to vote at meetings of directors, until such time as he shall be removed by
order of the Commission or by all the stockholders. His compensation shall be
determined by agreement between him and the corporation subject to approval of
the Commission, which may fix his compensation in the absence of agreement or in
the event of disagreement between the provisional director and the corporation.
Section 105. Withdrawal of stockholder or dissolution of corporation. – In addition
and without prejudice to other rights and remedies available to a stockholder under
this Title, any stockholder of a close corporation may, for any reason, compel the said
corporation to purchase his shares at their fair value, which shall not be less than their
par or issued value, when the corporation has sufficient assets in its books to cover
its debts and liabilities exclusive of capital stock: Provided, That any stockholder of a
close corporation may, by written petition to the Securities and Exchange Commission,
compel the dissolution of such corporation whenever any of acts of the directors,
Nigel Carmelo Q. Reago 164

officers or those in control of the corporation is illegal, or fraudulent, or dishonest, or
oppressive or unfairly prejudicial to the corporation or any stockholder, or whenever
corporate assets are being misapplied or wasted.
TITLE XIII
SPECIAL CORPORATIONS
CHAPTER I - EDUCATIONAL CORPORATIONS
Section 106. Incorporation. – Educational corporations shall be governed by special
laws and by the general provisions of this Code. (n)
Section 107. Pre-requisites to incorporation. – Except upon favorable
recommendation of the Ministry of Education and Culture, the Securities and
Exchange Commission shall not accept or approve the articles of incorporation and
by-laws of any educational institution. (168a)
Section 108. Board of trustees. – Trustees of educational institutions organized as
non-stock corporations shall not be less than five (5) nor more than fifteen (15):
Provided, however, That the number of trustees shall be in multiples of five (5).
Unless otherwise provided in the articles of incorporation on the by-laws, the board
of trustees of incorporated schools, colleges, or other institutions of learning shall, as
soon as organized, so classify themselves that the term of office of one-fifth (1/5) of
their number shall expire every year. Trustees thereafter elected to fill vacancies,
occurring before the expiration of a particular term, shall hold office only for the
unexpired period. Trustees elected thereafter to fill vacancies caused by expiration of
term shall hold office for five (5) years. A majority of the trustees shall constitute a
quorum for the transaction of business. The powers and authority of trustees shall be
defined in the by-laws.
For institutions organized as stock corporations, the number and term of directors
shall be governed by the provisions on stock corporations. (169a)
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CHAPTER II
RELIGIOUS CORPORATIONS
Section 109. Classes of religious corporations. – Religious corporations may be
incorporated by one or more persons. Such corporations may be classified into
corporations sole and religious societies.
Religious corporations shall be governed by this Chapter and by the general provisions
on non-stock corporations insofar as they may be applicable. (n)
Section 110. Corporation sole. – For the purpose of administering and managing, as
trustee, the affairs, property and temporalities of any religious denomination, sect or
church, a corporation sole may be formed by the chief archbishop, bishop, priest,
minister, rabbi or other presiding elder of such religious denomination, sect or church.
(154a)
Section 111. Articles of incorporation. – In order to become a corporation sole, the
chief archbishop, bishop, priest, minister, rabbi or presiding elder of any religious
denomination, sect or church must file with the Securities and Exchange Commission
articles of incorporation setting forth the following:
1. That he is the chief archbishop, bishop, priest, minister, rabbi or presiding
elder of his religious denomination, sect or church and that he desires to
become a corporation sole;
2. That the rules, regulations and discipline of his religious denomination, sect
or church are not inconsistent with his becoming a corporation sole and do
not forbid it;
3. That as such chief archbishop, bishop, priest, minister, rabbi or presiding
elder, he is charged with the administration of the temporalities and the
management of the affairs, estate and properties of his religious
denomination, sect or church within his territorial jurisdiction, describing
such territorial jurisdiction;
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4. The manner in which any vacancy occurring in the office of chief archbishop,
bishop, priest, minister, rabbi of presiding elder is required to be filled,
according to the rules, regulations or discipline of the religious denomination,
sect or church to which he belongs; and
5. The place where the principal office of the corporation sole is to be
established and located, which place must be within the Philippines.
The articles of incorporation may include any other provision not contrary to
law for the regulation of the affairs of the corporation. (n)
Section 112. Submission of the articles of incorporation. – The articles of
incorporation must be verified, before filing, by affidavit or affirmation of the chief
archbishop, bishop, priest, minister, rabbi or presiding elder, as the case may be, and
accompanied by a copy of the commission, certificate of election or letter of
appointment of such chief archbishop, bishop, priest, minister, rabbi or presiding
elder, duly certified to be correct by any notary public.
From and after the filing with the Securities and Exchange Commission of the said
articles of incorporation, verified by affidavit or affirmation, and accompanied by the
documents mentioned in the preceding paragraph, such chief archbishop, bishop,
priest, minister, rabbi or presiding elder shall become a corporation sole and all
temporalities, estate and properties of the religious denomination, sect or church
theretofore administered or managed by him as such chief archbishop, bishop, priest,
minister, rabbi or presiding elder shall be held in trust by him as a corporation sole,
for the use, purpose, behalf and sole benefit of his religious denomination, sect or
church, including hospitals, schools, colleges, orphan asylums, parsonages and
cemeteries thereof. (n)
Section 113. Acquisition and alienation of property. – Any corporation sole may
purchase and hold real estate and personal property for its church, charitable,
benevolent or educational purposes, and may receive bequests or gifts for such
purposes. Such corporation may sell or mortgage real property held by it by obtaining
an order for that purpose from the Court of First Instance of the province where the
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property is situated upon proof made to the satisfaction of the court that notice of
the application for leave to sell or mortgage has been given by publication or
otherwise in such manner and for such time as said court may have directed, and that
it is to the interest of the corporation that leave to sell or mortgage should be granted.
The application for leave to sell or mortgage must be made by petition, duly verified,
by the chief archbishop, bishop, priest, minister, rabbi or presiding elder acting as
corporation sole, and may be opposed by any member of the religious denomination,
sect or church represented by the corporation sole: Provided, That in cases where the
rules, regulations and discipline of the religious denomination, sect or church,
religious society or order concerned represented by such corporation sole regulate
the method of acquiring, holding, selling and mortgaging real estate and personal
property, such rules, regulations and discipline shall control, and the intervention of
the courts shall not be necessary. (159a)
Section 114. Filling of vacancies. – The successors in office of any chief archbishop,
bishop, priest, minister, rabbi or presiding elder in a corporation sole shall become
the corporation sole on their accession to office and shall be permitted to transact
business as such on the filing with the Securities and Exchange Commission of a copy
of their commission, certificate of election, or letters of appointment, duly certified
by any notary public.
During any vacancy in the office of chief archbishop, bishop, priest, minister, rabbi or
presiding elder of any religious denomination, sect or church incorporated as a
corporation sole, the person or persons authorized and empowered by the rules,
regulations or discipline of the religious denomination, sect or church represented by
the corporation sole to administer the temporalities and manage the affairs, estate
and properties of the corporation sole during the vacancy shall exercise all the powers
and authority of the corporation sole during such vacancy. (158a)
Section 115. Dissolution. – A corporation sole may be dissolved and its affairs settled
voluntarily by submitting to the Securities and Exchange Commission a verified
declaration of dissolution.
The declaration of dissolution shall set forth:
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1. The name of the corporation;
2. The reason for dissolution and winding up;
3. The authorization for the dissolution of the corporation by the particular
religious denomination, sect or church;
4. The names and addresses of the persons who are to supervise the winding
up of the affairs of the corporation.
Upon approval of such declaration of dissolution by the Securities and
Exchange Commission, the corporation shall cease to carry on its operations
except for the purpose of winding up its affairs. (n)
Section 116. Religious societies. – Any religious society or religious order, or any
diocese, synod, or district organization of any religious denomination, sect or church,
unless forbidden by the constitution, rules, regulations, or discipline of the religious
denomination, sect or church of which it is a part, or by competent authority, may,
upon written consent and/or by an affirmative vote at a meeting called for the
purpose of at least two-thirds (2/3) of its membership, incorporate for the
administration of its temporalities or for the management of its affairs, properties
and estate by filing with the Securities and Exchange Commission, articles of
incorporation verified by the affidavit of the presiding elder, secretary, or clerk or
other member of such religious society or religious order, or diocese, synod, or district
organization of the religious denomination, sect or church, setting forth the following:
1. That the religious society or religious order, or diocese, synod, or district
organization is a religious organization of a religious denomination, sect or
church;
2. That at least two-thirds (2/3) of its membership have given their written
consent or have voted to incorporate, at a duly convened meeting of the body;
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3. That the incorporation of the religious society or religious order, or diocese,
synod, or district organization desiring to incorporate is not forbidden by
competent authority or by the constitution, rules, regulations or discipline of
the religious denomination, sect, or church of which it forms a part;
4. That the religious society or religious order, or diocese, synod, or district
organization desires to incorporate for the administration of its affairs,
properties and estate;
5. The place where the principal office of the corporation is to be established
and located, which place must be within the Philippines; and
6. The names, nationalities, and residences of the trustees elected by the
religious society or religious order, or the diocese, synod, or district
organization to serve for the first year or such other period as may be
prescribed by the laws of the religious society or religious order, or of the
diocese, synod, or district organization, the board of trustees to be not less
than five (5) nor more than fifteen (15). (160a)
TITLE XIV
DISSOLUTION
Section 117. Methods of dissolution. – A corporation formed or organized under the
provisions of this Code may be dissolved voluntarily or involuntarily. (n)
Section 118. Voluntary dissolution where no creditors are affected. – If dissolution of
a corporation does not prejudice the rights of any creditor having a claim against it,
the dissolution may be effected by majority vote of the board of directors or trustees,
and by a resolution duly adopted by the affirmative vote of the stockholders owning
at least two-thirds (2/3) of the outstanding capital stock or of at least two-thirds (2/3)
of the members of a meeting to be held upon call of the directors or trustees after
publication of the notice of time, place and object of the meeting for three (3)
consecutive weeks in a newspaper published in the place where the principal office
of said corporation is located; and if no newspaper is published in such place, then in
Nigel Carmelo Q. Reago 167

a newspaper of general circulation in the Philippines, after sending such notice to
each stockholder or member either by registered mail or by personal delivery at least
thirty (30) days prior to said meeting. A copy of the resolution authorizing the
dissolution shall be certified by a majority of the board of directors or trustees and
countersigned by the secretary of the corporation. The Securities and Exchange
Commission shall thereupon issue the certificate of dissolution. (62a)
Section 119. Voluntary dissolution where creditors are affected. – Where the
dissolution of a corporation may prejudice the rights of any creditor, the petition for
dissolution shall be filed with the Securities and Exchange Commission. The petition
shall be signed by a majority of its board of directors or trustees or other officers
having the management of its affairs, verified by its president or secretary or one of
its directors or trustees, and shall set forth all claims and demands against it, and that
its dissolution was resolved upon by the affirmative vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock or by at least
two-thirds (2/3) of the members at a meeting of its stockholders or members called
for that purpose.
If the petition is sufficient in form and substance, the Commission shall, by an order
reciting the purpose of the petition, fix a date on or before which objections thereto
may be filed by any person, which date shall not be less than thirty (30) days nor more
than sixty (60) days after the entry of the order. Before such date, a copy of the order
shall be published at least once a week for three (3) consecutive weeks in a newspaper
of general circulation published in the municipality or city where the principal office
of the corporation is situated, or if there be no such newspaper, then in a newspaper
of general circulation in the Philippines, and a similar copy shall be posted for three
(3) consecutive weeks in three (3) public places in such municipality or city.
Upon five (5) day’s notice, given after the date on which the right to file objections as
fixed in the order has expired, the Commission shall proceed to hear the petition and
try any issue made by the objections filed; and if no such objection is sufficient, and
the material allegations of the petition are true, it shall render judgment dissolving
the corporation and directing such disposition of its assets as justice requires, and
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may appoint a receiver to collect such assets and pay the debts of the corporation.
(Rule 104, RCa)
Section 120. Dissolution by shortening corporate term. – A voluntary dissolution may
be effected by amending the articles of incorporation to shorten the corporate term
pursuant to the provisions of this Code. A copy of the amended articles of
incorporation shall be submitted to the Securities and Exchange Commission in
accordance with this Code. Upon approval of the amended articles of incorporation
of the expiration of the shortened term, as the case may be, the corporation shall be
deemed dissolved without any further proceedings, subject to the provisions of this
Code on liquidation. (n)
Section 121. Involuntary dissolution. – A corporation may be dissolved by the
Securities and Exchange Commission upon filing of a verified complaint and after
proper notice and hearing on the grounds provided by existing laws, rules and
regulations. (n)
Section 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, the 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.
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Upon the 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. (77a, 89a, 16a)
TITLE XV
FOREIGN CORPORATIONS
Section 123. Definition and rights of foreign corporations. – For the purposes of this
Code, a foreign corporation is one formed, organized or existing under any laws other
than those of the Philippines and whose laws allow Filipino citizens and corporations
to do business in its own country or state. It shall have the right to transact business
in the Philippines after it shall have obtained a license to transact business in this
country in accordance with this Code and a certificate of authority from the
appropriate government agency. (n)
Section 124. Application to existing foreign corporations. – Every foreign corporation
which on the date of the effectivity of this Code is authorized to do business in the
Philippines under a license therefore issued to it, shall continue to have such authority
under the terms and condition of its license, subject to the provisions of this Code and
other special laws. (n)
Section 125. Application for a license. – A foreign corporation applying for a license
to transact business in the Philippines shall submit to the Securities and Exchange
Commission a copy of its articles of incorporation and by-laws, certified in accordance
with law, and their translation to an official language of the Philippines, if necessary.
The application shall be under oath and, unless already stated in its articles of
incorporation, shall specifically set forth the following:
1. The date and term of incorporation;
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2. The address, including the street number, of the principal office of the
corporation in the country or state of incorporation;
3. The name and address of its resident agent authorized to accept summons
and process in all legal proceedings and, pending the establishment of a local
office, all notices affecting the corporation;
4. The place in the Philippines where the corporation intends to operate;
5. The specific purpose or purposes which the corporation intends to pursue
in the transaction of its business in the Philippines: Provided, That said
purpose or purposes are those specifically stated in the certificate of
authority issued by the appropriate government agency;
6. The names and addresses of the present directors and officers of the
corporation;
7. A statement of its authorized capital stock and the aggregate number of
shares which the corporation has authority to issue, itemized by classes, par
value of shares, shares without par value, and series, if any;
8. A statement of its outstanding capital stock and the aggregate number of
shares which the corporation has issued, itemized by classes, par value of
shares, shares without par value, and series, if any;
9. A statement of the amount actually paid in; and
10. Such additional information as may be necessary or appropriate in order
to enable the Securities and Exchange Commission to determine whether
such corporation is entitled to a license to transact business in the Philippines,
and to determine and assess the fees payable.
Attached to the application for license shall be a duly executed certificate
under oath by the authorized official or officials of the jurisdiction of its
Nigel Carmelo Q. Reago 169

incorporation, attesting to the fact that the laws of the country or state of the
applicant allow Filipino citizens and corporations to do business therein, and
that the applicant is an existing corporation in good standing. If such
certificate is in a foreign language, a translation thereof in English under oath
of the translator shall be attached thereto.
The application for a license to transact business in the Philippines shall
likewise be accompanied by a statement under oath of the president or any
other person authorized by the corporation, showing to the satisfaction of
the Securities and Exchange Commission and other governmental agency in
the proper cases that the applicant is solvent and in sound financial condition,
and setting forth the assets and liabilities of the corporation as of the date
not exceeding one (1) year immediately prior to the filing of the application.
Foreign banking, financial and insurance corporations shall, in addition to the
above requirements, comply with the provisions of existing laws applicable
to them. In the case of all other foreign corporations, no application for
license to transact business in the Philippines shall be accepted by the
Securities and Exchange Commission without previous authority from the
appropriate government agency, whenever required by law. (68a)
Section 126. Issuance of a license. – If the Securities and Exchange Commission is
satisfied that the applicant has complied with all the requirements of this Code and
other special laws, rules and regulations, the Commission shall issue a license to the
applicant to transact business in the Philippines for the purpose or purposes specified
in such license. Upon issuance of the license, such foreign corporation may
commence to transact business in the Philippines and continue to do so for as long as
it retains its authority to act as a corporation under the laws of the country or state
of its incorporation, unless such license is sooner surrendered, revoked, suspended
or annulled in accordance with this Code or other special laws.
Within sixty (60) days after the issuance of the license to transact business in the
Philippines, the license, except foreign banking or insurance corporation, shall deposit
with the Securities and Exchange Commission for the benefit of present and future
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creditors of the licensee in the Philippines, securities satisfactory to the Securities and
Exchange Commission, consisting of bonds or other evidence of indebtedness of the
Government of the Philippines, its political subdivisions and instrumentalities, or of
government-owned or controlled corporations and entities, shares of stock in
"registered enterprises" as this term is defined in Republic Act No. 5186, shares of
stock in domestic corporations registered in the stock exchange, or shares of stock in
domestic insurance companies and banks, or any combination of these kinds of
securities, with an actual market value of at least one hundred thousand (P100,000.)
pesos; Provided, however, That within six (6) months after each fiscal year of the
licensee, the Securities and Exchange Commission shall require the licensee to
deposit additional securities equivalent in actual market value to two (2%) percent of
the amount by which the licensee’s gross income for that fiscal year exceeds five
million (P5,000,000.00) pesos. The Securities and Exchange Commission shall also
require deposit of additional securities if the actual market value of the securities on
deposit has decreased by at least ten (10%) percent of their actual market value at
the time they were deposited. The Securities and Exchange Commission may at its
discretion release part of the additional securities deposited with it if the gross
income of the licensee has decreased, or if the actual market value of the total
securities on deposit has increased, by more than ten (10%) percent of the actual
market value of the securities at the time they were deposited. The Securities and
Exchange Commission may, from time to time, allow the licensee to substitute other
securities for those already on deposit as long as the licensee is solvent. Such licensee
shall be entitled to collect the interest or dividends on the securities deposited. In the
event the licensee ceases to do business in the Philippines, the securities deposited
as aforesaid shall be returned, upon the licensee’s application therefor and upon
proof to the satisfaction of the Securities and Exchange Commission that the licensee
has no liability to Philippine residents, including the Government of the Republic of
the Philippines. (n)
Section 127. Who may be a resident agent. – A resident agent may be either an
individual residing in the Philippines or a domestic corporation lawfully transacting
business in the Philippines: Provided, That in the case of an individual, he must be of
good moral character and of sound financial standing. (n)
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Section 128. Resident agent; service of process. – The Securities and Exchange
Commission shall require as a condition precedent to the issuance of the license to
transact business in the Philippines by any foreign corporation that such corporation
file with the Securities and Exchange Commission a written power of attorney
designating some 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 such corporation, and consenting that service upon such resident
agent shall be admitted and held as valid as if served upon the duly authorized officers
of the foreign corporation at its home office. Any such foreign corporation shall
likewise execute and file with the Securities and Exchange Commission an agreement
or stipulation, executed by the proper authorities of said corporation, in form and
substance as follows:
"The (name of foreign corporation) does hereby stipulate and agree, in consideration
of its being granted by the Securities and Exchange Commission a license to transact
business in the Philippines, that if at any time said corporation shall cease to transact
business in the Philippines, or shall be without any resident agent in the Philippines
on whom any summons or other legal processes may be served, then in any action or
proceeding arising out of any business or transaction which occurred in the
Philippines, service of any summons or other legal process may be made upon the
Securities and Exchange Commission and that such service shall have the same force
and effect as if made upon the duly-authorized officers of the corporation at its home
office."
Whenever such service of summons or other process shall be made upon the
Securities and Exchange Commission, the Commission shall, within ten (10) days
thereafter, transmit by mail a copy of such summons or other legal process to the
corporation at its home or principal office. The sending of such copy by the
Commission shall be necessary part of and shall complete such service. All expenses
incurred by the Commission for such service shall be paid in advance by the party at
whose instance the service is made.
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In case of a change of address of the resident agent, it shall be his or its duty to
immediately notify in writing the Securities and Exchange Commission of the new
address. (72a; and n)
Section 129. Law applicable. – Any foreign corporation lawfully doing business in the
Philippines shall be bound by all laws, rules and regulations applicable to domestic
corporations of the same class, except such only as provide for the creation,
formation, organization or dissolution of corporations or those which fix the relations,
liabilities, responsibilities, or duties of stockholders, members, or officers of
corporations to each other or to the corporation. (73a)
Section 130. Amendments to articles of incorporation or by-laws of foreign
corporations. – Whenever the articles of incorporation or by-laws of a foreign
corporation authorized to transact business in the Philippines are amended, such
foreign corporation shall, within sixty (60) days after the amendment becomes
effective, file with the Securities and Exchange Commission, and in the proper cases
with the appropriate government agency, a duly authenticated copy of the articles of
incorporation or by-laws, as amended, indicating clearly in capital letters or by
underscoring the change or changes made, duly certified by the authorized official or
officials of the country or state of incorporation. The filing thereof shall not of itself
enlarge or alter the purpose or purposes for which such corporation is authorized to
transact business in the Philippines. (n)
Section 131. Amended license. – A foreign corporation authorized to transact
business in the Philippines shall obtain an amended license in the event it changes its
corporate name, or desires to pursue in the Philippines other or additional purposes,
by submitting an application therefor to the Securities and Exchange Commission,
favorably endorsed by the appropriate government agency in the proper cases. (n)
Section 132. Merger or consolidation involving a foreign corporation licensed in the
Philippines. – One or more foreign corporations authorized to transact business in the
Philippines may merge or consolidate with any domestic corporation or corporations
if such is permitted under Philippine laws and by the law of its incorporation: Provided,
Nigel Carmelo Q. Reago 171

That the requirements on merger or consolidation as provided in this Code are
followed.
Whenever a foreign corporation authorized to transact business in the Philippines
shall be a party to a merger or consolidation in its home country or state as permitted
by the law of its incorporation, such foreign corporation shall, within sixty (60) days
after such merger or consolidation becomes effective, file with the Securities and
Exchange Commission, and in proper cases with the appropriate government agency,
a copy of the articles of merger or consolidation duly authenticated by the proper
official or officials of the country or state under the laws of which merger or
consolidation was effected: Provided, however, That if the absorbed corporation is
the foreign corporation doing business in the Philippines, the latter shall at the same
time file a petition for withdrawal of its license in accordance with this Title. (n)
Section 133. Doing business without a license. – No foreign corporation transacting
business in the Philippines without a license, or its successors or assigns, shall be
permitted to maintain or intervene in any action, suit or proceeding in any court or
administrative agency of the Philippines; but such corporation may be sued or
proceeded against before Philippine courts or administrative tribunals on any valid
cause of action recognized under Philippine laws. (69a)
Section 134. Revocation of license. – Without prejudice to other grounds provided by
special laws, the license of a foreign corporation to transact business in the
Philippines may be revoked or suspended by the Securities and Exchange Commission
upon any of the following grounds:
1. Failure to file its annual report or pay any fees as required by this Code;
2. Failure to appoint and maintain a resident agent in the Philippines as
required by this Title;
3. Failure, after change of its resident agent or of his address, to submit to the
Securities and Exchange Commission a statement of such change as required
by this Title;
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4. Failure to submit to the Securities and Exchange Commission an
authenticated copy of any amendment to its articles of incorporation or by-
laws or of any articles of merger or consolidation within the time prescribed
by this Title;
5. A misrepresentation of any material matter in any application, report,
affidavit or other document submitted by such corporation pursuant to this
Title;
6. Failure to pay any and all taxes, imposts, assessments or penalties, if any,
lawfully due to the Philippine Government or any of its agencies or political
subdivisions;
7. Transacting business in the Philippines outside of the purpose or purposes
for which such corporation is authorized under its license;
8. Transacting business in the Philippines as agent of or acting for and in
behalf of any foreign corporation or entity not duly licensed to do business in
the Philippines; or
9. Any other ground as would render it unfit to transact business in the
Philippines. (n)
Section 135. Issuance of certificate of revocation. – Upon the revocation of any such
license to transact business in the Philippines, the Securities and Exchange
Commission shall issue a corresponding certificate of revocation, furnishing a copy
thereof to the appropriate government agency in the proper cases.
The Securities and Exchange Commission shall also mail to the corporation at its
registered office in the Philippines a notice of such revocation accompanied by a copy
of the certificate of revocation. (n)
Section 136. Withdrawal of foreign corporations. – Subject to existing laws and
regulations, a foreign corporation licensed to transact business in the Philippines may
Nigel Carmelo Q. Reago 172

be allowed to withdraw from the Philippines by filing a petition for withdrawal of
license. No certificate of withdrawal shall be issued by the Securities and Exchange
Commission unless all the following requirements are met;
1. All claims which have accrued in the Philippines have been paid,
compromised or settled;
2. All taxes, imposts, assessments, and penalties, if any, lawfully due to the
Philippine Government or any of its agencies or political subdivisions have
been paid; and
3. The petition for withdrawal of license has been published once a week for
three (3) consecutive weeks in a newspaper of general circulation in the
Philippines.
TITLE XVI
MISCELLANEOUS PROVISIONS
Section 137. Outstanding capital stock defined. – The term "outstanding capital
stock", as used in this Code, means the total shares of stock issued under binding
subscription agreements to subscribers or stockholders, whether or not fully or
partially paid, except treasury shares. (n)
Section 138. Designation of governing boards. – The provisions of specific provisions
of this Code to the contrary notwithstanding, non-stock or special corporations may,
through their articles of incorporation or their by-laws, designate their governing
boards by any name other than as board of trustees. (n)
Section 139. Incorporation and other fees. – The Securities and Exchange Commission
is hereby authorized to collect and receive fees as authorized by law or by rules and
regulations promulgated by the Commission.1âwphi1 (n)
Section 140. Stock ownership in certain corporations. – Pursuant to the duties
specified by Article XIV of the Constitution, the National Economic and Development
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Authority shall, from time to time, make a determination of whether the corporate
vehicle has been used by any corporation or by business or industry to frustrate the
provisions thereof or of applicable laws, and shall submit to the Batasang Pambansa,
whenever deemed necessary, a report of its findings, including recommendations for
their prevention or correction.
Maximum limits may be set by the Batasang Pambansa for stockholdings in
corporations declared by it to be vested with a public interest pursuant to the
provisions of this section, belonging to individuals or groups of individuals related to
each other by consanguinity or affinity or by close business interests, or whenever it
is necessary to achieve national objectives, prevent illegal monopolies or
combinations in restraint or trade, or to implement national economic policies
declared in laws, rules and regulations designed to promote the general welfare and
foster economic development.
In recommending to the Batasang Pambansa corporations, businesses or industries
to be declared vested with a public interest and in formulating proposals for
limitations on stock ownership, the National Economic and Development Authority
shall consider the type and nature of the industry, the size of the enterprise, the
economies of scale, the geographic location, the extent of Filipino ownership, the
labor intensity of the activity, the export potential, as well as other factors which are
germane to the realization and promotion of business and industry.
Section 141. Annual report or corporations. – Every corporation, domestic or foreign,
lawfully doing business in the Philippines shall submit to the Securities and Exchange
Commission an annual report of its operations, together with a financial statement of
its assets and liabilities, certified by any independent certified public accountant in
appropriate cases, covering the preceding fiscal year and such other requirements as
the Securities and Exchange Commission may require. Such report shall be submitted
within such period as may be prescribed by the Securities and Exchange Commission.
(n)
Section 142. Confidential nature of examination results. – All interrogatories
propounded by the Securities and Exchange Commission and the answers thereto, as
Nigel Carmelo Q. Reago 173
 COMMERCIAL LAW 2018

well as the results of any examination made by the Commission or by any other official
authorized by law to make an examination of the operations, books and records of
any corporation, shall be kept strictly confidential, except insofar as the law may
require the same to be made public or where such interrogatories, answers or results
are necessary to be presented as evidence before any court. (n)
Section 143. Rule-making power of the Securities and Exchange Commission. – The
Securities and Exchange Commission shall have the power and authority to
implement the provisions of this Code, and to promulgate rules and regulations
reasonably necessary to enable it to perform its duties hereunder, particularly in the
prevention of fraud and abuses on the part of the controlling stockholders, members,
directors, trustees or officers. (n)
Section 144. Violations of the Code. – Violations of any of the provisions of this Code
or its amendments not otherwise specifically penalized therein shall be punished by
a fine of not less than one thousand (P1,000.00) pesos but not more than ten
thousand (P10,000.00) pesos or by imprisonment for not less than thirty (30) days but
not more than five (5) years, or both, in the discretion of the court. If the violation is
committed by a corporation, the same may, after notice and hearing, be dissolved in
appropriate proceedings before the Securities and Exchange Commission: Provided,
That such dissolution shall not preclude the institution of appropriate action against
the director, trustee or officer of the corporation responsible for said violation:
Provided, further, That nothing in this section shall be construed to repeal the other
causes for dissolution of a corporation provided in this Code. (190 1/2 a)
Section 146. Repealing clause. – Except as expressly provided by this Code, all laws or
parts thereof inconsistent with any provision of this Code shall be deemed repealed.
(n)
Section 147. Separability of provisions. – Should any provision of this Code or any part
thereof be declared invalid or unconstitutional, the other provisions, so far as they
are separable, shall remain in force. (n)
Section 148. Applicability to existing corporations. – All corporations lawfully existing
and doing business in the Philippines on the date of the effectivity of this Code and
heretofore authorized, licensed or registered by the Securities and Exchange
Commission, shall be deemed to have been authorized, licensed or registered under
the provisions of this Code, subject to the terms and conditions of its license, and shall
be governed by the provisions hereof: Provided, That if any such corporation is
affected by the new requirements of this Code, said corporation shall, unless
otherwise herein provided, be given a period of not more than two (2) years from the
effectivity of this Code within which to comply with the same. (n)
Section 149. Effectivity. – This Code shall take effect immediately upon its approval.
Approved, May 1, 1980

Section 145. Amendment or repeal. – No right or remedy in favor of or against any

corporation, its stockholders, members, directors, trustees, or officers, nor any
liability incurred by any such corporation, stockholders, members, directors, trustees,
or officers, shall be removed or impaired either by the subsequent dissolution of said
corporation or by any subsequent amendment or repeal of this Code or of any part
thereof. (n)

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Republic Act No. 7042 June 13, 1991
AN ACT TO PROMOTE FOREIGN INVESTMENTS,
PRESCRIBE THE PROCEDURES FOR REGISTERING
ENTERPRISES DOING BUSINESS IN THE PHILIPPINES, 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, "Foreign Investments Act of 1991".
Section 2. Declaration of Policy. - It is the policy of the State to attract, promote and
welcome productive investments from foreign individuals, partnerships,
corporations, and governments, including their political subdivisions, in activities
which significantly contribute to national industrialization and socioeconomic
development to the extent that foreign investment is allowed in such activity by the
Constitution and relevant laws. Foreign investments shall be encouraged in
enterprises that significantly expand livelihood and employment opportunities for
Filipinos; enhance economic value of farm products; promote the welfare of Filipino
consumers; expand the scope, quality and volume of exports and their access to
foreign markets; and/or transfer relevant technologies in agriculture, industry and
support services. Foreign investments shall be welcome as a supplement to Filipino
capital and technology in those enterprises serving mainly the domestic market.
As a general rule, there are no restrictions on extent of foreign ownership of export
enterprises. In domestic market enterprises, foreigners can invest as much as one
hundred percent (100%) equity except in areas included in the negative list. Foreign
owned firms catering mainly to the domestic market shall be encouraged to
undertake measures that will gradually increase Filipino participation in their
businesses by taking in Filipino partners, electing Filipinos to the board of directors,
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implementing transfer of technology to Filipinos, generating more employment for
the economy and enhancing skills of Filipino workers.
Section 3. Definitions. - As used in this Act:
a) The term "Philippine national" shall mean a citizen of the Philippines or a
domestic partnership or association wholly owned by citizens of the
Philippines; or a corporation organized under the laws of the Philippines of
which at least sixty percent (60%) of the capital stock outstanding and
entitled to vote is owned and held by citizens of the Philippines; or a trustee
of funds for pension or other employee retirement or separation benefits,
where the trustee is a Philippine national and at least sixty (60%) of the fund
will accrue to the benefit of the Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own stocks in a Securities and
Exchange Commission (SEC) registered enterprise, at least sixty percent
(60%) of the capital stocks outstanding and entitled to vote of both
corporations must be owned and held by citizens of the Philippines and at
least sixty percent (60%) of the members of the Board of Directors of both
corporations must be citizens of the Philippines, in order that the
corporations shall be considered a Philippine national;
b) The term "investment" shall mean equity participation in any enterprise
organized or existing under the laws of the Philippines;
c) The term "foreign investment" shall mean as equity investment made by
a non-Philippine national in the form of foreign exchange and/or other
assets actually transferred to the Philippines and duly registered with the
Central Bank which shall assess and appraise the value of such assets other
than foreign exchange;
d) The praise "doing business" shall include soliciting orders, service
contracts, opening offices, whether called "liaison" offices or branches;
appointing representatives or distributors domiciled in the Philippines or
who in any calendar year stay in the country for a period or periods totalling
Nigel Carmelo Q. Reago 175

one hundred eighty (180) days or more; participating in the management,
supervision or control of any domestic business, firm, entity or corporation
in the Philippines; and any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to that extent the
performance of acts or works, or the exercise of some of the functions
normally incident to, and in progressive prosecution of, commercial gain or
of the purpose and object of the business organization: Provided, however,
That the phrase "doing business: shall not be deemed to include mere
investment as a shareholder by a foreign entity in domestic corporations
duly registered to do business, and/or the exercise of rights as such
investor; nor having a nominee director or officer to represent its interests
in such corporation; nor appointing a representative or distributor domiciled
in the Philippines which transacts business in its own name and for its own
account;
e) The term "export enterprise" shall mean an enterprise which produces
goods for sale, or renders services to the domestic market entirely or if
exporting a portion of its output fails to consistently export at least sixty
percent (60%) thereof; and
g) The term "Foreign Investments Negative List" or "Negative List" shall
mean a list of areas of economic activity whose foreign ownership is limited
to a maximum of forty ownership is limited to a maximum of forty percent
(40%) of the equity capital of the enterprise engaged therein.
Section 4. Scope. - This Act shall not apply to banking and other financial institutions
which are governed and regulated by the General Banking Act and other laws under
the supervision of the Central Bank.
Section 5. Registration of Investments of Non-Philippine Nationals. - Without need
of prior approval, a non-Philippine national, as that term is defined in Section 3 a),
and not otherwise disqualified by law may upon registration with the Securities and
Exchange Commission (SEC), or with the Bureau of Trade Regulation and Consumer
Protection (BTRCP) of the Department of Trade and Industry in the case of single
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proprietorships, do business as defined in Section 3 (d) of this Act or invest in a
domestic enterprise up to one hundred percent (100%) of its capital, unless
participation of non-Philippine nationals in the enterprise is prohibited or limited to
a smaller percentage by existing law and/or limited to a smaller percentage by
existing law and/or under the provisions of this Act. The SEC or BTRCP, as the case
may be, shall not impose any limitations on the extent of foreign ownership in an
enterprise additional to those provided in this Act: Provided, however, That any
enterprise seeking to avail of incentives under the Omnibus Investment Code of
1987 must apply for registration with the Board of Investments (BOI), which shall
process such application for registration in accordance with the criteria for
evaluation prescribed in said Code: Provided, finally, That a non-Philippine national
intending to engage in the same line of business as an existing joint venture in his
application for registration with SEC. During the transitory period as provided in
Section 15 hereof, SEC shall disallow registration of the applying non-Philippine
national if the existing joint venture enterprise, particularly the Filipino partners
therein, can reasonably prove they are capable to make the investment needed for
they are competing applicant. Upon effectivity of this Act, SEC shall effect
registration of any enterprise applying under this Act within fifteen (15) days upon
submission of completed requirements.
Section 6. Foreign Investments in Export Enterprises. - Foreign investment in export
enterprises whose products and services do not fall within Lists A and B of the
Foreign Investment Negative List provided under Section 8 hereof is allowed up to
one hundred percent (100%) ownership.
Export enterprises which are non-Philippine nationals shall register with BOI and
submit the reports that may be required to ensure continuing compliance of the
export enterprise with its export requirement. BOI shall advise SEC or BTRCP, as the
case may be, of any export enterprise that fails to meet the export ratio
requirement. The SEC or BTRCP shall thereupon order the non-complying export
enterprise to reduce its sales to the domestic market to not more than forty percent
(40%) of its total production; failure to comply with such SEC or BTRCP order,
without justifiable reason, shall subject the enterprise to cancellation of SEC or
BTRCP registration, and/or the penalties provided in Section 14 hereof.
Nigel Carmelo Q. Reago 176

Section 7. Foreign Investments in Domestic Market Enterprises. - Non-Philippine
nationals may own up to one hundred percent (100%) of domestic market
enterprises unless foreign ownership therein is prohibited or limited by existing law
or the Foreign Investment Negative List under Section 8 hereof.
A domestic market enterprise may change its status to export enterprise if over a
three (3) year period it consistently exports in each year thereof sixty per cent (60%)
or more of its output.
Section 8. List of Investment Areas Reserved to Philippine Nationals (Foreign
Investment Negative List). - The Foreign Investment Negative List shall have three
(3) component lists: A, B, and C:
a) List A shall enumerate the areas of activities reserved to Philippine
nationals by mandate of the Constitution and specific laws.
b) List B shall contain the areas of activities and enterprises pursuant to law:
1) Which are defense-related activities, requiring prior clearance
and authorization from Department of National Defense (DND) to
engage in such activity, such as the manufacture, repair, storage
and/or distribution of firearms, ammunition, lethal weapons,
military ordnance, explosives, pyrotechnics and similar materials;
unless such manufacturing or repair activity is specifically
authorized, with a substantial export component, to a non-
Philippine national by the Secretary of National Defense; or
2) Which have implications on public health and morals, such as the
manufacture and distribution of dangerous drugs; all forms of
gambling; nightclubs, bars, beerhouses, dance halls; sauna and
steambath houses and massage clinics.
Small and medium-sized domestic market enterprises with paid-in
equity capital less than the equivalent of five hundred thousand US
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dollars (US$500,000) are reserved to Philippine nationals, unless
they involve advanced technology as determined by the
Department of Science and Technology. Export enterprises which
utilize raw materials from depleting natural resources, with paid-in
equity capital of less than the equivalent of five hundred thousand
US dollars (US$500,000) are likewise reserved to Philippine
nationals.
Amendments to List B may be made upon recommendation of the Secretary
of National Defense, or the Secretary of Health, or the Secretary of
Education, Culture and Sports, indorsed by the NEDA, or upon
recommendation motu propio of NEDA, approved by the President, and
promulgated by Presidential Proclamation.
c) List C shall contain the areas of investment in which existing enterprises
already serve adequately the needs of the economy and the consumer and
do not require further foreign investments, as determined by NEDA applying
the criteria provided in Section 9 of this Act, approved by the President and
promulgated in a Presidential Proclamation.
The Transitory Foreign Investment Negative List established in Sec. 15
hereof shall be replaced at the end of the transitory period by the first
Regular Negative List to the formulated and recommended by the NEDA,
following the process and criteria provided in Section 8 and 9 of this Act.
The first Regular Negative List shall be published not later than sixty (60)
days before the end of the transitory period provided in said section, and
shall become immediately effective at the end of the transitory period.
Subsequent Foreign Investment Negative Lists shall become effective fifteen
(15) days after publication in two (2) newspapers of general circulation in
the Philippines: Provided, however, That each Foreign Investment Negative
List shall be prospective in operation and shall in no way affect foreign
investments existing on the date of its publication.
Nigel Carmelo Q. Reago 177

Amendments to List B and C after promulgation and publication of the first
Regular Foreign Investment Negative List at the end of the transitory period
shall not be made more often than once every two (2) years.
Section 9. Determination of Areas of Investment for Inclusion in List C of the
Foreign Investment Negative List. - Upon petition by a Philippine national engage
therein, an area of investment may be recommended by NEDA for inclusion in List C
of the Foreign Investment Negative List upon determining that it complies with all
the following criteria:
a) The industry is controlled by firms owned at least sixty percent (60%) by
Filipinos;
b) Industry capacity is ample to meet domestic demand;
c) Sufficient competition exists within the industry;
d) Industry products comply with Philippine standards of health and safety
or, in the absence of such, with international standards, and are reasonably
competitive in quality with similar products in the same price range
imported into the country;
e) Quantitative restrictions are not applied on imports of directly competing
products;
f) The leading firms of the industry substantially comply with environmental
standards; and
g) The prices of industry products are reasonable.
The petition shall be subjected to a public hearing at which affected parties will have
the opportunity to show whether the petitioner industry adequately serves the
economy and the consumer, in general, and meets the above stated criteria in
particular. NEDA may delegate evaluation of the petition and conduct of the public
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hearing to any government agency having cognizance of the petitioner industry. The
delegated agency shall make its evaluation report and recommendations to NEDA
which retains the right and sole responsibility to determine whether to recommend
to the President to promulgate the area of investment in List C of the Negative List.
An industry or area of investment included in List C of the Negative List by
Presidential Proclamation shall remain in the said List C for two (2) years, without
prejudice to re-inclusion upon new petition, and due process.
Section 10. Strategic Industries. - Within eighteen (18) months after the effectivity
of this Act, the NEDA Board shall formulate and publish a list of industries strategic
to the development of the economy. The list shall specify, as a matter of policy and
not as a legal requirement, the desired equity participation by Government and/or
private Filipino investors in each strategic industry. Said list of strategic industries, as
well as the corresponding desired equity participation of government and/or private
Filipino investors, may be amended by NEDA to reflect changes in economic needs
and policy directions of Government. The amended list of strategic industries shall
be published concurrently with publication of the Foreign Investment Negative List.
The term "strategic industries" shall mean industries that are characterized by all of
the following:
a) Crucial to the accelerated industrialization of the country,
b) Require massive capital investments to achieve economies of scale for
efficient operations;
c) Require highly specialized or advanced technology which necessitates
technology transfer and proven production techniques in operations;
d) Characterized by strong backward and forward linkages with most
industries existing in the country, and
e) Generate substantial foreign exchange savings through import
substitution and collateral foreign exchange earnings through export of part
Nigel Carmelo Q. Reago 178

of the output that will result with the establishment, expansion or
development of the industry.
Section 11. Compliance with Environmental Standards. - All industrial enterprises
regardless of nationality of ownership shall comply with existing rules and
regulations to protect and conserve the environment and meet applicable
environmental standards.
Section 12. Consistent Government Action. - No agency, instrumentality or political
subdivision of the Government shall take any action on conflict with or which will
nullify the provisions of this Act, or any certificate or authority granted hereunder.
Section 13. Implementing Rules and Regulations. - NEDA, in consultation with BOI,
SEC and other government agencies concerned, shall issue the rules and regulations
to implement this Act within one hundred and twenty (120) days after its effectivity.
A copy of such rules and regulations shall be furnished the Congress of the Republic
of the Philippines.
Section 14. Administrative Sanctions. - A person who violates any provision of this
Act or of the terms and conditions of registration or of the rules and regulations
issued pursuant thereto, or aids or abets in any manner any violation shall be
subject to a fine not exceeding One hundred thousand pesos (P100,000).
If the offense is committed by a juridical entity, it shall be subject to a fine in an
amount not exceeding ½ of 1% of total paid-in capital but not more than Five million
pesos (P5,000,000). The president and/or officials responsible therefor shall also be
subject to a fine not exceeding Two hundred thousand pesos (P200,000).
In addition to the foregoing, any person, firm or juridical entity involved shall be
subject to forfeiture of all benefits granted under this Act.
SEC shall have the power to impose administrative sanctions as provided herein for
any violation of this Act or its implementing rules and regulations.
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Section 15. Transitory Provisions. - Prior to effectivity of the implementing rules and
regulations of this Act, the provisions of Book II of Executive Order 226 and its
implementing rules and regulations shall remain in force.
During the initial transitory period of thirty-six (36) months after issuance of the
Rules and Regulations to implement this Act, the Transitory Foreign Investment
Negative List shall consist of the following:
A. List A:
1. All areas of investment in which foreign ownership is limited by
mandate of Constitution and specific laws.
B. List B:
1. Manufacture, repair, storage and/or distribution of firearms,
ammunitions, lethal weapons, military ordinance, explosives,
pyrotechnics and similar materials required by law to be licensed by
and under the continuing regulation of the Department of National
Defense; unless such manufacturing or repair activity is specifically
authorized with a substantial export component, to a non-Philippine
national by the Secretary of National Defense;
2. Manufacture and distribution of dangerous drugs; all forms of
gambling; nightclubs, bars, beerhouses, dance halls; sauna and
steam bathhouses, massage clinic and other like activities regulated
by law because of risks they may pose to public health and morals;
3. Small and medium-size domestic market enterprises with paid-in
equity capital or less than the equivalent of US$500,000, unless they
involve advanced technology as determined by the Department of
Science and Technology, and
Nigel Carmelo Q. Reago 179
 COMMERCIAL LAW 2018

4. Export enterprises which utilize raw materials from depleting
natural resources, and with paid-in equity capital of less than the
equivalent US$500,000.
C. List C:
The areas of investment contained in List C above shall be reserved to Philippine
nationals only during the transitory period. The inclusion of any of them in the
regular Negative List will require determination by NEDA after due public hearings
that such inclusion is warranted under the criteria set forth in Section 8 and 9
hereof.

1. Import and wholesale activities not integrated with production or Section 16. Repealing Clause. - Articles forty-four (44) to fifty-six (56) of Book II of
manufacture of goods; Executive Order No. 226 are hereby repealed.

2. Services requiring a license or specific authorization, and subject
to continuing regulations by national government agencies other
than BOI and SEC which at the time of effectivity of this Act are
restricted to Philippine nationals by existing administrative
regulations and practice of the regulatory agencies concerned:
Provided, That after effectivity of this Act, no other services shall be
additionally subjected to such restrictions on nationality of
ownership by the corresponding regulatory agencies, and such
restrictions once removed shall not be reimposed; and
All other laws or parts of laws inconsistent with the provisions of this Act are hereby
repealed or modified accordingly.
Section 17. Separability. - If any part or section of this Act is declared
unconstitutional for any reason whatsoever, such declaration shall not in any way
affect the other parts or sections of this Act.
Section 18. Effectivity. - This Act shall take effect fifteen (15) days after approval
and publication in two (2) newspaper of general circulation in the Philippines.

3. Enterprises owned in the majority by a foreign licensor and/or its Approved: June 13, 1991
affiliates for the assembly, processing or manufacture of goods for
the domestic market which are being produced by a Philippine
national as of the date of effectivity of this Act under a technology,
know-how and/or brand name license from such licensor during the
term of the license agreement: Provided, That, the license is duly
registered with the Central Bank and/or the Technology Transfer
Board and is operatively in force as of the date of effectivity of this
Act.

NEDA shall make the enumeration as appropriate of the areas of the investment
covered in this Transitory Foreign Investment Negative List and publish the Negative
List in full at the same time as, or prior to, the publication of the rules and
regulations to implement this Act.

Nigel Carmelo Q. Reago 180


REPUBLIC ACT NO. 8799
THE SECURITIES REGULATION CODE
Be it enacted by the Senate and the House of Representative of the Philippines in the
Congress assembled:
CHAPTER I
TITLE AND DEFINITIONS
Section 1. Title. - This shall be known as "The Securities Regulation Code"
Section 2. Declaration of State Policy. – The State shall establish a socially conscious,
free market that regulates itself, encourage the widest participation of ownership in
enterprises, enhance the democratization of wealth, promote the development of
the capital market, protect investors, ensure full and fair disclosure about securities,
minimize if not totally eliminate insider trading and other fraudulent or
manipulative devices and practices which create distortions in the free market. To
achieve these ends, this Securities Regulation Code is hereby enacted.
Section 3. Definition of Terms. - 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, instruments, whether written or electronic
in character. It includes:
(a) Shares of stocks, bonds, debentures, notes evidences of indebtedness,
asset-backed securities;
(b) Investment contracts, certificates of interest or participation in a profit
sharing agreement, certifies of deposit for a future subscription;
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(c) Fractional undivided interests in oil, gas or other mineral rights;
(d) Derivatives like option and warrants;
(e) Certificates of assignments, certificates of participation, trust certificates,
voting trust certificates or similar instruments
(f) Proprietary or nonproprietary membership certificates in corporations;
and
(g) Other instruments as may in the future be determined by the
Commission.
3.2. "Issuer" is the originator, maker, obligor, or creator of the security.
3.3. "Broker" is a person engaged in the business of buying and selling securities for
the account of others.
3.4. "Dealer" means many person who buys sells securities for his/her own account
in the ordinary course of business.
3.5. "Associated person of a broker or dealer" is an employee therefor whom,
directly exercises control of supervisory authority, but does not include a salesman,
or an agent or a person whose functions are solely clerical or ministerial.
3.6. "Clearing Agency" is any person who acts as intermediary in making deliveries
upon payment effect settlement in securities transactions.
3.7. "Exchange" is an organized market place or facility that brings together buyers
and sellers and executes trade of securities and/or commodities.
3.8. "Insider" means (a) the issuer; (b) a director or officer (or any person
performing similar functions) of, or a person controlling the issuer; gives or gave him
access to material information about the issuer or the security that is not generally
Nigel Carmelo Q. Reago 181

available to the public; (d) A government employee, director, or officer of an
exchange, clearing agency and/or self-regulatory organization who has access to
material information about an issuer or a security that is not generally available to
the public; or (e) a person who learns such information by a communication from
any forgoing insiders.
3.9. "Pre-need plans" are contracts which provide for the performance of future
services of or the payment of future monetary considerations at the time actual
need, for which plan holders pay in cash or installment at stated prices, with or
without interest or insurance coverage and includes life, pension, education,
interment, and other plans which the Commission may from time to time approve.
3.10. "Promoter" is a person who, acting alone or with others, takes initiative in
founding and organizing the business or enterprise of the issuer and receives
consideration therefor.
3.11. "Prospectus" is the document made by or an behalf of an issuer, underwriter
or dealer to sell or offer securities for sale to the public through registration
statement filed with the Commission.
3.12. "Registration statement" is the application for the registration of securities
required to be filed with the Commission.
3.13. "Salesman" is a natural person, employed as such as an agent, by a dealer,
issuer or broker to buy and sell securities.
3.14. "Uncertificated security" is a security evidenced by electronic or similar
records.
3.15. "Underwriter" is a person who guarantees on a firm commitment and/or
declared best effort basis the distribution and sale of securities of any kind by
another company.
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CHAPTER II
SECURITIES AND EXCHANGE COMMISSION
Section 4. Administrative Agency. – 4.1. This Code shall be administered by the
Security and Exchange Commission (hereinafter referred to as the "Commission") as
a Collegial body, composed of a chairperson and (4) Commissioners, appointed by
the President for a term of (7) seven years each and who shall serves as such until
their successor shall have been appointed and qualified. A Commissioner appointed
to fill a vacancy occurring prior to the expiration of the term for which his/her
predecessor was appointed, shall serve only for the unexpired portion of their terms
under Presidential Decree No. 902-A. Unless the context indicates otherwise, the
term "Commissioner" includes the Chairperson.
4.2. The Commissioners must be natural-born citizens of the Philippines, at least
forty (40) years of age for the Chairperson and at least thirty-five (35) years of age
for the Commissioners, of good moral character, or unquestionable integrity, of
known probity and patriotism, and with recognized competence in social and
economic disciplines: Provided, That the majority of Commissioners, including the
Chairperson, shall be members of the Philippine Bar.
4.3. The chairperson is chief executive officer of the Commission. The Chairperson
shall execute and administer the policies, decisions, orders and resolutions
approved by the Commission and shall have the general executive direction and
supervision of the work and operation of the Commission and it’s members, bodies,
boards, offices, personnel and all its administrative business.
4.4. The salary of the Chairperson and the Commissioners shall be fixed by the
President of the Philippines based on the objective classification system, at a sum
comparable to the members of the Monetary Board and commensurate importance
and responsibilities attached to the position.
4.5. The Commission shall hold meetings at least once a week for the conduct of
business or as often as may be necessary upon the call of the Chairperson or upon
the request of (3) Commissioners. The notice of the meeting shall be given to all
Nigel Carmelo Q. Reago 182

Commissioners and the presence of three (3) Commissioners shall constitute a
quorum. In the absence of the Chairperson, the most senior Commissioner shall act
as presiding officer of the meeting.
4.6. The Commission may, for purposes of efficiency, delegate any of its functions to
any department of 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.
The commission may review upon its own initiative or upon the petition of any
interested party any action of any department or office, individual Commissioner, or
staff member of the Commission.
Section 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, the Investment Houses law,
the Financing Company Act and other existing laws. Pursuant thereto the
Commission shall have, among others, the following powers and functions:
(a) Have jurisdiction and supervision over all corporations, partnership or
associations who are the grantees of primary franchises and/or a license or
a permit issued by the Government;
(b) Formulate policies and recommendations on issues concerning the
securities market, advise Congress and other government agencies on all
aspect 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;
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(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 rules, regulations and
orders, and 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, regulation and orders;
(h) Enlist the aid and support of and/or deputized 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 function under its Code;
(i) Issue cease and desist orders to prevent fraud or injury to the investing
public;
(j) Punish for the 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;
Nigel Carmelo Q. Reago 183

(m) Suspend, or revoke, after proper notice and hearing the franchise or
certificate of registration of corporations, partnership 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.
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 the 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
payment/rehabilitation cases filed as of 30 June 2000 until finally disposed.
Section 6. Indemnification and Responsibilities of Commissioners.– 6.1. The
Commission shall indemnify each Commissioner and other officials of the
Commission, including personnel performing supervision and examination functions
for all cost and expenses reasonably incurred by such persons in connection with
any civil or criminal actions, suits or proceedings to be liable for gross negligence or
misconduct. In the event of settlement or compromise, indemnification shall be
provided only in connection with such matters covered by the settlement as to
which the Commission is advised by external counsel that the persons to be
indemnified did not commit any gross negligence or misconduct. The costs and
expenses incurred in defending the aforementioned action, suit or proceeding may
be paid by the Commission in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the Commissioner,
officer or employee to repay the amount advanced should it ultimately be
determined by the Commission that he/she is not entitled to be indemnified as
provided in this subsection.
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6.2. The Commissioners, officers and employees of the Commission who willfully
violate this Code or who are guilty of negligence, abuse or acts of malfeasance or fail
to exercise extraordinary diligence in the performance of their duties shall be held
liable for any loss or injury suffered by the Commission or other institutions such as
a result of such violation, negligence, abuse, or malfeasance, or failure to exercise
extraordinary diligence. Similar responsibility shall apply to the Commissioners,
officers and employees of the Commission for (1) the disclosure of any information,
discussion or resolution of the Commission of a confidential nature, or about the
confidential operations of the Commission unless the disclosure is in connection
with the performance of official functions with the Commission or prior
authorization of the Commissioners; or (2) the use of such information for personal
gain or to the detriment of the government, the Commission or third parties:
Provided, however, That any data or information required to be submitted to the
President and/or Congress or its appropriate committee, or to be published under
the provisions of this Code shall not be considered confidential.
Section 7. Reorganization. – 7.1. To achieve the goals of this Code, consistent with
the Civil Service laws, the Commission is hereby authorized to provide for its
reorganization, to streamline its structure and operations, upgrade its human
resource component and enable it to more efficiently and effectively perform its
functions and exercise its power under this Code.
7.2. All positions of the Commissions shall be governed by a compensation and
position classification system and qualification standards approved by the
Commission based on comprehensive job analysis and audit of actual duties and
personal responsibilities. The compensation plan shall be comparable with the
prevailing compensation plan in the Bangko Sentral ng Pilipinas and other
government financial institutions and shall be subject to periodic review by the
Commission no more than once every two (2) years without prejudice to yearly
merit review or increases based on productivity and efficiency. The Commission
shall, therefore, be exempt from laws, rules, and regulations on compensation,
position classification and qualifications standards. The Commission shall, however,
endeavor to make its system conform as closely as possible with the principles
Nigel Carmelo Q. Reago 184

under the Compensation and Position Classification Act of 1989 (Republic Act. 6758,
as amended).
CHAPTER III
REGISTRATION OF SECURITIES
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.
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 Register Securities in
which shall be recorded orders entered by the Commission with respect such
securities. Such register and all documents or information with the 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 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.
Section 9. Exempt Securities. – 9.1. The requirement of registration under
Subsection 8.1 shall not as a general rule apply to any of the following classes of
securities:
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(a) Any security issued or guaranteed by the Government of the Philippines,
or by any political subdivision or agency thereof, or by any person controlled
or supervised by, and acting as an instrumentality of said Government.
(b) Any security issued or guaranteed by the government of any country
with which the Philippines maintains diplomatic relations, or by any state,
province or political subdivision thereof on the basis of reciprocity:
Provided, That the Commission may require compliance with the form and
content for disclosures the Commission may prescribe.
(c) Certificates issued by a receiver or by a trustee in bankruptcy duly
approved by the proper adjudicatory body.
(d) Any security or its derivatives the sale or transfer of which, by law, is
under the supervision and regulation of the Office of the Insurance
Commission, Housing and Land Use Rule Regulatory Board, or the Bureau of
Internal Revenue.
(e) Any security issued by a bank except its own shares of stock.
9.2. The Commission may, by rule or regulation after public hearing, add to the
foregoing any class of securities if it finds that the enforcement of this Code with
respect to such securities is not necessary in the public interest and for the
protection of investors.
Section 10. Exempt Transactions. – 10.1. The requirement of registration under
Subsection 8.1 shall not apply to the sale of any security in any of the following
transactions:
(a) At any judicial sale, or sale by an executor, administrator, guardian or
receiver or trustee in insolvency or bankruptcy.
(b) By or for the account of a pledge holder, or mortgagee or any of a pledge
lien holder selling of offering for sale or delivery in the ordinary course of
Nigel Carmelo Q. Reago 185

business and not for the purpose of avoiding the provision of this Code, to
liquidate a bonafide debt, a security pledged in good faith as security for
such debt.
(c) An isolated transaction in which any security is sold, offered for sale,
subscription or delivery by the owner therefore, or by his representative for
the owner’s account, such sale or offer for sale or offer for sale, subscription
or delivery not being made in the course of repeated and successive
transaction of a like character by such owner, or on his account by such
representative and such owner or representative not being the underwriter
of such security.
(d) The distribution by a corporation actively engaged in the business
authorized by its articles of incorporation, of securities to its stockholders or
other security holders as a stock dividend or other distribution out of
surplus.
(e) The sale of capital stock of a corporation to its own stockholders
exclusively, where no commission or other remuneration is paid or given
directly or indirectly in connection with the sale of such capital stock.
(f) The issuance of bonds or notes secured by mortgage upon real estate or
tangible personal property, when the entire mortgage together with all the
bonds or notes secured thereby are sold to a single purchaser at a single
sale.
(g) The issue and delivery of any security in exchange for any other security
of the same issuer pursuant to a right of conversion entitling the holder of
the security surrendered in exchange to make such conversion: Provided,
That the security so surrendered has been registered under this Code or
was, when sold, exempt from the provision of this Code, and that the
security issued and delivered in exchange, if sold at the conversion price,
would at the time of such conversion fall within the class of securities
entitled to registration under this Code. Upon such conversion the par value
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of the security surrendered in such exchange shall be deemed the price at
which the securities issued and delivered in such exchange are sold.
(h) Broker’s transaction, executed upon customer’s orders, on any
registered Exchange or other trading market.
(i) Subscriptions for shares of the capitals stocks of a corporation prior to
the incorporation thereof or in pursuance of an increase in its authorized
capital stocks under the Corporation Code, when no expense is incurred, or
no commission, compensation or remuneration is paid or given in
connection with the sale or disposition of such securities, and only when the
purpose for soliciting, giving or taking of such subscription is to comply with
the requirements of such law as to the percentage of the capital stock of a
corporation which should be subscribed before it can be registered and duly
incorporated, or its authorized, capital increase.
(j) The exchange of securities by the issuer with the existing security holders
exclusively, where no commission or other remuneration is paid or given
directly or indirectly for soliciting such exchange.
(k) The sale of securities by an issuer to fewer than twenty (20) persons in
the Philippines during any twelve-month period.
(l) The sale of securities to any number of the following qualified buyers:
(i) Bank;
(ii) Registered investment house;
(iii) Insurance company;
(iv) Pension fund or retirement plan maintained by the Government
of the Philippines or any political subdivision thereof or manage by a
Nigel Carmelo Q. Reago 186

bank or other persons authorized by the Bangko Sentral to engage
in trust functions;
(v) Investment company or;
(vi) Such other person as the Commission may rule by determine as
qualified buyers, on the basis of such factors as financial
sophistication, net worth, knowledge, and experience in financial
and business matters, or amount of assets under management.
10.2. The Commission may exempt other transactions, if it finds that the
requirements of registration under this Code is not necessary in the public interest
or for the protection of the investors such as by the reason of the small amount
involved or the limited character of the public offering.
10.3. Any person applying for an exemption under this Section, shall file with the
Commission a notice identifying the exemption relied upon on such form and at
such time as the Commission by the rule may prescribe and with such notice shall
pay to the Commission fee equivalent to one-tenth (1/10) of one percent (1%) of
the maximum value aggregate price or issued value of the securities.
Section 11. Commodity Futures Contracts. - No person shall offer, sell or enter into
commodity futures contracts except in accordance with the rules, regulations and
orders the Commission may prescribe in the public interest. The Commission shall
promulgate rules and regulations involving commodity futures contracts to protect
investors to ensure the development of a fair and transparent commodities market.
Section 12. Procedure of Registration Securities. - 12.1. All securities required to be
registered under Subsection 8. I shall be registered through the filing by the issuer in
the main office of the Commission, of a sworn registration statement with the
respect to such securities, in such form and containing such information and
document as the Commission prescribe. The registration statement shall include any
prospectus required or permitted to be delivered under Subsections 8.2, 8.3, and
8.4.
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12.2. In promulgating rules governing the content of any registration statement
(including any prospectus made a part thereof or annex 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 requirements, 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, its 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 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 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 the rule diminishing fees in inverse proportion 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 the rule shall
prescribe, reciting that a registration statement for the sale of such
securities has been filed, and that aforesaid registration statement, as well
Nigel Carmelo Q. Reago 187

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 affectivity 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 herein or necessary to make the statement therein not
misleading shall constitute fraud.
Section 13. Rejection and Revocation of Registration of Securities. – 13.1. The
Commission may reject a registration statement and refuse registration of the
security there-under, or revoke the affectivity of a registration statement and the
registration of the security there-under after the due notice and hearing by issuing
an order to such effect, setting forth its finding in respect thereto, if it finds that:
(a) The issuer:
(i) Has been judicially declared insolvent;
(ii) Has violated any of the provision of this Code, the rules
promulgate pursuant thereto, or any order of the Commission of
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which the issuer has notice in connection with the offering for which
a registration statement has been filed
(iii) Has been or is engaged or is about to engage in fraudulent
transactions;
(iv) Has made any false or misleading representation of material
facts in any prospectus concerning the issuer or its securities;
(v) Has failed to comply with any requirements that the Commission
may impose as a condition for registration of the security for which
the registration statement has been filed; or
(b) The registration statement is on its face incomplete or inaccurate in any
material respect or includes any untrue statements of a material fact
required to be stated therein or necessary to make the statement therein
not misleading; or
(c) The issuer, any officer, director or controlling person performing similar
functions, or any under writer has been convicted, by a competent judicial
or administrative body, upon plea of guilty, or otherwise, of an offense
involving moral turpitude and /or fraud or is enjoined or restrained by the
Commission or other competent or administrative body for violations of
securities, commodities, and other related laws.
For the purposes of this subsection, the term "competent judicial or administrative
body" shall include a foreign court of competent jurisdiction as provided for under
Rules of Court.
13.2. The Commission may compel the production of all the books and papers of
such issuer, and may administer oaths to, and examine the officers of such the
issuer or any other person connected therewith as to its business and affairs.
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13.3. If any issuer shall refuse to permit an examination to be made by the
Commission, its refusal shall be ground for the refusal or revocation of the
registration of its securities.
13.4. If the Commission deems its necessary, it may issue an order suspending the
offer and sale of the securities pending any investigation. The order shall state the
grounds for taking such action, but such order of suspension although binding upon
the persons notified thereof, shall be deemed confidential, and shall not be
published. Upon the issuance of the suspension order, no further offer or sale of
such security shall be made until the same is lifted or set aside by the Commission.
Otherwise, such sale shall be void.
13.5. Notice of issuance of such order shall be given to the issuer and every dealer
and broker who shall have notified the Commission of an intention to sell such
security.
13.6. A registration statement may be withdrawn by the issuer only with the
consent of the Commission.
Section 14. Amendment to the Registration Statement. – 14.1. If a registration
statement is on its face incomplete or inaccurate in any material respect, the
Commission shall issue an order directing the amendment of the registration
statement. Upon compliance with such order, the amended registration statement
shall become effective in accordance with the procedure mentioned in Subsection
12.6 hereof.
14.2. An amendment filed prior to the effective date of the registration statement
shall recommence the forty-five (45) day period within which the Commission shall
act on a registration statement. An amendment filed after the effective date of the
registration statement shall become effective only upon such date as determined by
the Commission.
14.3. If any change occurs in the facts set forth in a registration statement, the
issuer shall file an amendment thereto setting forth the change.
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14.4. If, at any time, the Commission finds that the registration statement contains
any false statement or omits to state any fact required to be stated therein or
necessary to make the statements therein not misleading, the Commission may
conduct an examination, and, after due notice and hearing, issue an order
suspending the affectivity registration statement. If the statement is duly amended,
the suspension order may be lifted.
14.5. In making such examination the Commission or any officer or officers
designated by it may administer oaths and affirmations and shall have access to, and
may demand the production of, any books, records or documents relevant to the
examination. Failure of the issuer, underwriter, or any other person to cooperate, or
his obstruction or refusal to undergo an examination, shall be a ground for the
issuance of a suspension order.
Section 15. Suspension of Registration. - 15.1. If at any time, the information
contained in the registration statement filed is or has become misleading, incorrect,
inadequate or incomplete in any material respect, or the sale or offering for sale of
the security registered thereunder may work or tend to work a fraud, the
Commission may require from the issuer such further information as may in its
judgement be necessary to enable the Commission to ascertain whether the
registration of such security should be revoked on any ground specified in this Code.
The Commission may also suspend the right to sell and offer for the sale such
security pending further investigation, by entering an order specifying the grounds
for such action, and by notifying the issuer, underwriter, dealer or broker known as
participating in such offering.
15.2. The refusal to furnish information required by the Commission may be a
ground for the issuance of an order of suspension pursuant to Subsection 15.1.
Upon the issuance of any such order and notification to the issuer, underwriter,
dealer or broken know as participating in such offering, no further offer or sale of
any such security shall be made until the same is lifted or set aside by the
Commission. Otherwise such sale shall be void.
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15.3. Upon issuance of an order of suspension, the Commission shall conduct a
hearing. If the Commission determines that the sale of any security should be
revoked is shall issue an order prohibiting sale of such security.
15.4. Until the issuance of a final order, the suspension of the right to sell, though
binding upon the persons notified there of, shall be deemed confidential, and shall
not be published, unless it shall appear that the order of suspension has been
violated after notice. If, however, the Commission finds that the sale of the security
will neither be fraudulent nor result in fraud, it shall forthwith issue an order
revoking the order of suspension, and such security shall be restored to its status as
a registered security as of the date of such order of suspension.
CHAPTER IV
REGULATION OF PRE-NEED PLANS
Section 16. Pre-Need Plans. – No person shall sell or offer for sale to the public any
pre-need plan except in accordance with rules and regulations which the
Commission shall prescribe. Such rules shall regulate the sale of pre-need plans by,
among other things, requiring the registration of pre-need plans, licensing persons
involved in the sale of pre- need plans, requiring disclosures to prospective plan
holders, prescribing advertising guidelines, providing for uniform accounting system,
reports and recording keeping with respect to such plans, imposing capital, bonding
and other financial responsibility, and establishing trust funds for the payment of
benefits under such plans.
CHAPTER V
REPORTORIAL REQUIREMENTS
Section 17. Periodic and Other Reports of Issuer. 17.1. Every issuer satisfying the
requirements in Subsection 17.2 hereof shall file with the Commission:
(a) Within one hundred thirty-five (135) days, after the end of the issuer’s
fiscal year, or such other time as the Commission may prescribe, an annual
report which shall include, among others, a balance sheet, profit and loss
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statement and statement of cash flows, for such last fiscal year, certified
public accountant, an a management discussion and analysis of results of
operation; and
(b) Such other periodical reports for interim fiscal periods and current
reports on significant developments of the issuer as the Commission may
prescribe as necessary to keep current information on the operation of the
business and financial condition of the issuer.
17.2. The reportorial requirements of Subsection 17.1 shall apply to the following:
(a) An issuer which has sold a class of its securities pursuant to a registration
under section 12 hereof: Provided however, That the obligation of such
issuer to file reports shall be suspended for any fiscal year after the year
such registration became effective if such issuer, as of the first day of any
such fiscal year, has less than one hundred (100) holder of such class
securities or such other number as the Commission shall prescribe and it
notifies the Commission of such;
(b) An issuer with a class of securities listed for trading on an Exchange; and
(c) An issuer with assets of at least Fifty million pesos (50,000,000.00) or
such other amount as the Commission shall prescribe, and having two
hundred (200) or more holder each holding at least one hundred (100) share
of a class of its equity securities: Provided, however, That the obligation of
such issuer to file report shall be terminate ninety (90) days after
notification to the Commission by the issuer that the number of its holders
holding at least one hundred (100) share reduced to less than one hundred
(100).
17.3. Every issuer of a security listed for trading on an Exchange a copy of any report
filed with the Commission under Subsection 17.1. hereof.
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17.4. All reports (including financial statements) required to be filed with the
Commission pursuant to Subsection 17.1 hereof shall be in such form, contain such
information and be filed at such times as the Commission shall prescribe, and shall
be in lieu of any periodical or current reports or financial statements otherwise
required to be filed under the Commission shall prescribe.
17.5. Every issuer which has a class of equity securities satisfying any of the
requirements in Subsection 17.2 shall furnish to each holder of such equity security
an annual report in such form and containing such information as the Commission
shall prescribe.
17.6. Within such period as the Commission may prescribe preceding the annual
meeting of the holders of any equity security of a class entitled to vote at such
meeting , the issuer shall transmit to such holders an annual report in conformity
with subsection 17.5.
Section 18. Reports by five per centum (5%) Holders of Equity Securities. – 18.1. In
every case in which an issuer satisfies the requirements of Subsection 17.2 hereof
any person who acquires directly or indirectly the beneficial ownership of more than
five of per centum (5%) of such class or in excess of such lesser per centum as the
Commission by rule may prescribe, shall, within ten (10) days after such acquisition
or such reasonable time as fixed by the Commission, submit to the issuer of the
securities, to the Exchange where the security is traded, and to the Commission a
sworn statement containing the following information and such order information
as the Commission may require in the public interest or for the protection of
investors.
(a) The personal background, identity, residence, and citizenship of, and the
nature of such beneficial ownership by, such person and all other person by
whom or on whose behalf the purchases are effected; in the event the
beneficial owner is a juridical person, the of business of the beneficial owner
shall also be reported;
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(b) If the purpose of the purchases or prospective purchases is to acquire
control of the business of the issuer of the securities, any plans or proposals
which such persons may have that will effect a major change in its business
or corporate structure;
(c) The number of shares of such security which are beneficially owned, and
the number of shares concerning which there is a right to acquire, directly
or indirectly, by; (i) such person, and (ii) each associate of such person,
giving the background, identity, residence, and citizenship of each such
associate; and
(d) Information as to any contracts, arrangements, or understanding with
any person with respect to any securities of the issuer including but not
limited to transfer, joint ventures, loan or option arrangements, puts or call
guarantees or division of losses or profits, or proxies naming the persons
with whom such contracts, arrangements, or understanding have been
entered into, and giving the details thereof.
18.2. If any change occurs in the facts set forth in the statements, an amendment
shall be transmitted to the issuer, the Exchange and the Commission.
18.3. The Commission, may permit any person to file in lieu of the statement
required by subsection 17.1 hereof, a notice stating the name of such person, the
shares of any equity securities subject to Subsection 17.1 which are owned by him,
the date of their acquisition and such other information as the commission may
specify, if it appears to the commission that such securities were acquired by such
person in the ordinary course of his business and were not acquired for the purpose
of and do not have the effect of changing or influencing the control of the issuer nor
in connection with any transaction having such purpose or effect.
CHAPTER VI
PROTECTION OF SHAREHOLDERS INTERESTS
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Section 19. Tender Offers. – Any person or group of persons acting in concert who
intends to acquire at least 15% of any class of any equity security of a listed
corporation of any class of any equity security of a corporation with assets of at
least fifty million pesos (50,000,000.00) and having two hundred(200) or more
stockholders at least one hundred shares each or who intends to acquire at least
thirty percent(30%) of such equity over a period of twelve months(12) shall make a
tender offer to stockholders by filling with the Commission a declaration to that
effect; and furnish the issuer, a statement containing such of the information
required in Section 17 of this Code as the Commission may prescribe. Such person
or group of persons shall publish all request or invitations or tender offer or
requesting such tender offers subsequent to the initial solicitation or request shall
contain such information as the Commission may prescribe, and shall be filed with
the Commission and sent to the issuer not alter than the time copies of such
materials are first published or sent or given to security holders.
(a) Any solicitation or recommendation to the holders of such a security to
accept or reject a tender offer or request or invitation for tenders shall be
made in accordance with such rules and regulations as may be prescribe.
(b) Securities deposited pursuant to a tender offer or request or invitation
for tenders may be withdrawn by or on behalf of the depositor at any time
throughout the period that tender offer remains open and if the securities
deposited have not been previously accepted for payment, and at any time
after sixty (60) days from the date of the original tender offer to request or
invitation, except as the Commission may otherwise prescribe.
(c) Where the securities offered exceed that which person or group of
persons is bound or willing to take up and pay for, the securities that are
subject of the tender offers shall be taken up us nearly as may be pro data,
disregarding fractions, according to the number of securities deposited to
each depositor. The provision of this subject shall also apply to securities
deposited within ten (10) days after notice of increase in the consideration
offered to security holders, as described in paragraph (e) of this subsection,
is first published or sent or given to security holders.
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(d) Where any person varies the terms of a tender offer or request or
invitation for tenders before the expiration thereof by increasing the
consideration offered to holders of such securities, such person shall pay
the increased consideration to each security holder whose securities are
taken up and paid for whether or not such securities have been taken up by
such person before the variation of the tender offer or request or invitation.
19.2. It shall be lawful for any person to make any untrue statement of a material
fact or omit to state any material fact necessary in order to make the statements
made in the light of the circumstances under which they are made, not mis-leading,
or to engaged to any fraudulent, deceptive or manipulative acts or practices, in
connection with any tender offer or request or invitation for tenders, or any
solicitation for any security holders in opposition to or in favor of any such favor of
any such offer, request, or invitation. The Commission shall, for the purposes of this
subsection, define and prescribe means reasonably designed to prevent, such acts
and practices as are fraudulent, deceptive and manipulative.
Section 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;
20.2. Proxies must be in writing, signed by the stockholder or his duly authorized
representative and file before the scheduled meeting with the corporate secretary.
20.3. Unless otherwise provided in the proxy, it shall be valid only for the meeting
for which it is intended. No proxy shall be valid only for the meting for which it is
intended. No proxy shall be valid and effective for a period longer than five (5) years
at one time.
20.4. No broker or dealer shall give any proxy, consent or any authorization, in
respect of any security carried for the account of the customer, to a person other
than the customer, without written authorization of such customer.
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20.5. A broker or dealer who holds or acquire the proxy for at least ten percent
(10%) or such percentage as the commission may prescribe of the outstanding share
of such issuer, shall submit a report identifying the beneficial owner of ten days
after such acquisition, for its own account or customer, to the issuer of security, to
the exchange where the security is traded and to the Commission.
Section 21. Fees of Tender Offers and Certain Proxy Solicitations. – At the time of
filling with the Commission of any statement required under Section 19 for any
tender offer or Section 72.2 for issuer purchases, or Section 20 for proxy or consent
solicitation, The Commission may require that the person making such filing pay a
fee of not more than one-tenth (1/10)(1%) of;
21.1. The propose aggregate purchase price in the case of a transaction under
Section 20 or 72.2; or
21.2. The proposed payment in cash, and ion value of any securities or property to
be transferred in the acquisition, merger or consolidating, or the cash and value of
any securities proposed to be received upon the sale disposition of such assets in
the case of a solicitation under Section 20. The Commission shall prescribe by rule
diminishing fees in inverse proportion to the value of the aggregate price of the
offering.
Section 22. Internal Record Keeping and Accounting Control. - Every issuer which has
a class of securities that satisfies the requirements of Subsection 17.2 shall:
22.1. Device and maintain a system of internal accounting controls sufficient to
provide reasonable assurance that: (a) Transactions and access to assets are
pursuant to management authorization; (b) Financial statements are provided in
conformity with generally accepted accounting principles that are adopted by the
Accounting standards council and the rules promulgated by the Commission with
the regard to the preparation of the financial statements; and (c) Recorded assets
are compared with existing assets at reasonable intervals and differences are
reconciled.
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Section 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 after ten days after he
becomes such a beneficial owner, director, or officer, a statement form the
Commission and, if such security is listed for trading on an exchange, also with the
exchange of the amount of all the equity security 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 at the close of the calendar
month and such changes in his ownership as have occurred during such calendar
month.
23.2. For the purpose of preventing the unfair use of information which may have
been obtained by such beneficial owner, director or officer by reason of his
relationship to the issuer, any profit realized by him from any purchase or sale, or
any sale or purchase, of any equity security of such issuer within any period of less
than (6) months unless such security was acquired in good faith in connection with a
debt previously contracted, shall inure to and be recoverable by the issuer,
irrespective of any intention of holding the security purchased or of not
repurchasing the security sold for a period exceeding six (6) months. Suit to recover
such profit may be instituted before the Regional Trial Court by the issuer, or by the
owner of any security of the issuer in the name and in behalf of the issuer if the
issuer shall fail or refuse to bring such suit within sixty (60) days after request or
shall fail diligently to prosecute the same thereafter, but not such shall be brought
more than two years after the date such profit was realized. This Subsection shall
not be construed to cover any transaction were such beneficial owner was not such
both time of the owner or the sale, or the sale of purchase, of the security involved,
or any transaction or transactions which the Commission by rules and regulations
may exempt as not comprehended within the purpose of this subsection.
23.3. It shall be unlawful for any such beneficial owner, director or officer, directly
or indirectly, to sell any equity security of such issuer if the person selling the
principal: (a) Does not own the security sold: or (b) If owning the security, does not
Nigel Carmelo Q. Reago 193

deliver not deliver it against such sale within 20 days thereafter, or does not within
five days after such sale deposit in the mails or the unusual channels of
transportation; but no person shall be deemed to have violated this subsection if he
proves not withstanding the exercise of good faith he was unable to make such
delivery in such time, or that to do so would cause undue inconvenience or expense.
23.4. The provisions of subsection 23.2 shall not apply to any purchase and sale, or
sale and purchase, and the provisions of Subsection 23.3 shall not apply to any sale,
of an equity security not then or thereafter held by him and an investment account,
by a dealer in the ordinary course of his business and incident to the establishment
or maintenance by him of a primary or secondary market, otherwise than on an
Exchange, for such security. The Commission may, by such rules and regulations as it
deems necessary or appropriate in the public interest, define and prescribe terms
and conditions with respect to securities held in an investment account and
transactions made in the ordinary course of business and incident to the
establishment or maintenance of a primary or secondary market.
CHAPTER VII
PROHIBITIONS AND FRAUD, MANIPULATION AND INSIDER TRADING
Section 24. Manipulation of Security Prices; Devices and Practices. – 24.1 It shall be
unlawful for any person acting for himself or through a dealer or broker, directly or
indirectly:
(a) To create a false or misleading appearance of active trading in any listed
security traded in an Exchange of any other trading market (hereafter
referred to purposes of this Chapter as "Exchange"):
(i) By effecting any transaction in such security which involves no
change in the beneficial ownership thereof;
(ii) By entering an order or orders for the purchase or sale of such
security with the knowledge that a simultaneous order or orders of
substantially the same size, time and price, for the sale or purchase
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of any such security, has or will be entered by or for the same or
different parties; or
(iii) By performing similar act where there is no change in beneficial
ownership.
(b) To affect, alone or with others, a securities or transactions in securities
that: (I) Raises their price to induce the purchase of a security, whether of
the same or a different class of the same issuer or of controlling, controlled,
or commonly controlled company by others; or (iii) Creates active trading to
induce such a purchase or sale through manipulative devices such as
marking the close, painting the tape, squeezing the float, hype and dump,
boiler room operations and such other similar devices.
(c) To circulate or disseminate information that the price of any security
listed in an Exchange will or is likely to rise or fall because of manipulative
market operations of any one or more persons conducted for the purpose
of raising or depressing the price of the security for the purpose of inducing
the purpose of sale of such security.
(d) To make false or misleading statement with respect to any material fact,
which he knew or had reasonable ground to believe was so false or
misleading, for the purpose of inducing the purchase or sale of any security
listed or traded in an Exchange.
(e) To effect, either alone or others, any series of transactions for the
purchase and/or sale of any security traded in an Exchange for the purpose
of pegging, fixing or stabilizing the price of such security; unless otherwise
allowed by this Code or by rules of the Commission.
24.2. No person shall use or employ, in connection with the purchase or sale of any
security any manipulative or deceptive device or contrivance. Neither shall any short
sale be effected nor any stop-loss order be executed in connection with the
purchase or sale of any security except in accordance with such rules and
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regulations as the Commission may prescribe as necessary or appropriate in the
public interest for the protection of investors.
24.3. The foregoing provisions notwithstanding, the Commission, having due regard
to the public interest and the protection of investors, may, by rules and regulations,
allow certain acts or transactions that may otherwise be prohibited under this
Section.
Section 25. Regulation of Option Trading. – No member of an Exchange shall,
directly or indirectly endorse or guarantee the performance of any put, call,
straddle, option or privilege in relation to any security registered on a securities
exchange. The terms "put", "call", "straddle", "option", or "privilege" shall not
include any registered warrant, right or convertible security.
Section 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.
Section 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
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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 nonpublic
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 market to absorb such information: Provided, however, That this presumption
shall be rebutted upon a showing by the purchaser or seller that he was aware of
the material nonpublic information at the time of the purchase or sale.
27.2. For purposes of this Section, information is "material nonpublic" 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 nonpublic
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 whole 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 nonpublic 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
nonpublic 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
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(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 nonpublic 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.
CHAPTER VIII
REGULATION OF SECURITIES MARKET PROFESSIONALS
Section 28. Registration of Brokers, Dealers, Salesmen and Associated Persons. –
28.1. No person shall engage in the business of buying or selling securities in the
Philippine as a broker or dealer, or act as a salesman, or an associated person of any
broker or dealer unless registered as such with the Commission.
28.2. No registered broker or dealer shall employ any salesman or any associated
person, and no issuer shall employ any salesman, who is not registered as such with
the Commission.
28.3. The Commission, by rule or order, may conditionally or unconditionally
exempt from subsection 28.1 and 28.2 any broker, dealer, salesman, associated
person of any broker or dealer, or any class of the foregoing, as it deems consistent
with the public interest and the protection of investors.
28.4. The Commission shall promulgate rules and regulation prescribing the
qualifications for registration of each category of applicant, which shall, among
other things, require as a condition for registration that:
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(a) If a natural person, the applicant satisfactorily pass a written
examination as to his proficiency and knowledge in the area of activity for
which registration is sought;
(b) In the case of a broker or dealer, the applicant satisfy a minimum net
capital as prescribed by the Commission, and provide a bond or other
security as the Commission may prescribe to secure compliance with the
provisions of this Code; and
(c) If located outside of the Philippines, the applicant files a written consent
to service of process upon the Commission pursuant to Section 65 hereof.
28.5. A broker or dealer may apply for registration by filing with the Commission a
written application in such forms and containing such information and documents
concerning such broker or dealer as the Commission by rule shall prescribe.
28.6. Registration of a salesman or of an associated person of a registered broker or
dealer may be made upon written application filed with the Commission by such
salesman or associated person. The application shall be separately signed and
certified by the registered broker or dealer to which such salesman or associated
person is to become affiliated, or by the issuer in the case of a salesman employed
appointed or authorized solely by such issuer. The application shall be in such form
and contain such information and documents concerning the salesman or
associated person as the Commission by rule shall prescribe. For purposes of this
Section, a salesman shall not include any employee of an issuer whose
compensation is not determined directly or indirectly on sales of securities if the
issuer.
28.7. Applications filed pursuant to Subsections 28.5 and 28.6 shall be accompanied
by a registration fee in such reasonable amount prescribed by the Commission.
28.8. Within thirty (30) days after the filing of any application under this Section, the
Commission shall by order: (a) Grant registrations if it determines that the
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requirements of this Section and the qualifications for registrations set forth in its
rules and regulations have been satisfied ; or (b) Deny said registration.
28.9. The names and addresses of all persons approved for the registration as
brokers, dealers, associated persons or salesman and all orders of the Commission
with respect thereto shall be recorded in a Register of Securities Market
Professionals kept in the office of the Commission which shall be open to public
inspection.
28.10. Every person registered pursuant to this Section shall file with the
Commission, in such form as the Commission shall prescribe, information necessary
to keep the application for registration current and accurate, including in the case of
a broker or dealer changes in salesmen, associated persons and owners thereof.
28.11. Every person registered pursuant to this Selection shall pay to the
Commission an annual fee at such time and in such reasonable amount as the
Commission shall prescribe. Upon notice by the Commission that such annual fee
has not been paid as required, the registration of such person shall be suspended
until payment has been made.
28.12. The registration of a salesman or associated person shall be automatically
terminated upon the cessation of his affiliation with said registered broker or dealer
or with an issuer in the case of a salesman employed, appointed or authorized by
such issuer. Promptly following any such cessation of affiliation, the registered
broker or dealer, issuer as the case may be, shall file with the Commission a notice
of separation of such salesman or associated person.
Section 29. Revocation, Refusal or Suspension of Registration of Brokers, Dealers,
Salesmen and Associated Persons. – 29.1. Registration under Section 28 of this Code
may be refused , or any registration granted thereunder may be revoked,
suspended, or limitations placed thereon, by the Commission if, after due notice
and hearing the Commission determines the application or registrant.
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(a) Has willfully violated any provision of this Code, any rule, regulation or
order made hereunder, or any other law administered by the Commission,
or in the case of a registered broker, dealer or associated persons has failed
to supervise, with a view to preventing such violation, another person who
commits such violation;
(b) Has willfully made or caused to be made a materially false or misleading
statement in any application for registration or report filed with the
Commission or a self-regulatory organization, or has willfully omitted to
state any material fact that is required to be stated therein;
(c) Has failed to satisfy the qualifications or requirements for registration
prescribed under Section 28 and the rules and regulations of the
Commission promulgated thereunder;
(d) Has been convicted, by a competent judicial or administrative body of an
offense involving moral turpitude, fraud, embezzlement, counterfeiting,
theft, estafa, misappropriation, forgery, bribery, false oath, or perjury, or of
a violation of securities, commodities, banking, real state or insurance laws;
(e) Is enjoined or restrained by a competent judicial or administrative body
from engaging in securities, commodities, banking, real state or insurance
activities or from willfully violating laws governing such activities;
(f) Is subject to an order of a competent judicial or administrative body
refusing, revoking or suspending any registration, licensed or other permit
under this Code, the rules and regulations promulgated thereunder, any
other law administered by the Commission;
(g) Is subject to an order of a self-regulatory organization suspending or
expelling him from membership or participating therein or from association
with a member or participant thereof;
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(h) Has been found by a competent judicial or administrative body to have
willfully violated any provisions of securities, commodities, banking, real
state or insurance laws, or has willfully aided, abetted, counseled,
commanded, induced or procured such violation; or
(i) Has been judicially declared insolvent.
For purposes of this subsection, the term "competent judicial or administrative
body" shall include a foreign court of competent jurisdiction and a foreign financial
regulator.
29.2. (a) In case of charges against a salesman or associated person, notice thereof
shall also be given the broker, dealer or issuer employing such salesman or
associated person.
(b) Pending the hearing, the Commission shall have the power to order the
suspensions of such broker’s, dealers, associated person’s or salesman’s
registration: Provided, That such order shall state the cause for such
suspension. Until the entry of a final order, the suspension of such
registration, though binding upon the persons notified thereof, shall be
deemed confidential, and shall not be published, unless it shall appear that
the order of suspension has been violated after notice.
29.3. The orders of the Commission refusing, revoking, suspending or placing
limitations on a registration as herein above provided, together with its findings,
shall be entered in the Register of Securities Market Professionals. The suspension
or revocation of the registration of a dealer or broker shall also automatically
suspend the registration of all salesmen and associated persons affiliated with such
broker or dealer. The order of the Commission refusing, revoking, suspending or
placing limitations on a registration as herein above provided, together with its
findings, shall be entered in the Register of Securities Market Professionals. The
suspension or revocation of the registration of a dealer or broker shall also
automatically suspend the registration of a dealer or broker shall also automatically
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suspend the registration of all salesmen and associated persons affiliated with such
broker or dealer.
29.4. It shall be sufficient cause for refusal, revocation or suspension of a broker’s or
dealer’s registrations, if any associated person thereof or any juridical entity
controlled by such associated person has committed any act or omission or is
subject to any disability enumerated in paragraphs (a) through (i) of Subsection 29. I
hereof.
Section 30. Transactions and Responsibility of Brokers and Dealers. – 30.1 No
brokers or dealer shall deal in or otherwise buy or sell, for its own account or for its
own account or for the account of customers, securities listed on an Exchange
issued by any corporation where any stockholders, director, associated person or
salesman, or authorized clerk of said broker or dealer and all the relatives of the
foregoing within the fourth civil degree of consanguinity or affinity, is at the same
time holding office in said issuer corporation as a director, president, vice-president,
manager, treasurer, comptroller, secretary or any office trust and responsibility, or
is a controlling of the issuer.
30.2. No broker or dealer shall effect any transaction in securities or induce or
attempt to induce the purchase or sale of any security except in compliance with
such rules and regulations as the Commission shall prescribe to ensure fair and
honest dealings in securities and provide financial safeguards and other standards
for the operations of brokers and dealers, including the establishments of minimum
net capital requirements, the acceptance of custody and use of securities of
customers, and the carrying and use of deposits and credit balances of customers.
Section 31. Development of Securities Market Professionals. – The Commission in
joint undertaking with self regulatory organizations, organizations and associations
of finance professionals as well as private educational and research institute shall
undertake or facilitate/organize continuing training, conferences/seminars,
updating programs, research and developments as well as technology transfer at
the latest and advance trends in issuance and trading of securities, derivatives,
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commodity trades and other financial instruments, as well as securities markets of
other countries.
CHAPTER IX
EXCHANGES AND OTHER SECURITIES TRADING MARKETS
Section 32. Prohibition on Use of Unregistered Exchange; Regulation of Over-the-
Counter Markets. –32.1. No broker, dealer, salesman, associated person of a broker
or dealer, or Exchange, directly or indirectly shall make use of any facility of an
Exchange in the Philippines to effect any transaction in a security, or to report such
transaction, unless such Exchange is registered as such under Section 33 of this
Code.
32.2. (a) No broker, dealer, salesman or associated person of a broker or dealer,
singly or in concert with any other person, shall make, create or operate, or enable
another to make, create or operate, any trading market, otherwise than on a
registered Exchange, for the buying and selling of any security, except in accordance
with rules and regulations the Commission may prescribe.
(b) The Commission may promulgate rules and regulations governing
transactions by brokers, dealers, salesmen or associated persons of a broker
or dealer, over any facilities of such trading market and may require such
market to be administered by a self-regulatory organization determined by
the Commission as capable of insuring the protection of investors
comparable to that provided in the case of a registered Exchange. Such self-
regulatory organization must provide a centralized marketplace for trading
and must satisfy requirements comparable to those prescribed for
registration of Exchanges in Section 33 of this Code.
Section 33. Registration of Exchanges. – 33.1. Any Exchange may be registered as
such with the Commission under the terms and conditions hereinafter provided in
this Section and Section 40 hereof, by filing an application for registration in such
form and containing such information and supporting documents as the
Commission by rule shall prescribe, including the following:
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(a) An undertaking to comply and enforce by its members with the
provisions of this Code, its implementing rules and regulations and the rules
of the Exchange;
(b) The organizational charts of the Exchange, rules of procedure, and a list
of its officers and members;
(c) Copies of the rules of the Exchange; and
(d) An undertaking that in the event a member firm becomes insolvent or
when the Exchange shall have found that the financial condition of its
member firm has so deteriorated that it cannot readily meet the demands
of its customers for the delivery of securities and/or payment of sales
proceeds, the Exchange shall, upon order of the Commission, take over the
operation of the insolvent member firm and immediately proceed to settle
the member firm’s liabilities to its customers.
33.2. Registrations of an Exchange shall be granted upon compliance with the
following provisions:
(a) That the applicant is organized as a stock corporation: Provided, That any
registered Exchange existing prior to the effectivity of this Code shall within
one (1) year reorganize as a stock corporation pursuant to a
demutualization plan approved by the Commission;
(b) That the applicant is engaged solely in the business of operating an
exchange: Provided, however, That the Commission may adopt rules,
regulations or issue an order, upon application, exempting an Exchange
organized as a stock corporation and owned and controlled by another
juridical person from the restriction.
(c) Where the Exchange is organized as a stock corporation, that no person
may beneficially own or control, directly or indirectly, more than five
percent (5%) of the voting rights of the Exchange and no industry or
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business group may beneficially own or control, directly or indirectly, more
than twenty percent (20%) of the voting rights of the Exchange: Provided,
however, That the Commission may adopt rules, regulations or issue an
order, upon application from this prohibition where it finds that such
ownership or control will not negatively impact on the exchange’s ability to
effectively operate in the public interest.
(d) The expulsion, suspension, or disciplining of a member and persons
associated with a member for conduct or proceeding inconsistent with just
and equitable principles of fair trade, and for violations of provisions of this
Code, or any other Act administered by the Commission, the rules,
regulations and orders thereunder, or the rules of the Exchange;’
(e) A fair procedure for the disciplining of members and persons associated
with members, the denial of membership to any person seeking to be a
member, the barring of any person from association with a member, and
the prohibition or limitation of any person from association with member,
and the prohibition or limitation of any person from access to services
offered by the Exchange;
(f) That the brokers in the board of the Exchange shall comprise of not more
than forty-nine percent (49%) of such board and shall proportionately
represent the Exchange membership in terms of volume/value or trade and
paid up capital, and that any natural person associated with a juridical entity
that is a member for this purpose; Provide, That any registered Exchange
existing prior to the affectivity of this Code shall immediately comply with
this requirement;
(g) For the board of the Exchange to include in its composition (1) the
president of the Exchange, and (ii) no less than fifty one percent (51%) of
the remaining members of the board to be comprised of three (3)
independent directors and persons who represent the interests of issuers,
investors, and other market participants, who are not associated with any
broker or dealer or member of the Exchange for a period of two (2) years
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prior to his/her appointment. No officer or employee of a member, its
subsidiaries or affiliates or related interests shall become an independent
director: Provided, however, That the Commission may by rule, regulation,
or order upon application, permit the exchange organized as a stock
corporation to use a different governance structure: Provided, further, That
the Commission is satisfied that the Exchange is acting in the public interest
and is able to effectively operate as a self-regulatory organization under this
Code: Provided, finally, That any registered exchange existing prior to the
affectivity of this Code shall immediately comply with this requirement.
(h) The president and other management of the Exchange to consist only of
persons who are not members and are not associated in any capacity,
directly or indirectly with any broker or dealer or member or listed company
of the Exchange: Provided, That the Exchange may only appoint, and a
person may only serve, as an officer of the exchange if such person has not
been a member or affiliated with any broker, dealer, or member of the
Exchange for a period of at least two (2) years prior to such appointment;
(i) The transparency of transactions on the Exchange;
(j) The equitable allocation of reasonable dues, fees, and other charges
among members and issuers and other persons using any facility or system
which the Exchange operates or controls;
(k) Prevention of fraudulent and manipulative acts and practices, promotion
of just and equitable principles of trade, and, in general, protection of
investors and the public interest; and
(l) The transparent, prompt and accurate clearance and settlement of
transactions effected on the Exchange.
33.3. If the Commission finds that the applicant Exchange is capable of complying
and enforcing compliance by its members, and persons associated with such
members, with the provisions of this Code, and the rules of the Exchange, and that
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the rules of Exchange are fair, just and adequate, the Commission shall cause such
Exchange to be registered. If, after notice due and hearing, the Commission finds
otherwise, the application shall be denied.
33.4. Within ninety (90) days after the filing of the application the Commission may
issue an order either granting or denying registration as an Exchange, unless the
Exchange applying for registration shall withdraw its application or shall consent to
the Commission’s deferring action on its application for a stated longer period after
the date of filing. The filing with the Commission of an application for registration by
an Exchange shall be deemed to have taken place upon the receipt thereof.
Amendments to an application may be made upon such terms as the Commission
may prescribe.
33.5. Upon the registration of an Exchange, it is shall pay a fee in such amount and
within such period as the Commission may fix.
33.6. Upon appropriate application in accordance with the rules and regulations of
the Commission and upon such terms as the Commission may deemed necessary for
the protection of investors, an exchange may withdraw its registration or suspend
its operations or resume the same.
Section 34. Segregation and Limitation of functions of Members, Broker and Dealers.
- 34.1. It shall be unlawful for any member-broker of an Exchange to effect any
transaction on such Exchange for its own account, the account of an associated
person, or an account with the respect to which it or an associated person thereof
exercises the investment discretion: Provided, however, That this Section shall not
make unlawful-
(a) Any transaction by a member-broker acting in the capacity of a market
maker;
(b) Any transaction reasonably necessary to carry on an odd-lot
transactions;
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(c) Any transaction to offset a transaction made in error; and
(d) Any other transaction of a similar nature as may be defined by the
Commission.
34.2. In all instances where the member-broker effects a transaction on an
Exchange for its own account or the account of an associated person or an account
with the respect to which it exercises investment discretion, it shall disclose to such
customer at or before the completion of the transaction it is acting for its own
account: Provided, further, That this fact shall be reflected in the order ticket and
the confirmation slip.
34.3. Any member-broker who violates the provisions of this Section shall be subject
to the administrative sanctions provided in Section 54 of this Code.
Section 35. Additional Fees of Exchanges. – In addition to the registration fee
prescribed in Section 33 of this Code, every Exchange shall pay to the Commission,
on a semestral basis on or before the tenth day of the end of the end of every
semester of the calendar year, a fee in such an amount as the Commission shall
prescribe, but not more than one-hundredth of one per centum (1%) of the
aggregate amount of the sales of securities transacted on such Exchange during the
preceding calendar year for the privilege of doing business, during the preceding
calendar year or any part thereof.
Section 36. Powers with Respect to Exchanges and Other Trading Market. – 36.1.
The Commission is authorized, if in its opinion such action is necessary or
appropriate for the protection of investors and the public interest so requires,
summarily to suspend trading in any listed security on any Exchange or other trading
market for a period not exceeding thirty (30) days but not exceeding ninety (90)
days: Provided, however, That the Commission promptly following the issuance of
the order of suspension, shall notify the affected issuer of the reasons for such
suspension and provide such issuer with an opportunity for hearing to determine
whether the suspension should be lifted.
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36.2. Wherever two (2) or more Exchanges or other trading markets exist, the
Commission may require and enforce uniformity of trading regulations in and/or
between or among said Exchanges or other trading markets.
36.3. In addition to the existing Philippine Stock Exchange, the Commission shall
have the authority to determine the number, size and location of stock Exchanges,
other trading markets and commodity Exchanges and other similar organizations in
the light of national or regional requirements for such activities with the view to
promote, enhance, protect, conserve or rationalize investment.
36.4. The Commission, having due regard to the public interest, the protection of
investors, the safeguarding of securities and funds, and maintenance of fair
competition among brokers, dealers, clearing agencies, and transfer agents, shall
promulgate rules and regulations for the prompt and accurate clearance and
settlement of securities transactions.
36.5. (a) The Commission may establish or facilitate the establishment of trust funds
which shall be contributed by Exchanges, brokers, dealers, underwriters, transfer
agents, salesmen and other persons transacting in securities, as the Commission
may require, for the purpose of compensating investors for the extraordinary losses
or damage they may suffer due to business failure or fraud or mismanagement of
the persons with whom they transact, under such rules and regulations as the
Commission may from time to time prescribe or approve in the public interest.
(b) The Commission may, having due regard to the public interest or the
protection of investors, regulate, supervise, examine, suspend or otherwise
discontinue such and other similar funds under such rules and regulations
which the Commission may promulgate, and which may include taking
custody and management of the fund itself as well as investments in and
disbursements from the funds under such forms of control and supervision
by the Commission as it may from time to time require. The authority
granted to the Commission under this subsection shall also apply to all funds
established for the protection of investors, whether established by the
Commission or otherwise.
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Section 37. Registration of Innovative and Other Trading Markets. – The
Commission, having due regard for national economic development, shall
encourage competitiveness in the market by promulgating within six (6) months
upon the enactment of this Code, rules for the registration and licensing of
innovative and other trading markets or Exchanges covering, but not limited to, the
issuance and trading of innovative securities, securities of small, medium, growth
and venture enterprises, and technology-based ventures pursuant to Section 33 of
this Code.
Section 38. Independent Directors. – Any corporation with a class of equity securities
listed for trading on an Exchange or with assets in excess of Fifty million pesos
(P50,000,000.00) and having two hundred (200) or more holders, at least of two
hundred (200) of which are holding at least one hundred (100) shares of a class of its
equity securities or which has sold a class of equity securities to the public pursuant
to an effective registration statement in compliance with Section 12 hereof shall
have at least two (2) independent directors or such independent directors shall
constitute at least twenty percent (20%) of the members of such board whichever is
the lesser. For this purpose, an "independent director" shall mean a person other
than an officer or employee of the corporation, its parent or subsidiaries, or any
other individual having a relationship with the corporation, which would interfere
with the exercise of independent judgement in carrying out the responsibilities of a
director.
CHAPTER X
REGISTRATION, RESPONSIBILITIES AND OVERSIGHT OF SELF-REGULATORY
ORGANIZATIONS
Section 39. Associations of Securities Brokers, and Dealers, and Other Securities
Related Organizations. – 39.1. The Commission shall have the power to register as a
self-regulatory organization, or otherwise grant licenses, and to regulate, supervise,
examine, suspend or otherwise discontinue, as a condition for the operation of
organizations whose operations are related to or connected with the securities
market such as but not limited to associations of brokers and dealers, transfer
agents, custodians, fiscal and paying agents, computer services, news disseminating
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services, proxy solicitors, statistical agencies, securities rating agencies, and
securities information processor which are engaged in business of: (a) Collecting,
processing, or preparing for distribution or publication, or assisting, participating in,
or coordinating the distribution or publication of, information with respect to
transactions in or quotations for any security; or (b) Distributing or publishing,
whether by means of a ticker tape, a communications network, a terminal display
device, or otherwise, on a current and continuing basis, information with respect to
such transactions or quotations. The Commission may prescribe rules and
regulations which are necessary or appropriate in the public interest or for the
protection of investors to govern self-regulatory organizations and other
organizations licensed or regulated pursuant to the authority granted in Subsection
39.1 including the requirement of cooperation within and among, and electronic
integration of the records of, all participants in the securities market to ensure
transparency and facilitate exchange of information.
39.2. An association of brokers and dealers may be registered as a securities
association pursuant to Subsection 39.3 by filing with the Commission an application
for registration in such form as the Commission, by rule, may prescribe containing
the rules of the association and such other information and documents as the
Commission, by rule, may prescribe as necessary or appropriate in the public
interest or for the protection of investors.
39.3. An association of brokers and dealers shall not be registered as a securities
association unless the Commission determines that:
(a) The association is so organized and has the capacity to be able to carry
out the purposes of this Code and to comply with, and to enforce
compliance by its members and persons associated with its members, with
the provisions of this Code, the rules and regulations thereunder, and the
rules of the association.
(b) The rules of the association, notwithstanding anything in the Corporation
Code to the contrary, provide that:
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(i) Any registered broker or dealer may become a member of the
association;
(ii) There exist a fair representation of its members to serve on the
Board of Directors of the association and in the administration of its
affairs, and that may any natural person associated with a juridical
entity that is a member shall himself be deemed to be a member for
this purpose;
(iii) The Board of Directors of the association includes in its
composition:
(a) The president of the association and
(b) Person who represent the interests of the issuer and
public investors and are not associated with any broker or
dealer or member of the association; that the president and
other management of the association not be a member or
associated with any broker, dealer or member of the
association;
(iv) For the equitable allocation of reasonable dues, fees, and other
charges among member and issuers and other persons using any
facility or system which the association operates or controls;
(v) For the prevention of fraudulent and manipulative acts and
practices, the promotion of just and equitable principles of trade,
and, in general, the protection of investors and the public interest;
(vi) That its members and persons associated with its members shall
be appropriately disciplined for violation of any provision of this
Code, the rules and regulations thereunder, or the rules of the
association;
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(vii) That a fair procedure for the disciplining of members and
persons associated with members, the denial of membership to any
person seeking membership therein, the barring of any person from
becoming associated with a member thereof, and the prohibition or
limitation by the association of any person with respect to access to
services offered by the association or a member thereof.
39.4. (a) A registered securities association shall deny membership to any person
who is not a registered broker or dealer.
(b) A registered securities association may deny membership to, or
condition the membership of, a registered broker or dealer if such broker or
dealer:
(i) Does not meet the standards of financial responsibility,
operational capability, training, experience or competence that are
prescribe by the rules of the association; or
(ii) Has engaged, and there is a reasonable likelihood it will again
engage, in acts or practices inconsistent with just and equitable
principles of fair trade.
(c) A registered securities association may deny membership to a registered
broker or dealer not engage in a type of business in which the rules of the
association require members to be engaged: Provided, however,That no
registered securities association may deny membership to a registered
broker or dealer by reason of the amount of business done by the broker or
dealer.
A registered securities association may examine and verify the qualifications
of an applicant to become a member in accordance with procedure
established by the rules of the association.
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(d) A registered securities association may bar a salesman or person
associated with a broker or dealer from being employed by a member or set
conditions for the employment of a salesman or associated if such person:
(i) Does not meet the standards of training, experience, or
competence that are prescribe by the rules of the association; or
(ii) Has engage, and there is a reasonable likelihood he will again
engage, in acts or practices inconsistent with just and equitable
principles of fair trade.
A registered securities association may examine and verify the qualifications of an
applicant to become a salesman or associated person employed by a member in
accordance with the procedures establish by the rules of the association. A
registered association also may require a salesman or associated person employed
by a member to be registered with the association in accordance with the
procedures prescribed in the rules of the association.
39.5. In any proceeding by a registered securities association to determine whether
a person shall be denied membership, or barred from association with a member,
the association shall provide notice to the person under review of the specific
grounds being considered for denial, afford him an opportunity to defend against
the allegations, and keep a record of the proceedings. A determination by the
association to deny membership shall be supported by a statement setting forth the
specific grounds on which the denial is based.
Section 40. Powers with Respect to Self-Regulatory Organizations. - 40.1. Upon the
filing of an application for registration as an Exchange under Section 33, a registered
securities association under Section 39, a registered clearing agency under Section
42, or other self-regulatory organization under this Section, the Commission shall
have ninety (90) days within which to either grant registration should be denied. In
the event proceedings are instituted, the Commission shall have two hundred
seventy (270) days within which to conclude such proceedings at which time it shall,
by order, grant or deny such registration.
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40.2. Every self-regulatory organization shall comply with the provision of this Code,
the rules and regulations thereunder, and its own rules, and enforce compliance
therewith, notwithstanding any provisions of the Corporation Code to the contrary,
by its members, persons associated with its members of its participants.
40.3. (a) Each self-regulatory organization shall submit to the Commission for prior
approval any proposed rule or amendment thereto, together with a concise
statement of the reason and effect of the proposed amendment
(b) Within sixty (60) days after submission of a proposed amendment, the
Commission shall, by order, approve the proposed amendment. Otherwise,
the same may be made effective by the self-regulatory organization.
(c) In the event of an emergency requiring action for the protection of
investors, the maintenance of fair and orderly markets, or the safeguarding
of securities and funds, a self-regulatory organization may put a proposed
amendment into effect summarily; Provided however, That the copy of the
same shall be immediately submitted to the Commission.
40.4. The Commission is further authorized, if after making appropriate request in
writing to a self-regulatory organization that such organization effect on its own
behalf specified changes in its rules and practices and, after due to notice and
hearing it determines that such changes have not been effected, and that such
changes are not necessary, by the rule or regulation or by order, may alter, abrogate
or supplement the rules of such self-regulatory organization in so far as necessary or
appropriate to effect such changes in respect of such matters as:
(a) Safeguards in respect of the financial responsibility of members and
adequate provision against the evasion of financial responsibility through
the use of corporate forms or special partnerships;
(b) The supervision of trading practices;
(c) The listing or striking from listing of any security;
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(d) Hours of trading;
(e) The manner, methods, and place of soliciting business;
(f) Fictitious accounts;
(g) The time and method of making settlements, payments, and deliveries,
and of closing accounts;
(h) The transparency of securities transactions and prices;
(i) The fixing of reasonable rates of fees, interest, listing and other charges,
but not rates of commission;
(j) Minimum units of trading;
(k) Odd-lot purchases and sales;
(l) Minimum deposits on margin accounts; and
(m) The supervision, auditing and disciplining of members or participants.
40.5. The Commission, after due notice and hearing, is authorized, in the public
interest and to protect investors:
(a) To suspend for a period not exceeding twelve (12) months or to revoke
the registration of a self-regulatory organization, or to censure or impose
limitations on the activities, functions, and operations of such self-
organization, if the Commission finds that such a self-regulatory
organization has willfully violated or is unable to comply with any provision
of this Code or of the rules and regulations thereunder, or its own or has
failed to enforce compliance therewith by a member of, person associated
with a member, or a participant in such self-regulatory organization;
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(b) To expel from a self-regulatory organization any member thereof or any
participant therein who is subject to an order of the Commission under
Section 29 of this Code or is found to have willfully violated any provision of
this Code or suspend for a period not exceeding twelve (12) months for
violation of any provision of this Code or any other laws administered by the
Commission, or rules and regulations thereunder, or effected, directly or
indirectly, any transaction for any person who, such member or participant
had reason to believe, was violating in respect of such transaction any of
such provisions; and
(c) To remove from the office or censure any officer or director of a self-
regulatory organization if it finds that such officer or director has violated
any provision of this Code, any other law administered by the Commission,
the rules or regulations thereunder, or the rules of such self-regulatory
organization, abused his authority, without reasonable justification or
excuse has failed to enforce compliance with any of such provisions.
40.6. (a) A self-regulatory organization is authorized to discipline a member of or
participant in such self-regulatory organization, or any person associated with a
member, including the suspension or expulsion of such member or participant, and
the suspension or bar from being associated with a member, if such person has
engage in acts or practices inconsistent with just and equitable principles of fair
trade or in willful violation of any provision of the Code, any other law administered
by the Commission, the rules or regulations thereunder, or the rules of the self-
regulatory organization. In any disciplinary proceeding by a self-regulatory
organization (other than a summary proceeding pursuant to paragraph (b) of this
subsection) the self-regulatory organization shall bring specific charges, provide
notice to the person charged, afford the person charged with an opportunity to
defend against the charges, and keep a record of the proceedings. A determination
to impose a disciplinary sanction shall be supported by a written statement of the
offenses, a summary of the evidence presented and a statement of the sanction
imposed.
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(b) A self-regulatory organization may summarily: (I) Suspend a member,
participant or person associated with a member who has been or is expelled
or suspended from any other self-regulatory organization; or (ii) Suspend a
member who the self-regulatory organization finds to be in such financial or
operating difficulty that the member or participant cannot be permitted to
continue to do business as a member with safety to investors, creditors,
other members, participants or the self-regulatory
organization: Provided, That the self-regulatory organization immediately
notifies the Commission of the action taken. Any person aggrieved by a
summary action pursuant to this paragraph shall be promptly afforded an
opportunity for a hearing by the association in accordance with the
provisions of paragraph (a) of this subsection. The Commission, by order,
may stay a summary action on its own motion or upon application by any
person aggrieved thereby, if the Commission determines summarily or after
due notice and hearing (which hearing may consist solely of the submission
of affidavits or presentation of oral arguments) that a stay is consistent with
the public interest and the protection of investors.
40.7. A self-regulatory organization shall promptly notify the Commission of any
disciplinary sanction on any member thereof or participant therein, any denial of
membership or participation in such organization, or the imposition of any
disciplinary sanction on a person associated with a member or a bar of such person
from becoming so associated. Within thirty (30) days after such notice, any
aggrieved person may appeal to the Commission from, or the Commission from, or
the Commission on its own motion within such period, may institute review of, the
decision of the self-regulatory organization, at the conclusion of which, after due
notice and hearing (which may consist solely of review of the record before the self-
regulatory organization), the Commission shall affirm, modify or set aside the
sanction. In such proceeding the Commission shall determine whether the aggrieved
person has engaged or omitted to engage in the acts and practices as found by the
self-regulatory organization, whether such acts and practices constitute willful
violations of this Code, any other law administered by the Commission, the rules or
regulations thereunder, or the rules of the self-regulatory organization as specified
by such organization, whether such provisions were applied in a manner consistent
Nigel Carmelo Q. Reago 206

with the purposes of this Code, and whether, with due regard for the public interest
and the protection of investors the sanction is excessive or oppressive.
40.8. The powers of the Commission under this Section shall apply to organized
exchanges and registered clearing agencies.
CHAPTER XI
ACQUISITION AND TRANSFER OF SECURITIES AND SETTLEMENT OF TRANSACTION
IN SECURITIES
Section 41. Prohibition on Use of Unregistered Clearing Agency. – It shall be unlawful
for any broker, dealer, salesman, associated person of a broker or dealer, or clearing
agency, directly or indirectly, to make use of any facility of a clearing agency in
Philippines to make deliveries in connection with transaction in securities or to
reduce the number of settlements of securities transactions or to allocate securities
settlement responsibilities or to provide for the central handling of securities so that
transfers, loans and pledges and similar transaction can be made by bookkeeping
entry or otherwise to facilitate the settlement of securities transactions without
physical delivery of securities certificates, unless such clearing agency is registered
as such under Section 42 of this Code or is exempted from such registration upon
application by the clearing agency because, in the opinion of the Commission, by
reason of the limited volume of transactions which are settled using the clearing
agency, it is not practicable and not necessary or appropriate in the public interest
or for the protection of investors to require such registration.
Section 42. Registration of Clearing Agencies. - 42.1. Any clearing agency may be
registered as such with the Commission under the terms and conditions hereinafter
provided in this Section, by filing an application for registration in such form and
containing such information and supporting documents as the Commission by rule
shall prescribe, including the following:
(a) An undertaking to comply and enforce compliance by its participants
with the provisions of this Code, and any amendments thereto, and the
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implementing rules or regulations made or to be made thereunder, and the
clearing agency’s rules;
(b) The organizational charts of the Exchange, its rules of procedure, and list
of its officers and participants;
(c) Copies of the clearing agency’s rules.
42.2. No registration of a clearing agency shall be granted unless the rules of the
clearing agency include provision for:
(a) The expulsions, suspension, or disciplining of a participant for violations
of this Code, or any other Act administered by the Commission, the rules,
regulations, and orders thereunder, or the clearing agency’s rules;
(b) A fair procedure for the disciplining of participants, the denial of
participation rights to any person seeking to be a participant, and the
prohibition or limitation of any person from access to services offered by
the clearing agency;
(c) The equitable allocation of reasonable dues, fees, and other charges
among participants;
(d) Prevention of fraudulent and manipulative acts and practices, promotion
of just and equitable principles of trade, and, in general, protection of
investors and the public interest;
(e) The transparent, prompt and accurate clearance and settlement of
transactions in securities handled by the clearing agency; and
(f) The establishment and oversight of a fund to guarantee the prompt and
accurate clearance and settlement of transaction executed on an exchange,
including a requirement that members each contribute an amount based on
their and a relevant percentage of the daily exposure of the (4) largest
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trading brokers which adequately reflects trading risks undertaken or
pursuant to another formula set forth in Commission rules or regulations or
order, upon application: Provided, however, That a clearing agency engaged
in the business of securities depository shall be exempt from this
requirement.
42.3. In the case of an application filed pursuant to this section, the Commission
shall grant registration if it is finds That the requirements of this code and the rules
and regulations thereunder with respect to the applicant have been satisfied, and
shall deny registration if it does not make such finding.
42.4. Upon appropriate application in accordance with the rules and regulations of
the Commission and upon such terms as the Commission may deem necessary for
the protection of investors, a clearing agency may withdraw its registration or
suspend its operation or resume the same.
Section 43. Uncertificated Securities. – Notwithstanding Section 63 of the
Corporation Code of the Philippines: 43.1. A corporation whose securities are
registered pursuant to this Code or listed on securities exchange may:
(a) If so resolved by its Board of Directors and agreed by a shareholder,
investor or securities intermediary, issue shares to, or record the transfer of
some or all its shares into the name of said shareholders, investors or,
securities intermediary in the form of uncertified securities. The use of
uncertified securities in these circumstances shall be without prejudice to
the rights of the securities intermediary subsequently to require the
corporation to issue a certificate in respect of any shares recorded in its
name; and
(b) If so provided in its articles of incorporation and by-laws, issue all of the
shares of a particular class in the form of Uncertificated securities and
subject to a condition that investors may not require the corporation to
issue a certificate in respect of any shares recorded in their name.
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43.2. The Commission by rule may allow other corporations to provide in their
articles of incorporation and by-laws for the use of uncertificated securities.
43.3. Transfers of securities, including an uncertificated securities, may be validly
made and consummated by appropriate book-entries in the securities
intermediaries, or in the stock and transfer book held by the corporation or the
stock transfer agent and such bookkeeping entries shall be binding on the parties to
the transfer. A transfer under this subsection has the effect of the delivery of a
security in bearer form or duly indorsed in blank representing the quantity or
amount of security or right transferred, including the unrestricted negotiability of
that security by reason of such delivery. However, transfer of uncertificated shares
shall only be valid, so far as the corporation is concerned, when a transfer is
recorded in the books of the corporation so as to show the names of the parties to
the transfer and the number of shares transferred.
However, nothing in this Code shall compliance by banking and other institutions
under the supervision of the Bangko Sentral ng Pilipinas and their stockholders with
the applicable ceilings on shareholding prescribed under pertinent banking laws and
regulations.
Section 44. Evidentiary Value of Clearing Agency Record. – The official records and
book entries of a clearing agency shall constitute the best evidence of such
transactions between clearing agency shall constitute the best between clearing
agency and its participants’ or members’ clients to prove their rights, title and
entitlement with respect to the book-entry security holdings of the participants or
members held on behalf of the clients. However, the corporation shall not be bound
by the foregoing transactions unless the corporate secretary is duly notified in such
manner as the Commission may provide.
Section 45. Pledging a Security or Interest Therein. – In addition to other methods
recognized by law, a pledge of, including an uncertificated security, is properly
constituted and the instrument proving the right pledged shall be considered
delivered to the creditor under Articles 2093 and 2095 of the Civil Code if a
securities intermediary indicates by book entry that such security has been credited
Nigel Carmelo Q. Reago 208

to a specially designated pledge account in favor of the pledgee. A pledge under this
subsection has the effect of the delivery of a security in bearer form or duly
indorsed in blank representing the quantity or amount of such security or right
pledged. In the case of a registered clearing agency, the procedures by which, and
the exact time at which, such book-entries are created shall be governed by the
registered clearing agency’s rules. However, the corporation shall not be bound by
the foregoing transactions unless the corporate secretary is duly notified in such
manner as the Commission may provide.
Section 46. Issuer’s Responsibility for Wrongful Transfer to Registered Clearing
Agency. - The registration of a transfer of a security into the name of and by a
registered clearing agency or its name of or by a registered clearing agency or its
nominee shall be final and conclusive unless the clearing agency had notice of an
adverse claim before the registration was made. The above provisions which the
claimant may have against the issuer for wrongful registration in such
circumstances.
Section 47. Power of the Commission With Respect to Securities Ownership. – The
Commission is authorize, having due regard to the public interest and the protection
of investors, to promulgate rules and regulations which:
47.1. Validate the transfer of securities by book-entries rather than the delivery of
physical certificates;
47.2. Establish when a person acquires a security or an interest therein and when
delivery of a security to a purchaser occurs;
47.3. Establish which records constitute the best evidence of a person’s interests in
a security and the effect of any errors in electronic records of ownership;
47.4. Codify the rights of investors who choose to hold their securities indirectly
through a registered clearing agency and/ or other securities intermediaries;
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47.5. Codify the duties of securities intermediaries (including clearing agencies) who
hold securities on behalf of investors; and
47.6 Give first priority to any claims of a registered clearing agency against a
participant arising from a failure by the participant to meet its obligations under the
clearing agency’s rules in respect of the clearing and settlement of transactions in
securities, in a dissolution of the participant, and any such rules and regulation shall
bind the issuers of the securities, investors in the securities, any third parties with
interests in the securities, and the creditors of a participant of a registered clearing
agency.
CHAPTER XII
MARGIN AND CREDIT
Section 48. Margin Requirements. – 48.1. For the purpose of preventing the
excessive use of credit for the purchase or carrying of securities, the Commission, in
accordance with the credit and monetary policies that may be promulgated from
time to time by the Monetary Board of the Bangko Sentral ng Pilipinas, shall
prescribed rules and regulations with respect to the amount of credit that may be
extended on any security. For the extension of credit, such rules and regulations
shall be based upon the following standard:
An amount not greater than the whichever is the higher of –
(a) Sixty-five per centum (65%) of the current market price of the security, or
(b) One hundred per centum (100%) of the lowest market price of the
security during the preceding thirty-six (36) calendar months, but not more
than seventy-five per centum (75%) of the current market price.
However, the Monetary Board may increase or decrease the above percentages, in
order to achieve the objectives of the Government with due regard for promotion of
the economy and prevention of the use of excessive credit.
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Such rules and regulations may make appropriate provision with respect to the
carrying of undermargined accounts for limited periods and under specified
conditions; the withdrawal of funds or securities; the transfer of accounts from one
lender to another; special or different margin requirements for delayed deliveries,
short sales, arbitrage transactions, and securities to which letter (b) of the second
paragraph of this subsection does not apply; the methods to be used in calculating
loans, and margins and market prices; and similar administrative adjustments and
details.
48.2. No member of an Exchange or broker or dealer shall, directly or indirectly,
extend or maintain credit is extended and maintain credit or arrange for the
extension or maintenance of credit to or for any customer:
(a) On any security unless such credit is extended and maintained in
accordance with the rules and regulations which the Commission shall
prescribe under this Section including rules setting credit in relation to net
capital of such member, broker or dealer; and
(b) Without collateral or any collateral other than securities, except (I) to
maintain a credit initially extended in conformity with rules and regulations
of the Commission and (ii) in cases where the extension or maintenance of
credit is not for the purpose of purchasing or carrying securities or of
evading or circumventing the provisions of paragraph (a) of this subsection.
48.3 Any person not subject to Subsection 48.2 hereof shall extend or maintain
credit or arrange for the extension or maintenance of credit for the purpose of
purchasing or carrying any security, only in accordance with such rules and
regulations as the Commission shall prescribe to prevent the excessive use of credit
for the purchasing or carrying of or trading in securities in circumvention of the
other provisions of this Section.. Such rules and regulations may impose upon all
loans made for the purpose of purchasing or carrying securities limitations similar to
those imposed upon members, brokers, or dealers by Subsection 48.2 and the rules
and regulations thereunder. This subsection and the rules and regulations
thereunder shall not apply:
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(a) To a credit extension made by a person not in the ordinary course of
business; (b) to a loan to a dealer to aid in the financing of the distribution
of securities to customers not through the medium of an Exchange; or (c) To
such other credit extension as the Commission shall exempt from the
operation of this subsection and the rules and regulations thereunder upon
specified terms and conditions for stated period.
Section 49. Restrictions on Borrowings by Members, Brokers, and Dealers. – It shall
be unlawful for any registered broker or dealer, or member of an Exchange, directly
or indirectly;
49.1. To permit in the ordinary course of business as a broker or dealer his
aggregate indebtedness including customers’ credit balances, to exceed such
percentage of the net capital (exclusive of fixed assets and value of Exchange
membership) employed in the business, but not exceeding in any case to
thousand percentum (2,000%), as the Commission may be rules and regulations
prescribe as necessary or appropriate in the public interest or for the protection of
investors.
49.2. To pledge, mortgage, or otherwise encumber or arrange for the pledge,
mortgage, or encumbrance of any security carried for the account of any customer
under circumstances: (a) That will permit the commingling of his securities, without
his written consent, with the securities of any customer; (b) That will permit such
securities to be commingled with the securities of any person other than a bona
fide customer; or (c) that will permit such securities to be pledged, mortgaged or
encumbered, or subjected to any lien or claim of the pledgee, for a sum in excess of
the aggregate indebtedness of such customers in respect of such securities.
However, the Commission, having due regard to the protection of investors, may, by
rules and regulations, allow certain transactions that may otherwise be prohibited
under this subsection.
49.3. To lend or arrange for the lending of any security carried for the account of
any customer without the written consent of such customer or in contravention of
such rules and regulations as the Commission shall prescribe.
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Section 50. Enforcement of Margin Requirement and Restrictions on Borrowing. – To
prevent indirect violations of the margin requirements under Section 48, the broker
or dealer shall require the customer in non-margin transactions to pay the price of
the security purchased for his account within such period as the Commission may
prescribe, which shall in no case exceed the prescribed settlement date. Otherwise,
the broker shall sell the security purchased starting on the next trading day but not
beyond ten (10) trading days following the last day for the customer to pay such
purchase price, unless such sale cannot be effected within said period for justifiable
reasons. The sale shall be without prejudice to the right of the broker or dealer to
recover any deficiency from the customer. To prevent indirect violation of the
restrictions on borrowing under Section 49, the broker shall, unless otherwise
directed by the customer, pay the net sales price of the securities sold for a
customer within the same period as above prescribed by the Commission: Provided,
That the customer shall be required to deliver the instruments evidencing the
securities as a condition for such payment upon demand by the broker.
CHAPTER XIII
GENERAL PROVISIONS
Section 51. Liabilities of Controlling Persons, Aider and Abettor and Other Secondary
Liability. 51.1. Every person who, by or through stock ownership, agency, or
otherwise, or in connection with an agreement or understanding with one or more
other persons, controls any person liable under this Code or the rules or regulations
of the Commission thereunder, shall also be liable jointly and severally with and to
the same extent as such controlled persons to any person to whom such controlled
person is liable, unless the controlling person proves that, despite the exercise of
due diligence on his part, he has no knowledge of the existence of the facts by
reason of which the liability of the controlled person is alleged to exist.
51.2. It shall be unlawful for any person, directly, or indirectly, to do any act or thing
which it would be unlawful for such person to do under the provisions of this Code
or any rule or regulation thereunder.
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51.2. It shall be unlawful for any director or officer of, or any owner of any securities
issued by, any issuer required to file any document, report or other information
under this Code or any rule or regulation of the Commission thereunder, without
just cause, to hinder, delay or obstruct the making or filing of any such document,
report, or information.
51.3. It shall be unlawful for any person to aid, abet, counsel, command, induce or
procure any violation of this Code, or any rule, regulation or order of the
Commission thereunder.
52.4. Every person who substantially assists the act or omission of any person
primarily liable under Sections 57, 58, 59 and 60 of this Code, with knowledge or in
reckless disregard that such act or omission is wrongful, shall be jointly and severally
liable as an aider and abettor for damages resulting from the conduct of the person
primarily liable: Provided, however, That an aider and abettor shall be liable only to
the extent of his relative contribution in causing such damages in comparison to
that of the person primarily liable, or the extent to which the aider and abettor was
unjustly enriched thereby, whichever is greater.
Section 52. Accounts and Records, Reports, Examination of Exchanges, members,
and Others. – 52.1. Every registered Exchange, broker or dealer, transfer agent,
clearing agency, securities association, and other self-regulatory organization, and
every other person required to register under this Code, shall make, keep and
preserve for such periods, records, furnish such copies thereof, and make such
reports, as the Commission by its rules and regulations may prescribe. Such
accounts, correspondence, memoranda, papers, books, and other records shall be
subject at any time to such reasonable periodic, special or other examinations by
representatives of the Commission as the Commission may deem necessary or
appropriate in the public interest of for the protection of investors.
52.2. Any brother, dealer or other person extending credit, who is subject to the
rules and regulations prescribed by the Commission pursuant to this Code, shall
make such reports to the Commission as may be necessary or appropriate to enable
it to perform the functions conferred upon it by this Code.
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52.3. For purposes of this Section, the term "records refers to accounts,
correspondence, memoranda, tapes, discs, papers, books and other documents or
transcribed information of any type, whether written or electronic in character.
Section 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.
53.2. For the purpose of any such investigation, or any other proceeding under this
Code, the Commission or any officer designated by it is empowered to administer
oaths and affirmations, subpoena witnesses, compel attendance, take evidence,
require the production of any book, paper, correspondence, memorandum, or other
record which the Commission deems relevant or material to the inquiry, and to
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perform such other acts necessary in the conduct of such investigation or
proceedings.
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.
53.4. Any person who, within his power but without cause, fails or refuses to comply
with any lawful order, decision or subpoena issued by the Commission under
Subsection 53.2 or Subsection 53.3 or Section 64 of this Code, shall after due notice
and hearing, be guilty of contempt of the Commission. Such person shall be fined in
such reasonable amount as the Commission may determine, or when such failure or
refusal is a clear and open defiance of the Commission’s order, decision
or subpoena, shall be detained under an arrest order issued by the Commission,
until such order, decision or subpoena is complied with.
Section 54. Administrative Sanctions. – 54.1. If, after due notice and hearing, the
Commission finds that: (a) There is a violation of this Code, its rule, 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
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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 their 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 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.
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54.3. The Commission shall have the power to issue writs of execution to enforce
the provisions of the Section and to enforce payment of the fees and other dues
collectible under this Code.
Section 55. Settlement Offers. – 55.1. At any time, during an investigation or
proceeding under this Code, parties being investigated and/or charged may propose
in writing an offer of settlement with the Commission.
55.2. Upon receipt of such offer of settlement, the Commission may consider the
offer based on timing, the nature of the investigation or proceeding, and the public
interest.
55.3. The Commission may only agree to a settlement offer based on its findings
that such settlement is in the public interest. Any agreement to settle shall have no
legal effect until publicly disclosed. Such decision may be made without a
determination of guilt on the part of the person making the offer.
55.4. The Commission shall adopt rules and procedures governing the filing, review,
withdrawal, form of rejection and acceptance of such offers.
Section 56. Civil Liabilities on Account of False Registration Statement. 56.1. Any
person acquiring a security, the registration statement of which or any part thereof
contains on its effectivity an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make such statements
not misleading, and who suffers damage, may sue and recover damages from the
following enumerated persons, unless it is proved that at the time of such
acquisition he knew of such untrue statement or omission:
(a) The issuer and every person who signed the registration statement:
(b) Every person who was a director of, or any other person performing
similar functions, or a partner in, the issuer at the time of the filing of the
registration statement or any part, supplement or amendment thereof with
respect to which his liability is asserted;
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(c) Every person who is named in the registration statement as being or
about to become a director of, or a person performing similar functions, or a
partner in, the issuer and whose written consent thereto is filed with the
registration statement;
(d) Every auditor or auditing firm named as having certified any financial
statements used in connection with the registration statement or
prospectus.
(e) Every person who, with his written consent, which shall be filed with the
registration statement, has been named as having prepared or certified any
part of the registration statement, or as having prepared or certified any
report or valuation which is used in connection with the registration
statement, with respect to the statement, report, or valuation, which
purports to have been prepared or certified by him.
(f) Every selling shareholder who contributed to and certified as to the
accuracy of a portion of the registration statement, with respect to that
portion of the registration statement which purports to have been
contributed by him.
(g) Every underwriter with respect to such security.
56.2. If the person who acquired the security did so after the issuer has made
generally available to its security holders an income statement covering a period of
at least twelve (12) months beginning from the effective date of the registration
statement, then the right of recovery under this subsection shall be conditioned on
proof that such person acquired the security relying upon such untrue statement in
the registration statement or relying upon the registration statement and not
knowing of such income statement, but such reliance may be established without
proof of the reading of the registration statement by such person.
Section 57. Civil Liabilities Arising in Connection With Prospectus, Communications
and Reports. 57.1. Any person who:
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(a) Offers to sell or sells a security in violation of Chapter III, or
(b) Offers to sell or sells a security, whether or not exempted by the
provisions of this Code, by the use of any means or instruments of
transportation or communication, by means of a prospectus or other
written or oral communication, which includes an untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they were made,
not misleading (the purchaser not knowing of such untruth or omission),
and who shall fail in the burden of proof that he did not know, and in the
exercise of reasonable care could not have known, of such untruth or
omission, shall be liable to the person purchasing such security from him,
who may sue to recover the consideration paid for such security with
interest thereon, less the amount of any income received thereon, upon the
tender of such security, or for damages if he no longer owns the security.
57.2. Any person who shall make or cause to be made any statement in any report,
or document filed pursuant to this Code or any rule or regulation thereunder, which
statement as at the time and in the light of the circumstances under which it was
made false or misleading with respect to any material fact, shall be liable to any
person who, not knowing that such statement was false or misleading, and relying
upon such statement shall have purchased or sold a security at a price which was
affected by such statement, for damages caused by such reliance, unless the person
sued shall prove that he acted in good faith and had no knowledge that such
statement was false or misleading.
Section 58. Civil Liability of Fraud in Connection with Securities Transactions. – Any
person who engages in any act or transaction in violation of Sections 19.2, 20 or 26,
or any rule or regulation of the Commission thereunder, shall be liable to any other
person who purchases or sells any security, grants or refuses to grant any proxy,
consent or authorization, or accepts or declines an invitation for tender of a
security, as the case may be, for the damages sustained by such other person as a
result of such act or transaction.
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Section 59. Civil Liability for Manipulation of Security Prices. – Any person who
willfully participates in any act or transaction in violation of Section 24 shall be liable
to any person who shall purchase or sell any security at a price which was affected
by such act or transaction, and the person so injured may sue to recover the
damages sustained as a result of such act or transaction.
Section 60. Civil Liability with Respect to Commodity Futures Contracts and Pre-need
Plans. – 60.1. Any person who engages in any act or transactions in willful violation
of any rule or regulation promulgated by the Commission under Section 11 or 16,
which the Commission denominates at the time of issuance as intended to prohibit
fraud in the offer and sale of pre-need plans or to prohibit fraud, manipulation,
fictitious transactions, undue speculation, or other unfair or abusive practices with
respect to commodity future contracts, shall be liable to any other person sustaining
damages as a result of such act or transaction.
60.2. As to each such rule or regulation so denominated, the Commission by rule
shall prescribe the elements of proof required for recovery and any limitations on
the amount of damages that may be imposed.
Section 61. Civil Liability on Account of Insider Trading. – 61.1. Any insider who
violates Subsection 27.1 and any person in the case of a tender offer who violates
Subsection 27.4 (a)(I), or any rule or regulation thereunder, by purchasing or selling
a security while in possession of material information not generally available to the
public, shall be liable in a suit brought by any investor who, contemporaneously with
the purchase or sale of securities that is the subject of the violation, purchased or
sold securities of the same class unless such insider, or such person in the case of a
tender offer, proves that such investor knew the information or would have
purchased or sold at the same price regardless of disclosure of the information to
him.
61.2. An insider who violates Subsection 27.3 or any person in the case of a tender
offer who violates Subsection 27.4 (a), or any rule or regulation thereunder, by
communicating material nonpublic information, shall be jointly and severally liable
under Subsection 61.1 with, and to the same extent as, the insider, or person in the
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case of a tender offer, to whom the communication was directed and who is liable
under Subsection 61.1 by reason of his purchase or sale of a security.
Section 62. Limitation of Actions. – 62.1. No action shall be maintained to enforce
any liability created under Section 56 or 57 of this Code unless brought within two
(2) years after the discovery of the untrue statement or the omission, or, if the
action is to enforce a liability created under Subsection 57.1 (a), unless, brought
within two (2) yeas after the violation upon which it is based. In no event shall an
such action be brought to enforce a liability created under Section 56 or Subsection
57.1 (a) more than five (5) years after the security was bona fide offered to the
public, or under Subsection 57.1 (b0 more than five (5) years after the sale.
62.2. No action shall be maintained to enforce any liability created under any other
provision of this Code unless brought within two (20 years after the discovery of the
facts constituting the cause of action and within five (5) years after such cause of
action accrued.
Section 63. Amount of Damages to be Awarded. – 63.1. All suits to recover damages
pursuant to Sections 56, 57, 58, 59, 60 and 61 shall be brought before the Regional
Trial Court, which shall have exclusive jurisdiction to hear and decide such suits. The
Court is hereby authorized to award damages in an amount not exceeding triple the
amount of the transaction plus actual damages.
Exemplary damages may also be awarded in cases of bad faith, fraud, malevolence
or wantonness in the violation of this Code or the rules and regulations promulgated
thereunder.
The Court is also authorized to award attorney’s fees not exceeding
thirty percentum (30%) of the award.
63.2. The persons specified in Sections 56, 57, 58, 59, 60 and 61 hereof shall be
jointly and severally liable for the payment of damages. However, any person who
becomes liable for the payment of such damages may recover contribution from any
other person who, if sued separately, would have been liable to make the same
Nigel Carmelo Q. Reago 215

payment, unless the former was guilty of fraudulent representation and the latter
was not.
63.3. Notwithstanding any provision of law to the contrary, all persons, including the
issuer, held liable under the provisions of Sections 56, 57, 58, 59, 60 and 61 shall
contribute equally to the total liability adjudged herein. In no case shall the principal
stockholders, directors and other officers of the issuer or persons occupying similar
positions therein, recover their contribution to the liability from the issuer.
However, the right of the issuer to recover from the guilty parties the amount it has
contributed under this Section shall not be prejudiced.
Section 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 issue 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.
Section 65. Substituted Service Upon the Commission. – Service of summons or
other process shall be made upon the Commission in actions or legal proceedings
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against an issuer or any person liable under this Code who is not domiciled in the
Philippines. Upon receipt by the Commission of such summons, the Commission
shall within ten (10) days thereafter, transmit by registered mail a copy of such
summons and the complaint or other legal process to such issuer or person at his
last known address or principal office. The sending thereof by the Commission, the
expenses for which shall be advanced by the party at whose instance it is made,
shall complete such service.
Section 66. Revelation of Information Filed with the Commission. – 66.1. All
information filed with the commission in compliance with the requirements of this
Code shall be made available to any member of the general public, upon request, in
the premises and during regular office hours of the Commission, except as set forth
in this Section.
66.2. Nothing in this Code shall be construed to require, or to authorize the
Commission to require, the revealing of trade secrets or processes in any
application, report, or document filed with the Commission.
66.3. Any person filing any such application, report or document may make written
objection to the public disclosure of information contained therein, stating the
grounds for such objection, and the Commission may hear objections as it deems
necessary. The Commission may, in such cases, make available to the public the
information contained in any such application, report, or document only when a
disclosure of such information is required in the public interest or for the protection
of investors; and copies of information so made available may be furnished to any
person having a legitimate interest therein at such reasonable charge and under
such reasonable limitations as the Commission may prescribe.
66.4. It shall be unlawful for any member, officer, or employee of the Commission to
disclose to any person other than a member, officer or employee of the Commission
or to use for personal benefit, any information contained in any application, report,
or document filed with the Commission which is not made available to the public
pursuant to Subsection 66.3.
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66.5. Notwithstanding anything in Subsection 66.4 to the contrary, on request from
a foreign enforcement authority of any country whose laws grant reciprocal
assistance as herein provided, the Commission may provide assistance in
accordance with this subsection, including the disclosure of any information filed
with or transmitted to the Commission. If the requesting authority states that it is
conducting an investigation which it deems necessary to determine whether any
person has violated, is violating, or is about to violate any laws relating to securities
or commodities matters that the requesting authority administers or enforces. Such
assistance may be provided without regard to whether the facts stated in the
request would also constitute a violation of law of the Philippines.
Section 67. Effect of action of Commission and Unlawful Representations with
Respect Thereto. – 67.1. No action or failure to act by the Commission in the
administration of this Code shall be construed to mean that the Commission has in
any way passed upon the merits of or given approval to any security or any
transactions or transactions therein, nor shall such action or failure to act with
regard to any statement or report filed with or examined by the Commission
pursuant to this Code or the rules and regulations thereunder to be deemed a
finding by the Commission that such statements or report is true and accurate on its
face or that it is not false or misleading. It shall be unlawful to make, or cause to be
made, to any prospective purchaser or seller or a security any representation that
any such action or failure to act by the Commission is to be so construed or has such
effect.
67.2. Nothing contained in Subsection 67.1 shall, however, be construed as an
exemption from liability of an employee or officer of the Commission for any
nonfeasance, misfeasance or malfeasance in the discharge of his official duties.
Section 68. Special Accounting Rules. – The Commission shall have the authority to
make, amend, and rescind such accounting rules and regulations as may be
necessary to carry out the provisions of this Code, including rules and regulations as
may be necessary to carry out the provisions of this Code, including rules and
regulations governing registration statements and prospectuses for various classes
of securities and issuers, and defining accounting, technical and trade terms used in
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this Code. Among other things, the Commission may prescribe the form or forms in
which required information shall be set forth, the items or details to be shown in the
balance sheet and income statement, and the methods to be followed in the
preparation of accounts, appraisal or valuation of assets and liabilities,
determination of depreciation and depletion, differentiation of recurring and non-
recurring income, differentiation of investment and operating income, and in the
preparation, where the Commission deems it necessary or desirable of consolidated
balance sheets or income accounts of any person directly or indirectly controlling or
controlled by the issuer, or any person under direct or indirect common control with
the issuer.
Section 69. Effect on Existing Law. – The rights and remedies provided by this Code
shall be in addition to any and all order rights and remedies that may now exist.
However, except as provided in Section 56 and 63 hereof, no person permitted to
maintain a suit for damages under the provisions of this Code shall recover, through
satisfaction of judgment in one or more actions, a total amount in excess of his
actual damages on account of the act complained of: Provided, That exemplary
damages may be awarded in cases of bad faith, fraud, malevolence or wantonness
in the violation of this Code or the rules and regulations promulgated thereunder.
Section 70. Judicial Review of Commission Orders. – Any person aggrieved by an
order of the Commission may appeal the order to the Court of Appeals by petition
for review in accordance with the pertinent provisions of the Rules of Court.
Section 71. Validity of Contracts. – 71.1. Any condition, stipulation, provision
binding any person to waive compliance with any provision of this Code or of any
rule or regulation thereunder, or of any rule of an Exchange required thereby, as
well as the waiver itself, shall be void.
71.2. Every contract made in violation of any provision of this Code or of any rule or
regulation thereunder, and every contract, including any contract for listing a
security or an Exchange heretofore or hereafter made, the performance of which
involves the violation of, or the continuance of any relationship or practice in
Nigel Carmelo Q. Reago 217

violation of, any provision of this Code, or any rule or regulation thereunder, shall be
void:
(a) As regards the rights of any person who, in violation of any such
provision, rule or regulation, shall have made or engaged in the
performance of any such contract, and
(b) As regards the rights of any person who, not being a party to such
contract, shall have acquired any right thereunder with actual knowledge of
the facts by reason of which the making or performance of such contract
was in violation of any such provision, rule or regulation.
71.3. Nothing in this Code shall be construed:
(a) To affect the validity of any loan or extension of credit made or of any
lien created prior or subsequent to the effectivity of this Code, unless at the
time of the making of such loan or extension of credit or the creating of
such lien, the person making such loan or extension of credit or acquiring
such lien shall have actual knowledge of the facts by reason of which the
making of such loan or extension of credit or the acquisition of such lien is a
violation of the provisions of this Code or any rules or regulations
thereunder, or
(b) To afford a defense to the collection of any debt, obligation or the
enforcement of any lien by any person who shall have acquired such debt,
obligation or lien in good faith for value and without actual knowledge of
the violation of any provision of this Code or any rule or regulation
thereunder affecting the legality of such debt, obligation or lien.
Section 72. Rules and Regulations; Effectivity. – 72.1. This Code shall be self-
executory. To effect the provisions and purposes of this Code, the Commission may
issue, amend, and rescind such rules and regulations and orders necessary or
appropriate, including rules and regulations defining accounting, technical, and
trade terms used in this Code, and prescribing the form or forms in which
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information required in registration statements, applications, and reports to the
Commission shall be set forth. For purposes of its rules or regulations, the
Commission may classify persons, securities, and other matters within its
jurisdiction, prescribe different requirements for different classes of persons,
securities, or matters, and by rule or order, conditionally or unconditionally exempt
any person, security, or transaction, or class or classes of persons, securities or
transactions, from any or all provisions of this Code.
Failure on the part of the Commission to issue rules and regulations shall not in any
manner affect the self-executory nature of this Code.
72.2. The Commission shall promulgate rules and regulations providing for
reporting, disclosure and the prevention of fraudulent, deceptive or manipulative
practices in connection with the purchase by an issuer, by tender offer or otherwise,
of and equity security of a class issued by it that satisfies the requirements of
Subsection 17.2. such rules and regulations may require such issuer to provide
holders of equity securities of such dates with such information relating to the
reasons for such purchase, the source of funds, the number of shares to be
purchased, the price to be paid for such securities, the method of purchase and such
additional information as the Commission deems necessary or appropriate in the
public interest or for the protection of investors, or which the Commission deems to
be material to a determination by holders whether such security should be sold.
72.3. For the purpose of Subsection 72.2, a purchase by or for the issuer or any
person controlling, controlled by, or under common control with the issuer, or a
purchase subject to the control of the issuer or any such person, shall be deemed to
be a purchased by the issuer. The commission shall have the power to make rules
and regulations implementing this subsection, including exemptive rules and
regulations covering situations in which the Commission deems it unnecessary or
inappropriate that a purchase of the type described in this subsection shall be
deemed to be a purchase by the issuer for the purpose of some or all of the
provisions of Subsection 72.2.
Nigel Carmelo Q. Reago 218

72.4. The rules and regulations promulgated by the Commission shall be published
in two (20 newspapers or general circulation in the Philippines, and unless
otherwise prescribed by the Commission, the same shall be effective fifteen (15)
days after the date of the last publication.
Section 73. Penalties. – Any person who violates any of the provisions of this Code,
or the rules and regulations promulgated by the Commission under authority
thereof, or any person who, in a registration statement filed under this Code, makes
any untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
shall, upon conviction, suffer a fine of not less than Fifty thousand pesos
(P50,000.00) nor more than Five million pesos (P5,000,000.00) or imprisonment of
not less than seven (7) years nor more than twenty-one (21) years, or both in the
discretion of the court. If the offender is a corporation, partnership or association or
other juridical entity, the penalty may in the discretion of the court be imposed
upon such juridical entity and upon the officer or officers of the corporation,
partnership, association or entity responsible for the violation, and if such officer is
an alien, he shall in addition to the penalties prescribed, be deported without
further proceedings after service of sentence.
Section 74. Transitory Provisions. – The Commission, as organized under existing
laws, shall continue to exist and exercise its powers, functions and duties under such
laws and this Code: Provided, That until otherwise mandated by a subsequent law,
the Commission shall continue to regulate and supervise commodity futures
contracts as provided in Section 11 and pre-need plans and the pre-need industry as
provided in Section 16 of this Code.
All further requirements herein shall be complied with upon approval of this
Code: Provided, however, That compliance may be deferred for such reasonable
time as the Commission may determine but not to exceed one (1) year from
approval of this Code: Provided, further, That securities which are being offered at
the time of effectivity of this Code pursuant to an effective registration and permit,
may continue to be offered and sold in accordance with the provisions of the
Revised Securities Act in effect immediately prior to approval of this Code.
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All unexpended funds for the calendar year, properties, equipment and records of
the Securities and Exchange Commission are hereby retained by the Commission as
reorganized under this Code and the amount of Two hundred million pesos
(P200,000,000.00) or such amount necessary to carry out the reorganization
provided in this Code is hereby appropriated.
All employees of the Commission who voluntarily retire or are separated from the
service with the Commission and whose retirement or separation has been
approved by the Commission, shall be paid retirement or separation benefits and
other entitlement granted under existing laws.
Section 75. Partial Use of Income. – To carry out the purposes of this Code, the
Commission is hereby authorized, in addition to its annual budget, to retain and
utilize an amount equal to One hundred million pesos (P100,000,000.00) from its
income.
The use of such additional amount shall be subject to the auditing requirements,
standards and procedures under existing laws.
Section 76. Repealing Clause. – The Revised Securities Act (Batas Pambansa Blg.
178), 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.
Section 77. Separability Clause. – if any portion or provision of this Code is declared
unconstitutional or invalid, the other portions or provisions hereof, which are not
affected thereby shall continue in full force and effect.
Section 78. Effectivity. – This Code shall take effect fifteen (15) days after its
publication in the Official Gazette or in two (2) newspapers of general circulation.
Approved: July 19, 2000
Nigel Carmelo Q. Reago 219
 COMMERCIAL LAW 2018

(c) Thrift banks, composed of: (i) Savings and mortgage banks, (ii) Stock
savings and loan associations, and (iii) Private development banks, as
REPUBLIC ACT NO. 8791 May 23, 2000 defined in the Republic Act No. 7906 (hereafter the "Thrift Banks Act");

(d) Rural banks, as defined in Republic Act No. 73S3 (hereafter the "Rural
AN ACT PROVIDING FOR THE REGULATION OF THE Banks Act");
ORGANIZATION AND OPERATIONS OF BANKS, QUASI-
(e) Cooperative banks, as defined in Republic Act No 6938 (hereafter the
BANKS, TRUST ENTITIES AND FOR OTHER PURPOSES "Cooperative Code");

CHAPTER I (f) Islamic banks as defined in Republic Act No. 6848, otherwise known as
TITLE AND CLASSIFICATION OF BANKS the "Charter of Al Amanah Islamic Investment Bank of the Philippines"; and

Section 1. Title. The short title of this Act shall be "The General Banking Law of (g) Other classifications of banks as determined by the Monetary Board of
2000." (1a) the Bangko Sentral ng Pilipinas. (6-Aa)

Section 2. Declaration Of Policy. - The State recognizes the vital role of banks CHAPTER II
providing an environment conducive to the sustained development of the national AUTHORITY OF THE BANGKO SENTRAL
economy and the fiduciary nature of banking that requires high standards of
integrity and performance. In furtherance thereof, the State shall promote and Section 4. Supervisory Powers. The operations and activities of banks shall be
maintain a stable and efficient banking and financial system that is globally subject to supervision of the Bangko Sentral. "Supervision" shall include the
competitive, dynamic and responsive to the demands of a developing economy. (n) following:

Section 3. Definition and Classification of Banks. - 4.1. The issuance of rules of, conduct or the establishment standards of operation
for uniform application to all institutions or functions covered, taking into
3.1. "Banks" shall refer to entities engaged in the lending of funds obtained in the consideration the distinctive character of the operations of institutions and the
form of deposits. (2a) substantive similarities of specific functions to which such rules, modes or standards
are to be applied;
3.2. Banks shall be classified into:
4.2 The conduct of examination to determine compliance with laws and regulations
(a) Universal banks; if the circumstances so warrant as determined by the Monetary Board;

(b) Commercial banks; 4.3 Overseeing to ascertain that laws and regulations are complied with;

Nigel Carmelo Q. Reago 220


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. (n)
The Bangko Sentral shall also have supervision over the operations of and exercise
regulatory powers over quasi-banks, trust entities and other financial institutions
which under special laws are subject to Bangko Sentral supervision. (2-Ca)
For the purposes of this Act, "quasi-banks" shall refer to entities engaged in the
borrowing of funds through the issuance, endorsement or assignment with recourse
or acceptance of deposit substitutes as defined in Section 95 of Republic Act No.
7653 (hereafter the "New Central Bank Act") for purposes of re-lending or
purchasing of receivables and other obligations. (2-Da)
Section 5. Policy Direction; Ratios, Ceilings and Limitations. - The Bangko Sentral
shall provide policy direction in the areas of money, banking and credit. (n)
For this purpose, the Monetary Board may prescribe ratios, ceilings, limitations, or
other forms of regulation on the different types of accounts and practices of banks
and quasi-banks which shall, to the extent feasible, conform to internationally
accepted standards, including of the Bank for International Settlements (BIS). The
Monetary Board may exempt particular categories of transactions from such ratios,
ceilings. and limitations, but not limited to exceptional cases or to enable a bank or
quasi-bank under rehabilitation or during a merger or consolidation to continue in
business, with safety to its creditors, depositors and the general public. (2-Ca)
Section 6. Authority to Engage in Banking and Quasi-Banking Functions. - No person
or entity shall engage in banking operations or quasi-banking functions without
authority from the Bangko Sentral: .Provided, however, That an entity authorized by
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the Bangko Sentral to perform universal or commercial banking functions shall
likewise have the authority to engage in quasi-banking functions.
The determination of whether a person or entity is performing banking or quasi-
banking functions without Bangko Sentral authority shall be decided by the
Monetary Board. To resolve such issue, the Monetary Board may; through the
appropriate supervising and examining department of the Bangko Sentral, examine,
inspect or investigate the books and records of such person or entity. Upon issuance
of this authority, such person or entity may commence to engage in banking
operations or quasi-banking function and shall continue to do so unless such
authority is sooner surrendered, revoked, suspended or annulled by the Bangko
Sentral in accordance with this Act or other special laws.
The department head and the examiners of the appropriate supervising and
examining department are hereby authorized to administer oaths to any such
person, employee, officer, or director of any such entity and to compel the
presentation or production of such books, documents, papers or records that are
reasonably necessary to ascertain the facts relative to the true functions and
operations of such person or entity. Failure or refusal to comply with the required
presentation or production of such books, documents, papers or records within a
reasonable time shall subject the persons responsible therefore to the penal
sanctions provided under the New Central Bank Act.
Persons or entities found to be performing banking or quasi-banking functions
without authority from the Bangko Sentral shall be subject to appropriate sanctions
under the New Central Bank Act and other applicable laws. (4a)
Section 7. Examination by the Bangko Sentral. - The Bangko Sentral shall, when
examining a bank, have the authority to examine an enterprise which is wholly or
majority-owned or controlled by the bank. (2-Ba)
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CHAPTER III
ORGANIZATION, MANAGEMENT AND ADMINISTRATION OF BANKS. QUASI-BANKS
AND TRUST ENTITIES
Section 8. Organization. - The Monetary Board may authorize the organization of a
bank or quasi-bank subject to the following conditions:
8.1 That the entity is a stock corporation (7);
8.2 That its funds are obtained from the public, which shall mean twenty (20) or
more persons (2-Da); and
8.3 That the minimum capital requirements prescribed by the Monetary Board for
each category of banks are satisfied. (n)
No new commercial bank shall be established within three (3) years from the
effectivity of this Act. In the exercise of the authority granted herein, the Monetary
Board shall take into consideration their capability in terms of their financial
resources and technical expertise and integrity. The bank licensing process shall
incorporate an assessment of the bank's ownership structure, directors and senior
management, its operating plan and internal controls as well as its projected
financial condition and capital base.
Section 9. Issuance of Stocks. - The Monetary Board may prescribe rules and
regulations on the types of stock a bank may issue, including the terms thereof and
rights appurtenant thereto to determine compliance with laws and regulations
governing capital and equity structure of banks; Provided, That banks shall issue par
value stocks only.
Section 10. Treasury Stocks. - No bank shall purchase or acquire shares of its own
capital stock or accept its own shares as a security for a loan, except when
authorized by the Monetary Board: Provided, That in every case the stock so
purchased or acquired shall, within six (6) months from the time of its purchase or
acquisition, be sold or disposed of at a public or private sale. (24a)
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Section 11. Foreign Stockholdings. - Foreign individuals and non-bank corporations
may own or control up to forty percent (40%) of the voting stock of a domestic
bank. This rule shall apply to Filipinos and domestic non-bank corporations. (12a;
12-Aa) The percentage of foreign-owned voting stocks in a bank shall be determined
by the citizenship of the individual stockholders in that bank. The citizenship of the
corporation which is a stockholder in a bank shall follow the citizenship of the
controlling stockholders of the corporation, irrespective of the place of
incorporation. (n)
Section 12. Stockholdings of Family Groups of Related Interests. - Stockholdings of
individuals related to each other within the fourth degree of consanguinity or
affinity, legitimate or common-law, shall be considered family groups or related
interests and must be fully disclosed in all transactions by such corporations or
related groups of persons with the bank. (12-Ba)
Section 13. Corporate Stockholdings. - Two or more corporations owned or
controlled by the same family group or same group of persons shall be considered
related interests and must be fully disclosed in all transactions by such corporations
or related group of persons with the bank. (12-Ba)
Section 14. Certificate of Authority to Register. - The Securities and Exchange
Commission shall no register the articles of incorporation of any bank, or any
amendment thereto, unless accompanied by a certificate of authority issued by the
Monetary Board, under it seal. Such certificate shall not be issued unless the
Monetary Board is satisfied from the evidence submitted to it:
14.1 That all requirements of existing laws and regulations to engage in the business
for which the applicant is proposed to be incorporated have been complied with;
14.2 That the public interest and economic conditions, both general and local, justify
the authorization; and
Nigel Carmelo Q. Reago 222

14.3 That the amount of capital, the financing, organization, direction and
administration, as well as the integrity and responsibility of the organizers and
administrators reasonably assure the safety of deposits and the public interest. (9)
The Securities and Exchange Commission shall not register the by-laws of any bank,
or any amendment thereto, unless accompanied by a certificate of authority from
the Bangko Sentral. (10)
Section 15. Board of Directors. - The provisions of the Corporation Code to the
contrary notwithstanding, there shall be at least five (5), and a maximum of fifteen
(15) members of the board or directors of a bank, two (2) of whom shall be
independent directors. An "independent director" shall mean a person other than
an officer or employee of the bank, its subsidiaries or affiliates or related interests.
(n) Non-Filipino citizens may become members of the board of directors of a bank to
the extent of the foreign participation in the equity of said bank. (Sec. 7, RA 7721)
The meetings of the board of directors may be conducted through modern
technologies such as, but not limited to, teleconferencing and video-conferencing.
(n)
Section 16. Fit and Proper Rule. - To maintain the quality of bank management and
afford better protection to depositors and the public in general the Monetary Board
shall prescribe, pass upon and review the qualifications and disqualifications of
individuals elected or appointed bank directors or officers and disqualify those
found unfit. After due notice to the board of directors of the bank, the Monetary
Board may disqualify, suspend or remove any bank director or officer who commits
or omits an act which render him unfit for the position. In determining whether an
individual is fit and proper to hold the position of a director or officer of a bank,
regard shall be given to his integrity, experience, education, training, and
competence. (9-Aa)
Section 17. Directors of Merged or Consolidated Banks. - In the case of a bank
merger or consolidation, the number of directors shall not exceed twenty-one (21).
(l3a)
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Section 18. Compensation and Other Benefits of Directors and Officers. To protect
the finds of depositors and creditors the Monetary Board may regulate the payment
by the bark to its directors and officers of compensation, allowance, fees, bonuses,
stock options, profit sharing and fringe benefits only in exceptional cases and when
the circumstances warrant, such as but not limited to the following:
18.1. When a bank is under comptrollership or conservatorship; or
18.2. When a bank is found by the Monetary Board to be conducting business in an
unsafe or unsound manner; or
18.3. When a bank is found by the Monetary Board to be in an unsatisfactory
financial condition. (n)
Section 19. Prohibition on Public Officials. - Except as otherwise provided in the
Rural Banks Act, no appointive or elective public official whether full-time or part-
time shall at the same time serve as officer of any private bank, save in cases where
such service is incident to financial assistance provided by the government or a
government owned or controlled corporation to the bank or unless otherwise
provided under existing laws. (13)
Section 20. Bank Branches. - Universal or commercial banks may open branches or
other offices within or outside the Philippines upon prior approval of the Bangko
Sentral. Branching by all other banks shall be governed by pertinent laws.
A bank may, subject to prior approval of the Monetary Board, use any or all of its
branches as outlets for the presentation and/or sale of the financial products of its
allied undertaking or of its investment house units. A bank authorized to establish
branches or other offices shall be responsible for all business conducted in such
branches and offices to the same extent and in the same manner as though such
business had all been conducted in the head office. A bank and its branches and
offices shall be treated as one unit. (6-B; 27)
Nigel Carmelo Q. Reago 223

Section 21. Banking Days and Hours. - Unless otherwise authorized by the Bangko
Sentral in the interest of the banking public, all banks including their branches and
offices shall transact business on all working days for at least six (6) hours a day. In
addition, banks or any of their branches or offices may open for business on
Saturdays, Sundays or holidays for at least three (3) hours a day: Provided, That
banks which opt to open on days other than working days shall report to the Bangko
Sentral the additional days during which they or their branches or offices shall
transact business. For purposes of this Section, working days shall mean Mondays to
Fridays, except if such days are holidays. (6-Ca)
Section 22. Strikes and Lockouts. - The banking industry is hereby declared as
indispensable to the national interest and, notwithstanding the provisions of any
law to the contrary, any strike or lockout involving banks, if unsettled after seven (7)
calendar days shall be reported by the Bangko Sentral to the secretary of Labor who
may assume jurisdiction over the dispute or decide it or certify the sane to the
National Labor Relations Commission for compulsory arbitration. However, the
President of the Philippines may at any time intervene and assume jurisdiction over
such labor dispute in order to settle or terminate the same. (6-E)
CHAPTER IV
DEPOSITS. LOANS AND OTHER OPERATIONS
Article I
Operations Of Universal Banks
Section 23. Powers of a Universal Bank - A universal bank shall have the authority to
exercise, in addition to the powers authorized for a commercial bank in Section 29,
the powers of an investment house as provided in existing laws and the power to
invest in non-allied enterprises as provided in this Act. (21-B)
Section 24. Equity Investments of a Universal Bank. - A universal bank may, subject
to the conditions stated in the succeeding paragraph, invest in the equities of allied
and non-allied enterprises as may be determined by the Monetary Board. Allied
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enterprises may either be financial or non-financial. Except as the Monetary Board
may otherwise prescribe:
24.1. The total investment in equities of allied and non-allied enterprises shall not
exceed fifty percent (50%) of the net worth of the bank; and
24.2. The equity investment in any one enterprise, whether allied or non-allied, shall
not exceed twenty-five percent (25%) of the net worth of the bank.
As used in this Act, "net worth" shall mean the total of the unimpaired paid-in
capital including paid-in surplus, retained earnings and undivided profit, net of
valuation reserves and other adjustments as may be required by the Bangko Sentral.
The acquisition of such equity or equities is subject to the prior approval of the
Monetary Board which shall promulgate appropriate guidelines to govern such
investments. (21-Ba)
Section 25. Equity Investments of a Universal Bank in Financial Allied Enterprises. - A
universal bank can own up to one hundred percent (100%) of the equity in a thrift
bank, a rural bank or a financial allied enterprise. A publicly-listed universal or
commercial bank may own up to one hundred percent (100%) of the voting stock of
only one other universal or commercial bank. (21-B; 21-Ca)
Section 26. Equity Investments of a Universal Bank in Non-Financial Allied
Enterprises. - A universal bank may own up to one hundred percent (100%) of the
equity in a non-financial allied enterprise. (21-Ba)
Section 27. Equity Investments of a Universal Bank in Non-Allied Enterprises. - The
equity investment of a universal bank, or of its wholly or majority-owned
subsidiaries, in a single non-allied enterprise shall not exceed thirty-five percent
(35%) of the total equity in that enterprise nor shall it exceed thirty-five percent
(35%) of the voting stock in that enterprise. (21-B)
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Section 28. Equity Investments in Quasi-Banks. - To promote competitive conditions
in financial markets, the Monetary Board may further limit to forty percent (40%)
equity investments of universal banks in quasi-banks. This rule shall also apply in the
case of commercial banks. (12-E) Article II. Operations Of Commercial Banks
Section 29. Powers of a Commercial Bank. - A commercial bank shall have, in
addition to the general powers incident to corporations, all such powers as may be
necessary to carry on the business of commercial banking such as accepting drafts
and issuing letters of credit; discounting and negotiating promissory notes, drafts,
bills of exchange, and other evidences of debt; accepting or creating demand
deposits; receiving other types of deposits and deposit substitutes; buying and
selling foreign exchange and gold or silver bullion; acquiring marketable bonds and
other debt securities; and extending credit, subject to such rules as the Monetary
Board may promulgate. These rules may include the determination of bonds and
other debt securities eligible for investment, the maturities and aggregate amount
of such investment.
Section 30. Equity Investments of a Commercial Bank. - A commercial bank may,
subject to the conditions stated in the succeeding paragraphs, invest only in the
equities of allied enterprises as may be determined by the Monetary Board. Allied
enterprises may either be financial or non-financial. Except as the Monetary Board
may otherwise prescribe:
30.1. The total investment in equities of allied enterprises shall not exceed thirty-
five percent (35%) of the net worth of the bark; and
30.2. The equity investment in any one enterprise shall not exceed twenty-five
percent (25%) of tile net worth of the bank. The acquisition of such equity or
equities is subject to the prior approval of the Monetary Board which shall
promulgate appropriate guidelines to govern such investment.(2lA-a; 21-Ca)
Section 31. Equity Investments of a Commercial Bank in Financial Allied Enterprises. -
A commercial bank may own up to one hundred percent (100%) of the equity of a
thrift bank or a rural bank. Where the equity investment of a commercial bank is in
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other financial allied enterprises, including another commercial bank, such
investment shall remain a minority holding in that enterprise. (21-Aa; 21-Ca)
Section 32. Equity Investments of a Commercial Bank in Non-Financial Allied
Enterprises. A commercial bank may own up to one hundred percent (100%) of the
equity in a non-financial allied enterprise. (21-Aa) Article III. Provisions Applicable To
All Banks, Quasi-Banks, And Trust Entities
Section 33. Acceptance of Demand Deposits. - A bank other than a universal or
commercial bank cannot accept or create demand deposits except upon prior
approval of, and subject to such conditions and rules as may be prescribed by the
Monetary Board. (72-Aa)
Section 34. Risk-Based Capital. - The Monetary Board shall prescribe the minimum
ratio which the net worth of a bank must bear to its total risk assets which may
include contingent accounts. For purposes of this Section, the Monetary Board may
require such ratio be determined on the basis of the net worth and risk assets of a
bank and its subsidiaries, financial or otherwise, as well as prescribe the
composition and the manner of determining the net worth and total risk assets of
banks and their subsidiaries: Provided, That in the exercise of this authority, the
Monetary Board shall, to the extent feasible conform to internationally accepted
standards, including those of the Bank for International Settlements(BIS), relating to
risk-based capital requirements: Provided further, That it may alter or suspend
compliance with such ratio whenever necessary for a maximum period of one (1)
year: Provided, finally, That such ratio shall be applied uniformly to banks of the
same category. In case a bank does not comply with the prescribed minimum ratio,
the Monetary Board may limit or prohibit the distribution of net profits by such
bank and may require that part or all of the net profits be used to increase the
capital accounts of the bank until the minimum requirement has been met The
Monetary Board may, furthermore, restrict or prohibit the acquisition of major
assets and the making of new investments by the bank, with the exception of
purchases of readily marketable 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
Nigel Carmelo Q. Reago 225

Republic of the Philippines, until the minimum required capital ratio has been
restored. In case of a bank merger or consolidation, or when a bank is under
rehabilitation under a program approved by the Bangko Sentral, Monetary Board
may temporarily relieve the surviving bank, consolidated bank, or constituent bank
or corporations under rehabilitation from full compliance with the required capital
ratio under such conditions as it may prescribe. Before the effectivity of rules which
the Monetary Board is authorized to prescribe under this provision, Section 22 of
the General Banking Act, as amended, Section 9 of the Thrift Banks Act, and all
pertinent rules issued pursuant thereto, shall continue to be in force. (22a)
Section 35. Limit on Loans, Credit Accommodations and Guarantees
35.1 Except as the Monetary Board may otherwise prescribe for reasons of national
interest, the total amount of loans, credit accommodations and guarantees as may
be defined by the Monetary Board that may be extended by a bank to any person,
partnership, association, corporation or other entity shall at no time exceed twenty
percent (20%) of the net worth of such bank. The basis for determining compliance
with single borrower limit is the total credit commitment of the bank to the
borrower.
35.2. Unless the Monetary Board prescribes otherwise, the total amount of loans,
credit accommodations and guarantees prescribed in the preceding paragraph may
be increased by an additional ten percent (10%) of the net worth of such bank
provided the additional liabilities of any borrower are adequately secured by trust
receipts, shipping documents, warehouse receipts or other similar documents
transferring or securing title covering readily marketable, non-perishable goods
which must be fully covered by insurance.
35.3 The above prescribed ceilings shall include (a) the direct liability of the maker
or acceptor of paper discounted with or sold to such bank and the liability of a
general endorser, drawer or guarantor who obtains a loan or other credit
accommodation from or discounts paper with or sells papers to such bank; (b) in the
case of an individual who owns or controls a majority interest in a corporation,
partnership, association or any other entity, the liabilities of said entities to such
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bank; (c) in the case of a corporation, all liabilities to such bank of all subsidiaries in
which such corporation owns or controls a majority interest; and (d) in the case of a
partnership, association or other entity, the liabilities of the members thereof to
such bank.
35.4. Even if a parent corporation, partnership, association, entity or an individual
who owns or controls a majority interest in such entities has no liability to the bank,
the Monetary Board may prescribe the combination of the liabilities of subsidiary
corporations or members of the partnership, association, entity or such individual
under certain circumstances, including but not limited to any of the following
situations: (a) the parent corporation, partnership, association, entity or individual
guarantees the repayment of the liabilities; (b) the liabilities were incurred for the
accommodation of the parent corporation or another subsidiary or of the
partnership or association or entity or such individual; or (c) the subsidiaries though
separate entities operate merely as departments or divisions of a single entity.
35.5. For purposes of this Section, loans, other credit accommodations and
guarantees shall exclude: (a) loans and other credit accommodations secured by
obligations of the Bangko Sentral or of the Philippine Government: (b) loans and
other credit accommodations fully guaranteed by the government as to the
payment of principal and interest; (c) loans and other credit accommodations
covered by assignment of deposits maintained in the lending bank and held in the
Philippines; (d) loans, credit accommodations and acceptances under letters of
credit to the extent covered by margin deposits; and (e) other loans or credit
accommodations which the Monetary Board may from time to time, specify as non-
risk items.
35.6. Loans and other credit accommodations, deposits maintained with, and usual
guarantees by a bank to any other bank or non-bank entity, whether locally or
abroad, shall be subject to the limits as herein prescribed.
35.7. Certain types of contingent accounts of borrowers may be included among
those subject to these prescribed limits as may be determined by the Monetary
Board.(23a)
Nigel Carmelo Q. Reago 226

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, endorser 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. (83a)
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Section 37. Loans and Other Credit Accommodations Against Real Estate. - Except as
the Monetary Board may otherwise prescribe, loans and other credit
accommodations against real estate shall not exceed seventy-five percent (75%) of
the appraised value of the respective real estate security, plus sixty percent (60%) of
the appraised value of the insured improvements, and such loans may be made to
the owner of the real estate or to his assignees. (78a)
Section 38. Loans And Other Credit Accommodations on Security of Chattels and
Intangible Properties. - Except as the Monetary Board may otherwise prescribe,
loans and other credit accommodations on security of chattels and intangible
properties such as, but not limited to, patents, trademarks, trade names, and
copyrights shall not exceed seventy-five percent (75%) of the appraised value of the
security, an such loans and other credit accommodation may be made to the title-
holder of the chattels and intangible properties or his assignees. (78a)
Section 39. Grant and Purpose of Loans and Other Credit Accommodations. - A bank
shall grant loans and other credit accommodations only in amounts and for the
periods of time essential for the effective completion of the operations to be
financed. Such grant of loans and other credit accommodations shall be consistent
with safe and sound banking practices. (75a) The purpose of all loans and other
credit accommodations shall be stated in the application and in the contract
between the bank and the borrower. If the bank finds that the proceeds of the loan
or other credit accommodation have been employed, without its approval, for
purposes other than those agreed upon with the bank, it shall have the right to
terminate the loan or other credit accommodation and demand immediate
repayment of the obligation. (77)
Section 40. Requirement for Grant Of Loans or 0ther Credit Accommodations. -
Before granting a loan or other credit accommodation, a bank must ascertain that
the debtor is capable of fulfilling his commitments to the bank. Toward this end, a
bank may demand from its credit applicants a statement of their assets and
liabilities and of their income and expenditures and such information as may be
prescribed by law or by rules and regulations of the Monetary Board to enable the
bank to properly evaluate the credit application which includes the corresponding
Nigel Carmelo Q. Reago 227

financial statements submitted for taxation purposes to the Bureau of Internal
Revenue. Should such statements prove to be false or incorrect in any material
detail, the bank may terminate any loan or other credit accommodation granted on
the basis of said statements and shall have the right to demand immediate
repayment or liquidation of the obligation. In formulating rules and regulations
under this Section, the Monetary Board shall recognize the peculiar characteristics
of micro financing, such as cash flow-based lending to the basic sectors that are not
covered by traditional collateral. (76a)
Section 41. Unsecured Loans or Other Credit Accommodations. - The Monetary
Board is hereby authorized to issue such regulations as it may deem necessary with
respect to unsecured loans or other credit accommodations that may be granted by
banks. (n)
Section 42. Other Security Requirements for Bank Credits. - The Monetary Board
may, by regulation, prescribe further security requirements to which the various
types of bank credits shall be subject, and, in accordance with the authority granted
to it in Section 106 of the New Central Bank Act, the Board may by regulation,
reduce the maximum ratios established in Sections 36 and 37 of this Act, or, in
special cases, increase the maximum ratios established therein. (78)
Section 43. Authority to Prescribe Terms and Conditions of Loans and Other Credit
Accommodations. - The Monetary Board, may, similarly in accordance with the
authority granted to it in Section 106 of the New Central Bank Act, and taking into
account the requirements of the economy for the effective utilization of long-term
funds, prescribe the maturities, as well as related terms and conditions for various
types of bank loans and other credit accommodations. Any change by the Board in
the maximum maturities, as well as related terms and conditions for various types
of bank loans and other credit accommodations. Any change by the Board in the
maximum maturities shall apply only to loans and other credit accommodations
made after the date of such action. The Monetary Board shall regulate the interest
imposed on micro finance borrowers by lending investors and similar lenders such
as, but not limited to, the unconscionable rates of interest collected on salary loans
and similar credit accommodations. (78a)
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Section 44. Amortization on Loans and Other Credit Accommodations. - The
amortization schedule of bank loans and other credit accommodations shall be
adapted to the nature of the operations to be financed. In case of loans and other
credit accommodations with maturities of more than five (5) years, provisions must
be made for periodic amortization payments, but such payments must be made at
least annually: Provided, however, That when the borrowed funds are to be used for
purposes which do not initially produce revenues adequate for regular amortization
payments therefrom, the bank may permit the initial amortization payment to be
deferred until such time as said revenues are sufficient for such purpose, but in no
case shall the initial amortization date be later than five (5) years from the date on
which the loan or other credit accommodation is granted. (79a) In case of loans and
other credit accommodations to micro finance sectors, the schedule of loan
amortization shall take into consideration the projected cash flow of the borrower
and adopt this into the terms and conditions formulated by banks. (n)
Section 45. Prepayment of Loans and Other Credit Accommodations. - A borrower
may at any time prior to the agreed maturity date prepay, in whole or in part, the
unpaid balance of any bank loan and other credit accommodation, subject to such
reasonable terms and conditions as may be agreed upon between the bank and its
borrower. (80a)
Section 46. Development Assistance Incentives. - The Bangko Sentral shall provide
incentives to banks which, without government guarantee, extend loans to finance
educational institutions cooperatives, hospitals and other medical services,
socialized or low-cost housing, local government units and other activities with
social content. (n)
Section 47. Foreclosure of Real Estate Mortgage. - In the event of foreclosure,
whether judicially or extra-judicially, of any mortgage on real estate which is
security for any loan or other credit accommodation granted, the mortgagor or
debtor whose real property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of the real estate, to
redeem the property by paying the amount due under the mortgage deed, with
interest thereon at rate specified in the mortgage, and all the costs and expenses
Nigel Carmelo Q. Reago 228

incurred by the bank or institution from the sale and custody of said property less
the income derived therefrom. However, the purchaser at the auction sale
concerned whether in a judicial or extra-judicial foreclosure shall have the right to
enter upon and take possession of such property immediately after the date of the
confirmation of the auction sale and administer the same in accordance with law.
Any petition in court to enjoin or restrain the conduct of foreclosure proceedings
instituted pursuant to this provision shall be given due course only upon the filing by
the petitioner of a bond in an amount fixed by the court conditioned that he will pay
all the damages which the bank may suffer by the enjoining or the restraint of the
foreclosure proceeding. Notwithstanding Act 3135, juridical persons whose property
is being sold pursuant to an extrajudicial foreclosure, shall have the right to redeem
the property in accordance with this provision until, but not after, the registration of
the certificate of foreclosure sale with the applicable Register of Deeds which in no
case shall be more than three (3) months after foreclosure, whichever is earlier.
Owners of property that has been sold in a foreclosure sale prior to the effectivity of
this Act shall retain their redemption rights until their expiration. (78a)
Section 48. Renewal or Extension of Loans and Other Credit Accommodations. - The
Monetary Board may, by regulation, prescribe the conditions and limitations under
which a bank may grant extensions or renewals of its loans and other credit
accommodations. (81)
Section 49. Provisions for Losses and Write-Offs. - All debts due to any bank on
which interest is past due and unpaid for such period as may be determined by the
Monetary Board, unless the same are welt-secured and in the process of collection
shall be considered bad debts within the meaning of this Section. The Monetary
Board may fix, by regulation or by order in a specific case, the amount of reserves
for bad debts or doubtful accounts or other contingencies. Writing off of loans,
other credit accommodations, advances and other assets shall be subject to
regulations issued by the Monetary Board. (84a)
Section 50. Major Investments. - For the purpose or enhancing bank supervision, the
Monetary Board shall establish criteria for reviewing major acquisitions of
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investments by a bank including corporate affiliations or structures that may expose
the bank to undue risks or in any way hinder effective supervision.
Section 51. Ceiling on Investments in Certain Assets. - Any bank may acquire real
estate as shall be necessary for its own use in the conduct of its business: Provided,
however, That the total investment in such real estate and improvements thereof
including bank equipment, shall not exceed fifty percent (50%) of combined capital
accounts: Provided, further, That the equity investment of a bank in another
corporation engaged primarily in real estate shall be considered as part of the
bank's total investment in real estate, unless otherwise provided by the Monetary
Board. (25a)
Section 52. Acquisition of Real Estate by Way of Satisfaction of Claims. -
Notwithstanding the limitations of the preceding Section, a bank may acquire, hold
or convey real property under the following circumstances:
52.1. Such as shall be mortgaged to it in good faith by way of security for debts;
52.2. Such as shall be conveyed to it in satisfaction of debts previously contracted in
the course of its dealings, or
52.3. Such as it shall purchase at sales under judgments, decrees, mortgages, or
trust deeds held by it and such as it shall purchase to secure debts due it.
Any real property acquired or held under the circumstances enumerated in the
above paragraph shall be disposed of by the bank within a period of five (5) years or
as may be prescribed by the Monetary Board: Provided, however, That the bank
may, after said period, continue to hold the property for its own use, subject to the
limitations of the preceding Section. (25a)
Section 53. Other Banking Services. - In addition to the operations specifically
authorized in this Act, a bank may perform the following services:
53.1. Receive in custody funds, documents and valuable objects;
Nigel Carmelo Q. Reago 229

53.2. Act as financial agent and buy and sell, by order of and for the account of their
customers, shares, evidences of indebtedness and all types of securities;
53.3. Make collections and payments for the account of others and perform such
other services for their customers as are not incompatible with banking business;
53.4 Upon prior approval of the Monetary Board, act as managing agent, adviser,
consultant or administrator of investment management/advisory/consultancy
accounts; and
53.5. Rent out safety deposit boxes.
The bank shall perform the services permitted under Subsections 53.1, 53.2,53.3
and 53.4 as depositary or as an agent. Accordingly, it shall keep the funds, securities
and other effects which it receives duly separate from the bank's own assets and
liabilities: The Monetary Board may regulate the operations authorized by this
Section in order to ensure that such operations do not endanger the interests of the
depositors and other creditors of the bank. In case a bank or quasi-bark notifies the
Bangko Sentral or publicly announces a bank holiday, or in any manner suspends the
payment of its deposit liabilities continuously for more than thirty (30) days, the
Monetary Board may summarily and without need for prior hearing close such
banking institution and place it under receivership of the Philippine Deposit
Insurance Corporation. (72a)
Section 54. Prohibition to Act as Insurer. - A bank shall not directly engage in
insurance business as the insurer. (73)
Section 55. Prohibited Transactions.
55.1. No director, officer, employee, or agent of any bank shall -
(a) Make false entries in any bank report or statement or participate in any
fraudulent transaction, thereby affecting the financial interest of, or causing
damage to, the bank or any person;
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(b) Without order of a court of competent jurisdiction, disclose to any
unauthorized person any information relative to the funds or properties in
the custody of the bank belonging to private individuals, corporations, or
any other entity: Provided, That with respect to bank deposits, the
provisions of existing laws shall prevail;
(c) Accept gifts, fees, or commissions or any other form of remuneration in
connection with the approval of a loan or other credit accommodation from
said bank;
(d) Overvalue or aid in overvaluing any security for the purpose of
influencing in any way the actions of the bank or any bank; or
(e) Outsource inherent banking functions.
55.2. No borrower of a bank shall -
(a) Fraudulently overvalue property offered as security for a loan or other
credit accommodation from the bank;
(b) Furnish false or make misrepresentation or suppression of material facts
for the purpose of obtaining, renewing, or increasing a loan or other credit
accommodation or extending the period thereof;
(c) Attempt to defraud the said bank in the event of a court action to
recover a loan or other credit accommodation; or
(d) Offer any director, officer, employee or agent of a bank any gift, fee,
commission, or any other form of compensation in order to influence such
persons into approving a loan or other credit accommodation application.
55.3 No examiner, officer or employee of the Bangko Sentral or of any department,
bureau, office, branch or agency of the Government that is assigned to supervise,
Nigel Carmelo Q. Reago 230

examine, assist or render technical assistance to any bank shall commit any of the
acts enumerated in this Section or aid in the commission of the same. (87-Aa)
The making of false reports or misrepresentation or suppression of material facts by
personnel of the Bangko Sental ng Pilipinas shall be subject to the administrative
and criminal sanctions provided under the New Central Bank Act.
55.4. Consistent with the provisions of Republic Act No. 1405, otherwise known as
the Banks Secrecy Law, no bank shall employ casual or non regular personnel or too
lengthy probationary personnel in the conduct of its business involving bank
deposits.
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.
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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. (n)
Section 57. Prohibition on Dividend Declaration. - No bank or quasi-bank shall
declare dividends, if at the time of declaration:
57.1 Its clearing account with the Bangko Sentral is overdrawn; or
57.2 It is deficient in the required liquidity floor for government deposits for five (5)
or more consecutive days, or
57.3 It does not comply with the liquidity standards/ratios prescribed by the Bangko
Sentral for purposes of determining funds available for dividend declaration; or
57.4 It has committed a major violation as may be determined by the Bangko
Sentral (84a)
Section 58. Independent Auditor. - The Monetary Board may require a bank, quasi-
bank or trust entity to engage the services of an independent auditor to be chosen
by the bank, quasi-bank or trust entity concerned from a list of certified public
accountants acceptable to the Monetary Board. The term of the engagement shall
be as prescribed by the Monetary Board which may either be on a continuing basis
where the auditor shall act as resident examiner, or on the basis of special
engagements; but in any case, the independent auditor shall be responsible to the
bank's, quasi-bank's or trust entity's board of directors. A copy of the report shall be
furnished to the Monetary Board. The Monetary Board may also direct the board of
directors of a bank, quasi-bank, trusty entity and/or the individual members thereof;
to conduct, either personally or by a committee created by the board, an annual
balance sheet audit of the bank, quasi-bank or trust entity to review the internal
audit and control system of the bank, quasi-bank or trust entity and to submit a
report of such audit. (6-Da)
Nigel Carmelo Q. Reago 231

Section 59. Authority to Regulate Electronic Transactions. - The Bangko Sentral shall
have full authority to regulate the use of electronic devices, such as computers, and
processes for recording, storing and transmitting information or data in connection
with the operations of a bank; quasi-bank or trust entity, including the delivery of
services and products to customers by such entity. (n)
Section 60. Financial Statements. - Every bank, quasi-bank or trust entity shall
submit to the appropriate supervising and examining department of the Bangko
Sentral financial statements in such form and frequency as may be prescribed by the
Bangko Sentral. Such statements, which shall be as of a specific date designated by
the Bangko Sentral, shall show thee actual financial condition of the institution
submitting the statement, and of its branches, offices, subsidiaries and affiliates,
including the results of its operations, and shall contain such information as may be
required in Bangko Sentral regulations. (n)
Section 61. Publication of Financial Statements. - Every bank, quasi-bank or trust
entity, shall publish a statement of its financial condition, including those of its
subsidiaries and affiliates, in such terms understandable to the layman and in such
frequency as may be prescribed Bangko Sentral, in English or Filipino, at least once
every quarter in a newspaper of general circulation in the city or province where the
principal office, in the case of a domestic institution or the principal branch or office
in the case of a foreign bank, is located, but if no newspaper is published in the
same province, then in a newspaper published in Metro Manila or in the nearest city
or province. The Bangko Sentral may by regulation prescribe the newspaper where
the statements prescribed herein shall be published. The Monetary Board may allow
the posting of the financial statements of a bank, quasi-bank or trust entity in public
places it may determine, lieu of the publication required in the preceding paragraph,
when warranted by the circumstances. Additionally, banks shall make available to
the public in such form and manner as the Bangko Sentral may prescribe the
complete set of its audited financial statements as well as such other relevant
information including those on enterprises majority-owned or controlled by the
bank, that will inform the public of the true financial condition of a bank as of any
given time. In periods of national and/or local emergency or of imminent panic
which directly threaten monetary and banking stability, the Monetary Board, by a
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vote of at least five (5) of its members, in special cases and upon application of the
bank, quasi-bank or trust entity, may allow such bank, quasi-bank or trust entity to
defer for a stated period of time the publication of the statement of financial
condition required herein. (n)
Section 62. Publication of Capital Stock. - A bank, quasi-bank or trust entity
incorporated under the laws of the Philippines shall not publish the amount of its
authorized or subscribed capital stock without indicating at the same time and with
equal prominence, the amount of its capital actually paid up. No branch of any
foreign bank doing business in the Philippines shall in any way announce the
amount of the capital and surplus of its head office, or of the bank in its entirety
without indicating at the same time and with equal prominence the amount of the
capital, if any, definitely assigned to such branch, such fact shall be stated in, and
shall form part of the publication. (82)
Section 63. Settlement of Disputes. - The provisions of any law to the contrary
notwithstanding, the Bangko Sentral shall be consulted by other government
agencies or instrumentalities in actions or proceedings initiated by or brought
before them involving controversies in banks, quasi-banks or trust entities arising
out of and involving relations between and among their directors, officers or
stockholders, as well as disputes between any or all of them and the bank, quasi-
bank or trust entity of which they are directors, officers or stockholders. (n)
Section 64. Unauthorized Advertisement or Business Representation. - No person,
association, or corporation unless duly authorized to engage in the business of a
bank, quasi-bank, trust entity, or savings and loan association as defined in this Act,
or other banking laws, shall advertise or hold itself out as being engaged in the
business of such bank, quasi-bank, trust entity, or association, or use in connection
with its business title, the word or words "bank", "banking", "banker", "quasi-bank",
"quasi-banking", "quasi-banker", "savings and loan association", "trust corporation",
"trust company" or words of similar import or transact in any manner the business
of any such bank, corporation or association. (6)
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Section 65. Service Fees. - The Bangko Sentral may charge equitable rates,
commissions or fees, as may be prescribed by the Monetary Board for supervision,
examination and other services which it renders under this Act. (n)
Section 66. Penalty for Violation of this Act. - Unless otherwise herein provided, the
violation of any of the provisions of this Act shall be subject to Sections 34, 35, 36
and 37 of the New Central Bank Act. If the offender is a director or officer of a bank,
quasi-bank or trust entity, the Monetary Board may also suspend or remove such
director or officer. If the violation is committed by a corporation, such corporation
may be dissolved by quo warranto proceedings instituted by the Solicitor General.
(87)
CHAPTER V
PLACEMENT UNDER CONSERVATORSHIP
Section 67. Conservatorship. - The grounds and procedures for placing a bank under
conservatorship, as well as, the powers and duties of the conservator appointed for
the bank shall be governed by the provisions of Section 29 and the last two
paragraphs of Section 30 of the New Central Bank Act: Provided, That this Section
shall also apply to conservatorship proceedings of quasi-banks. (n)
CHAPTER VI
CESSATION OF BANKING BUSINESS
Section 68. Voluntary Liquidation. - In case of voluntary liquidation of any bank
organized under the laws of the Philippines, or of any branch or office in the
Philippines of a foreign bank, written notice of such liquidation shall be sent to the
Monetary Board before such liquidation shall be sent to the Monetary Board before
such liquidation is undertaken, and the Monetary Board shall have the right to
intervene and take such steps as may be necessary to protect the interests of
creditors. (86)
Section 69. Receivership and Involuntary Liquidation. - The grounds and procedures
for placing a bank under receivership or liquidation, as well as the powers and duties
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of the receiver or liquidator appointed for the bank shall be governed by the
provisions of Sections 30, 31, 32, and 33 of the New Central Bank Act: Provided,
That 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. This Section shall also apply to the extent possible to the
receivership and liquidation proceedings of quasi-banks. (n)
Section 70. Penalty for Transactions After a Bank Becomes Insolvent. - Any director
or officer of any bank declared insolvent or placed under receivership by the
Monetary Board who refuses to turn over the bank's records and assets to the
designated receivers, or who tampers with banks records, or who appropriates for
himself for another party or destroys or causes the misappropriation and
destruction of the bank's assets, or who receives or permits or causes to be received
in said bank any deposit, collection of loans and/or receivables, or who pays out or
permits or causes to be transferred any securities or property of said bank shall be
subject to the penal provisions of the New Central Bank Act. (85a)
CHAPTER VII
LAWS GOVERNING OTHER TYPES OF BANKS
Section 71. Other Banking Laws. - The organization, the ownership and capital
requirements, powers, supervision and general conduct of business of thrift banks,
rural banks and cooperative banks shall be governed by the provisions of the Thrift
Banks Act, the Rural Banks Act, and the Cooperative Code, respectively. The
organization, ownership and capital requirements, powers, supervision and general
conduct of business of Islamic banks shall be governed by special laws. The
provisions of this Act, however, insofar as they are not in conflict with the provisions
of the Thrift Banks Act, the Rural Banks Act, and the Cooperative Code shall likewise
apply to thrift banks, rural banks, and cooperative banks, respectively. However, for
purposes of prescribing the minimum ratio which the net worth of a thrift bank
must bear to its total risk assets, the provisions of Section 33 of this Act shall govern.
(n)
Nigel Carmelo Q. Reago 233

CHAPTER VIII
FOREIGN BANKS
Section 72. Transacting Business in the Philippines. - The entry of foreign banks in
the Philippines through the establishment of branches shall be governed by the
provisions of the Foreign Banks Liberalization Act. The conduct of offshore banking
business in the Philippines shall be governed by the provisions of the Presidential
Decree No. 1034, otherwise known as the "Offshore Banking System Decree." (14a)
Section 73. Acquisition of Voting Stock in a Domestic Bank. - Within seven (7) years
from the effectivity of this act and subject to guidelines issued pursuant to the
Foreign Banks Liberalization Act, the Monetary Board may authorize a foreign bank
to acquire up to one hundred percent (100%) of the voting stock of only one (1)
bank organized under the laws of the Republic of the Philippines. Within the same
period, the Monetary Board may authorize any foreign bank, which prior to the
effectivity of this Act availed itself of the privilege to acquire up to sixty percent
(60%) of the voting stock of a bank under the Foreign Banks Liberalization Act and
the Thrift Banks Act, to further acquire voting shares such bank to the extent
necessary for it to own one hundred percent (100%) of the voting stock thereof. In
the exercise of the authority, the Monetary Board shall adopt measures as may be
necessary to ensure that at all times the control of seventy percent (70%) of the
resources or assets of the entire banking system is held by banks which are at least
majority-owned by Filipinos. Any right, privilege or incentive granted to a foreign
bank under this Section shall be equally enjoyed by and extended under the same
conditions to banks organized under the laws of the Republic of the Philippines.
(Secs. 2 and 3, RA 7721
Section 74. Local Branches of Foreign Banks. - In the case of a foreign bank which
has more than one (1) branch in the Philippines, all such branches shall be treated as
one (1) unit for the purpose of this Act, and all references to the Philippine branches
of foreign banks shall be held to refer to such units. (68)
Section 75. Head Office Guarantee. - In order to provide effective protection of the
interests of the depositors and other creditors of Philippine branches of a foreign
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bank, the head office of such branches shall fully guarantee the prompt payment of
all liabilities of its Philippine branch. (69) Residents and citizens of the Philippines
who are creditors of a branch in the Philippines of a foreign bank shall have
preferential rights to the assets of such branch in accordance with the existing laws.
(19)
Section 76. Summons and Legal Process. - Summons and legal process served upon
the Philippine agent or head of any foreign bank designated to accept service
thereof shall give jurisdiction to the courts over such bank, and service of notices on
such agent or head shall be as binding upon the bank which he represents as if
made upon the bank itself. Should the authority of such agent or head to accept
service of summons and legal processes for the bank or notice to it be revoked, or
should such agent or head become mentally incompetent or otherwise unable to
accept service while exercising such authority, it shall be the duty of the bank to
name and designate promptly another agent or head upon whom service of
summons and processes in legal proceedings against the bank and of notices
affecting the bank may be made, and to file with the Securities and Exchange
Commission a duly authenticated nomination of such agent. In the absence of the
agent or head or should there be no person authorized by the bank upon whom
service of summons, processes and all legal notices may be made, service of
summons, processes and legal notices may be made upon the Bangko Sentral
Deputy Governor In-Charge of the supervising and examining departments and such
service shall be as effective as if made upon the bank or its duly authorized agent or
head. In case of service for the bank upon the Bangko Sentral Deputy Governor In-
charge of the supervising and examining departments, the said deputy Governor
shill register and transmit by mail to the president or the secretary of the bank at its
head or principal office a copy, duly certified by him, of the summons, process, or
notice. The sending of such copy of the summons, process, or notice shall be a
necessary part of the services and shall complete the service. The registry receipt of
mailing shall be prima facie evidence of the transmission of the summons, process
or notice. All costs necessarily incurred by the said Deputy Governor for the making
and mailing and sending of a copy of the summons, process, or notice to the
president or the secretary of the bank at its head or principal office shall be paid in
advance by the party at whose instance the service is made. (17)
Nigel Carmelo Q. Reago 234

Section 77. Laws Applicable. - In all matters not specifically covered by special
provisions applicable only to a foreign bank or its branches and other offices in the
Philippines any foreign bank licensed to do business in the Philippines shall be
bound by the provisions of this Act, all other laws, rules and regulations applicable
to banks organized under the laws of the Philippines of the same class, except those
that provide for the creation, formation, organization or dissolution of corporations
or for the fixing of the relations, liabilities, responsibilities, or duties of stockholders,
members, directors or officers of corporations to each other or to the corporation.
(18)
Section 78. Revocation of License of a Foreign Bank - The Monetary Board may
revoke the license to transact business in the Philippines of, any foreign bank, if it
finds that the foreign bank is insolvent or in imminent danger thereof or that its
continuance in business will involve probable loss to those transacting business with
it. After the revocation of its license, it shall be unlawful for any such foreign banks
to transact business in the Philippines unless its license is renewed or reissued. After
the revocation of such license, the Bangko Sentral shall take the necessary action to
protect the creditors of such foreign bank and the public. The provisions of the New
Central Bank Act on sanctions and penalties shall likewise be applicable. (16)
CHAPTER IX
TRUST OPERATIONS
Section 79. Authority to Engage in Trust Business. - Only a stock corporation or a
person duly authorized by the Monetary Board to engage in trust business shall act
as a trustee or administer any trust or hold property in trust or on deposit for the
use, benefit, or behoof of others. For purposes of this Act, such a corporation shall
be referred to as a trust entity. (56a; 57a)
Section 80. Conduct of Trust Business. - A trust entity shall administer the funds or
property under its custody with the diligence that a prudent man would exercise in
the conduct of an enterprise of a like character and with similar aims. No trust entity
shall, for the account of the trustor or the beneficiary of the trust, purchase or
acquire property from, or sell, transfer, assign, or lend money or property to, or
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purchase debt instruments of, any of the departments, directors, officers,
stockholders, or employees of the trust entity, relatives within the first degree of
consanguinity or affinity, or the related interests, of such directors, officers and
stockholders, unless the transaction is specifically authorized by the trustor and the
relationship of the trustee and the other party involved in the transaction is fully
disclosed to the trustor of beneficiary of the trust prior to the transaction. The
Monetary Board shall promulgate such rules and regulations as may be necessary to
prevent circumvention of this prohibition or the evasion of the responsibility herein
imposed on a trust entity. (56)
Section 81. Registration of Articles of Incorporation and By-Laws of a Trust Entity. -
The Securities and Exchange Commission shall not register the articles of
incorporation and by-laws or any amendment thereto, of any trust entity, unless
accompanied by a certificate of authority issued by the Bangko Sentral. (n)
Section 82. Minimum Capitalization. - A trust entity, before it can engage in trust or
other fiduciary business, shall comply with the minimum paid-in capital requirement
which will be determined by the Monetary Board. (n)
Section 83. Powers of a Trust Entity. - A trust entity, in addition to the general
powers incident to corporations, shall have the power to:
83.1 Act as trustee on any mortgage or bond issued by any municipality,
corporation, or any body politic and to accept and execute any trust consistent with
law;
83.2 Act under the order or appointment of any court as guardian, receiver, trustee,
or depositary of the estate of any minor or other incompetent person, and as
receiver and depositary of any moneys paid into court by parties to any legal
proceedings and of property of any kind which may be brought under the
jurisdiction of the court;
83.3. Act as the executor of any will when it is named the executor thereof;
Nigel Carmelo Q. Reago 235

83.4 Act as administrator of the estate of any deceased person, with the will
annexed, or as administrator of the estate of any deceased person when there is no
will;
83.5. Accept and execute any trust for the holding, management, and
administration of any estate, real or personal, and the rents, issues and profits
thereof; and
83.6. Establish and manage common trust funds, subject to such rules and
regulations as may be prescribed by the Monetary Board.
Section 84. Deposit for the Faithful Performance of Trust Duties. - Before transacting
trust business, every trust entity shall deposit with the Bangko Sentral, as security
for the faithful performance of its trust duties, cash or securities approved by the
Monetary Board in an amount equal to or not less than Five hundred thousand
pesos (P500,000.00) or such higher amount as may fixed by the Monetary Board:
Provided, however, That the Monetary Board shall require every trust entity to
increase the amount of its cash or securities on deposit with the Bangko Sentral in
accordance with the provisions of this paragraph. Should the capital and surplus fall
below said amount, the Monetary Board shall have the same authority as that
granted to it under the provisions of the fifth paragraph of Section 34 of this Act. A
trust entity so long as it shall continue to be solvent and comply with laws or
regulations shall have the right to collect the interest earned on such securities
deposited with the Bangko Sentral and, from time to time, with the approval of the
Bangko Sentral, to exchange the securities for others. If the trust entity fails to
comply with any law or regulation, the Bangko Sentral shall retain such interest on
the securities deposited with it for the benefit of rightful claimants. Al claims rising
out of the trust business of a trust entity shall have priority over all other claims as
regards the cash or securities deposited as above provided. The Monetary Board
may not permit the cash or securities deposited in accordance with the provisions of
this Section to be reduced below the prescribed minimum amount until the
depositing entity shall discontinue its trust business and shall satisfy the Monetary
Board that it has complied with all its obligations in connection with such business.
(65a)
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Section 85. Bond of Certain Persons for the Faithful Performance of Duties. - Before
an executor, administrator, guardian, trustee, receiver or depositary appointed by
the court enters upon the execution of his duties, he shall, upon order of the court,
file a bond in such sum as the court may direct. Upon the application of any
executor, administrator, guardian, trustee, receiver, depositary or any other person
in interest, the court may, after notice and hearing, order that the subject matter of
the trust or any part, thereof be deposited with a trust entity. Upon presentation of
proof to the court that the subject matter of the trust has been deposited with a
trust entity. Upon presentation of proof to the court that the subject matter of the
trust has been deposited with a trust entity, the court may order that the bond
given by such persons for the faithful performance of their duties be reduced to
such sums as it may deem proper: Provided, however, That the reduced bond shall
be sufficient to secure adequately the proper administration and care of any
property remaining under the control of such persons and the proper accounting for
such property. Property deposited with any trust entity in conformity with this
Section shall be held by such entity under the orders and direction of the court. (59)
Section 86. Exemption of Trust Entity from Bond Requirement. - No bond or other
security shall be required by the court from a trust entry for the faithful
performance of its duties as court-appointed trustee, executor, administrator,
guardian, receiver, or depositary. However, the court may, upon proper application
with it showing special cause therefore, require the trust entity to post a bond or
other security for the protection of funds or property confided to such entity. (59)
Section 87. Separation of Trust Business from General Business. - The trust business
and all funds, properties or securities received by any trust entity as executor,
administrator, guardian, trustee, receiver, or depositary shall be kept separate and
distinct from the general business including all other funds, properties, and assets of
such trust entity. The accounts of all such funds, properties, or securities shall
likewise be kept separate and distinct from the accounts of the general business of
the trust entity. (61)
Section 88. Investment Limitations of a Trust Entity. - Unless otherwise directed by
the instrument creating the trust, the lending and investment of funds and other
Nigel Carmelo Q. Reago 236

assets acquired by a trust entity as executor, administrator, guardian, trustee,
receiver or depositary of the estate of any minor or other incompetent person shall
be limited to loans or investments as may be prescribed by law, the Monetary Board
or any court of competent jurisdiction. (63a)
Section 89. Real Estate Acquired by a Trust Entity. - Unless otherwise specifically
directed by the trustor or the nature of the trust, real estate acquired by a trust
entity in whatever manner and for whatever purposes, shall likewise be governed by
the relevant provisions of Section 52 of this Act. (64a)
Section 90. Investment of Non-Trust Funds. - The investment of funds other than
trust funds of a trust entity which is a bank, financing company or an investment
house shall be governed by the relevant provisions of this Act and other applicable
laws. (64)
Section 91. Sanctions and Penalties. - A trust entity or any of its officers and
directors found to have willfully violated any pertinent provisions of this Act, shall
be subject to the sanctions and penalties provided tinder Section 66 of this Act as
well as Sections 36 and 37 of the New Central Bank Act.
Section 92. Exemption of Trust Assets from Claims. - No assets held by a trust entity
in its capacity as trustee shall be subject to any claims other than those of the
parties interested in the specific trusts. (65)
Section 93. Establishment of Branches of a Trust Entity. - The ordinary business of a
trust entity shall be transacted at the place of business specified in its articles of
incorporation. Such trust entity may, with prior approval of the Monetary Board,
establish branches in the Philippines and the said entity shall be responsible for all
business conducted in such branches to the same extent and in the same manner as
though such business had all been conducted in the head office. For the purpose of
this Act, the trust entity and its branches shall be treated as one unit. (67)
CHAPTER X
FINAL PROVISIONS
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Section 94. Phase Out of Bangko Sentral Powers Over Building and Loan
Associations. - Within a period of three (3) years from the effectivity of this Act, the
Bangko Sentral shall phase out and transfer its supervising and regulatory powers
over building and loan associations to the Home Insurance and Guaranty
Corporation which shall assume the same. Until otherwise provided bylaw1 building
and loan associations shall continue to be governed by Sections 39 to 55, Chapter VI
of the General Banking Act, as amended, including such rules and regulations issued
pursuant thereto. Upon assumption by the Home Insurance and Guaranty
Corporation of supervising and regulatory powers over building and loan
associations, a references in Sections 39 to 55 of the General Banking Act, as
amended, to the Bangko Sentral and the Monetary Board shall be deemed to refer
to the Home Insurance and Guaranty Corporation and its board of directors,
respectively. (n)
Section 95. Repealing Clause. - Except as may be provided for in Sections 34 and 94
of this Act, the General Banking Act, as amended, and the provisions of any other
law, special charters, rule or regulation issued pursuant to said General Banking Act,
as amended, or parts thereof, which may be inconsistent with the provisions of this
Act are hereby repealed. The provisions of paragraph 8, Section 8, Republic Act No.
3591, as amended by republic Act No. 7400, are likewise repealed. (90a)
Section 96. 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. (n)
Section 97. 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. (91)
Nigel Carmelo Q. Reago 237

REPUBLIC ACT No. 1405
AN ACT PROHIBITING DISCLOSURE OF OR INQUIRY INTO,
DEPOSITS WITH ANY BANKING INSTITUTION AND
PROVIDING PENALTY THEREFOR.
Section 1. It is hereby declared to be the policy of the Government to give
encouragement to the people to deposit their money in banking institutions and to
discourage private hoarding so that the same may be properly utilized by banks in
authorized loans to assist in the economic development of the country.
Section 2. 1 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 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 3. It shall be unlawful for any official or employee of a banking institution to
disclose to any person other than those mentioned in Section two hereof any
information concerning said deposits.
Section 4. All Acts or parts of Acts, Special Charters, Executive Orders, Rules and
Regulations which are inconsistent with the provisions of this Act are hereby
repealed.
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Section 5. Any violation of this law will subject offender upon conviction, to an
imprisonment of not more than five years or a fine of not more than twenty
thousand pesos or both, in the discretion of the court.
Section 6. This Act shall take effect upon its approval.
Approved: September 9, 1955
Footnote
1
This Section and Section 3 were both amended by PD No. 1792 issued
January 16, 1981, PD 1792 was expressly repealed by Sec 135 of R.A. No.
7653, approved June 14, 1993. The original sections 2 and 3 of R.A. No.1405
are hereby reproduced for reference, as follows; "Sec 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
upon written per-mission 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," "Sec. 3. It shall be unlawful for any official
or employee of a banking institution to disclose to any person other than
those mentioned in Section two hereof any information concerning said
deposits."
Nigel Carmelo Q. Reago 238

REPUBLIC ACT NO. 8791 May 23, 2000
AN ACT PROVIDING FOR THE REGULATION OF THE
ORGANIZATION AND OPERATIONS OF BANKS, QUASI-
BANKS, TRUST ENTITIES AND FOR OTHER PURPOSES
CHAPTER I
TITLE AND CLASSIFICATION OF BANKS
Section 1. Title. The short title of this Act shall be "The General Banking Law of
2000." (1a)
Section 2. Declaration Of Policy. - The State recognizes the vital role of banks
providing an environment conducive to the sustained development of the national
economy and the fiduciary nature of banking that requires high standards of
integrity and performance. In furtherance thereof, the State shall promote and
maintain a stable and efficient banking and financial system that is globally
competitive, dynamic and responsive to the demands of a developing economy. (n)
Section 3. Definition and Classification of Banks. -
3.1. "Banks" shall refer to entities engaged in the lending of funds obtained in the
form of deposits. (2a)
3.2. Banks shall be classified into:
(a) Universal banks;
(b) Commercial banks;
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(c) Thrift banks, composed of: (i) Savings and mortgage banks, (ii) Stock
savings and loan associations, and (iii) Private development banks, as
defined in the Republic Act No. 7906 (hereafter the "Thrift Banks Act");
(d) Rural banks, as defined in Republic Act No. 73S3 (hereafter the "Rural
Banks Act");
(e) Cooperative banks, as defined in Republic Act No 6938 (hereafter the
"Cooperative Code");
(f) Islamic banks as defined in Republic Act No. 6848, otherwise known as
the "Charter of Al Amanah Islamic Investment Bank of the Philippines"; and
(g) Other classifications of banks as determined by the Monetary Board of
the Bangko Sentral ng Pilipinas. (6-Aa)
CHAPTER II
AUTHORITY OF THE BANGKO SENTRAL
Section 4. Supervisory Powers. The operations and activities of banks shall be
subject to supervision of the Bangko Sentral. "Supervision" shall include the
following:
4.1. The issuance of rules of, conduct or the establishment 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;
Nigel Carmelo Q. Reago 239

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. (n)
The Bangko Sentral shall also have supervision over the operations of and exercise
regulatory powers over quasi-banks, trust entities and other financial institutions
which under special laws are subject to Bangko Sentral supervision. (2-Ca)
For the purposes of this Act, "quasi-banks" shall refer to entities engaged in the
borrowing of funds through the issuance, endorsement or assignment with recourse
or acceptance of deposit substitutes as defined in Section 95 of Republic Act No.
7653 (hereafter the "New Central Bank Act") for purposes of re-lending or
purchasing of receivables and other obligations. (2-Da)
Section 5. Policy Direction; Ratios, Ceilings and Limitations. - The Bangko Sentral
shall provide policy direction in the areas of money, banking and credit. (n)
For this purpose, the Monetary Board may prescribe ratios, ceilings, limitations, or
other forms of regulation on the different types of accounts and practices of banks
and quasi-banks which shall, to the extent feasible, conform to internationally
accepted standards, including of the Bank for International Settlements (BIS). The
Monetary Board may exempt particular categories of transactions from such ratios,
ceilings. and limitations, but not limited to exceptional cases or to enable a bank or
quasi-bank under rehabilitation or during a merger or consolidation to continue in
business, with safety to its creditors, depositors and the general public. (2-Ca)
Section 6. Authority to Engage in Banking and Quasi-Banking Functions. - No person
or entity shall engage in banking operations or quasi-banking functions without
authority from the Bangko Sentral: .Provided, however, That an entity authorized by
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the Bangko Sentral to perform universal or commercial banking functions shall
likewise have the authority to engage in quasi-banking functions.
The determination of whether a person or entity is performing banking or quasi-
banking functions without Bangko Sentral authority shall be decided by the
Monetary Board. To resolve such issue, the Monetary Board may; through the
appropriate supervising and examining department of the Bangko Sentral, examine,
inspect or investigate the books and records of such person or entity. Upon issuance
of this authority, such person or entity may commence to engage in banking
operations or quasi-banking function and shall continue to do so unless such
authority is sooner surrendered, revoked, suspended or annulled by the Bangko
Sentral in accordance with this Act or other special laws.
The department head and the examiners of the appropriate supervising and
examining department are hereby authorized to administer oaths to any such
person, employee, officer, or director of any such entity and to compel the
presentation or production of such books, documents, papers or records that are
reasonably necessary to ascertain the facts relative to the true functions and
operations of such person or entity. Failure or refusal to comply with the required
presentation or production of such books, documents, papers or records within a
reasonable time shall subject the persons responsible therefore to the penal
sanctions provided under the New Central Bank Act.
Persons or entities found to be performing banking or quasi-banking functions
without authority from the Bangko Sentral shall be subject to appropriate sanctions
under the New Central Bank Act and other applicable laws. (4a)
Section 7. Examination by the Bangko Sentral. - The Bangko Sentral shall, when
examining a bank, have the authority to examine an enterprise which is wholly or
majority-owned or controlled by the bank. (2-Ba)
Nigel Carmelo Q. Reago 240

CHAPTER III
ORGANIZATION, MANAGEMENT AND ADMINISTRATION OF BANKS. QUASI-BANKS
AND TRUST ENTITIES
Section 8. Organization. - The Monetary Board may authorize the organization of a
bank or quasi-bank subject to the following conditions:
8.1 That the entity is a stock corporation (7);
8.2 That its funds are obtained from the public, which shall mean twenty (20) or
more persons (2-Da); and
8.3 That the minimum capital requirements prescribed by the Monetary Board for
each category of banks are satisfied. (n)
No new commercial bank shall be established within three (3) years from the
effectivity of this Act. In the exercise of the authority granted herein, the Monetary
Board shall take into consideration their capability in terms of their financial
resources and technical expertise and integrity. The bank licensing process shall
incorporate an assessment of the bank's ownership structure, directors and senior
management, its operating plan and internal controls as well as its projected
financial condition and capital base.
Section 9. Issuance of Stocks. - The Monetary Board may prescribe rules and
regulations on the types of stock a bank may issue, including the terms thereof and
rights appurtenant thereto to determine compliance with laws and regulations
governing capital and equity structure of banks; Provided, That banks shall issue par
value stocks only.
Section 10. Treasury Stocks. - No bank shall purchase or acquire shares of its own
capital stock or accept its own shares as a security for a loan, except when
authorized by the Monetary Board: Provided, That in every case the stock so
purchased or acquired shall, within six (6) months from the time of its purchase or
acquisition, be sold or disposed of at a public or private sale. (24a)
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Section 11. Foreign Stockholdings. - Foreign individuals and non-bank corporations
may own or control up to forty percent (40%) of the voting stock of a domestic
bank. This rule shall apply to Filipinos and domestic non-bank corporations. (12a;
12-Aa) The percentage of foreign-owned voting stocks in a bank shall be determined
by the citizenship of the individual stockholders in that bank. The citizenship of the
corporation which is a stockholder in a bank shall follow the citizenship of the
controlling stockholders of the corporation, irrespective of the place of
incorporation. (n)
Section 12. Stockholdings of Family Groups of Related Interests. - Stockholdings of
individuals related to each other within the fourth degree of consanguinity or
affinity, legitimate or common-law, shall be considered family groups or related
interests and must be fully disclosed in all transactions by such corporations or
related groups of persons with the bank. (12-Ba)
Section 13. Corporate Stockholdings. - Two or more corporations owned or
controlled by the same family group or same group of persons shall be considered
related interests and must be fully disclosed in all transactions by such corporations
or related group of persons with the bank. (12-Ba)
Section 14. Certificate of Authority to Register. - The Securities and Exchange
Commission shall no register the articles of incorporation of any bank, or any
amendment thereto, unless accompanied by a certificate of authority issued by the
Monetary Board, under it seal. Such certificate shall not be issued unless the
Monetary Board is satisfied from the evidence submitted to it:
14.1 That all requirements of existing laws and regulations to engage in the business
for which the applicant is proposed to be incorporated have been complied with;
14.2 That the public interest and economic conditions, both general and local, justify
the authorization; and
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14.3 That the amount of capital, the financing, organization, direction and
administration, as well as the integrity and responsibility of the organizers and
administrators reasonably assure the safety of deposits and the public interest. (9)
The Securities and Exchange Commission shall not register the by-laws of any bank,
or any amendment thereto, unless accompanied by a certificate of authority from
the Bangko Sentral. (10)
Section 15. Board of Directors. - The provisions of the Corporation Code to the
contrary notwithstanding, there shall be at least five (5), and a maximum of fifteen
(15) members of the board or directors of a bank, two (2) of whom shall be
independent directors. An "independent director" shall mean a person other than
an officer or employee of the bank, its subsidiaries or affiliates or related interests.
(n) Non-Filipino citizens may become members of the board of directors of a bank to
the extent of the foreign participation in the equity of said bank. (Sec. 7, RA 7721)
The meetings of the board of directors may be conducted through modern
technologies such as, but not limited to, teleconferencing and video-conferencing.
(n)
Section 16. Fit and Proper Rule. - To maintain the quality of bank management and
afford better protection to depositors and the public in general the Monetary Board
shall prescribe, pass upon and review the qualifications and disqualifications of
individuals elected or appointed bank directors or officers and disqualify those
found unfit. After due notice to the board of directors of the bank, the Monetary
Board may disqualify, suspend or remove any bank director or officer who commits
or omits an act which render him unfit for the position. In determining whether an
individual is fit and proper to hold the position of a director or officer of a bank,
regard shall be given to his integrity, experience, education, training, and
competence. (9-Aa)
Section 17. Directors of Merged or Consolidated Banks. - In the case of a bank
merger or consolidation, the number of directors shall not exceed twenty-one (21).
(l3a)
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Section 18. Compensation and Other Benefits of Directors and Officers. To protect
the finds of depositors and creditors the Monetary Board may regulate the payment
by the bark to its directors and officers of compensation, allowance, fees, bonuses,
stock options, profit sharing and fringe benefits only in exceptional cases and when
the circumstances warrant, such as but not limited to the following:
18.1. When a bank is under comptrollership or conservatorship; or
18.2. When a bank is found by the Monetary Board to be conducting business in an
unsafe or unsound manner; or
18.3. When a bank is found by the Monetary Board to be in an unsatisfactory
financial condition. (n)
Section 19. Prohibition on Public Officials. - Except as otherwise provided in the
Rural Banks Act, no appointive or elective public official whether full-time or part-
time shall at the same time serve as officer of any private bank, save in cases where
such service is incident to financial assistance provided by the government or a
government owned or controlled corporation to the bank or unless otherwise
provided under existing laws. (13)
Section 20. Bank Branches. - Universal or commercial banks may open branches or
other offices within or outside the Philippines upon prior approval of the Bangko
Sentral. Branching by all other banks shall be governed by pertinent laws.
A bank may, subject to prior approval of the Monetary Board, use any or all of its
branches as outlets for the presentation and/or sale of the financial products of its
allied undertaking or of its investment house units. A bank authorized to establish
branches or other offices shall be responsible for all business conducted in such
branches and offices to the same extent and in the same manner as though such
business had all been conducted in the head office. A bank and its branches and
offices shall be treated as one unit. (6-B; 27)
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Section 21. Banking Days and Hours. - Unless otherwise authorized by the Bangko
Sentral in the interest of the banking public, all banks including their branches and
offices shall transact business on all working days for at least six (6) hours a day. In
addition, banks or any of their branches or offices may open for business on
Saturdays, Sundays or holidays for at least three (3) hours a day: Provided, That
banks which opt to open on days other than working days shall report to the Bangko
Sentral the additional days during which they or their branches or offices shall
transact business. For purposes of this Section, working days shall mean Mondays to
Fridays, except if such days are holidays. (6-Ca)
Section 22. Strikes and Lockouts. - The banking industry is hereby declared as
indispensable to the national interest and, notwithstanding the provisions of any
law to the contrary, any strike or lockout involving banks, if unsettled after seven (7)
calendar days shall be reported by the Bangko Sentral to the secretary of Labor who
may assume jurisdiction over the dispute or decide it or certify the sane to the
National Labor Relations Commission for compulsory arbitration. However, the
President of the Philippines may at any time intervene and assume jurisdiction over
such labor dispute in order to settle or terminate the same. (6-E)
CHAPTER IV
DEPOSITS. LOANS AND OTHER OPERATIONS
Article I
Operations Of Universal Banks
Section 23. Powers of a Universal Bank - A universal bank shall have the authority to
exercise, in addition to the powers authorized for a commercial bank in Section 29,
the powers of an investment house as provided in existing laws and the power to
invest in non-allied enterprises as provided in this Act. (21-B)
Section 24. Equity Investments of a Universal Bank. - A universal bank may, subject
to the conditions stated in the succeeding paragraph, invest in the equities of allied
and non-allied enterprises as may be determined by the Monetary Board. Allied
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enterprises may either be financial or non-financial. Except as the Monetary Board
may otherwise prescribe:
24.1. The total investment in equities of allied and non-allied enterprises shall not
exceed fifty percent (50%) of the net worth of the bank; and
24.2. The equity investment in any one enterprise, whether allied or non-allied, shall
not exceed twenty-five percent (25%) of the net worth of the bank.
As used in this Act, "net worth" shall mean the total of the unimpaired paid-in
capital including paid-in surplus, retained earnings and undivided profit, net of
valuation reserves and other adjustments as may be required by the Bangko Sentral.
The acquisition of such equity or equities is subject to the prior approval of the
Monetary Board which shall promulgate appropriate guidelines to govern such
investments. (21-Ba)
Section 25. Equity Investments of a Universal Bank in Financial Allied Enterprises. - A
universal bank can own up to one hundred percent (100%) of the equity in a thrift
bank, a rural bank or a financial allied enterprise. A publicly-listed universal or
commercial bank may own up to one hundred percent (100%) of the voting stock of
only one other universal or commercial bank. (21-B; 21-Ca)
Section 26. Equity Investments of a Universal Bank in Non-Financial Allied
Enterprises. - A universal bank may own up to one hundred percent (100%) of the
equity in a non-financial allied enterprise. (21-Ba)
Section 27. Equity Investments of a Universal Bank in Non-Allied Enterprises. - The
equity investment of a universal bank, or of its wholly or majority-owned
subsidiaries, in a single non-allied enterprise shall not exceed thirty-five percent
(35%) of the total equity in that enterprise nor shall it exceed thirty-five percent
(35%) of the voting stock in that enterprise. (21-B)
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Section 28. Equity Investments in Quasi-Banks. - To promote competitive conditions
in financial markets, the Monetary Board may further limit to forty percent (40%)
equity investments of universal banks in quasi-banks. This rule shall also apply in the
case of commercial banks. (12-E) Article II. Operations Of Commercial Banks
Section 29. Powers of a Commercial Bank. - A commercial bank shall have, in
addition to the general powers incident to corporations, all such powers as may be
necessary to carry on the business of commercial banking such as accepting drafts
and issuing letters of credit; discounting and negotiating promissory notes, drafts,
bills of exchange, and other evidences of debt; accepting or creating demand
deposits; receiving other types of deposits and deposit substitutes; buying and
selling foreign exchange and gold or silver bullion; acquiring marketable bonds and
other debt securities; and extending credit, subject to such rules as the Monetary
Board may promulgate. These rules may include the determination of bonds and
other debt securities eligible for investment, the maturities and aggregate amount
of such investment.
Section 30. Equity Investments of a Commercial Bank. - A commercial bank may,
subject to the conditions stated in the succeeding paragraphs, invest only in the
equities of allied enterprises as may be determined by the Monetary Board. Allied
enterprises may either be financial or non-financial. Except as the Monetary Board
may otherwise prescribe:
30.1. The total investment in equities of allied enterprises shall not exceed thirty-
five percent (35%) of the net worth of the bark; and
30.2. The equity investment in any one enterprise shall not exceed twenty-five
percent (25%) of tile net worth of the bank. The acquisition of such equity or
equities is subject to the prior approval of the Monetary Board which shall
promulgate appropriate guidelines to govern such investment.(2lA-a; 21-Ca)
Section 31. Equity Investments of a Commercial Bank in Financial Allied Enterprises. -
A commercial bank may own up to one hundred percent (100%) of the equity of a
thrift bank or a rural bank. Where the equity investment of a commercial bank is in
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other financial allied enterprises, including another commercial bank, such
investment shall remain a minority holding in that enterprise. (21-Aa; 21-Ca)
Section 32. Equity Investments of a Commercial Bank in Non-Financial Allied
Enterprises. A commercial bank may own up to one hundred percent (100%) of the
equity in a non-financial allied enterprise. (21-Aa) Article III. Provisions Applicable To
All Banks, Quasi-Banks, And Trust Entities
Section 33. Acceptance of Demand Deposits. - A bank other than a universal or
commercial bank cannot accept or create demand deposits except upon prior
approval of, and subject to such conditions and rules as may be prescribed by the
Monetary Board. (72-Aa)
Section 34. Risk-Based Capital. - The Monetary Board shall prescribe the minimum
ratio which the net worth of a bank must bear to its total risk assets which may
include contingent accounts. For purposes of this Section, the Monetary Board may
require such ratio be determined on the basis of the net worth and risk assets of a
bank and its subsidiaries, financial or otherwise, as well as prescribe the
composition and the manner of determining the net worth and total risk assets of
banks and their subsidiaries: Provided, That in the exercise of this authority, the
Monetary Board shall, to the extent feasible conform to internationally accepted
standards, including those of the Bank for International Settlements(BIS), relating to
risk-based capital requirements: Provided further, That it may alter or suspend
compliance with such ratio whenever necessary for a maximum period of one (1)
year: Provided, finally, That such ratio shall be applied uniformly to banks of the
same category. In case a bank does not comply with the prescribed minimum ratio,
the Monetary Board may limit or prohibit the distribution of net profits by such
bank and may require that part or all of the net profits be used to increase the
capital accounts of the bank until the minimum requirement has been met The
Monetary Board may, furthermore, restrict or prohibit the acquisition of major
assets and the making of new investments by the bank, with the exception of
purchases of readily marketable 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
Nigel Carmelo Q. Reago 244

Republic of the Philippines, until the minimum required capital ratio has been
restored. In case of a bank merger or consolidation, or when a bank is under
rehabilitation under a program approved by the Bangko Sentral, Monetary Board
may temporarily relieve the surviving bank, consolidated bank, or constituent bank
or corporations under rehabilitation from full compliance with the required capital
ratio under such conditions as it may prescribe. Before the effectivity of rules which
the Monetary Board is authorized to prescribe under this provision, Section 22 of
the General Banking Act, as amended, Section 9 of the Thrift Banks Act, and all
pertinent rules issued pursuant thereto, shall continue to be in force. (22a)
Section 35. Limit on Loans, Credit Accommodations and Guarantees
35.1 Except as the Monetary Board may otherwise prescribe for reasons of national
interest, the total amount of loans, credit accommodations and guarantees as may
be defined by the Monetary Board that may be extended by a bank to any person,
partnership, association, corporation or other entity shall at no time exceed twenty
percent (20%) of the net worth of such bank. The basis for determining compliance
with single borrower limit is the total credit commitment of the bank to the
borrower.
35.2. Unless the Monetary Board prescribes otherwise, the total amount of loans,
credit accommodations and guarantees prescribed in the preceding paragraph may
be increased by an additional ten percent (10%) of the net worth of such bank
provided the additional liabilities of any borrower are adequately secured by trust
receipts, shipping documents, warehouse receipts or other similar documents
transferring or securing title covering readily marketable, non-perishable goods
which must be fully covered by insurance.
35.3 The above prescribed ceilings shall include (a) the direct liability of the maker
or acceptor of paper discounted with or sold to such bank and the liability of a
general endorser, drawer or guarantor who obtains a loan or other credit
accommodation from or discounts paper with or sells papers to such bank; (b) in the
case of an individual who owns or controls a majority interest in a corporation,
partnership, association or any other entity, the liabilities of said entities to such
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bank; (c) in the case of a corporation, all liabilities to such bank of all subsidiaries in
which such corporation owns or controls a majority interest; and (d) in the case of a
partnership, association or other entity, the liabilities of the members thereof to
such bank.
35.4. Even if a parent corporation, partnership, association, entity or an individual
who owns or controls a majority interest in such entities has no liability to the bank,
the Monetary Board may prescribe the combination of the liabilities of subsidiary
corporations or members of the partnership, association, entity or such individual
under certain circumstances, including but not limited to any of the following
situations: (a) the parent corporation, partnership, association, entity or individual
guarantees the repayment of the liabilities; (b) the liabilities were incurred for the
accommodation of the parent corporation or another subsidiary or of the
partnership or association or entity or such individual; or (c) the subsidiaries though
separate entities operate merely as departments or divisions of a single entity.
35.5. For purposes of this Section, loans, other credit accommodations and
guarantees shall exclude: (a) loans and other credit accommodations secured by
obligations of the Bangko Sentral or of the Philippine Government: (b) loans and
other credit accommodations fully guaranteed by the government as to the
payment of principal and interest; (c) loans and other credit accommodations
covered by assignment of deposits maintained in the lending bank and held in the
Philippines; (d) loans, credit accommodations and acceptances under letters of
credit to the extent covered by margin deposits; and (e) other loans or credit
accommodations which the Monetary Board may from time to time, specify as non-
risk items.
35.6. Loans and other credit accommodations, deposits maintained with, and usual
guarantees by a bank to any other bank or non-bank entity, whether locally or
abroad, shall be subject to the limits as herein prescribed.
35.7. Certain types of contingent accounts of borrowers may be included among
those subject to these prescribed limits as may be determined by the Monetary
Board.(23a)
Nigel Carmelo Q. Reago 245

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, endorser 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. (83a)
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Section 37. Loans and Other Credit Accommodations Against Real Estate. - Except as
the Monetary Board may otherwise prescribe, loans and other credit
accommodations against real estate shall not exceed seventy-five percent (75%) of
the appraised value of the respective real estate security, plus sixty percent (60%) of
the appraised value of the insured improvements, and such loans may be made to
the owner of the real estate or to his assignees. (78a)
Section 38. Loans And Other Credit Accommodations on Security of Chattels and
Intangible Properties. - Except as the Monetary Board may otherwise prescribe,
loans and other credit accommodations on security of chattels and intangible
properties such as, but not limited to, patents, trademarks, trade names, and
copyrights shall not exceed seventy-five percent (75%) of the appraised value of the
security, an such loans and other credit accommodation may be made to the title-
holder of the chattels and intangible properties or his assignees. (78a)
Section 39. Grant and Purpose of Loans and Other Credit Accommodations. - A bank
shall grant loans and other credit accommodations only in amounts and for the
periods of time essential for the effective completion of the operations to be
financed. Such grant of loans and other credit accommodations shall be consistent
with safe and sound banking practices. (75a) The purpose of all loans and other
credit accommodations shall be stated in the application and in the contract
between the bank and the borrower. If the bank finds that the proceeds of the loan
or other credit accommodation have been employed, without its approval, for
purposes other than those agreed upon with the bank, it shall have the right to
terminate the loan or other credit accommodation and demand immediate
repayment of the obligation. (77)
Section 40. Requirement for Grant Of Loans or 0ther Credit Accommodations. -
Before granting a loan or other credit accommodation, a bank must ascertain that
the debtor is capable of fulfilling his commitments to the bank. Toward this end, a
bank may demand from its credit applicants a statement of their assets and
liabilities and of their income and expenditures and such information as may be
prescribed by law or by rules and regulations of the Monetary Board to enable the
bank to properly evaluate the credit application which includes the corresponding
Nigel Carmelo Q. Reago 246

financial statements submitted for taxation purposes to the Bureau of Internal
Revenue. Should such statements prove to be false or incorrect in any material
detail, the bank may terminate any loan or other credit accommodation granted on
the basis of said statements and shall have the right to demand immediate
repayment or liquidation of the obligation. In formulating rules and regulations
under this Section, the Monetary Board shall recognize the peculiar characteristics
of micro financing, such as cash flow-based lending to the basic sectors that are not
covered by traditional collateral. (76a)
Section 41. Unsecured Loans or Other Credit Accommodations. - The Monetary
Board is hereby authorized to issue such regulations as it may deem necessary with
respect to unsecured loans or other credit accommodations that may be granted by
banks. (n)
Section 42. Other Security Requirements for Bank Credits. - The Monetary Board
may, by regulation, prescribe further security requirements to which the various
types of bank credits shall be subject, and, in accordance with the authority granted
to it in Section 106 of the New Central Bank Act, the Board may by regulation,
reduce the maximum ratios established in Sections 36 and 37 of this Act, or, in
special cases, increase the maximum ratios established therein. (78)
Section 43. Authority to Prescribe Terms and Conditions of Loans and Other Credit
Accommodations. - The Monetary Board, may, similarly in accordance with the
authority granted to it in Section 106 of the New Central Bank Act, and taking into
account the requirements of the economy for the effective utilization of long-term
funds, prescribe the maturities, as well as related terms and conditions for various
types of bank loans and other credit accommodations. Any change by the Board in
the maximum maturities, as well as related terms and conditions for various types
of bank loans and other credit accommodations. Any change by the Board in the
maximum maturities shall apply only to loans and other credit accommodations
made after the date of such action. The Monetary Board shall regulate the interest
imposed on micro finance borrowers by lending investors and similar lenders such
as, but not limited to, the unconscionable rates of interest collected on salary loans
and similar credit accommodations. (78a)
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Section 44. Amortization on Loans and Other Credit Accommodations. - The
amortization schedule of bank loans and other credit accommodations shall be
adapted to the nature of the operations to be financed. In case of loans and other
credit accommodations with maturities of more than five (5) years, provisions must
be made for periodic amortization payments, but such payments must be made at
least annually: Provided, however, That when the borrowed funds are to be used for
purposes which do not initially produce revenues adequate for regular amortization
payments therefrom, the bank may permit the initial amortization payment to be
deferred until such time as said revenues are sufficient for such purpose, but in no
case shall the initial amortization date be later than five (5) years from the date on
which the loan or other credit accommodation is granted. (79a) In case of loans and
other credit accommodations to micro finance sectors, the schedule of loan
amortization shall take into consideration the projected cash flow of the borrower
and adopt this into the terms and conditions formulated by banks. (n)
Section 45. Prepayment of Loans and Other Credit Accommodations. - A borrower
may at any time prior to the agreed maturity date prepay, in whole or in part, the
unpaid balance of any bank loan and other credit accommodation, subject to such
reasonable terms and conditions as may be agreed upon between the bank and its
borrower. (80a)
Section 46. Development Assistance Incentives. - The Bangko Sentral shall provide
incentives to banks which, without government guarantee, extend loans to finance
educational institutions cooperatives, hospitals and other medical services,
socialized or low-cost housing, local government units and other activities with
social content. (n)
Section 47. Foreclosure of Real Estate Mortgage. - In the event of foreclosure,
whether judicially or extra-judicially, of any mortgage on real estate which is
security for any loan or other credit accommodation granted, the mortgagor or
debtor whose real property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of the real estate, to
redeem the property by paying the amount due under the mortgage deed, with
interest thereon at rate specified in the mortgage, and all the costs and expenses
Nigel Carmelo Q. Reago 247

incurred by the bank or institution from the sale and custody of said property less
the income derived therefrom. However, the purchaser at the auction sale
concerned whether in a judicial or extra-judicial foreclosure shall have the right to
enter upon and take possession of such property immediately after the date of the
confirmation of the auction sale and administer the same in accordance with law.
Any petition in court to enjoin or restrain the conduct of foreclosure proceedings
instituted pursuant to this provision shall be given due course only upon the filing by
the petitioner of a bond in an amount fixed by the court conditioned that he will pay
all the damages which the bank may suffer by the enjoining or the restraint of the
foreclosure proceeding. Notwithstanding Act 3135, juridical persons whose property
is being sold pursuant to an extrajudicial foreclosure, shall have the right to redeem
the property in accordance with this provision until, but not after, the registration of
the certificate of foreclosure sale with the applicable Register of Deeds which in no
case shall be more than three (3) months after foreclosure, whichever is earlier.
Owners of property that has been sold in a foreclosure sale prior to the effectivity of
this Act shall retain their redemption rights until their expiration. (78a)
Section 48. Renewal or Extension of Loans and Other Credit Accommodations. - The
Monetary Board may, by regulation, prescribe the conditions and limitations under
which a bank may grant extensions or renewals of its loans and other credit
accommodations. (81)
Section 49. Provisions for Losses and Write-Offs. - All debts due to any bank on
which interest is past due and unpaid for such period as may be determined by the
Monetary Board, unless the same are welt-secured and in the process of collection
shall be considered bad debts within the meaning of this Section. The Monetary
Board may fix, by regulation or by order in a specific case, the amount of reserves
for bad debts or doubtful accounts or other contingencies. Writing off of loans,
other credit accommodations, advances and other assets shall be subject to
regulations issued by the Monetary Board. (84a)
Section 50. Major Investments. - For the purpose or enhancing bank supervision, the
Monetary Board shall establish criteria for reviewing major acquisitions of
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investments by a bank including corporate affiliations or structures that may expose
the bank to undue risks or in any way hinder effective supervision.
Section 51. Ceiling on Investments in Certain Assets. - Any bank may acquire real
estate as shall be necessary for its own use in the conduct of its business: Provided,
however, That the total investment in such real estate and improvements thereof
including bank equipment, shall not exceed fifty percent (50%) of combined capital
accounts: Provided, further, That the equity investment of a bank in another
corporation engaged primarily in real estate shall be considered as part of the
bank's total investment in real estate, unless otherwise provided by the Monetary
Board. (25a)
Section 52. Acquisition of Real Estate by Way of Satisfaction of Claims. -
Notwithstanding the limitations of the preceding Section, a bank may acquire, hold
or convey real property under the following circumstances:
52.1. Such as shall be mortgaged to it in good faith by way of security for debts;
52.2. Such as shall be conveyed to it in satisfaction of debts previously contracted in
the course of its dealings, or
52.3. Such as it shall purchase at sales under judgments, decrees, mortgages, or
trust deeds held by it and such as it shall purchase to secure debts due it.
Any real property acquired or held under the circumstances enumerated in the
above paragraph shall be disposed of by the bank within a period of five (5) years or
as may be prescribed by the Monetary Board: Provided, however, That the bank
may, after said period, continue to hold the property for its own use, subject to the
limitations of the preceding Section. (25a)
Section 53. Other Banking Services. - In addition to the operations specifically
authorized in this Act, a bank may perform the following services:
53.1. Receive in custody funds, documents and valuable objects;
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53.2. Act as financial agent and buy and sell, by order of and for the account of their
customers, shares, evidences of indebtedness and all types of securities;
53.3. Make collections and payments for the account of others and perform such
other services for their customers as are not incompatible with banking business;
53.4 Upon prior approval of the Monetary Board, act as managing agent, adviser,
consultant or administrator of investment management/advisory/consultancy
accounts; and
53.5. Rent out safety deposit boxes.
The bank shall perform the services permitted under Subsections 53.1, 53.2,53.3
and 53.4 as depositary or as an agent. Accordingly, it shall keep the funds, securities
and other effects which it receives duly separate from the bank's own assets and
liabilities: The Monetary Board may regulate the operations authorized by this
Section in order to ensure that such operations do not endanger the interests of the
depositors and other creditors of the bank. In case a bank or quasi-bark notifies the
Bangko Sentral or publicly announces a bank holiday, or in any manner suspends the
payment of its deposit liabilities continuously for more than thirty (30) days, the
Monetary Board may summarily and without need for prior hearing close such
banking institution and place it under receivership of the Philippine Deposit
Insurance Corporation. (72a)
Section 54. Prohibition to Act as Insurer. - A bank shall not directly engage in
insurance business as the insurer. (73)
Section 55. Prohibited Transactions.
55.1. No director, officer, employee, or agent of any bank shall -
(a) Make false entries in any bank report or statement or participate in any
fraudulent transaction, thereby affecting the financial interest of, or causing
damage to, the bank or any person;
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(b) Without order of a court of competent jurisdiction, disclose to any
unauthorized person any information relative to the funds or properties in
the custody of the bank belonging to private individuals, corporations, or
any other entity: Provided, That with respect to bank deposits, the
provisions of existing laws shall prevail;
(c) Accept gifts, fees, or commissions or any other form of remuneration in
connection with the approval of a loan or other credit accommodation from
said bank;
(d) Overvalue or aid in overvaluing any security for the purpose of
influencing in any way the actions of the bank or any bank; or
(e) Outsource inherent banking functions.
55.2. No borrower of a bank shall -
(a) Fraudulently overvalue property offered as security for a loan or other
credit accommodation from the bank;
(b) Furnish false or make misrepresentation or suppression of material facts
for the purpose of obtaining, renewing, or increasing a loan or other credit
accommodation or extending the period thereof;
(c) Attempt to defraud the said bank in the event of a court action to
recover a loan or other credit accommodation; or
(d) Offer any director, officer, employee or agent of a bank any gift, fee,
commission, or any other form of compensation in order to influence such
persons into approving a loan or other credit accommodation application.
55.3 No examiner, officer or employee of the Bangko Sentral or of any department,
bureau, office, branch or agency of the Government that is assigned to supervise,
Nigel Carmelo Q. Reago 249

examine, assist or render technical assistance to any bank shall commit any of the
acts enumerated in this Section or aid in the commission of the same. (87-Aa)
The making of false reports or misrepresentation or suppression of material facts by
personnel of the Bangko Sental ng Pilipinas shall be subject to the administrative
and criminal sanctions provided under the New Central Bank Act.
55.4. Consistent with the provisions of Republic Act No. 1405, otherwise known as
the Banks Secrecy Law, no bank shall employ casual or non regular personnel or too
lengthy probationary personnel in the conduct of its business involving bank
deposits.
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.
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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. (n)
Section 57. Prohibition on Dividend Declaration. - No bank or quasi-bank shall
declare dividends, if at the time of declaration:
57.1 Its clearing account with the Bangko Sentral is overdrawn; or
57.2 It is deficient in the required liquidity floor for government deposits for five (5)
or more consecutive days, or
57.3 It does not comply with the liquidity standards/ratios prescribed by the Bangko
Sentral for purposes of determining funds available for dividend declaration; or
57.4 It has committed a major violation as may be determined by the Bangko
Sentral (84a)
Section 58. Independent Auditor. - The Monetary Board may require a bank, quasi-
bank or trust entity to engage the services of an independent auditor to be chosen
by the bank, quasi-bank or trust entity concerned from a list of certified public
accountants acceptable to the Monetary Board. The term of the engagement shall
be as prescribed by the Monetary Board which may either be on a continuing basis
where the auditor shall act as resident examiner, or on the basis of special
engagements; but in any case, the independent auditor shall be responsible to the
bank's, quasi-bank's or trust entity's board of directors. A copy of the report shall be
furnished to the Monetary Board. The Monetary Board may also direct the board of
directors of a bank, quasi-bank, trusty entity and/or the individual members thereof;
to conduct, either personally or by a committee created by the board, an annual
balance sheet audit of the bank, quasi-bank or trust entity to review the internal
audit and control system of the bank, quasi-bank or trust entity and to submit a
report of such audit. (6-Da)
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Section 59. Authority to Regulate Electronic Transactions. - The Bangko Sentral shall
have full authority to regulate the use of electronic devices, such as computers, and
processes for recording, storing and transmitting information or data in connection
with the operations of a bank; quasi-bank or trust entity, including the delivery of
services and products to customers by such entity. (n)
Section 60. Financial Statements. - Every bank, quasi-bank or trust entity shall
submit to the appropriate supervising and examining department of the Bangko
Sentral financial statements in such form and frequency as may be prescribed by the
Bangko Sentral. Such statements, which shall be as of a specific date designated by
the Bangko Sentral, shall show thee actual financial condition of the institution
submitting the statement, and of its branches, offices, subsidiaries and affiliates,
including the results of its operations, and shall contain such information as may be
required in Bangko Sentral regulations. (n)
Section 61. Publication of Financial Statements. - Every bank, quasi-bank or trust
entity, shall publish a statement of its financial condition, including those of its
subsidiaries and affiliates, in such terms understandable to the layman and in such
frequency as may be prescribed Bangko Sentral, in English or Filipino, at least once
every quarter in a newspaper of general circulation in the city or province where the
principal office, in the case of a domestic institution or the principal branch or office
in the case of a foreign bank, is located, but if no newspaper is published in the
same province, then in a newspaper published in Metro Manila or in the nearest city
or province. The Bangko Sentral may by regulation prescribe the newspaper where
the statements prescribed herein shall be published. The Monetary Board may allow
the posting of the financial statements of a bank, quasi-bank or trust entity in public
places it may determine, lieu of the publication required in the preceding paragraph,
when warranted by the circumstances. Additionally, banks shall make available to
the public in such form and manner as the Bangko Sentral may prescribe the
complete set of its audited financial statements as well as such other relevant
information including those on enterprises majority-owned or controlled by the
bank, that will inform the public of the true financial condition of a bank as of any
given time. In periods of national and/or local emergency or of imminent panic
which directly threaten monetary and banking stability, the Monetary Board, by a
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vote of at least five (5) of its members, in special cases and upon application of the
bank, quasi-bank or trust entity, may allow such bank, quasi-bank or trust entity to
defer for a stated period of time the publication of the statement of financial
condition required herein. (n)
Section 62. Publication of Capital Stock. - A bank, quasi-bank or trust entity
incorporated under the laws of the Philippines shall not publish the amount of its
authorized or subscribed capital stock without indicating at the same time and with
equal prominence, the amount of its capital actually paid up. No branch of any
foreign bank doing business in the Philippines shall in any way announce the
amount of the capital and surplus of its head office, or of the bank in its entirety
without indicating at the same time and with equal prominence the amount of the
capital, if any, definitely assigned to such branch, such fact shall be stated in, and
shall form part of the publication. (82)
Section 63. Settlement of Disputes. - The provisions of any law to the contrary
notwithstanding, the Bangko Sentral shall be consulted by other government
agencies or instrumentalities in actions or proceedings initiated by or brought
before them involving controversies in banks, quasi-banks or trust entities arising
out of and involving relations between and among their directors, officers or
stockholders, as well as disputes between any or all of them and the bank, quasi-
bank or trust entity of which they are directors, officers or stockholders. (n)
Section 64. Unauthorized Advertisement or Business Representation. - No person,
association, or corporation unless duly authorized to engage in the business of a
bank, quasi-bank, trust entity, or savings and loan association as defined in this Act,
or other banking laws, shall advertise or hold itself out as being engaged in the
business of such bank, quasi-bank, trust entity, or association, or use in connection
with its business title, the word or words "bank", "banking", "banker", "quasi-bank",
"quasi-banking", "quasi-banker", "savings and loan association", "trust corporation",
"trust company" or words of similar import or transact in any manner the business
of any such bank, corporation or association. (6)
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Section 65. Service Fees. - The Bangko Sentral may charge equitable rates,
commissions or fees, as may be prescribed by the Monetary Board for supervision,
examination and other services which it renders under this Act. (n)
Section 66. Penalty for Violation of this Act. - Unless otherwise herein provided, the
violation of any of the provisions of this Act shall be subject to Sections 34, 35, 36
and 37 of the New Central Bank Act. If the offender is a director or officer of a bank,
quasi-bank or trust entity, the Monetary Board may also suspend or remove such
director or officer. If the violation is committed by a corporation, such corporation
may be dissolved by quo warranto proceedings instituted by the Solicitor General.
(87)
CHAPTER V
PLACEMENT UNDER CONSERVATORSHIP
Section 67. Conservatorship. - The grounds and procedures for placing a bank under
conservatorship, as well as, the powers and duties of the conservator appointed for
the bank shall be governed by the provisions of Section 29 and the last two
paragraphs of Section 30 of the New Central Bank Act: Provided, That this Section
shall also apply to conservatorship proceedings of quasi-banks. (n)
CHAPTER VI
CESSATION OF BANKING BUSINESS
Section 68. Voluntary Liquidation. - In case of voluntary liquidation of any bank
organized under the laws of the Philippines, or of any branch or office in the
Philippines of a foreign bank, written notice of such liquidation shall be sent to the
Monetary Board before such liquidation shall be sent to the Monetary Board before
such liquidation is undertaken, and the Monetary Board shall have the right to
intervene and take such steps as may be necessary to protect the interests of
creditors. (86)
Section 69. Receivership and Involuntary Liquidation. - The grounds and procedures
for placing a bank under receivership or liquidation, as well as the powers and duties
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of the receiver or liquidator appointed for the bank shall be governed by the
provisions of Sections 30, 31, 32, and 33 of the New Central Bank Act: Provided,
That 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. This Section shall also apply to the extent possible to the
receivership and liquidation proceedings of quasi-banks. (n)
Section 70. Penalty for Transactions After a Bank Becomes Insolvent. - Any director
or officer of any bank declared insolvent or placed under receivership by the
Monetary Board who refuses to turn over the bank's records and assets to the
designated receivers, or who tampers with banks records, or who appropriates for
himself for another party or destroys or causes the misappropriation and
destruction of the bank's assets, or who receives or permits or causes to be received
in said bank any deposit, collection of loans and/or receivables, or who pays out or
permits or causes to be transferred any securities or property of said bank shall be
subject to the penal provisions of the New Central Bank Act. (85a)
CHAPTER VII
LAWS GOVERNING OTHER TYPES OF BANKS
Section 71. Other Banking Laws. - The organization, the ownership and capital
requirements, powers, supervision and general conduct of business of thrift banks,
rural banks and cooperative banks shall be governed by the provisions of the Thrift
Banks Act, the Rural Banks Act, and the Cooperative Code, respectively. The
organization, ownership and capital requirements, powers, supervision and general
conduct of business of Islamic banks shall be governed by special laws. The
provisions of this Act, however, insofar as they are not in conflict with the provisions
of the Thrift Banks Act, the Rural Banks Act, and the Cooperative Code shall likewise
apply to thrift banks, rural banks, and cooperative banks, respectively. However, for
purposes of prescribing the minimum ratio which the net worth of a thrift bank
must bear to its total risk assets, the provisions of Section 33 of this Act shall govern.
(n)
Nigel Carmelo Q. Reago 252

CHAPTER VIII
FOREIGN BANKS
Section 72. Transacting Business in the Philippines. - The entry of foreign banks in
the Philippines through the establishment of branches shall be governed by the
provisions of the Foreign Banks Liberalization Act. The conduct of offshore banking
business in the Philippines shall be governed by the provisions of the Presidential
Decree No. 1034, otherwise known as the "Offshore Banking System Decree." (14a)
Section 73. Acquisition of Voting Stock in a Domestic Bank. - Within seven (7) years
from the effectivity of this act and subject to guidelines issued pursuant to the
Foreign Banks Liberalization Act, the Monetary Board may authorize a foreign bank
to acquire up to one hundred percent (100%) of the voting stock of only one (1)
bank organized under the laws of the Republic of the Philippines. Within the same
period, the Monetary Board may authorize any foreign bank, which prior to the
effectivity of this Act availed itself of the privilege to acquire up to sixty percent
(60%) of the voting stock of a bank under the Foreign Banks Liberalization Act and
the Thrift Banks Act, to further acquire voting shares such bank to the extent
necessary for it to own one hundred percent (100%) of the voting stock thereof. In
the exercise of the authority, the Monetary Board shall adopt measures as may be
necessary to ensure that at all times the control of seventy percent (70%) of the
resources or assets of the entire banking system is held by banks which are at least
majority-owned by Filipinos. Any right, privilege or incentive granted to a foreign
bank under this Section shall be equally enjoyed by and extended under the same
conditions to banks organized under the laws of the Republic of the Philippines.
(Secs. 2 and 3, RA 7721
Section 74. Local Branches of Foreign Banks. - In the case of a foreign bank which
has more than one (1) branch in the Philippines, all such branches shall be treated as
one (1) unit for the purpose of this Act, and all references to the Philippine branches
of foreign banks shall be held to refer to such units. (68)
Section 75. Head Office Guarantee. - In order to provide effective protection of the
interests of the depositors and other creditors of Philippine branches of a foreign
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bank, the head office of such branches shall fully guarantee the prompt payment of
all liabilities of its Philippine branch. (69) Residents and citizens of the Philippines
who are creditors of a branch in the Philippines of a foreign bank shall have
preferential rights to the assets of such branch in accordance with the existing laws.
(19)
Section 76. Summons and Legal Process. - Summons and legal process served upon
the Philippine agent or head of any foreign bank designated to accept service
thereof shall give jurisdiction to the courts over such bank, and service of notices on
such agent or head shall be as binding upon the bank which he represents as if
made upon the bank itself. Should the authority of such agent or head to accept
service of summons and legal processes for the bank or notice to it be revoked, or
should such agent or head become mentally incompetent or otherwise unable to
accept service while exercising such authority, it shall be the duty of the bank to
name and designate promptly another agent or head upon whom service of
summons and processes in legal proceedings against the bank and of notices
affecting the bank may be made, and to file with the Securities and Exchange
Commission a duly authenticated nomination of such agent. In the absence of the
agent or head or should there be no person authorized by the bank upon whom
service of summons, processes and all legal notices may be made, service of
summons, processes and legal notices may be made upon the Bangko Sentral
Deputy Governor In-Charge of the supervising and examining departments and such
service shall be as effective as if made upon the bank or its duly authorized agent or
head. In case of service for the bank upon the Bangko Sentral Deputy Governor In-
charge of the supervising and examining departments, the said deputy Governor
shill register and transmit by mail to the president or the secretary of the bank at its
head or principal office a copy, duly certified by him, of the summons, process, or
notice. The sending of such copy of the summons, process, or notice shall be a
necessary part of the services and shall complete the service. The registry receipt of
mailing shall be prima facie evidence of the transmission of the summons, process
or notice. All costs necessarily incurred by the said Deputy Governor for the making
and mailing and sending of a copy of the summons, process, or notice to the
president or the secretary of the bank at its head or principal office shall be paid in
advance by the party at whose instance the service is made. (17)
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Section 77. Laws Applicable. - In all matters not specifically covered by special
provisions applicable only to a foreign bank or its branches and other offices in the
Philippines any foreign bank licensed to do business in the Philippines shall be
bound by the provisions of this Act, all other laws, rules and regulations applicable
to banks organized under the laws of the Philippines of the same class, except those
that provide for the creation, formation, organization or dissolution of corporations
or for the fixing of the relations, liabilities, responsibilities, or duties of stockholders,
members, directors or officers of corporations to each other or to the corporation.
(18)
Section 78. Revocation of License of a Foreign Bank - The Monetary Board may
revoke the license to transact business in the Philippines of, any foreign bank, if it
finds that the foreign bank is insolvent or in imminent danger thereof or that its
continuance in business will involve probable loss to those transacting business with
it. After the revocation of its license, it shall be unlawful for any such foreign banks
to transact business in the Philippines unless its license is renewed or reissued. After
the revocation of such license, the Bangko Sentral shall take the necessary action to
protect the creditors of such foreign bank and the public. The provisions of the New
Central Bank Act on sanctions and penalties shall likewise be applicable. (16)
CHAPTER IX
TRUST OPERATIONS
Section 79. Authority to Engage in Trust Business. - Only a stock corporation or a
person duly authorized by the Monetary Board to engage in trust business shall act
as a trustee or administer any trust or hold property in trust or on deposit for the
use, benefit, or behoof of others. For purposes of this Act, such a corporation shall
be referred to as a trust entity. (56a; 57a)
Section 80. Conduct of Trust Business. - A trust entity shall administer the funds or
property under its custody with the diligence that a prudent man would exercise in
the conduct of an enterprise of a like character and with similar aims. No trust entity
shall, for the account of the trustor or the beneficiary of the trust, purchase or
acquire property from, or sell, transfer, assign, or lend money or property to, or
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purchase debt instruments of, any of the departments, directors, officers,
stockholders, or employees of the trust entity, relatives within the first degree of
consanguinity or affinity, or the related interests, of such directors, officers and
stockholders, unless the transaction is specifically authorized by the trustor and the
relationship of the trustee and the other party involved in the transaction is fully
disclosed to the trustor of beneficiary of the trust prior to the transaction. The
Monetary Board shall promulgate such rules and regulations as may be necessary to
prevent circumvention of this prohibition or the evasion of the responsibility herein
imposed on a trust entity. (56)
Section 81. Registration of Articles of Incorporation and By-Laws of a Trust Entity. -
The Securities and Exchange Commission shall not register the articles of
incorporation and by-laws or any amendment thereto, of any trust entity, unless
accompanied by a certificate of authority issued by the Bangko Sentral. (n)
Section 82. Minimum Capitalization. - A trust entity, before it can engage in trust or
other fiduciary business, shall comply with the minimum paid-in capital requirement
which will be determined by the Monetary Board. (n)
Section 83. Powers of a Trust Entity. - A trust entity, in addition to the general
powers incident to corporations, shall have the power to:
83.1 Act as trustee on any mortgage or bond issued by any municipality,
corporation, or any body politic and to accept and execute any trust consistent with
law;
83.2 Act under the order or appointment of any court as guardian, receiver, trustee,
or depositary of the estate of any minor or other incompetent person, and as
receiver and depositary of any moneys paid into court by parties to any legal
proceedings and of property of any kind which may be brought under the
jurisdiction of the court;
83.3. Act as the executor of any will when it is named the executor thereof;
Nigel Carmelo Q. Reago 254

83.4 Act as administrator of the estate of any deceased person, with the will
annexed, or as administrator of the estate of any deceased person when there is no
will;
83.5. Accept and execute any trust for the holding, management, and
administration of any estate, real or personal, and the rents, issues and profits
thereof; and
83.6. Establish and manage common trust funds, subject to such rules and
regulations as may be prescribed by the Monetary Board.
Section 84. Deposit for the Faithful Performance of Trust Duties. - Before transacting
trust business, every trust entity shall deposit with the Bangko Sentral, as security
for the faithful performance of its trust duties, cash or securities approved by the
Monetary Board in an amount equal to or not less than Five hundred thousand
pesos (P500,000.00) or such higher amount as may fixed by the Monetary Board:
Provided, however, That the Monetary Board shall require every trust entity to
increase the amount of its cash or securities on deposit with the Bangko Sentral in
accordance with the provisions of this paragraph. Should the capital and surplus fall
below said amount, the Monetary Board shall have the same authority as that
granted to it under the provisions of the fifth paragraph of Section 34 of this Act. A
trust entity so long as it shall continue to be solvent and comply with laws or
regulations shall have the right to collect the interest earned on such securities
deposited with the Bangko Sentral and, from time to time, with the approval of the
Bangko Sentral, to exchange the securities for others. If the trust entity fails to
comply with any law or regulation, the Bangko Sentral shall retain such interest on
the securities deposited with it for the benefit of rightful claimants. Al claims rising
out of the trust business of a trust entity shall have priority over all other claims as
regards the cash or securities deposited as above provided. The Monetary Board
may not permit the cash or securities deposited in accordance with the provisions of
this Section to be reduced below the prescribed minimum amount until the
depositing entity shall discontinue its trust business and shall satisfy the Monetary
Board that it has complied with all its obligations in connection with such business.
(65a)
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Section 85. Bond of Certain Persons for the Faithful Performance of Duties. - Before
an executor, administrator, guardian, trustee, receiver or depositary appointed by
the court enters upon the execution of his duties, he shall, upon order of the court,
file a bond in such sum as the court may direct. Upon the application of any
executor, administrator, guardian, trustee, receiver, depositary or any other person
in interest, the court may, after notice and hearing, order that the subject matter of
the trust or any part, thereof be deposited with a trust entity. Upon presentation of
proof to the court that the subject matter of the trust has been deposited with a
trust entity. Upon presentation of proof to the court that the subject matter of the
trust has been deposited with a trust entity, the court may order that the bond
given by such persons for the faithful performance of their duties be reduced to
such sums as it may deem proper: Provided, however, That the reduced bond shall
be sufficient to secure adequately the proper administration and care of any
property remaining under the control of such persons and the proper accounting for
such property. Property deposited with any trust entity in conformity with this
Section shall be held by such entity under the orders and direction of the court. (59)
Section 86. Exemption of Trust Entity from Bond Requirement. - No bond or other
security shall be required by the court from a trust entry for the faithful
performance of its duties as court-appointed trustee, executor, administrator,
guardian, receiver, or depositary. However, the court may, upon proper application
with it showing special cause therefore, require the trust entity to post a bond or
other security for the protection of funds or property confided to such entity. (59)
Section 87. Separation of Trust Business from General Business. - The trust business
and all funds, properties or securities received by any trust entity as executor,
administrator, guardian, trustee, receiver, or depositary shall be kept separate and
distinct from the general business including all other funds, properties, and assets of
such trust entity. The accounts of all such funds, properties, or securities shall
likewise be kept separate and distinct from the accounts of the general business of
the trust entity. (61)
Section 88. Investment Limitations of a Trust Entity. - Unless otherwise directed by
the instrument creating the trust, the lending and investment of funds and other
Nigel Carmelo Q. Reago 255

assets acquired by a trust entity as executor, administrator, guardian, trustee,
receiver or depositary of the estate of any minor or other incompetent person shall
be limited to loans or investments as may be prescribed by law, the Monetary Board
or any court of competent jurisdiction. (63a)
Section 89. Real Estate Acquired by a Trust Entity. - Unless otherwise specifically
directed by the trustor or the nature of the trust, real estate acquired by a trust
entity in whatever manner and for whatever purposes, shall likewise be governed by
the relevant provisions of Section 52 of this Act. (64a)
Section 90. Investment of Non-Trust Funds. - The investment of funds other than
trust funds of a trust entity which is a bank, financing company or an investment
house shall be governed by the relevant provisions of this Act and other applicable
laws. (64)
Section 91. Sanctions and Penalties. - A trust entity or any of its officers and
directors found to have willfully violated any pertinent provisions of this Act, shall
be subject to the sanctions and penalties provided tinder Section 66 of this Act as
well as Sections 36 and 37 of the New Central Bank Act.
Section 92. Exemption of Trust Assets from Claims. - No assets held by a trust entity
in its capacity as trustee shall be subject to any claims other than those of the
parties interested in the specific trusts. (65)
Section 93. Establishment of Branches of a Trust Entity. - The ordinary business of a
trust entity shall be transacted at the place of business specified in its articles of
incorporation. Such trust entity may, with prior approval of the Monetary Board,
establish branches in the Philippines and the said entity shall be responsible for all
business conducted in such branches to the same extent and in the same manner as
though such business had all been conducted in the head office. For the purpose of
this Act, the trust entity and its branches shall be treated as one unit. (67)
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CHAPTER X
FINAL PROVISIONS
Section 94. Phase Out of Bangko Sentral Powers Over Building and Loan
Associations. - Within a period of three (3) years from the effectivity of this Act, the
Bangko Sentral shall phase out and transfer its supervising and regulatory powers
over building and loan associations to the Home Insurance and Guaranty
Corporation which shall assume the same. Until otherwise provided bylaw1 building
and loan associations shall continue to be governed by Sections 39 to 55, Chapter VI
of the General Banking Act, as amended, including such rules and regulations issued
pursuant thereto. Upon assumption by the Home Insurance and Guaranty
Corporation of supervising and regulatory powers over building and loan
associations, a references in Sections 39 to 55 of the General Banking Act, as
amended, to the Bangko Sentral and the Monetary Board shall be deemed to refer
to the Home Insurance and Guaranty Corporation and its board of directors,
respectively. (n)
Section 95. Repealing Clause. - Except as may be provided for in Sections 34 and 94
of this Act, the General Banking Act, as amended, and the provisions of any other
law, special charters, rule or regulation issued pursuant to said General Banking Act,
as amended, or parts thereof, which may be inconsistent with the provisions of this
Act are hereby repealed. The provisions of paragraph 8, Section 8, Republic Act No.
3591, as amended by republic Act No. 7400, are likewise repealed. (90a)
Section 96. 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. (n)
Section 97. 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. (91)
Nigel Carmelo Q. Reago 256

Republic Act No. 8293 June 6, 1997
AN ACT PRESCRIBING THE INTELLECTUAL PROPERTY
CODE AND ESTABLISHING THE INTELLECTUAL PROPERTY
OFFICE, PROVIDING FOR ITS POWERS AND FUNCTIONS,
AND FOR OTHER PURPOSES
PART I
THE INTELLECTUAL PROPERTY OFFICE
Section 1. Title. - This Act shall be known as the "Intellectual Property Code of the
Philippines."
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)
Section 3. International Conventions and Reciprocity. - Any person who is a national
or who is domiciled or has a real and effective industrial establishment in a country
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which is a party to any convention, treaty or agreement relating to intellectual
property rights or the repression of unfair competition, to which the Philippines is
also a party, or extends reciprocal rights to nationals of the Philippines by law, shall
be entitled to benefits to the extent necessary to give effect to any provision of such
convention, treaty or reciprocal law, in addition to the rights to which any owner of
an intellectual property right is otherwise entitled by this Act. (n)
Section 4. Definitions. - 4.1. The term "intellectual property rights" consists of:
a) Copyright and Related Rights;
b) Trademarks and Service Marks;
c) Geographic Indications;
d) Industrial Designs;
e) Patents;
f) Layout-Designs (Topographies) of Integrated Circuits; and
g) Protection of Undisclosed Information (n, TRIPS).
4.2. The term "technology transfer arrangements" refers to contracts or agreements
involving the transfer of systematic knowledge for the manufacture of a product,
the application of a process, or rendering of a service including management
contracts; and the transfer, assignment or licensing of all forms of intellectual
property rights, including licensing of computer software except computer software
developed for mass market.
4.3. The term "Office" refers to the Intellectual Property Office created by this Act.
4.4. The term "IPO Gazette" refers to the gazette published by the Office under this
Act. (n)
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Section 5. Functions of the Intellectual Property Office (IPO). - 5.1. To administer and
implement the State policies declared in this Act, there is hereby created the
Intellectual Property Office (IPO) which shall have the following functions:
a) Examine applications for grant of letters patent for inventions and
register utility models and industrial designs;
b) Examine applications for the registration of marks, geographic indication,
integrated circuits;
c) Register technology transfer arrangements and settle disputes involving
technology transfer payments covered by the provisions of Part II, Chapter
IX on Voluntary Licensing and develop and implement strategies to promote
and facilitate technology transfer;
d) Promote the use of patent information as a tool for technology
development;
e) Publish regularly in its own publication the patents, marks, utility models
and industrial designs, issued and approved, and the technology transfer
arrangements registered;
f) Administratively adjudicate contested proceedings affecting intellectual
property rights; and
g) Coordinate with other government agencies and the private sector efforts
to formulate and implement plans and policies to strengthen the protection
of intellectual property rights in the country.
5.2. The Office shall have custody of all records, books, drawings, specifications,
documents, and other papers and things relating to intellectual property rights
applications filed with the Office. (n)
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Section 6. The Organizational Structure of the IPO. - 6.1. The Office shall be headed
by a Director General who shall be assisted by two (2) Deputies Director General.
6.2. The Office shall be divided into six (6) Bureaus, each of which shall be headed by
a Director and assisted by an Assistant Director. These Bureaus are:
a) The Bureau of Patents;
b) The Bureau of Trademarks;
c) The Bureau of Legal Affairs;
d) The Documentation, Information and Technology Transfer Bureau;
e) The Management Information System and EDP Bureau; and
f) The Administrative, Financial and Personnel Services Bureau.
6.3. The Director General, Deputies Director General, Directors and Assistant
Directors shall be appointed by the President, and the other officers and employees
of the Office by the Secretary of Trade and Industry, conformably with and under
the Civil Service Law. (n)
Section 7. The Director General and Deputies Director General. - 7.1. Functions. - The
Director General shall exercise the following powers and functions:
a) Manage and direct all functions and activities of the Office, including the
promulgation of rules and regulations to implement the objectives, policies,
plans, programs and projects of the Office: Provided, That in the exercise of
the authority to propose policies and standards in relation to the following:
(1) the effective, efficient, and economical operations of the Office requiring
statutory enactment; (2) coordination with other agencies of government in
relation to the enforcement of intellectual property rights; (3) the
recognition of attorneys, agents, or other persons representing applicants
Nigel Carmelo Q. Reago 258

or other parties before the Office; and (4) the establishment of fees for the
filing and processing of an application for a patent, utility model or
industrial design or mark or a collective mark, geographic indication and
other marks of ownership, and for all other services performed and
materials furnished by the Office, the Director General shall be subject to
the supervision of the Secretary of Trade and Industry;
b) Exercise exclusive appellate jurisdiction over all decisions rendered by the
Director of Legal Affairs, the Director of Patents, the Director of Trademarks,
and the Director of the Documentation, Information and Technology
Transfer Bureau. The decisions of the Director General in the exercise of his
appellate jurisdiction in respect of the decisions of the Director of Patents,
and the Director of Trademarks shall be appealable to the Court of Appeals
in accordance with the Rules of Court; and those in respect of the decisions
of the Director of Documentation, Information and Technology Transfer
Bureau shall be appealable to the Secretary of Trade and Industry; and
c) Exercise original jurisdiction to resolve disputes relating to the terms of a
license involving the author's right to public performance or other
communication of his work. The decisions of the Director General in these
cases shall be appealable to the Secretary of Trade and Industry.
7.2. Qualifications. - The Director General and the Deputies Director General must
be natural born citizens of the Philippines, at least thirty-five (35) years of age on
the day of their appointment, holders of a college degree, and of proven
competence, integrity, probity and independence: Provided, That the Director
General and at least one (1) Deputy Director General shall be members of the
Philippine Bar who have engaged in the practice of law for at least ten (10) years:
Provided further, That in the selection of the Director General and the Deputies
Director General, consideration shall be given to such qualifications as would result,
as far as practicable, in the balanced representation in the Directorate General of
the various fields of intellectual property.
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7.3. Term of Office. - The Director General and the Deputies Director General shall
be appointed by the President for a term of five (5) years and shall be eligible for
reappointment only once: Provided, That the first Director General shall have a first
term of seven (7) years. Appointment to any vacancy shall be only for the unexpired
term of the predecessor.
7.4. The Office of the Director General. - The Office of the Director General shall
consist of the Director General and the Deputies Director General, their immediate
staff and such Offices and Services that the Director General will set up to support
directly the Office of the Director General. (n)
Section 8. The Bureau of Patents. - The Bureau of Patents shall have the following
functions:
8.1. Search and examination of patent applications and the grant of patents;
8.2. Registration of utility models, industrial designs, and integrated circuits; and
8.3. Conduct studies and researches in the field of patents in order to assist the
Director General in formulating policies on the administration and examination of
patents. (n)
Section 9. The Bureau of Trademarks. - The Bureau of Trademarks shall have the
following functions:
9.1. Search and examination of the applications for the registration of marks,
geographic indications and other marks of ownership and the issuance of the
certificates of registration; and
9.2. Conduct studies and researches in the field of trademarks in order to assist the
Director General in formulating policies on the administration and examination of
trademarks. (n)
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Section 10. The Bureau of Legal Affairs. - The Bureau of Legal Affairs shall have the
following functions:
10.1. Hear and decide opposition to the application for registration of marks;
cancellation of trademarks; subject to the provisions of Section 64, cancellation of
patents, utility models, and industrial designs; and petitions for compulsory licensing
of patents;
10.2. (a) Exercise original jurisdiction in administrative complaints for violations of
laws involving intellectual property rights: Provided, That its jurisdiction is limited to
complaints where the total damages claimed are not less than Two hundred
thousand pesos (P200,000): Provided further, That availment of the provisional
remedies may be granted in accordance with the Rules of Court. The Director of
Legal Affairs shall have the power to hold and punish for contempt all those who
disregard orders or writs issued in the course of the proceedings. (n)
(b) After formal investigation, the Director for Legal Affairs may impose one
(1) or more of the following administrative penalties:
(i) The issuance of a cease and desist order which shall specify the
acts that the respondent shall cease and desist from and shall
require him to submit a compliance report within a reasonable time
which shall be fixed in the order;
(ii) The acceptance of a voluntary assurance of compliance or
discontinuance as may be imposed. Such voluntary assurance may
include one or more of the following:
(1) An assurance to comply with the provisions of the
intellectual property law violated;
(2) An assurance to refrain from engaging in unlawful and
unfair acts and practices subject of the formal investigation;
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(3) An assurance to recall, replace, repair, or refund the
money value of defective goods distributed in commerce;
and
(4) An assurance to reimburse the complainant the
expenses and costs incurred in prosecuting the case in the
Bureau of Legal Affairs.
The Director of Legal Affairs may also require the respondent to
submit periodic compliance reports and file a bond to guarantee
compliance of his undertaking;
(iii) The condemnation or seizure of products which are subject of
the offense. The goods seized hereunder shall be disposed of in
such manner as may be deemed appropriate by the Director of
Legal Affairs, such as by sale, donation to distressed local
governments or to charitable or relief institutions, exportation,
recycling into other goods, or any combination thereof, under such
guidelines as he may provide;
(iv) The forfeiture of paraphernalia and all real and personal
properties which have been used in the commission of the offense;
(v) The imposition of administrative fines in such amount as deemed
reasonable by the Director of Legal Affairs, which shall in no case be
less than Five thousand pesos (P5,000) nor more than One hundred
fifty thousand pesos (P150,000). In addition, an additional fine of
not more than One thousand pesos (P1,000) shall be imposed for
each day of continuing violation;
(vi) The cancellation of any permit, license, authority, or registration
which may have been granted by the Office, or the suspension of
the validity thereof for such period of time as the Director of Legal
Affairs may deem reasonable which shall not exceed one (1) year;
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(vii) The withholding of any permit, license, authority, or registration
which is being secured by the respondent from the Office;
(viii) The assessment of damages;
(ix) Censure; and
(x) Other analogous penalties or sanctions. (Secs. 6, 7, 8, and 9,
Executive Order No. 913 [1983]a)
10.3. The Director General may by Regulations establish the procedure to govern
the implementation of this Section. (n)
Section 11. The Documentation, Information and Technology Transfer Bureau. - The
Documentation, Information and Technology Transfer Bureau shall have the
following functions:
11.1. Support the search and examination activities of the Office through the
following activities:
(a) Maintain and upkeep classification systems whether they be national or
international such as the International Patent Classification (IPC) system;
(b) Provide advisory services for the determination of search patterns;
(c) Maintain search files and search rooms and reference libraries; and
(d) Adapt and package industrial property information.
11.2. Establish networks or intermediaries or regional representatives;
11.3. Educate the public and build awareness on intellectual property through the
conduct of seminars and lectures, and other similar activities;
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11.4. Establish working relations with research and development institutions as well
as with local and international intellectual property professional groups and the like;
11.5. Perform state-of-the-art searches;
11.6. Promote the use of patent information as an effective tool to facilitate the
development of technology in the country;
11.7. Provide technical, advisory, and other services relating to the licensing and
promotion of technology, and carry out an efficient and effective program for
technology transfer; and
11.8. Register technology transfer arrangements, and settle disputes involving
technology transfer payments. (n)
Section 12. The Management Information Services and EDP Bureau. - The
Management Information Services and EDP Bureau shall:
12.1. Conduct automation planning, research and development, testing of systems,
contracts with firms, contracting, purchase and maintenance of equipment, design
and maintenance of systems, user consultation, and the like; and
12.2. Provide management information support and service to the Office. (n)
Section 13. The Administrative, Financial and Human Resource Development Service
Bureau. - 13.1. The Administrative Service shall: (a) Provide services relative to
procurement and allocation of supplies and equipment, transportation,
messengerial work, cashiering, payment of salaries and other Office's obligations,
office maintenance, proper safety and security, and other utility services; and
comply with government regulatory requirements in the areas of performance
appraisal, compensation and benefits, employment records and reports;
(b) Receive all applications filed with the Office and collect fees therefor,
and
Nigel Carmelo Q. Reago 261

(c) Publish patent applications and grants, trademark applications, and
registration of marks, industrial designs, utility models, geographic
indication, and lay-out-designs of integrated circuits registrations.
13.2. The Patent and Trademark Administration Services shall perform the following
functions among others:
(a) Maintain registers of assignments, mergings, licenses, and bibliographic
on patents and trademarks;
(b) Collect maintenance fees, issue certified copies of documents in its
custody and perform similar other activities; and
(c) Hold in custody all the applications filed with the office, and all patent
grants, certificate of registrations issued by the office, and the like.
13.3. The Financial Service shall formulate and manage a financial program to
ensure availability and proper utilization of funds; provide for an effective
monitoring system of the financial operations of the Office; and
13.4. The Human Resource Development Service shall design and implement human
resource development plans and programs for the personnel of the Office; provide
for present and future manpower needs of the organization; maintain high morale
and favorable employee attitudes towards the organization through the continuing
design and implementation of employee development programs. (n)
Section 14. Use of Intellectual Property Rights Fees by the IPO. - 14.1. For a more
effective and expeditious implementation of this Act, the Director General shall be
authorized to retain, without need of a separate approval from any government
agency, and subject only to the existing accounting and auditing rules and
regulations, all the fees, fines, royalties and other charges, collected by the Office
under this Act and the other laws that the Office will be mandated to administer, for
use in its operations, like upgrading of its facilities, equipment outlay, human
resource development, and the acquisition of the appropriate office space, among
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others, to improve the delivery of its services to the public. This amount, which shall
be in addition to the Office's annual budget, shall be deposited and maintained in a
separate account or fund, which may be used or disbursed directly by the Director
General.
14.2. After five (5) years from the coming into force of this Act, the Director General
shall, subject to the approval of the Secretary of Trade and Industry, determine if
the fees and charges mentioned in Subsection 14.1 hereof that the Office shall
collect are sufficient to meet its budgetary requirements. If so, it shall retain all the
fees and charges it shall collect under the same conditions indicated in said
Subsection 14.1 but shall forthwith, cease to receive any funds from the annual
budget of the National Government; if not, the provisions of said Subsection 14.1
shall continue to apply until such time when the Director General, subject to the
approval of the Secretary of Trade and Industry, certifies that the above-stated fees
and charges the Office shall collect are enough to fund its operations. (n)
Section 15. Special Technical and Scientific Assistance. - The Director General is
empowered to obtain the assistance of technical, scientific or other qualified
officers and employees of other departments, bureaus, offices, agencies and
instrumentalities of the Government, including corporations owned, controlled or
operated by the Government, when deemed necessary in the consideration of any
matter submitted to the Office relative to the enforcement of the provisions of this
Act. (Sec. 3, R.A. No. 165a)
Section 16. Seal of Office. - The Office shall have a seal, the form and design of
which shall be approved by the Director General. (Sec. 4, R.A. No. 165a)
Section 17. Publication of Laws and Regulations. - The Director General shall cause
to be printed and make available for distribution, pamphlet copies of this Act, other
pertinent laws, executive orders and information circulars relating to matters within
the jurisdiction of the Office. (Sec. 5, R.A. No. 165a)
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Section 18. The IPO Gazette. - All matters required to be published under this Act
shall be published in the Office's own publication to be known as the IPO Gazette.
(n)
Section 19. Disqualification of Officers and Employees of the Office. - All officers and
employees of the Office shall not apply or act as an attorney or patent agent of an
application for a grant of patent, for the registration of a utility model, industrial
design or mark nor acquire, except by hereditary succession, any patent or utility
model, design registration, or mark or any right, title or interest therein during their
employment and for one (1) year thereafter. (Sec. 77, R.A. No. 165a)
PART II
THE LAW ON PATENTS
CHAPTER I
GENERAL PROVISIONS
Section 20. Definition of Terms Used in Part II, The Law on Patents. - As used in Part
II, the following terms shall have the following meanings:
20.1. "Bureau" means the Bureau of Patents,
20.2. "Director" means the Director of Patents;
20.3. "Regulations" means the Rules of Practice in Patent Cases formulated
by the Director of Patents and promulgated by the Director General;
20.4. "Examiner" means the patent examiner;
20.5. "Patent application" or "application" means an application for a patent
for an invention except in Chapters XII and XIII, where "application" means
an application for a utility model and an industrial design, respectively; and
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20.6. "Priority date" means the date of filing of the foreign application for
the same invention referred to in Section 31 of this Act. (n)
CHAPTER II
PATENTABILITY
Section 21. Patentable Inventions. - Any technical solution of a problem in any field
of human activity which is new, involves an inventive step and is industrially
applicable shall be Patentable. It may be, or may relate to, a product, or process, or
an improvement of any of the foregoing. (Sec. 7, R.A. No. 165a)
Section 22. Non-Patentable Inventions. - The following shall be excluded from
patent protection:
22.1. Discoveries, scientific theories and mathematical methods;
22.2. Schemes, rules and methods of performing mental acts, playing games or
doing business, and programs for computers;
22.3. Methods for treatment of the human or animal body by surgery or therapy
and diagnostic methods practiced on the human or animal body. This provision shall
not apply to products and composition for use in any of these methods;
22.4. Plant varieties or animal breeds or essentially biological process for the
production of plants or animals. This provision shall not apply to micro-organisms
and non-biological and microbiological processes.
Provisions under this subsection shall not preclude Congress to consider the
enactment of a law providing sui generis protection of plant varieties and animal
breeds and a system of community intellectual rights protection:
22.5. Aesthetic creations; and
22.6. Anything which is contrary to public order or morality. (Sec. 8, R.A. No. 165a)
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Section 23. Novelty. . - An invention shall not be considered new if it forms part of a
prior art. (Sec. 9, R.A. No. 165a)
Section 24. Prior Art. - Prior art shall consist of:
24.1. Everything which has been made available to the public anywhere in the
world, before the filing date or the priority date of the application claiming the
invention; and
24.2. The whole contents of an application for a patent, utility model, or industrial
design registration, published in accordance with this Act, filed or effective in the
Philippines, with a filing or priority date that is earlier than the filing or priority date
of the application: Provided, That the application which has validly claimed the filing
date of an earlier application under Section 31 of this Act, shall be prior art with
effect as of the filing date of such earlier application: Provided further, That the
applicant or the inventor identified in both applications are not one and the same.
(Sec. 9, R.A. No. 165a)
Section 25. Non-Prejudicial Disclosure. . - 25.1. The disclosure of information
contained in the application during the twelve (12) months preceding the filing date
or the priority date of the application shall not prejudice the applicant on the
ground of lack of novelty if such disclosure was made by:
(a) The inventor;
(b) A patent office and the information was contained (a) in another
application filed by the inventor and should not have been disclosed by the
office, or (b) in an application filed without the knowledge or consent of the
inventor by a third party which obtained the information directly or
indirectly from the inventor; or
(c) A third party which obtained the information directly or indirectly from
the inventor.
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25.2. For the purposes of Subsection 25.1, "inventor" also means any person who, at
the filing date of application, had the right to the patent. (n)
Section 26. Inventive Step. - 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. (n)
Section 27. Industrial Applicability. - An invention that can be produced and used in
any industry shall be industrially applicable. (n)
CHAPTER III
RIGHT TO A PATENT
Section 28. Right to a Patent. - The right to a patent belongs to the inventor, his
heirs, or assigns. When two (2) or more persons have jointly made an invention, the
right to a patent shall belong to them jointly. (Sec. 10, R.A. No. 165a)
Section 29. First to File Rule. - If two (2) or more persons have made the invention
separately and independently of each other, the right to the patent shall belong to
the person who filed an application for such invention, or where two or more
applications are filed for the same invention, to the applicant who has the earliest
filing date or, the earliest priority date. (3rd sentence, Sec. 10, R.A. No. 165a.)
Section 30. Inventions Created Pursuant to a Commission. - 30.1. The person who
commissions the work shall own the patent, unless otherwise provided in the
contract.
30.2. In case the employee made the invention in the course of his employment
contract, the patent shall belong to:
(a) The employee, if the inventive activity is not a part of his regular duties
even if the employee uses the time, facilities and materials of the employer.
Nigel Carmelo Q. Reago 264

(b) The employer, if the invention is the result of the performance of his
regularly-assigned duties, unless there is an agreement, express or implied,
to the contrary. (n)
Section 31. Right of Priority. . - An application for patent filed by any person who has
previously applied for the same invention in another country which by treaty,
convention, or law affords similar privileges to Filipino citizens, shall be considered
as filed as of the date of filing the foreign application: Provided, That: (a) the local
application expressly claims priority; (b) it is filed within twelve (12) months from
the date the earliest foreign application was filed; and (c) a certified copy of the
foreign application together with an English translation is filed within six (6) months
from the date of filing in the Philippines. (Sec. 15, R.A. No. 165a)
CHAPTER IV
PATENT APPLICATION
Section 32. The Application. - 32.1. The patent application shall be in Filipino or
English and shall contain the following:
(a) A request for the grant of a patent;
(b) A description of the invention;
(c) Drawings necessary for the understanding of the invention;
(d) One or more claims; and
(e) An abstract.
32.2. No patent may be granted unless the application identifies the inventor. If the
applicant is not the inventor, the Office may require him to submit said authority.
(Sec. 13, R.A. No. 165a)
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Section 33. Appointment of Agent or Representative. - An applicant who is not a
resident of the Philippines must appoint and maintain a resident agent or
representative in the Philippines upon whom notice or process for judicial or
administrative procedure relating to the application for patent or the patent may be
served. (Sec. 11, R.A. No. 165a)
Section 34. The Request. - The request shall contain a petition for the grant of the
patent, the name and other data of the applicant, the inventor and the agent and
the title of the invention. (n)
Section 35. Disclosure and Description of the Invention. - 35.1. Disclosure. - The
application shall disclose the invention in a manner sufficiently clear and complete
for it to be carried out by a person skilled in the art. Where the application concerns
a microbiological process or the product thereof and involves the use of a micro-
organism which cannot be sufficiently disclosed in the application in such a way as
to enable the invention to be carried out by a person skilled in the art, and such
material is not available to the public, the application shall be supplemented by a
deposit of such material with an international depository institution.
35.2. Description. - The Regulations shall prescribe the contents of the description
and the order of presentation. (Sec. 14, R.A. No. 165a)
Section 36. The Claims. - 36.1. The application shall contain one (1) or more claims
which shall define the matter for which protection is sought. Each claim shall be
clear and concise, and shall be supported by the description.
36.2. The Regulations shall prescribe the manner of the presentation of claims. (n)
Section 37. The Abstract. - The abstract shall consist of a concise summary of the
disclosure of the invention as contained in the description, claims and drawings in
preferably not more than one hundred fifty (150) words. It must be drafted in a way
which allows the clear understanding of the technical problem, the gist of the
solution of that problem through the invention, and the principal use or uses of the
invention. The abstract shall merely serve for technical information. (n)
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Section 38. Unity of Invention. - 38.1. The application shall relate to one invention
only or to a group of inventions forming a single general inventive concept.
38.2. If several independent inventions which do not form a single general inventive
concept are claimed in one application, the Director may require that the
application be restricted to a single invention. A later application filed for an
invention divided out shall be considered as having been filed on the same day as
the first application: Provided, That the later application is filed within four (4)
months after the requirement to divide becomes final or within such additional
time, not exceeding four (4) months, as may be granted: Provided further, That each
divisional application shall not go beyond the disclosure in the initial application.
38.3. The fact that a patent has been granted on an application that did not comply
with the requirement of unity of invention shall not be a ground to cancel the
patent. (Sec. 17, R.A. No. 165a)
Section 39. Information Concerning Corresponding Foreign Application for Patents. -
The applicant shall, at the request of the Director, furnish him with the date and
number of any application for a patent filed by him abroad, hereafter referred to as
the "foreign application," relating to the same or essentially the same invention as
that claimed in the application filed with the Office and other documents relating to
the foreign application. (n)
CHAPTER V
PROCEDURE FOR GRANT OF PATENT
Section 40. Filing Date Requirements. - 40.1. The filing date of a patent application
shall be the date of receipt by the Office of at least the following elements:
(a) An express or implicit indication that a Philippine patent is sought;
(b) Information identifying the applicant; and
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(c) Description of the invention and one (1) or more claims in Filipino or
English.
40.2. If any of these elements is not submitted within the period set by the
Regulations, the application shall be considered withdrawn. (n)
Section 41. According a Filing Date. - The Office shall examine whether the patent
application satisfies the requirements for the grant of date of filing as provided in
Section 40 hereof. If the date of filing cannot be accorded, the applicant shall be
given an opportunity to correct the deficiencies in accordance with the
implementing Regulations. If the application does not contain all the elements
indicated in Section 40, the filing date should be that date when all the elements are
received. If the deficiencies are not remedied within the prescribed time limit, the
application shall be considered withdrawn. (n)
Section 42. Formality Examination. - 42.1. After the patent application has been
accorded a filing date and the required fees have been paid on time in accordance
with the Regulations, the applicant shall comply with the formal requirements
specified by Section 32 and the Regulations within the prescribed period, otherwise
the application shall be considered withdrawn.
42.2. The Regulations shall determine the procedure for the re-examination and
revival of an application as well as the appeal to the Director of Patents from any
final action by the examiner. (Sec. 16, R.A. No. 165a)
Section 43. Classification and Search. - An application that has complied with the
formal requirements shall be classified and a search conducted to determine the
prior art. (n)
Section 44. Publication of Patent Application. - 44.1. The patent application shall be
published in the IPO Gazette together with a search document established by or on
behalf of the Office citing any documents that reflect prior art, after the expiration
of eighteen ( 18) months from the filing date or priority date.
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44.2. After publication of a patent application, any interested party may inspect the
application documents filed with the Office.
44.3. The Director General subject to the approval of the Secretary of Trade and
Industry, may prohibit or restrict the publication of an application, if in his opinion,
to do so would be prejudicial to the national security and interests of the Republic of
the Philippines. (n)
Section 45. Confidentiality Before Publication. - A patent application, which has not
yet been published, and all related documents, shall not be made available for
inspection without the consent of the applicant. (n)
Section 46. Rights Conferred by a Patent Application After Publication. - The
applicant shall have all the rights of a patentee under Section 76 against any person
who, without his authorization, exercised any of the rights conferred under Section
71 of this Act in relation to the invention claimed in the published patent
application, as if a patent had been granted for that invention: Provided, That the
said person had:
46.1. Actual knowledge that the invention that he was using was the subject matter
of a published application; or
46.2. Received written notice that the invention that he was using was the subject
matter of a published application being identified in the said notice by its serial
number: Provided, That the action may not be filed until after the grant of a patent
on the published application and within four (4) years from the commission of the
acts complained of. (n)
Section 47. Observation by Third Parties. - Following the publication of the patent
application, any person may present observations in writing concerning the
patentability of the invention. Such observations shall be communicated to the
applicant who may comment on them. The Office shall acknowledge and put such
observations and comment in the file of the application to which it relates. (n)
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Section 48. Request for Substantive Examination. - 48.1. The application shall be
deemed withdrawn unless within six (6) months from the date of publication under
Section 41, a written request to determine whether a patent application meets the
requirements of Sections 21 to 27 and Sections 32 to 39 and the fees have been
paid on time.
48.2. Withdrawal of the request for examination shall be irrevocable and shall not
authorize the refund of any fee. (n)
Section 49. Amendment of Application. - An applicant may amend the patent
application during examination: Provided, That such amendment shall not include
new matter outside the scope of the disclosure contained in the application as filed.
(n)
Section 50. Grant of Patent. - 50.1. If the application meets the requirements of this
Act, the Office shall grant the patent: Provided, That all the fees are paid on time.
50.2. If the required fees for grant and printing are not paid in due time, the
application shall be deemed to be withdrawn.
50.3. A patent shall take effect on the date of the publication of the grant of the
patent in the IPO Gazette. (Sec. 18, R.A. No. 165a)
Section 51. Refusal of the Application. - 51.1. The final order of refusal of the
examiner to grant the patent shall be appealable to the Director in accordance with
this Act.
51.2. The Regulations shall provide for the procedure by which an appeal from the
order of refusal from the Director shall be undertaken. (n)
Section 52. Publication Upon Grant of Patent. - 52.1. The grant of the patent
together with other related information shall be published in the IPO Gazette within
the time prescribed by the Regulations.
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52.2. Any interested party may inspect the complete description, claims, and
drawings of the patent on file with the Office. (Sec. 18, R.A. No. 165a)
Section 53. Contents of Patent. - The patent shall be issued in the name of the
Republic of the Philippines under the seal of the Office and shall be signed by the
Director, and registered together with the description, claims, and drawings, if any,
in books and records of the Office. (Secs. 19 and 20, R.A. No. 165a)
Section 54. Term of Patent. - The term of a patent shall be twenty (20) years from
the filing date of the application. (Sec. 21, R.A. No. 165a)
Section 55. Annual Fees. - 55.1. To maintain the patent application or patent, an
annual fee shall be paid upon the expiration of four (4) years from the date the
application was published pursuant to Section 44 hereof, and on each subsequent
anniversary of such date. Payment may be made within three (3) months before the
due date. The obligation to pay the annual fees shall terminate should the
application be withdrawn, refused, or cancelled.
55.2. If the annual fee is not paid, the patent application shall be deemed withdrawn
or the patent considered as lapsed from the day following the expiration of the
period within which the annual fees were due. A notice that the application is
deemed withdrawn or the lapse of a patent for non-payment of any annual fee shall
be published in the IPO Gazette and the lapse shall be recorded in the Register of
the Office.
55.3. A grace period of six (6) months shall be granted for the payment of the annual
fee, upon payment of the prescribed surcharge for delayed payment. (Sec. 22, R.A.
No. 165a)
Section 56. Surrender of Patent. - 56.1. The owner of the patent, with the consent of
all persons having grants or licenses or other right, title or interest in and to the
patent and the invention covered thereby, which have been recorded in the Office,
may surrender his patent or any claim or claims forming part thereof to the Office
for cancellation.
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56.2. A person may give notice to the Office of his opposition to the surrender of a
patent under this section, and if he does so, the Bureau shall notify the proprietor of
the patent and determine the question.
56.3. If the Office is satisfied that the patent may properly be surrendered, he may
accept the offer and, as from the day when notice of his acceptance is published in
the IPO Gazette, the patent shall cease to have effect, but no action for
infringement shall lie and no right compensation shall accrue for any use of the
patented invention before that day for the services of the government. (Sec. 24, R.A.
No. 165a)
Section 57. Correction of Mistakes of the Office. - The Director shall have the power
to correct, without fee, any mistake in a patent incurred through the fault of the
Office when clearly disclosed in the records thereof, to make the patent conform to
the records. (Sec. 25, R.A. No. 165)
Section 58. Correction of Mistake in the Application. - On request of any interested
person and payment of the prescribed fee, the Director is authorized to correct any
mistake in a patent of a formal and clerical nature, not incurred through the fault of
the Office. (Sec. 26, R.A. No. 165a)
Section 59. Changes in Patents. - 59.1. The owner of a patent shall have the right to
request the Bureau to make the changes in the patent in order to:
(a) Limit the extent of the protection conferred by it;
(b) Correct obvious mistakes or to correct clerical errors; and
(c) Correct mistakes or errors, other than those referred to in letter (b),
made in good faith: Provided, That where the change would result in a
broadening of the extent of protection conferred by the patent, no request
may be made after the expiration of two (2) years from the grant of a patent
and the change shall not affect the rights of any third party which has relied
on the patent, as published.
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59.2. No change in the patent shall be permitted under this section, where the
change would result in the disclosure contained in the patent going beyond the
disclosure contained in the application filed.
59.3. If, and to the extent to which the Office changes the patent according to this
section, it shall publish the same. (n)
Section 60. Form and Publication of Amendment. - An amendment or correction of a
patent shall be accomplished by a certificate of such amendment or correction,
authenticated by the seal of the Office and signed by the Director, which certificate
shall be attached to the patent. Notice of such amendment or correction shall be
published in the IPO Gazette and copies of the patent kept or furnished by the
Office shall include a copy of the certificate of amendment or correction. (Sec. 27,
R.A. No. 165)
CHAPTER VI
CANCELLATION OF PATENTS AND SUBSTITUTION OF PATENTEE
Section 61. Cancellation of Patents. - 61.1. Any interested person may, upon
payment of the required fee, petition to cancel the patent or any claim thereof, or
parts of the claim, on any of the following grounds:
(a) That what is claimed as the invention is not new or Patentable;
(b) That the patent does not disclose the invention in a manner sufficiently
clear and complete for it to be carried out by any person skilled in the art; or
(c) That the patent is contrary to public order or morality.
61.2. Where the grounds for cancellation relate to some of the claims or parts of the
claim, cancellation may be effected to such extent only. (Secs. 28 and 29, R.A. No.
165a)
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Section 62. Requirement of the Petition. - The petition for cancellation shall be in
writing, verified by the petitioner or by any person in his behalf who knows the
facts, specify the grounds upon which it is based, include a statement of the facts to
be relied upon, and filed with the Office. Copies of printed publications or of patents
of other countries, and other supporting documents mentioned in the petition shall
be attached thereto, together with the translation thereof in English, if not in the
English language. (Sec. 30, R.A. No. 165)
Section 63. Notice of Hearing. - Upon filing of a petition for cancellation, the
Director of Legal Affairs shall forthwith serve notice of the filing thereof upon the
patentee and all persons having grants or licenses, or any other right, title or
interest in and to the patent and the invention covered thereby, as appears of
record in the Office, and of notice of the date of hearing thereon on such persons
and the petitioner. Notice of the filing of the petition shall be published in the IPO
Gazette. (Sec. 31, R.A. No. 165a)
Section 64. Committee of Three. - In cases involving highly technical issues, on
motion of any party, the Director of Legal Affairs may order that the petition be
heard and decided by a committee composed of the Director of Legal Affairs as
chairman and two (2) members who have the experience or expertise in the field of
technology to which the patent sought to be cancelled relates. The decision of the
committee shall be appealable to the Director General. (n)
Section 65. Cancellation of the Patent. - 65.1. If the Committee finds that a case for
cancellation has been proved, it shall order the patent or any specified claim or
claims thereof cancelled.
65.2. If the Committee finds that, taking into consideration the amendment made
by the patentee during the cancellation proceedings, the patent and the invention
to which it relates meet the requirement of this Act, it may decide to maintain the
patent as amended: Provided, That the fee for printing of a new patent is paid
within the time limit prescribed in the Regulations.
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65.3. If the fee for the printing of a new patent is not paid in due time, the patent
should be revoked.
65.4. If the patent is amended under Subsection 65.2 hereof, the Bureau shall, at
the same time as it publishes the mention of the cancellation decision, publish the
abstract, representative claims and drawings indicating clearly what the
amendments consist of. (n)
Section 66. Effect of Cancellation of Patent or Claim. - The rights conferred by the
patent or any specified claim or claims cancelled shall terminate. Notice of the
cancellation shall be published in the IPO Gazette. Unless restrained by the Director
General, the decision or order to cancel by Director of Legal Affairs shall be
immediately executory even pending appeal. (Sec. 32, R.A. No. 165a)
CHAPTER VII
REMEDIES OF A PERSON WITH A RIGHT TO A PATENT
Section 67. Patent Application by Persons Not Having the Right to a Patent. . - 67.1.
If a person referred to in Section 29 other than the applicant, is declared by final
court order or decision as having the right to the patent, such person may, within
three (3) months after the decision has become final:
(a) Prosecute the application as his own application in place of the
applicant;
(b) File a new patent application in respect of the same invention;
(c) Request that the application be refused; or
(d) Seek cancellation of the patent, if one has already been issued.
67.2. The provisions of Subsection 38.2 shall apply mutatis mutandis to a new
application filed under Subsection 67. 1(b). (n)
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Section 68. Remedies of the True and Actual Inventor. - If a person, who was
deprived of the patent without his consent or through fraud is declared by final
court order or decision to be the true and actual inventor, the court shall order for
his substitution as patentee, or at the option of the true inventor, cancel the patent,
and award actual and other damages in his favor if warranted by the circumstances.
(Sec. 33, R.A. No. 165a)
Section 69. Publication of the Court Order. - The court shall furnish the Office a copy
of the order or decision referred to in Sections 67 and 68, which shall be published
in the IPO Gazette within three (3) months from the date such order or decision
became final and executory, and shall be recorded in the register of the Office. (n)
Section 70. Time to File Action in Court. - The actions indicated in Sections 67 and 68
shall be filed within one (1) year from the date of publication made in accordance
with Sections 44 and 51, respectively. (n)
CHAPTER VIII
RIGHTS OF PATENTEES AND INFRINGEMENT OF PATENTS
Section 71. Rights Conferred by Patent. - 71.1. A patent shall confer on its owner the
following exclusive rights:
(a) Where the subject matter of a patent is a product, to restrain, prohibit
and prevent any unauthorized person or entity from making, using, offering
for sale, selling or importing that product;
(b) Where the subject matter of a patent is a process, to restrain, prevent or
prohibit any unauthorized person or entity from using the process, and from
manufacturing, dealing in, using, selling or offering for sale, or importing any
product obtained directly or indirectly from such process.
71.2. Patent owners shall also have the right to assign, or transfer by succession the
patent, and to conclude licensing contracts for the same. (Sec. 37, R.A. No. 165a)
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Section 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;
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 the purpose of
experiments that relate to the subject matter of the patented invention;
72.4. 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
prescription or acts concerning the medicine so prepared;
72.5. Where the invention is used in any ship, vessel, aircraft, or land vehicle of any
other country entering the territory of the Philippines temporarily or accidentally:
Provided, That such invention is used exclusively for the needs of the ship, vessel,
aircraft, or land vehicle and not used for the manufacturing of anything to be sold
within the Philippines. (Secs. 38 and 39, R.A. No. 165a)
Section 73. Prior User. - 73.1. Notwithstanding Section 72 hereof, any prior user,
who, in good faith was using the invention or has undertaken serious preparations
to use the invention in his enterprise or business, before the filing date or priority
date of the application on which a patent is granted, shall have the right to continue
the use thereof as envisaged in such preparations within the territory where the
patent produces its effect.
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73.2. The right of the prior user may only be transferred or assigned together with
his enterprise or business, or with that part of his enterprise or business in which
the use or preparations for use have been made. (Sec. 40, R.A. No. 165a)
Section 74. Use of Invention by Government. - 74.1. A Government agency or third
person authorized by the Government may exploit the invention even without
agreement of the patent owner where:
(a) The public interest, in particular, national security, nutrition, health or
the development of other sectors, as determined by the appropriate agency
of the government, so requires; or
(b) A judicial or administrative body has determined that the manner of
exploitation, by the owner of the patent or his licensee is anti-competitive.
74.2. The use by the Government, or third person authorized by the Government
shall be subject, mutatis mutandis, to the conditions set forth in Sections 95 to 97
and 100 to 102. (Sec. 41, R.A. No. 165a)
Section 75. Extent of Protection and Interpretation of Claims. - 75.1. The extent of
protection conferred by the patent shall be determined by the claims, which are to
be interpreted in the light of the description and drawings.
75.2. For the purpose of determining the extent of protection conferred by the
patent, due account shall be taken of elements which are equivalent to the
elements expressed in the claims, so that a claim shall be considered to cover not
only all the elements as expressed therein, but also equivalents. (n)
Section 76. Civil Action for Infringement. - 76.1. The making, using, offering for sale,
selling, or importing a patented product or a product obtained directly or indirectly
from a patented process, or the use of a patented process without the authorization
of the patentee constitutes patent infringement.
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76.2. Any patentee, or anyone possessing any right, title or interest in and to the
patented invention, whose rights have been infringed, may bring a civil action
before a court of competent jurisdiction, to recover from the infringer such
damages sustained thereby, plus attorney's fees and other expenses of litigation,
and to secure an injunction for the protection of his rights.
76.3. If the damages are inadequate or cannot be readily ascertained with
reasonable certainty, the court may award by way of damages a sum equivalent to
reasonable royalty.
76.4. The court may, according to the circumstances of the case, award damages in
a sum above the amount found as actual damages sustained: Provided, That the
award does not exceed three (3) times the amount of such actual damages.
76.5. The court may, in its discretion, order that the infringing goods, materials and
implements predominantly used in the infringement be disposed of outside the
channels of commerce or destroyed, without compensation.
76.6. Anyone who actively induces the infringement of a patent or provides the
infringer with a component of a patented product or of a product produced because
of a patented process knowing it to be especially adopted for infringing the
patented invention and not suitable for substantial non-infringing use shall be liable
as a contributory infringer and shall be jointly and severally liable with the infringer.
(Sec. 42, R.A. No. 165a)
Section 77. Infringement Action by a Foreign National. - Any foreign national or
juridical entity who meets the requirements of Section 3 and not engaged in
business in the Philippines, to which a patent has been granted or assigned under
this Act, may bring an action for infringement of patent, whether or not it is licensed
to do business in the Philippines under existing law. (Sec. 41-A, R.A. No. 165a)
Section 78. Process Patents; Burden of Proof . - If the subject matter of a patent is a
process for obtaining a product, any identical product shall be presumed to have
been obtained through the use of the patented process if the product is new or
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there is substantial likelihood that the identical product was made by the process
and the owner of the patent has been unable despite reasonable efforts, to
determine the process actually used. In ordering the defendant to prove that the
process to obtain the identical product is different from the patented process, the
court shall adopt measures to protect, as far as practicable, his manufacturing and
business secrets. (n)
Section 79. Limitation of Action for Damages. - No damages can be recovered for
acts of infringement committed more than four (4) years before the institution of
the action for infringement. (Sec. 43, R.A. No. 165)
Section 80. Damages, Requirement of Notice. - Damages cannot be recovered for
acts of infringement committed before the infringer had known, or had reasonable
grounds to know of the patent. It is presumed that the infringer had known of the
patent if on the patented product, or on the container or package in which the
article is supplied to the public, or on the advertising material relating to the
patented product or process, are placed the words "Philippine Patent" with the
number of the patent. (Sec. 44, R.A. No. 165a)
Section 81. Defenses in Action for Infringement. - In an action for infringement, the
defendant, in addition to other defenses available to him, may show the invalidity of
the patent, or any claim thereof, on any of the grounds on which a petition of
cancellation can be brought under Section 61 hereof. (Sec. 45, R.A. No. 165)
Section 82. Patent Found Invalid May be Cancelled. - In an action for infringement, if
the court shall find the patent or any claim to be invalid, it shall cancel the same,
and the Director of Legal Affairs upon receipt of the final judgment of cancellation
by the court, shall record that fact in the register of the Office and shall publish a
notice to that effect in the IPO Gazette. (Sec. 46, R.A. No. 165a)
Section 83. Assessor in Infringement Action. - 83.1. Two (2) or more assessors may
be appointed by the court. The assessors shall be possessed of the necessary
scientific and technical knowledge required by the subject matter in litigation. Either
party may challenge the fitness of any assessor proposed for appointment.
Nigel Carmelo Q. Reago 272

83.2. Each assessor shall receive a compensation in an amount to be fixed by the
court and advanced by the complaining party, which shall be awarded as part of his
costs should he prevail in the action. (Sec. 47, R.A. No. 165a)
Section 84. Criminal Action for Repetition of Infringement. - If infringement is
repeated by the infringer or by anyone in connivance with him after finality of the
judgment of the court against the infringer, the offenders shall, without prejudice to
the institution of a civil action for damages, be criminally liable therefor and, upon
conviction, shall suffer imprisonment for the period of not less than six (6) months
but not more than three (3) years and/or a fine of not less than One hundred
thousand pesos (P100,000) but not more than Three hundred thousand pesos
(P300,000), at the discretion of the court. The criminal action herein provided shall
prescribe in three (3) years from date of the commission of the crime. (Sec. 48, R.A.
No. 165a)
CHAPTER IX
VOLUNTARY LICENSING
Section 85. Voluntary License Contract. - To encourage the transfer and
dissemination of technology, prevent or control practices and conditions that may in
particular cases constitute an abuse of intellectual property rights having an adverse
effect on competition and trade, all technology transfer arrangements shall comply
with the provisions of this Chapter. (n)
Section 86. Jurisdiction to Settle Disputes on Royalties. - The Director of the
Documentation, Information and Technology Transfer Bureau shall exercise quasi-
judicial jurisdiction in the settlement of disputes between parties to a technology
transfer arrangement arising from technology transfer payments, including the
fixing of appropriate amount or rate of royalty. (n)
Section 87. Prohibited Clauses. - Except in cases under Section 91, the following
provisions shall be deemed prima facie to have an adverse effect on competition
and trade:
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87.1. Those which impose upon the licensee the obligation to acquire from a specific
source capital goods, intermediate products, raw materials, and other technologies,
or of permanently employing personnel indicated by the licensor;
87.2. Those pursuant to which the licensor reserves the right to fix the sale or resale
prices of the products manufactured on the basis of the license;
87.3. Those that contain restrictions regarding the volume and structure of
production;
87.4. Those that prohibit the use of competitive technologies in a non-exclusive
technology transfer agreement;
87.5. Those that establish a full or partial purchase option in favor of the licensor;
87.6. Those that obligate the licensee to transfer for free to the licensor the
inventions or improvements that may be obtained through the use of the licensed
technology;
87.7. Those that require payment of royalties to the owners of patents for patents
which are not used;
87.8. Those that prohibit the licensee to export the licensed product unless justified
for the protection of the legitimate interest of the licensor such as exports to
countries where exclusive licenses to manufacture and/or distribute the licensed
product(s) have already been granted;
87.9. Those which restrict the use of the technology supplied after the expiration of
the technology transfer arrangement, except in cases of early termination of the
technology transfer arrangement due to reason(s) attributable to the licensee;
87.10. Those which require payments for patents and other industrial property
rights after their expiration, termination arrangement;
Nigel Carmelo Q. Reago 273

87.11. Those which require that the technology recipient shall not contest the
validity of any of the patents of the technology supplier;
87.12. Those which restrict the research and development activities of the licensee
designed to absorb and adapt the transferred technology to local conditions or to
initiate research and development programs in connection with new products,
processes or equipment;
87.13. Those which prevent the licensee from adapting the imported technology to
local conditions, or introducing innovation to it, as long as it does not impair the
quality standards prescribed by the licensor;
87.14. Those which exempt the licensor for liability for non-fulfilment of his
responsibilities under the technology transfer arrangement and/or liability arising
from third party suits brought about by the use of the licensed product or the
licensed technology; and
87.15. Other clauses with equivalent effects. (Sec. 33-C (2), R.A 165a)
Section 88. Mandatory Provisions. - The following provisions shall be included in
voluntary license contracts:
88.1. That the laws of the Philippines shall govern the interpretation of the same
and in the event of litigation, the venue shall be the proper court in the place where
the licensee has its principal office;
88.2. Continued access to improvements in techniques and processes related to the
technology shall be made available during the period of the technology transfer
arrangement;
88.3. In the event the technology transfer arrangement shall provide for arbitration,
the Procedure of Arbitration of the Arbitration Law of the Philippines or the
Arbitration Rules of the United Nations Commission on International Trade Law
(UNCITRAL) or the Rules of Conciliation and Arbitration of the International
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Chamber of Commerce (ICC) shall apply and the venue of arbitration shall be the
Philippines or any neutral country; and
88.4. The Philippine taxes on all payments relating to the technology transfer
arrangement shall be borne by the licensor. (n)
Section 89. Rights of Licensor. - In the absence of any provision to the contrary in
the technology transfer arrangement, the grant of a license shall not prevent the
licensor from granting further licenses to third person nor from exploiting the
subject matter of the technology transfer arrangement himself. (Sec. 33-B, R.A.
165a)
Section 90. Rights of Licensee. - The licensee shall be entitled to exploit the subject
matter of the technology transfer arrangement during the whole term of the
technology transfer arrangement. (Sec. 33-C (1), R.A. 165a)
Section 91. Exceptional Cases. - In exceptional or meritorious cases where
substantial benefits will accrue to the economy, such as high technology content,
increase in foreign exchange earnings, employment generation, regional dispersal of
industries and/or substitution with or use of local raw materials, or in the case of
Board of Investments, registered companies with pioneer status, exemption from
any of the above requirements may be allowed by the Documentation, Information
and Technology Transfer Bureau after evaluation thereof on a case by case basis. (n)
Section 92. Non-Registration with the Documentation, Information and Technology
Transfer Bureau. - Technology transfer arrangements that conform with the
provisions of Sections 86 and 87 need not be registered with the Documentation,
Information and Technology Transfer Bureau. Non-conformance with any of the
provisions of Sections 87 and 88, however, shall automatically render the
technology transfer arrangement unenforceable, unless said technology transfer
arrangement is approved and registered with the Documentation, Information and
Technology Transfer Bureau under the provisions of Section 91 on exceptional
cases. (n)
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CHAPTER X
COMPULSORY LICENSING
Section 93. Grounds for Compulsory Licensing. - The Director of Legal Affairs may
grant a license to exploit a patented invention, even without the agreement of the
patent owner, in favor of any person who has shown his capability to exploit the
invention, under any of the following circumstances:
93.1. National emergency or other circumstances of extreme urgency;
93.2. Where the public interest, in particular, national security, nutrition, health or
the development of other vital sectors of the national economy as determined by
the appropriate agency of the Government, so requires; or
93.3. Where a judicial or administrative body has determined that the manner of
exploitation by the owner of the patent or his licensee is anti-competitive; or
93.4. In case of public non-commercial use of the patent by the patentee, without
satisfactory reason;
93.5. If the patented invention is not being worked in the Philippines on a
commercial scale, although capable of being worked, without satisfactory reason:
Provided, That the importation of the patented article shall constitute working or
using the patent. (Secs. 34, 34-A, 34-B, R.A. No. 165a)
Section 94. Period for Filing a Petition for a Compulsory License. - 94.1. A compulsory
license may not be applied for on the ground stated in Subsection 93.5 before the
expiration of a period of four (4) years from the date of filing of the application or
three (3) years from the date of the patent whichever period expires last.
94.2. A compulsory license which is applied for on any of the grounds stated in
Subsections 93.2, 93.3, and 93.4 and Section 97 may be applied for at any time after
the grant of the patent. (Sec. 34(1), R.A. No. 165)
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Section 95. Requirement to Obtain a License on Reasonable Commercial Terms. -
95.1. The license will only be granted after the petitioner has made efforts to obtain
authorization from the patent owner on reasonable commercial terms and
conditions but such efforts have not been successful within a reasonable period of
time.
95.2. The requirement under Subsection 95.1 shall not apply in the following cases:
(a) Where the petition for compulsory license seeks to remedy a practice
determined after judicial or administrative process to be anti-competitive;
(b) In situations of national emergency or other circumstances of extreme
urgency;
(c) In cases of public non-commercial use.
95.3. In situations of national emergency or other circumstances of extreme
urgency, the right holder shall be notified as soon as reasonably practicable.
95.4. In the case of public non-commercial use, where the government or
contractor, without making a patent search, knows or has demonstrable grounds to
know that a valid patent is or will be used by or for the government, the right holder
shall be informed promptly. (n)
Section 96. Compulsory Licensing of Patents Involving Semi-Conductor Technology. -
In the case of compulsory licensing of patents involving semi-conductor technology,
the license may only be granted in case of public non-commercial use or to remedy
a practice determined after judicial or administrative process to be anti-competitive.
(n)
Section 97. Compulsory License Based on Interdependence of Patents. - If the
invention protected by a patent, hereafter referred to as the "second patent,"
within the country cannot be worked without infringing another patent, hereafter
referred to as the "first patent," granted on a prior application or benefiting from an
Nigel Carmelo Q. Reago 275

earlier priority, a compulsory license may be granted to the owner of the second
patent to the extent necessary for the working of his invention, subject to the
following conditions:
97.1. The invention claimed in the second patent involves an important technical
advance of considerable economic significance in relation to the first patent;
97.2. The owner of the first patent shall be entitled to a cross-license on reasonable
terms to use the invention claimed in the second patent;
97.3. The use authorized in respect of the first patent shall be non-assignable except
with the assignment of the second patent; and
97.4. The terms and conditions of Sections 95, 96 and 98 to 100 of this Act. (Sec. 34-
C, R.A. No. 165a)
Section 98. Form and Contents of Petition. - The petition for compulsory licensing
must be in writing, verified by the petitioner and accompanied by payment of the
required filing fee. It shall contain the name and address of the petitioner as well as
those of the respondents, the number and date of issue of the patent in connection
with which compulsory license is sought, the name of the patentee, the title of the
invention, the statutory grounds upon which compulsory license is sought, the
ultimate facts constituting the petitioner's cause of action, and the relief prayed for.
(Sec. 34-D, R.A. No. 165)
Section 99. Notice of Hearing. - 99.1. Upon filing of a petition, the Director of Legal
Affairs shall forthwith serve notice of the filing thereof upon the patent owner and
all persons having grants or licenses, or any other right, title or interest in and to the
patent and invention covered thereby as appears of record in the Office, and of
notice of the date of hearing thereon, on such persons and petitioner. The resident
agent or representative appointed in accordance with Section 33 hereof, shall be
bound to accept service of notice of the filing of the petition within the meaning of
this Section.
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99.2. In every case, the notice shall be published by the said Office in a newspaper
of general circulation, once a week for three (3) consecutive weeks and once in the
IPO Gazette at applicant's expense. (Sec. 34-E, R.A. No. 165)
Section 100. Terms and Conditions of Compulsory License. - The basic terms and
conditions including the rate of royalties of a compulsory license shall be fixed by
the Director of Legal Affairs subject to the following conditions:
100.1. The scope and duration of such license shall be limited to the purpose for
which it was authorized;
100.2. The license shall be non-exclusive;
100.3. The license shall be non-assignable, except with that part of the enterprise or
business with which the invention is being exploited;
100.4. Use of the subject matter of the license shall be devoted predominantly for
the supply of the Philippine market: Provided, That this limitation shall not apply
where the grant of the license is based on the ground that the patentee's manner of
exploiting the patent is determined by judicial or administrative process, to be anti-
competitive.
100.5. The license may be terminated upon proper showing that circumstances
which led to its grant have ceased to exist and are unlikely to recur: Provided, That
adequate protection shall be afforded to the legitimate interest of the licensee; and
100.6. The patentee shall be paid adequate remuneration taking into account the
economic value of the grant or authorization, except that in cases where the license
was granted to remedy a practice which was determined after judicial or
administrative process, to be anti-competitive, the need to correct the anti-
competitive practice may be taken into account in fixing the amount of
remuneration. (Sec. 35-B, R.A. No. 165a)
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Section 101. Amendment, Cancellation, Surrender of Compulsory License. - 101.1.
Upon the request of the patentee or the licensee, the Director of Legal Affairs may
amend the decision granting the compulsory license, upon proper showing of new
facts or circumstances justifying such amendment.
101.2. Upon the request of the patentee, the said Director may cancel the
compulsory license:
(a) If the ground for the grant of the compulsory license no longer exists and
is unlikely to recur;
(b) If the licensee has neither begun to supply the domestic market nor
made serious preparation therefor;
(c) If the licensee has not complied with the prescribed terms of the license;
101.3. The licensee may surrender the license by a written declaration submitted to
the Office.
101.4. The said Director shall cause the amendment, surrender, or cancellation in
the Register, notify the patentee, and/or the licensee, and cause notice thereof to
be published in the IPO Gazette. (Sec. 35-D, R.A. No. 165a)
Section 102. Licensee's Exemption from Liability. - Any person who works a patented
product, substance and/or process under a license granted under this Chapter, shall
be free from any liability for infringement: Provided however, That in the case of
voluntary licensing, no collusion with the licensor is proven. This is without prejudice
to the right of the rightful owner of the patent to recover from the licensor
whatever he may have received as royalties under the license. (Sec. 35-E, R.A. No.
165a)
CHAPTER XI
ASSIGNMENT AND TRANSMISSION OF RIGHTS
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Section 103. Transmission of Rights. - 103.1. Patents or applications for patents and
invention to which they relate, shall be protected in the same way as the rights of
other property under the Civil Code.
103.2. Inventions and any right, title or interest in and to patents and inventions
covered thereby, may be assigned or transmitted by inheritance or bequest or may
be the subject of a license contract. (Sec. 50, R.A. No. 165a)
Section 104. Assignment of Inventions. - An assignment may be of the entire right,
title or interest in and to the patent and the invention covered thereby, or of an
undivided share of the entire patent and invention, in which event the parties
become joint owners thereof. An assignment may be limited to a specified territory.
(Sec. 51, R.A. No. 165)
Section 105. Form of Assignment. - The assignment must be in writing,
acknowledged before a notary public or other officer authorized to administer oath
or perform notarial acts, and certified under the hand and official seal of the notary
or such other officer. (Sec. 52, R.A. No. 165)
Section 106. Recording. - 106.1. The Office shall record assignments, licenses and
other instruments relating to the transmission of any right, title or interest in and to
inventions, and patents or application for patents or inventions to which they relate,
which are presented in due form to the Office for registration, in books and records
kept for the purpose. The original documents together with a signed duplicate
thereof shall be filed, and the contents thereof should be kept confidential. If the
original is not available, an authenticated copy thereof in duplicate may be filed.
Upon recording, the Office shall retain the duplicate, return the original or the
authenticated copy to the party who filed the same and notice of the recording shall
be published in the IPO Gazette.
106.2. Such instruments shall be void as against any subsequent purchaser or
mortgagee for valuable consideration and without notice, unless, it is so recorded in
the Office, within three (3) months from the date of said instrument, or prior to the
subsequent purchase or mortgage. (Sec. 53, R.A. No. 165a)
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Section 107. Rights of Joint Owners. - If two (2) or more persons jointly own a patent
and the invention covered thereby, either by the issuance of the patent in their joint
favor or by reason of the assignment of an undivided share in the patent and
invention or by reason of the succession in title to such share, each of the joint
owners shall be entitled to personally make, use, sell, or import the invention for his
own profit: Provided, however, That neither of the joint owners shall be entitled to
grant licenses or to assign his right, title or interest or part thereof without the
consent of the other owner or owners, or without proportionally dividing the
proceeds with such other owner or owners. (Sec. 54, R.A. No. 165)
CHAPTER XII
REGISTRATION OF UTILITY MODELS
Section 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 provision shall apply as if
the word "patent" were replaced by the words "patent or utility model registration".
(Sec. 55, R.A. No. 165a)
Section 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.
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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)
Section 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)
Section 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)
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CHAPTER XIII
INDUSTRIAL DESIGN
Section 112. Definition of Industrial Design. - An industrial design is any composition
of lines or colors or any three-dimensional form, whether or not associated-with
lines or colors: Provided, That such composition or form gives a special appearance
to and can serve as pattern for an industrial product or handicraft. (Sec. 55, R.A. No.
165a)
Section 113. Substantive Conditions for Protection. - 113.1. Only industrial designs
that are new or original shall benefit from protection under this Act.
113.2. Industrial designs dictated essentially by technical or functional
considerations to obtain a technical result or those that are contrary to public order,
health or morals shall not be protected. (n)
Section 114. Contents of the Application. - 114.1. Every application for registration
of an industrial design shall contain:
(a) A request for registration of the industrial design;
(b) Information identifying the applicant;
(c) An indication of the kind of article of manufacture or handicraft to which
the design shall be applied;
(d) A representation of the article of manufacture or handicraft by way of
drawings, photographs or other adequate graphic representation of the
design as applied to the article of manufacture or handicraft which clearly
and fully discloses those features for which design protection is claimed;
and
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(e) The name and address of the creator, or where the applicant is not the
creator, a statement indicating the origin of the right to the industrial design
registration.
114.2. The application may be accompanied by a specimen of the article embodying
the industrial design and shall be subject to the payment of the prescribed fee.(n)
Section 115. Several Industrial Designs in One Application. - Two (2) or more
industrial designs may be the subject of the same application: Provided, That they
relate to the same sub-class of the International Classification or to the same set or
composition of articles. (n)
Section 116. Examination. - 116.1. The Office shall accord as the filing date the date
of receipt of the application containing indications allowing the identity of the
applicant to be established and a representation of the article embodying the
industrial design or a pictorial representation thereof.
116.2. If the application does not meet these requirements the filing date should be
that date when all the elements specified in Section 105 are filed or the mistakes
corrected. Otherwise if the requirements are not complied within the prescribed
period, the application shall be considered withdrawn.
116.3. After the application has been accorded a filing date and the required fees
paid on time, the applicant shall comply with the requirements of Section 114 within
the prescribed period, otherwise the application shall be considered withdrawn.
116.4. The Office shall examine whether the industrial design complies with
requirements of Section 112 and Subsections 113.2 and 113.3. (n)
Section 117. Registration. - 117.1. Where the Office finds that the conditions
referred to in Section 113 are fulfilled, it shall order that registration be effected in
the industrial design register and cause the issuance of an industrial design
certificate of registration, otherwise, it shall refuse the application.
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117.2. The form and contents of an industrial design certificate shall be established Section 119. Application of Other Sections and Chapters. - 119.1. The following
by the Regulations: Provided, That the name and address of the creator shall be provisions relating to patents shall apply mutatis mutandis to an industrial design
mentioned in every case. registration:

117.3. Registration shall be published in the form and within the period fixed by the Section
Regulations. - Novelty:
21

117.4. The Office shall record in the register any change in the identity of the Section Prior art: Provided, That the disclosure is contained in printed
-
proprietor of the industrial design or his representative, if proof thereof is furnished 24 documents or in any tangible form;
to it. A fee shall be paid, with the request to record the change in the identity of the
proprietor. If the fee is not paid, the request shall be deemed not to have been filed. Section
- Non-prejudicial Disclosure;
In such case, the former proprietor and the former representative shall remain 25
subject to the rights and obligations as provided in this Act. Section
- Inventions Created Pursuant to a Commission;
27
117.5. Anyone may inspect the Register and the files of registered industrial designs
including the files of cancellation proceedings. (n) Section
- Right to a Patent;
28
Section 118. The Term of Industrial Design Registration. - 118.1 The registration of
an industrial design shall be for a period of five (5) years from the filing date of the Section
- First to File Rule;
application. 29

Section Right of Priority: Provided, That the application for industrial design
118.2. The registration of an industrial design may be renewed for not more than 31 - shall be filed within six (6) months from the earliest filing date of
two (2) consecutive periods of five (5) years each, by paying the renewal fee. the corresponding foreign application;

118.3. The renewal fee shall be paid within twelve (12) months preceding the Section
- Appointment of Agent or Representative;
expiration of the period of registration. However, a grace period of six (6) months 33
shall be granted for payment of the fees after such expiration, upon payment of a
Section
surcharge - Refusal of the Application;
51
118.4. The Regulations shall fix the amount of renewal fee, the surcharge and other Sections
requirements regarding the recording of renewals of registration. - Surrender, Correction of and Changes in Patent;
56 to 60

CHAPTER
- Remedies of a Person with a Right to Patent;
VII

Nigel Carmelo Q. Reago 280


CHAPTER
- Rights of Patentees and Infringement of Patents; and
VIII
CHAPTER
- Assignment and Transmission of Rights.
XI
119.2. If the essential elements of an industrial design which is the subject of an
application have been obtained from the creation of another person without his
consent, protection under this Chapter cannot be invoked against the injured party.
(n)
Section 120. Cancellation of Design Registration. - 120.1. At any time during the
term of the industrial design registration, any person upon payment of the required
fee, may petition the Director of Legal Affairs to cancel the industrial design on any
of the following grounds:
(a) If the subject matter of the industrial design is not registrable within the
terms of Sections 112 and 113;
(b) If the subject matter is not new; or
(c) If the subject matter of the industrial design extends beyond the content
of the application as originally filed.
120.2. Where the grounds for cancellation relate to a part of the industrial design,
cancellation may be effected to such extent only. The restriction may be effected in
the form of an alteration of the effected features of the design. (n)
PART III
THE LAW ON TRADEMARKS, SERVICE MARKS AND TRADE NAMES
Section 121. Definitions. - As used in Part III, the following terms have the following
meanings:
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121.1. "Mark" means 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; (Sec. 38, R.A. No. 166a)
121.2. "Collective mark" means any visible sign designated as such in the application
for registration and capable of distinguishing the origin or any other common
characteristic, including the quality of goods or services of different enterprises
which use the sign under the control of the registered owner of the collective mark;
(Sec. 40, R.A. No. 166a)
121.3. "Trade name" means the name or designation identifying or distinguishing an
enterprise; (Sec. 38, R.A. No. 166a)
121.4. "Bureau" means the Bureau of Trademarks;
121.5. "Director" means the Director of Trademarks;
121.6. "Regulations" means the Rules of Practice in Trademarks and Service Marks
formulated by the Director of Trademarks and approved by the Director General;
and
121.7. "Examiner" means the trademark examiner. (Sec. 38, R.A. No. 166a)
Section 122. How Marks are Acquired. - The rights in a mark shall be acquired
through registration made validly in accordance with the provisions of this law. (Sec.
2-A, R A. No. 166a)
Section 123. Registrability. - 123.1. A mark cannot be registered if it:
(a) Consists of immoral, deceptive or scandalous matter, or matter which
may disparage or falsely suggest a connection with persons, living or dead,
institutions, beliefs, or national symbols, or bring them into contempt or
disrepute;
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(b) Consists of the flag or coat of arms or other insignia of the Philippines or
any of its political subdivisions, or of any foreign nation, or any simulation
thereof;
(c) Consists of a name, portrait or signature identifying a particular living
individual except by his written consent, or the name, signature, or portrait
of a deceased President of the Philippines, during the life of his widow, if
any, except by written consent of the widow;
(d) Is identical with a registered mark belonging to a different proprietor or
a mark with an earlier filing or priority date, in respect of:
(i) The same goods or services, or
(ii) Closely related goods or services, or
(iii) If it nearly resembles such a mark as to be likely to deceive or
cause confusion;
(e) Is identical with, or confusingly similar to, or constitutes a translation of a
mark which is considered by the competent authority of the Philippines to
be well-known internationally and in the Philippines, whether or not it is
registered here, as being already the mark of a person other than the
applicant for registration, and used for identical or similar goods or services:
Provided, That in determining whether a mark is well-known, account shall
be taken of the knowledge of the relevant sector of the public, rather than
of the public at large, including knowledge in the Philippines which has been
obtained as a result of the promotion of the mark;
(f) Is identical with, or confusingly similar to, or constitutes a translation of a
mark considered well-known in accordance with the preceding paragraph,
which is registered in the Philippines with respect to goods or services which
are not similar to those with respect to which registration is applied for:
Provided, That use of the mark in relation to those goods or services would
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indicate a connection between those goods or services, and the owner of
the registered mark: Provided further, That the interests of the owner of the
registered mark are likely to be damaged by such use;
(g) Is likely to mislead the public, particularly as to the nature, quality,
characteristics or geographical origin of the goods or services;
(h) Consists exclusively of signs that are generic for the goods or services
that they seek to identify;
(i) Consists exclusively of signs or of indications that have become
customary or usual to designate the goods or services in everyday language
or in bona fide and established trade practice;
(j) Consists exclusively of signs or of indications that may serve in trade to
designate the kind, quality, quantity, intended purpose, value, geographical
origin, time or production of the goods or rendering of the services, or other
characteristics of the goods or services;
(k) Consists of shapes that may be necessitated by technical factors or by
the nature of the goods themselves or factors that affect their intrinsic
value;
(l) Consists of color alone, unless defined by a given form; or
(m) Is contrary to public order or morality.
123.2. As regards signs or devices mentioned in paragraphs (j), (k), and (l), nothing
shall prevent the registration of any such sign or device which has become
distinctive in relation to the goods for which registration is requested as a result of
the use that have been made of it in commerce in the Philippines. The Office may
accept as prima facie evidence that the mark has become distinctive, as used in
connection with the applicant's goods or services in commerce, proof of
substantially exclusive and continuous use thereof by the applicant in commerce in
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the Philippines for five (5) years before the date on which the claim of
distinctiveness is made.
123.3. The nature of the goods to which the mark is applied will not constitute an
obstacle to registration. (Sec. 4, R.A. No. 166a)
Section 124. Requirements of Application. - 124.1. The application for the
registration of the mark shall be in Filipino or in English and shall contain the
following:
(a) A request for registration;
(b) The name and address of the applicant;
(c) The name of a State of which the applicant is a national or where he has
domicile; and the name of a State in which the applicant has a real and
effective industrial or commercial establishment, if any;
(d) Where the applicant is a juridical entity, the law under which it is
organized and existing;
(e) The appointment of an agent or representative, if the applicant is not
domiciled in the Philippines;
(f) Where the applicant claims the priority of an earlier application, an
indication of:
i) The name of the State with whose national office the earlier
application was filed or if filed with an office other than a national
office, the name of that office,
ii) The date on which the earlier application was filed, and
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iii) Where available, the application number of the earlier
application;
(g) Where the applicant claims color as a distinctive feature of the mark, a
statement to that effect as well as the name or names of the color or colors
claimed and an indication, in respect of each color, of the principal parts of
the mark which are in that color;
(h) Where the mark is a three-dimensional mark, a statement to that effect;
(i) One or more reproductions of the mark, as prescribed in the Regulations;
(j) A transliteration or translation of the mark or of some parts of the mark,
as prescribed in the Regulations;
(k) The names of the goods or services for which the registration is sought,
grouped according to the classes of the Nice Classification, together with
the number of the class of the said Classification to which each group of
goods or services belongs; and
(l) A signature by, or other self-identification of, the applicant or his
representative.
124.2. The applicant or the registrant shall file a declaration of actual use of the
mark with evidence to that effect, as prescribed by the Regulations within three (3)
years from the filing date of the application. Otherwise, the application shall be
refused or the mark shall be removed from the Register by the Director.
124.3. One (1) application may relate to several goods and/or services, whether
they belong to one (1) class or to several classes of the Nice Classification.
124.4. If during the examination of the application, the Office finds factual basis to
reasonably doubt the veracity of any indication or element in the application, it may
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require the applicant to submit sufficient evidence to remove the doubt. (Sec. 5,
R.A. No. 166a)
Section 125. Representation; Address for Service. - If the applicant is not domiciled
or has no real and effective commercial establishment in the Philippines, he shall
designate by a written document filed in the Office, the name and address of a
Philippine resident who may be served notices or process in proceedings affecting
the mark. Such notices or services may be served upon the person so designated by
leaving a copy thereof at the address specified in the last designation filed. If the
person so designated cannot be found at the address given in the last designation,
such notice or process may be served upon the Director. (Sec. 3, R.A. No. 166a)
Section 126. Disclaimers. - The Office may allow or require the applicant to disclaim
an unregistrable component of an otherwise registrable mark but such disclaimer
shall not prejudice or affect the applicant's or owner's rights then existing or
thereafter arising in the disclaimed matter, nor such shall disclaimer prejudice or
affect the applicant's or owner's right on another application of later date if the
disclaimed matter became distinctive of the applicant's or owner's goods, business
or services. (Sec. 13, R.A. No. 166a)
Section 127. Filing Date. - 127.1. Requirements. - The filing date of an application
shall be the date on which the Office received the following indications and
elements in English or Filipino:
(a) An express or implicit indication that the registration of a mark is sought;
(b) The identity of the applicant;
(c) Indications sufficient to contact the applicant or his representative, if
any;
(d) A reproduction of the mark whose registration is sought; and
(e) The list of the goods or services for which the registration is sought.
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127.2. No filing date shall be accorded until the required fee is paid. (n)
Section 128. Single Registration for Goods and/or Services. - Where goods and/or
services belonging to several classes of the Nice Classification have been included in
one (1) application, such an application shall result in one registration. (n)
Section 129. Division of Application. - Any application referring to several goods or
services, hereafter referred to as the "initial application," may be divided by the
applicant into two (2) or more applications, hereafter referred to as the "divisional
applications," by distributing among the latter the goods or services referred to in
the initial application. The divisional applications shall preserve the filing date of the
initial application or the benefit of the right of priority. (n)
Section 130. Signature and Other Means of Self-Identification. - 130.1. Where a
signature is required, the Office shall accept:
(a) A hand-written signature; or
(b) The use of other forms of signature, such as a printed or stamped
signature, or the use of a seal instead of a hand-written signature: Provided,
That where a seal is used, it should be accompanied by an indication in
letters of the name of the signatory.
130.2. The Office shall accept communications to it by telecopier, or by electronic
means subject to the conditions or requirements that will be prescribed by the
Regulations. When communications are made by telefacsimile, the reproduction of
the signature, or the reproduction of the seal together with, where required, the
indication in letters of the name of the natural person whose seal is used, appears.
The original communications must be received by the Office within thirty (30) days
from date of receipt of the telefacsimile.
130.3. No attestation, notarization, authentication, legalization or other certification
of any signature or other means of self-identification referred to in the preceding
Nigel Carmelo Q. Reago 284

paragraphs, will be required, except, where the signature concerns the surrender of
a registration. (n)
Section 131. Priority Right. - 131.1. An application for registration of a mark filed in
the Philippines by a person referred to in Section 3, and who previously duly filed an
application for registration of the same mark in one of those countries, shall be
considered as filed as of the day the application was first filed in the foreign country.
131.2. No registration of a mark in the Philippines by a person described in this
section shall be granted until such mark has been registered in the country of origin
of the applicant.
131.3. Nothing in this section shall entitle the owner of a registration granted under
this section to sue for acts committed prior to the date on which his mark was
registered in this country: Provided, That, notwithstanding the foregoing, the owner
of a well-known mark as defined in Section 123.1(e) of this Act, that is not registered
in the Philippines, may, against an identical or confusingly similar mark, oppose its
registration, or petition the cancellation of its registration or sue for unfair
competition, without prejudice to availing himself of other remedies provided for
under the law.
131.4. In like manner and subject to the same conditions and requirements, the
right provided in this section may be based upon a subsequent regularly filed
application in the same foreign country: Provided, That any foreign application filed
prior to such subsequent application has been withdrawn, abandoned, or otherwise
disposed of, without having been laid open to public inspection and without leaving
any rights outstanding, and has not served, nor thereafter shall serve, as a basis for
claiming a right of priority. (Sec. 37, R.A. No. 166a)
Section 132. Application Number and Filing Date. - 132.1. The Office shall examine
whether the application satisfies the requirements for the grant of a filing date as
provided in Section 127 and Regulations relating thereto. If the application does not
satisfy the filing requirements, the Office shall notify the applicant who shall within
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a period fixed by the Regulations complete or correct the application as required,
otherwise, the application shall be considered withdrawn.
132.2 Once an application meets the filing requirements of Section 127, it shall be
numbered in the sequential order, and the applicant shall be informed of the
application number and the filing date of the application will be deemed to have
been abandoned. (n)
Section 133. Examination and Publication. - 133.1. Once the application meets the
filing requirements of Section 127, the Office shall examine whether the application
meets the requirements of Section 124 and the mark as defined in Section 121 is
registrable under Section 123.
133.2. Where the Office finds that the conditions referred to in Subsection 133.1 are
fulfilled, it shall upon payment of the prescribed fee, forthwith cause the
application, as filed, to be published in the prescribed manner.
133.3. If after the examination, the applicant is not entitled to registration for any
reason, the Office shall advise the applicant thereof and the reasons therefor. The
applicant shall have a period of four (4) months in which to reply or amend his
application, which shall then be re-examined. The Regulations shall determine the
procedure for the re-examination or revival of an application as well as the appeal
to the Director of Trademarks from any final action by the Examiner.
133.4. An abandoned application may be revived as a pending application within
three (3) months from the date of abandonment, upon good cause shown and the
payment of the required fee.
133.5. The final decision of refusal of the Director of Trademarks shall be appealable
to the Director General in accordance with the procedure fixed by the Regulations.
(Sec. 7, R.A. No. 166a)
Section 134. Opposition. - Any person who believes that he would be damaged by
the registration of a mark may, upon payment of the required fee and within thirty
Nigel Carmelo Q. Reago 285

(30) days after the publication referred to in Subsection 133.2, file with the Office an
opposition to the application. Such opposition shall be in writing and verified by the
oppositor or by any person on his behalf who knows the facts, and shall specify the
grounds on which it is based and include a statement of the facts relied upon.
Copies of certificates of registration of marks registered in other countries or other
supporting documents mentioned in the opposition shall be filed therewith,
together with the translation in English, if not in the English language. For good
cause shown and upon payment of the required surcharge, the time for filing an
opposition may be extended by the Director of Legal Affairs, who shall notify the
applicant of such extension. The Regulations shall fix the maximum period of time
within which to file the opposition. (Sec. 8, R.A. No. 165a)
Section 135. Notice and Hearing. - Upon the filing of an opposition, the Office shall
serve notice of the filing on the applicant, and of the date of the hearing thereof
upon the applicant and the oppositor and all other persons having any right, title or
interest in the mark covered by the application, as appear of record in the Office.
(Sec. 9, R.A. No. 165)
Section 136. Issuance and Publication of Certificate. - When the period for filing the
opposition has expired, or when the Director of Legal Affairs shall have denied the
opposition, the Office upon payment of the required fee, shall issue the certificate
of registration. Upon issuance of a certificate of registration, notice thereof making
reference to the publication of the application shall be published in the IPO Gazette.
(Sec. 10, R.A. No. 165)
Section 137. Registration of Mark and Issuance of a Certificate to the Owner or his
Assignee. - 137.1. The Office shall maintain a Register in which shall be registered
marks, numbered in the order of their registration, and all transactions in respect of
each mark, required to be recorded by virtue of this law.
137.2. The registration of a mark shall include a reproduction of the mark and shall
mention: its number; the name and address of the registered owner and, if the
registered owner's address is outside the country, his address for service within the
country; the dates of application and registration; if priority is claimed, an indication
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of this fact, and the number, date and country of the application, basis of the
priority claims; the list of goods or services in respect of which registration has been
granted, with the indication of the corresponding class or classes; and such other
data as the Regulations may prescribe from time to time.
137.3. A certificate of registration of a mark may be issued to the assignee of the
applicant: Provided, That the assignment is recorded in the Office. In case of a
change of ownership, the Office shall at the written request signed by the owner, or
his representative, or by the new owner, or his representative and upon a proper
showing and the payment of the prescribed fee, issue to such assignee a new
certificate of registration of the said mark in the name of such assignee, and for the
unexpired part of the original period.
137.4. The Office shall record any change of address, or address for service, which
shall be notified to it by the registered owner.
137.5. In the absence of any provision to the contrary in this Act, communications to
be made to the registered owner by virtue of this Act shall be sent to him at his last
recorded address and, at the same, at his last recorded address for service. (Sec. 19,
R.A. No. 166a)
Section 138. Certificates of Registration. - A certificate of registration of a mark shall
be prima facie evidence of the validity of the registration, the registrant's ownership
of the mark, and of the registrant's exclusive right to use the same in connection
with the goods or services and those that are related thereto specified in the
certificate. (Sec. 20, R.A. No. 165)
Section 139. Publication of Registered Marks; Inspection of Register. - 139.1. The
Office shall publish, in the form and within the period fixed by the Regulations, the
marks registered, in the order of their registration, reproducing all the particulars
referred to in Subsection 137.2.
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139.2. Marks registered at the Office may be inspected free of charge and any
person may obtain copies thereof at his own expense. This provision shall also be
applicable to transactions recorded in respect of any registered mark. (n)
Section 140. Cancellation upon Application by Registrant; Amendment or Disclaimer
of Registration. - Upon application of the registrant, the Office may permit any
registration to be surrendered for cancellation, and upon cancellation the
appropriate entry shall be made in the records of the Office. Upon application of the
registrant and payment of the prescribed fee, the Office for good cause may permit
any registration to be amended or to be disclaimed in part: Provided, That the
amendment or disclaimer does not alter materially the character of the mark.
Appropriate entry shall be made in the records of the Office upon the certificate of
registration or, if said certificate is lost or destroyed, upon a certified copy thereof
(Sec. 14, R.A. No. 166)
Section 141. Sealed and Certified Copies as Evidence. - Copies of any records, books,
papers, or drawings belonging to the Office relating to marks, and copies of
registrations, when authenticated by the seal of the Office and certified by the
Director of the Administrative, Financial and Human Resource Development Service
Bureau or in his name by an employee of the Office duly authorized by said Director,
shall be evidence in all cases wherein the originals would be evidence; and any
person who applies and pays the prescribed fee shall secure such copies. (n)
Section 142. Correction of Mistakes Made by the Office. - Whenever a material
mistake in a registration incurred through the fault of the Office is clearly disclosed
by the records of the Office, a certificate stating the fact and nature of such mistake
shall be issued without charge, recorded and a printed copy thereof shall be
attached to each printed copy of the registration. Such corrected registration shall
thereafter have the same effect as the original certificate; or in the discretion of the
Director of the Administrative, Financial and Human Resource Development Service
Bureau a new certificate of registration may be issued without charge. All
certificates of correction heretofore issued in accordance with the Regulations and
the registration to which they are attached shall have the same force and effect as if
such certificates and their issuance had been authorized by this Act. (n)
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Section 143. Correction of Mistakes Made by Applicant. - Whenever a mistake is
made in a registration and such mistake occurred in good faith through the fault of
the applicant, the Office may issue a certificate upon the payment of the prescribed
fee: Provided, That the correction does not involve any change in the registration
that requires republication of the mark. (n)
Section 144. Classification of Goods and Services. - 144.1. Each registration, and any
publication of the Office which concerns an application or registration effected by
the Office shall indicate the goods or services by their names, grouped according to
the classes of the Nice Classification, and each group shall be preceded by the
number of the class of that Classification to which that group of goods or services
belongs, presented in the order of the classes of the said Classification.
144.2. Goods or services may not be considered as being similar or dissimilar to each
other on the ground that, in any registration or publication by the Office, they
appear in different classes of the Nice Classification. (Sec. 6, R.A. No. 166a)
Section 145. Duration. - A certificate of registration shall remain in force for ten (10)
years: Provided, That the registrant shall file a declaration of actual use and
evidence to that effect, or shall show valid reasons based on the existence of
obstacles to such use, as prescribed by the Regulations, within one (1) year from the
fifth anniversary of the date of the registration of the mark. Otherwise, the mark
shall be removed from the Register by the Office. (Sec. 12, R.A. No. 166a)
Section 146. Renewal. - 146.1. A certificate of registration may be renewed for
periods of ten (10) years at its expiration upon payment of the prescribed fee and
upon filing of a request. The request shall contain the following indications:
(a) An indication that renewal is sought;
(b) The name and address of the registrant or his successor-in-interest,
hereafter referred to as the "right holder";
(c) The registration number of the registration concerned;
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(d) The filing date of the application which resulted in the registration
concerned to be renewed;
(e) Where the right holder has a representative, the name and address of
that representative;
(f) The names of the recorded goods or services for which the renewal is
requested or the names of the recorded goods or services for which the
renewal is not requested, grouped according to the classes of the Nice
Classification to which that group of goods or services belongs and
presented in the order of the classes of the said Classification; and
(g) A signature by the right holder or his representative.
146.2. Such request shall be in Filipino or English and may be made at any time
within six (6) months before the expiration of the period for which the registration
was issued or renewed, or it may be made within six (6) months after such
expiration on payment of the additional fee herein prescribed.
146.3. If the Office refuses to renew the registration, it shall notify the registrant of
his refusal and the reasons therefor.
146.4. An applicant for renewal not domiciled in the Philippines shall be subject to
and comply with the requirements of this Act. (Sec. 15, R.A. No. 166a)
Section 147. Rights Conferred. - 147.1. The owner of a registered mark shall have
the exclusive right to prevent all third parties not having the owner's consent from
using in the course of trade identical or similar signs or containers for goods or
services which are identical or similar to those in respect of which the trademark is
registered where such use would result in a likelihood of confusion. In case of the
use of an identical sign for identical goods or services, a likelihood of confusion shall
be presumed.
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147.2. The exclusive right of the owner of a well-known mark defined in Subsection
123.1(e) which is registered in the Philippines, shall extend to goods and services
which are not similar to those in respect of which the mark is registered: Provided,
That use of that mark in relation to those goods or services would indicate a
connection between those goods or services and the owner of the registered mark:
Provided further, That the interests of the owner of the registered mark are likely to
be damaged by such use. (n)
Section 148. Use of Indications by Third Parties for Purposes Other than those for
which the Mark is Used. - Registration of the mark shall not confer on the registered
owner the right to preclude third parties from using bona fide their names,
addresses, pseudonyms, a geographical name, or exact indications concerning the
kind, quality, quantity, destination, value, place of origin, or time of production or of
supply, of their goods or services: Provided, That such use is confined to the
purposes of mere identification or information and cannot mislead the public as to
the source of the goods or services. (n)
Section 149. Assignment and Transfer of Application and Registration. - 149.1. An
application for registration of a mark, or its registration, may be assigned or
transferred with or without the transfer of the business using the mark. (n)
149.2. Such assignment or transfer shall, however, be null and void if it is liable to
mislead the public, particularly as regards the nature, source, manufacturing
process, characteristics, or suitability for their purpose, of the goods or services to
which the mark is applied.
149.3. The assignment of the application for registration of a mark, or of its
registration, shall be in writing and require the signatures of the contracting parties.
Transfers by mergers or other forms of succession may be made by any document
supporting such transfer.
149.4. Assignments and transfers of registrations of marks shall be recorded at the
Office on payment of the prescribed fee; assignment and transfers of applications
Nigel Carmelo Q. Reago 288

for registration shall, on payment of the same fee, be provisionally recorded, and
the mark, when registered, shall be in the name of the assignee or transferee.
149.5. Assignments and transfers shall have no effect against third parties until they
are recorded at the Office. (Sec. 31, R.A. No. 166a)
Section 150. License Contracts. - 150.1. Any license contract concerning the
registration of a mark, or an application therefor, shall provide for effective control
by the licensor of the quality of the goods or services of the licensee in connection
with which the mark is used. If the license contract does not provide for such quality
control, or if such quality control is not effectively carried out, the license contract
shall not be valid.
150.2. A license contract shall be submitted to the Office which shall keep its
contents confidential but shall record it and publish a reference thereto. A license
contract shall have no effect against third parties until such recording is effected.
The Regulations shall fix the procedure for the recording of the license contract. (n)
Section 151. Cancellation. - 151.1. A petition to cancel a registration of a mark under
this Act may be filed with the Bureau of Legal Affairs by any person who believes
that he is or will be damaged by the registration of a mark under this Act as follows:
(a) Within five (5) years from the date of the registration of the mark under
this Act.
(b) At any time, if the registered mark becomes the generic name for the
goods or services, or a portion thereof, for which it is registered, or has been
abandoned, or its registration was obtained fraudulently or contrary to the
provisions of this Act, or if the registered mark is being used by, or with the
permission of, the registrant so as to misrepresent the source of the goods
or services on or in connection with which the mark is used. If the registered
mark becomes the generic name for less than all of the goods or services for
which it is registered, a petition to cancel the registration for only those
goods or services may be filed. A registered mark shall not be deemed to be
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the generic name of goods or services solely because such mark is also used
as a name of or to identify a unique product or service. The primary
significance of the registered mark to the relevant public rather than
purchaser motivation shall be the test for determining whether the
registered mark has become the generic name of goods or services on or in
connection with which it has been used. (n)
(c) At any time, if the registered owner of the mark without legitimate
reason fails to use the mark within the Philippines, or to cause it to be used
in the Philippines by virtue of a license during an uninterrupted period of
three (3) years or longer.
151.2. Notwithstanding the foregoing provisions, the court or the administrative
agency vested with jurisdiction to hear and adjudicate any action to enforce the
rights to a registered mark shall likewise exercise jurisdiction to determine whether
the registration of said mark may be cancelled in accordance with this Act. The filing
of a suit to enforce the registered mark with the proper court or agency shall
exclude any other court or agency from assuming jurisdiction over a subsequently
filed petition to cancel the same mark. On the other hand, the earlier filing of
petition to cancel the mark with the Bureau of Legal Affairs shall not constitute a
prejudicial question that must be resolved before an action to enforce the rights to
same registered mark may be decided. (Sec. 17, R.A. No. 166a)
Section 152. Non-use of a Mark When Excused. - 152.1. Non-use of a mark may be
excused if caused by circumstances arising independently of the will of the
trademark owner. Lack of funds shall not excuse non-use of a mark.
152.2. The use of the mark in a form different from the form in which it is
registered, which does not alter its distinctive character, shall not be ground for
cancellation or removal of the mark and shall not diminish the protection granted to
the mark.
Nigel Carmelo Q. Reago 289

152.3. The use of a mark in connection with one or more of the goods or services
belonging to the class in respect of which the mark is registered shall prevent its
cancellation or removal in respect of all other goods or services of the same class.
152.4. The use of a mark by a company related with the registrant or applicant shall
inure to the latter's benefit, and such use shall not affect the validity of such mark or
of its registration: Provided, That such mark is not used in such manner as to
deceive the public. If use of a mark by a person is controlled by the registrant or
applicant with respect to the nature and quality of the goods or services, such use
shall inure to the benefit of the registrant or applicant. (n)
Section 153. Requirements of Petition; Notice and Hearing. - Insofar as applicable,
the petition for cancellation shall be in the same form as that provided in Section
134 hereof, and notice and hearing shall be as provided in Section 135 hereof.
Section 154. Cancellation of Registration. - If the Bureau of Legal Affairs finds that a
case for cancellation has been made out, it shall order the cancellation of the
registration. When the order or judgment becomes final, any right conferred by
such registration upon the registrant or any person in interest of record shall
terminate. Notice of cancellation shall be published in the IPO Gazette. (Sec. 19, R.A.
No. 166a)
Section 155. Remedies; Infringement. - Any person who shall, without the consent
of the owner of the registered mark:
155.1. Use in commerce any reproduction, counterfeit, copy, or colorable imitation
of a registered mark or the same container or a dominant feature thereof in
connection with the sale, offering for sale, distribution, advertising of any goods or
services including other preparatory steps necessary to carry out the sale of any
goods or services on or in connection with which such use is likely to cause
confusion, or to cause mistake, or to deceive; or
155.2. Reproduce, counterfeit, copy or colorably imitate a registered mark or a
dominant feature thereof and apply such reproduction, counterfeit, copy or
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colorable imitation to labels, signs, prints, packages, wrappers, receptacles or
advertisements intended to be used in commerce upon or in connection with the
sale, offering for sale, distribution, or advertising of goods or services on or in
connection with which such use is likely to cause confusion, or to cause mistake, or
to deceive, shall be liable in a civil action for infringement by the registrant for the
remedies hereinafter set forth: Provided, That the infringement takes place at the
moment any of the acts stated in Subsection 155.1 or this subsection are committed
regardless of whether there is actual sale of goods or services using the infringing
material. (Sec. 22, R.A. No 166a)
Section 156. Actions, and Damages and Injunction for Infringement. - 156.1. The
owner of a registered mark may recover damages from any person who infringes his
rights, and the measure of the damages suffered shall be either the reasonable
profit which the complaining party would have made, had the defendant not
infringed his rights, or the profit which the defendant actually made out of the
infringement, or in the event such measure of damages cannot be readily
ascertained with reasonable certainty, then the court may award as damages a
reasonable percentage based upon the amount of gross sales of the defendant or
the value of the services in connection with which the mark or trade name was used
in the infringement of the rights of the complaining party. (Sec. 23, first par., R.A.
No. 166a)
156.2. On application of the complainant, the court may impound during the
pendency of the action, sales invoices and other documents evidencing sales. (n)
156.3. In cases where actual intent to mislead the public or to defraud the
complainant is shown, in the discretion of the court, the damages may be doubled.
(Sec. 23, first par., R.A. No. 166)
156.4. The complainant, upon proper showing, may also be granted injunction. (Sec.
23, second par., R.A. No. 166a)
Section 157. Power of Court to Order Infringing Material Destroyed. - 157.1 In any
action arising under this Act, in which a violation of any right of the owner of the
Nigel Carmelo Q. Reago 290

registered mark is established, the court may order that goods found to be
infringing be, without compensation of any sort, disposed of outside the channels of
commerce in such a manner as to avoid any harm caused to the right holder, or
destroyed; and all labels, signs, prints, packages, wrappers, receptacles and
advertisements in the possession of the defendant, bearing the registered mark or
trade name or any reproduction, counterfeit, copy or colorable imitation thereof, all
plates, molds, matrices and other means of making the same, shall be delivered up
and destroyed.
157.2. In regard to counterfeit goods, the simple removal of the trademark affixed
shall not be sufficient other than in exceptional cases which shall be determined by
the Regulations, to permit the release of the goods into the channels of commerce.
(Sec. 24, R.A. No. 166a)
Section 158. Damages; Requirement of Notice. - In any suit for infringement, the
owner of the registered mark shall not be entitled to recover profits or damages
unless the acts have been committed with knowledge that such imitation is likely to
cause confusion, or to cause mistake, or to deceive. Such knowledge is presumed if
the registrant gives notice that his mark is registered by displaying with the mark the
words '"Registered Mark" or the letter R within a circle or if the defendant had
otherwise actual notice of the registration. (Sec. 21, R.A. No. 166a)
Section 159. Limitations to Actions for Infringement. - Notwithstanding any other
provision of this Act, the remedies given to the owner of a right infringed under this
Act shall be limited as follows:
159.1. Notwithstanding the provisions of Section 155 hereof, a registered mark shall
have no effect against any person who, in good faith, before the filing date or the
priority date, was using the mark for the purposes of his business or enterprise:
Provided, That his right may only be transferred or assigned together with his
enterprise or business or with that part of his enterprise or business in which the
mark is used.
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159.2. Where an infringer who is engaged solely in the business of printing the mark
or other infringing materials for others is an innocent infringer, the owner of the
right infringed shall be entitled as against such infringer only to an injunction against
future printing.
159.3. Where the infringement complained of is contained in or is part of paid
advertisement in a newspaper, magazine, or other similar periodical or in an
electronic communication, the remedies of the owner of the right infringed as
against the publisher or distributor of such newspaper, magazine, or other similar
periodical or electronic communication shall be limited to an injunction against the
presentation of such advertising matter in future issues of such newspapers,
magazines, or other similar periodicals or in future transmissions of such electronic
communications. The limitations of this subparagraph shall apply only to innocent
infringers: Provided, That such injunctive relief shall not be available to the owner of
the right infringed with respect to an issue of a newspaper, magazine, or other
similar periodical or an electronic communication containing infringing matter
where restraining the dissemination of such infringing matter in any particular issue
of such periodical or in an electronic communication would delay the delivery of
such issue or transmission of such electronic communication is customarily
conducted in accordance with the sound business practice, and not due to any
method or device adopted to evade this section or to prevent or delay the issuance
of an injunction or restraining order with respect to such infringing matter. (n)
Section 160. Right of Foreign Corporation to Sue in Trademark or Service Mark
Enforcement Action. - Any foreign national or juridical person who meets the
requirements of Section 3 of this Act and does not engage in business in the
Philippines may bring a civil or administrative action hereunder for opposition,
cancellation, infringement, unfair competition, or false designation of origin and
false description, whether or not it is licensed to do business in the Philippines
under existing laws. (Sec. 21-A, R.A. No. 166a)
Section 161. Authority to Determine Right to Registration. - In any action involving a
registered mark, the court may determine the right to registration, order the
cancellation of a registration, in whole or in part, and otherwise rectify the register
Nigel Carmelo Q. Reago 291

with respect to the registration of any party to the action in the exercise of this.
Judgment and orders shall be certified by the court to the Director, who shall make
appropriate entry upon the records of the Bureau, and shall be controlled thereby.
(Sec. 25, R.A. No. 166a)
Section 162. Action for False or Fraudulent Declaration. - Any person who shall
procure registration in the Office of a mark by a false or fraudulent declaration or
representation, whether oral or in writing, or by any false means, shall be liable in a
civil action by any person injured thereby for any damages sustained in
consequence thereof (Sec. 26, R.A. No. 166)
Section 163. Jurisdiction of Court. - All actions under Sections 150, 155, 164, and 166
to 169 shall be brought before the proper courts with appropriate jurisdiction under
existing laws. (Sec. 27, R.A. No. 166)
Section 164. Notice of Filing Suit Given to the Director. - It shall be the duty of the
clerks of such courts within one (1) month after the filing of any action, suit, or
proceeding involving a mark registered under the provisions of this Act, to notify the
Director in writing setting forth: the names and addresses of the litigants and
designating the number of the registration or registrations and within one (1) month
after the judgment is entered or an appeal is taken, the clerk of court shall give
notice thereof to the Office, and the latter shall endorse the same upon the
filewrapper of the said registration or registrations and incorporate the same as a
part of the contents of said filewrapper. (n)
Section 165. Trade Names or Business Names. - 165.1. A name or designation may
not be used as a trade name if by its nature or the use to which such name or
designation may be put, it is contrary to public order or morals and if, in particular, it
is liable to deceive trade circles or the public as to the nature of the enterprise
identified by that name.
165.2.(a) Notwithstanding any laws or regulations providing for any obligation to
register trade names, such names shall be protected, even prior to or without
registration, against any unlawful act committed by third parties.
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(b) In particular, any subsequent use of the trade name by a third party,
whether as a trade name or a mark or collective mark, or any such use of a
similar trade name or mark, likely to mislead the public, shall be deemed
unlawful.
165.3. The remedies provided for in Sections 153 to 156 and Sections 166 and 167
shall apply mutatis mutandis.
165.4. Any change in the ownership of a trade name shall be made with the transfer
of the enterprise or part thereof identified by that name. The provisions of
Subsections 149.2 to 149.4 shall apply mutatis mutandis.
Section 166. Goods Bearing Infringing Marks or Trade Names. - No article of
imported merchandise which shall copy or simulate the name of any domestic
product, or manufacturer, or dealer, or which shall copy or simulate a mark
registered in accordance with the provisions of this Act, or shall bear a mark or trade
name calculated to induce the public to believe that the article is manufactured in
the Philippines, or that it is manufactured in any foreign country or locality other
than the country or locality where it is in fact manufactured, shall be admitted to
entry at any customhouse of the Philippines. In order to aid the officers of the
customs service in enforcing this prohibition, any person who is entitled to the
benefits of this Act, may require that his name and residence, and the name of the
locality in which his goods are manufactured, a copy of the certificate of registration
of his mark or trade name, to be recorded in books which shall be kept for this
purpose in the Bureau of Customs, under such regulations as the Collector of
Customs with the approval of the Secretary of Finance shall prescribe, and may
furnish to the said Bureau facsimiles of his name, the name of the locality in which
his goods are manufactured, or his registered mark or trade name, and thereupon
the Collector of Customs shall cause one (1) or more copies of the same to be
transmitted to each collector or to other proper officer of the Bureau of Customs.
(Sec. 35, R.A. No. 166)
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Section 167. Collective Marks. - 167.1. Subject to Subsections 167.2 and 167.3,
Sections 122 to 164 and 166 shall apply to collective marks, except that references
therein to "mark" shall be read as "collective mark".
167.2.(a) An application for registration of a collective mark shall designate the mark
as a collective mark and shall be accompanied by a copy of the agreement, if any,
governing the use of the collective mark.
(b) The registered owner of a collective mark shall notify the Director of any
changes made in respect of the agreement referred to in paragraph (a).
167.3. In addition to the grounds provided in Section 149, the Court shall cancel the
registration of a collective mark if the person requesting the cancellation proves
that only the registered owner uses the mark, or that he uses or permits its use in
contravention of the agreements referred to in Subsection 166.2 or that he uses or
permits its use in a manner liable to deceive trade circles or the public as to the
origin or any other common characteristics of the goods or services concerned.
167.4. The registration of a collective mark, or an application therefor shall not be
the subject of a license contract. (Sec. 40, R.A. No. 166a)
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.
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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)
Section 169. False Designations of Origin; False Description or Representation. -
169.1. Any person who, on or in connection with any goods or services, or any
container for goods, uses in commerce any word, term, name, symbol, or device, or
any combination thereof, or any false designation of origin, false or misleading
description of fact, or false or misleading representation of fact, which:
(a) Is likely to cause confusion, or to cause mistake, or to deceive as to the
affiliation, connection, or association of such person with another person, or
Nigel Carmelo Q. Reago 293

as to the origin, sponsorship, or approval of his or her goods, services, or
commercial activities by another person; or
(b) In commercial advertising or promotion, misrepresents the nature,
characteristics, qualities, or geographic origin of his or her or another
person's goods, services, or commercial activities, shall be liable to a civil
action for damages and injunction provided in Sections 156 and 157 of this
Act by any person who believes that he or she is or is likely to be damaged
by such act.
169.2. Any goods marked or labelled in contravention of the provisions of this
Section shall not be imported into the Philippines or admitted entry at any
customhouse of the Philippines. The owner, importer, or consignee of goods refused
entry at any customhouse under this section may have any recourse under the
customs revenue laws or may have the remedy given by this Act in cases involving
goods refused entry or seized. (Sec. 30, R.A. No. 166a)
Section 170. Penalties. - Independent of the civil and administrative sanctions
imposed by law, a criminal penalty of imprisonment from two (2) years to five (5)
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. (Arts. 188 and 189, Revised Penal Code)
PART IV
THE LAW ON COPYRIGHT
CHAPTER I
PRELIMINARY PROVISIONS
Section 171. Definitions. - For the purpose of this Act, the following terms have the
following meaning:
171.1. "Author" is the natural person who has created the work;
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171.2. A "collective work" is a work which has been created by two (2) or more
natural persons at the initiative and under the direction of another with the
understanding that it will be disclosed by the latter under his own name and that
contributing natural persons will not be identified;
171.3. "Communication to the public" or "communicate to the public" means the
making of a work available to the public by wire or wireless means in such a way
that members of the public may access these works from a place and time
individually chosen by them;
171.4. A "computer" is an electronic or similar device having information-processing
capabilities, and a "computer program" is a set of instructions expressed in words,
codes, schemes or in any other form, which is capable when incorporated in a
medium that the computer can read, of causing the computer to perform or achieve
a particular task or result;
171.5. "Public lending" is the transfer of possession of the original or a copy of a
work or sound recording for a limited period, for non-profit purposes, by an
institution the services of which are available to the public, such as public library or
archive;
171.6. "Public performance", in the case of a work other than an audiovisual work, is
the recitation, playing, dancing, acting or otherwise performing the work, either
directly or by means of any device or process; in the case of an audiovisual work, the
showing of its images in sequence and the making of the sounds accompanying it
audible; and, in the case of a sound recording, making the recorded sounds audible
at a place or at places where persons outside the normal circle of a family and that
family's closest social acquaintances are or can be present, irrespective of whether
they are or can be present at the same place and at the same time, or at different
places and/or at different times, and where the performance can be perceived
without the need for communication within the meaning of Subsection 171.3;
171.7. "Published works" means works, which, with the consent of the authors, are
made available to the public by wire or wireless means in such a way that members
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of the public may access these works from a place and time individually chosen by (d) Letters;
them: Provided, That availability of such copies has been such, as to satisfy the
reasonable requirements of the public, having regard to the nature of the work; (e) Dramatic or dramatico-musical compositions; choreographic works or
entertainment in dumb shows;
171.8. "Rental" is the transfer of the possession of the original or a copy of a work or
a sound recording for a limited period of time, for profit-making purposes; (f) Musical compositions, with or without words;

171.9. "Reproduction" is the making of one (1) or more copies of a work or a sound (g) Works of drawing, painting, architecture, sculpture, engraving,
recording in any manner or form (Sec. 41 (E), P.D. No. 49 a); lithography or other works of art; models or designs for works of art;

171.10. A "work of applied art" is an artistic creation with utilitarian functions or (h) Original ornamental designs or models for articles of manufacture,
incorporated in a useful article, whether made by hand or produced on an industrial whether or not registrable as an industrial design, and other works of
scale; applied art;

171.11. A "work of the Government of the Philippines" is a work created by an (i) Illustrations, maps, plans, sketches, charts and three-dimensional works
officer or employee of the Philippine Government or any of its subdivisions and relative to geography, topography, architecture or science;
instrumentalities, including government-owned or controlled corporations as a part
of his regularly prescribed official duties. (j) Drawings or plastic works of a scientific or technical character;

CHAPTER II (k) Photographic works including works produced by a process analogous to

ORIGINAL WORKS photography; lantern slides;

Section 172. Literary and Artistic Works. - 172.1. Literary and artistic works, (l) Audiovisual works and cinematographic works and works produced by a
hereinafter referred to as "works", are original intellectual creations in the literary process analogous to cinematography or any process for making audio-
and artistic domain protected from the moment of their creation and shall include in visual recordings;
particular:
(m) Pictorial illustrations and advertisements;
(a) Books, pamphlets, articles and other writings;
(n) Computer programs; and
(b) Periodicals and newspapers;
(o) Other literary, scholarly, scientific and artistic works.
(c) Lectures, sermons, addresses, dissertations prepared for oral delivery,
whether or not reduced in writing or other material form;

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172.2. Works are protected by the sole fact of their creation, irrespective of their
mode or form of expression, as well as of their content, quality and purpose. (Sec. 2,
P.D. No. 49a)
CHAPTER III
DERIVATIVE WORKS
Section 173. Derivative Works. - 173.1. The following derivative works shall also be
protected by copyright:
(a) Dramatizations, translations, adaptations, abridgments, arrangements,
and other alterations of literary or artistic works; and
(b) Collections of literary, scholarly or artistic works, and compilations of
data and other materials which are original by reason of the selection or
coordination or arrangement of their contents. (Sec. 2, [P] and [Q], P.D. No.
49)
173.2. The works referred to in paragraphs (a) and (b) of Subsection 173.1 shall be
protected as new works: Provided however, That such new work shall not affect the
force of any subsisting copyright upon the original works employed or any part
thereof, or be construed to imply any right to such use of the original works, or to
secure or extend copyright in such original works. (Sec. 8, P.D. 49; Art. 10, TRIPS)
Section 174. Published Edition of Work. - In addition to the right to publish granted
by the author, his heirs, or assigns, the publisher shall have a copyright consisting
merely of the right of reproduction of the typographical arrangement of the
published edition of the work. (n)
CHAPTER IV
WORKS NOT PROTECTED
Section 175. Unprotected Subject Matter. - Notwithstanding the provisions of
Sections 172 and 173, no protection shall extend, under this law, to any idea,
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procedure, system, method or operation, concept, principle, discovery or mere data
as such, even if they are expressed, explained, illustrated or embodied in a work;
news of the day and other miscellaneous facts having the character of mere items of
press information; or any official text of a legislative, administrative or legal nature,
as well as any official translation thereof (n)
Section 176. Works of the Government. - 176.1. No copyright shall subsist in any
work of the Government of the Philippines. However, prior approval of the
government agency or office wherein the work is created shall be necessary for
exploitation of such work for profit. Such agency or office may, among other things,
impose as a condition the payment of royalties. No prior approval or conditions shall
be required for the use of any purpose of statutes, rules and regulations, and
speeches, lectures, sermons, addresses, and dissertations, pronounced, read or
rendered in courts of justice, before administrative agencies, in deliberative
assemblies and in meetings of public character. (Sec. 9, first par., P.D. No. 49)
176.2. The author of speeches, lectures, sermons, addresses, and dissertations
mentioned in the preceding paragraphs shall have the exclusive right of making a
collection of his works. (n)
176.3. Notwithstanding the foregoing provisions, the Government is not precluded
from receiving and holding copyrights transferred to it by assignment, bequest or
otherwise; nor shall publication or republication by the Government in a public
document of any work in which copyright is subsisting be taken to cause any
abridgment or annulment of the copyright or to authorize any use or appropriation
of such work without the consent of the copyright owner. (Sec. 9, third par., P.D. No.
49)
CHAPTER V
COPYRIGHT OR ECONOMIC RIGHTS
Section 177. Copyright 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:
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177.1. Reproduction of the work or substantial portion of the work;
177.2. Dramatization, translation, adaptation, abridgment, arrangement or other
transformation of the work;
177.3. The first public distribution of the original and each copy of the work by sale
or other forms of transfer of ownership;
177.4. Rental of the original or a copy of an audiovisual or cinematographic work, a
work embodied in a sound recording, a computer program, a compilation of data
and other materials or a musical work in graphic form, irrespective of the ownership
of the original or the copy which is the subject of the rental; (n)
177.5. Public display of the original or a copy of the work;
177.6. Public performance of the work; and
177.7. Other communication to the public of the work. (Sec. 5, P. D. No. 49a)
CHAPTER VI
OWNERSHIP OF COPYRIGHT
Section 178. Rules on Copyright Ownership. - Copyright ownership shall be governed
by the following rules:
178.1 Subject to the provisions of this section, in the case of original literary and
artistic works, copyright shall belong to the author of the work;
178.2. In the case of works of joint authorship, the co-authors shall be the original
owners of the copyright and in the absence of agreement, their rights shall be
governed by the rules on co-ownership. If, however, a work of joint authorship
consists of parts that can be used separately and the author of each part can be
identified, the author of each part shall be the original owner of the copyright in the
part that he has created;
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178.3. In the case of work created by an author during and in the course of his
employment, the copyright shall belong to:
(a) The employee, if the creation of the object of copyright is not a part of
his regular duties even if the employee uses the time, facilities and materials
of the employer.
(b) The employer, if the work is the result of the performance of his
regularly-assigned duties, unless there is an agreement, express or implied,
to the contrary.
178.4. In the case of a work commissioned by a person other than an employer of
the author and who pays for it and the work is made in pursuance of the
commission, the person who so commissioned the work shall have ownership of the
work, but the copyright thereto shall remain with the creator, unless there is a
written stipulation to the contrary;
178.5. In the case of audiovisual work, the copyright shall belong to the producer,
the author of the scenario, the composer of the music, the film director, and the
author of the work so adapted. However, subject to contrary or other stipulations
among the creators, the producer shall exercise the copyright to an extent required
for the exhibition of the work in any manner, except for the right to collect
performing license fees for the performance of musical compositions, with or
without words, which are incorporated into the work; and
178.6. In respect of letters, the copyright shall belong to the writer subject to the
provisions of Article 723 of the Civil Code. (Sec. 6, P.D. No. 49a)
Section 179. Anonymous and Pseudonymous Works. - For purposes of this Act, the
publishers shall be deemed to represent the authors of articles and other writings
published without the names of the authors or under pseudonyms, unless the
contrary appears, or the pseudonyms or adopted name leaves no doubt as to the
author's identity, or if the author of the anonymous works discloses his identity.
(Sec. 7, P.D. 49)
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CHAPTER VII
TRANSFER OR ASSIGNMENT OF COPYRIGHT
Section 180. Rights of Assignee. - 180.1. The copyright may be assigned in whole or
in part. Within the scope of the assignment, the assignee is entitled to all the rights
and remedies which the assignor had with respect to the copyright.
180.2. The copyright is not deemed assigned inter vivos in whole or in part unless
there is a written indication of such intention.
180.3. The submission of a literary, photographic or artistic work to a newspaper,
magazine or periodical for publication shall constitute only a license to make a single
publication unless a greater right is expressly granted. If two (2) or more persons
jointly own a copyright or any part thereof, neither of the owners shall be entitled to
grant licenses without the prior written consent of the other owner or owners. (Sec.
15, P.D. No. 49a)
Section 181. Copyright and Material Object. - The copyright is distinct from the
property in the material object subject to it. Consequently, the transfer or
assignment of the copyright shall not itself constitute a transfer of the material
object. Nor shall a transfer or assignment of the sole copy or of one or several
copies of the work imply transfer or assignment of the copyright. (Sec. 16, P.D. No.
49)
Section 182. Filing of Assignment or License. - An assignment or exclusive license
may be filed in duplicate with the National Library upon payment of the prescribed
fee for registration in books and records kept for the purpose. Upon recording, a
copy of the instrument shall be returned to the sender with a notation of the fact of
record. Notice of the record shall be published in the IPO Gazette. (Sec. 19, P.D. No.
49a)
Section 183. Designation of Society. - The copyright owners or their heirs may
designate a society of artists, writers or composers to enforce their economic rights
and moral rights on their behalf. (Sec. 32, P.D. No. 49a)
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CHAPTER VIII
LIMITATIONS ON COPYRIGHT
Section 184. Limitations on Copyright. - 184.1. Notwithstanding the provisions of
Chapter V, the following acts shall not constitute infringement of copyright:
(a) The recitation or performance of a work, once it has been lawfully made
accessible to the public, if done privately and free of charge or if made
strictly for a charitable or religious institution or society; (Sec. 10(1), P.D. No.
49)
(b) The making of quotations from a published work if they are compatible
with fair use and only to the extent justified for the purpose, including
quotations from newspaper articles and periodicals in the form of press
summaries: Provided, That the source and the name of the author, if
appearing on the work, are mentioned; (Sec. 11, third par., P.D. No. 49)
(c) The reproduction or communication to the public by mass media of
articles on current political, social, economic, scientific or religious topic,
lectures, addresses and other works of the same nature, which are delivered
in public if such use is for information purposes and has not been expressly
reserved: Provided, That the source is clearly indicated; (Sec. 11, P.D. No.
49)
(d) The reproduction and communication to the public of literary, scientific
or artistic works as part of reports of current events by means of
photography, cinematography or broadcasting to the extent necessary for
the purpose; (Sec. 12, P.D. No. 49)
(e) The inclusion of a work in a publication, broadcast, or other
communication to the public, sound recording or film, if such inclusion is
made by way of illustration for teaching purposes and is compatible with
fair use: Provided, That the source and of the name of the author, if
appearing in the work, are mentioned;
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(f) The recording made in schools, universities, or educational institutions of
a work included in a broadcast for the use of such schools, universities or
educational institutions: Provided, That such recording must be deleted
within a reasonable period after they were first broadcast: Provided,
further, That such recording may not be made from audiovisual works which
are part of the general cinema repertoire of feature films except for brief
excerpts of the work;
(g) The making of ephemeral recordings by a broadcasting organization by
means of its own facilities and for use in its own broadcast;
(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;
(i) The public performance or the communication to the public of a work, in
a place where no admission fee is charged in respect of such public
performance or communication, by a club or institution for charitable or
educational purpose only, whose aim is not profit making, subject to such
other limitations as may be provided in the Regulations; (n)
(j) Public display of the original or a copy of the work not made by means of
a film, slide, television image or otherwise on screen or by means of any
other device or process: Provided, That either the work has been published,
or, that the original or the copy displayed has been sold, given away or
otherwise transferred to another person by the author or his successor in
title; and
(k) Any use made of a work for the purpose of any judicial proceedings or
for the giving of professional advice by a legal practitioner.
184.2. The provisions of this section shall be interpreted in such a way as to allow
the work to be used in a manner which does not conflict with the normal
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exploitation of the work and does not unreasonably prejudice the right holder's
legitimate interests.
Section 185. Fair Use of a Copyrighted Work. - 185.1. The fair use of a copyrighted
work for criticism, comment, news reporting, teaching including multiple copies for
classroom use, scholarship, research, and similar purposes is not an infringement of
copyright. Decompilation, which is understood here to be the reproduction of the
code and translation of the forms of the computer program to achieve the inter-
operability of an independently created computer program with other programs
may also constitute fair use. In determining whether the use made of a work in any
particular case is fair use, the factors to be considered shall include:
(a) The purpose and character of the use, including whether such use is of a
commercial nature or is for non-profit educational purposes;
(b) The nature of the copyrighted work;
(c) The amount and substantiality of the portion used in relation to the
copyrighted work as a whole; and
(d) The effect of the use upon the potential market for or value of the
copyrighted work.
185.2. The fact that a work is unpublished shall not by itself bar a finding of fair use
if such finding is made upon consideration of all the above factors.
Section 186. Work of Architecture. - Copyright in a work of architecture shall include
the right to control the erection of any building which reproduces the whole or a
substantial part of the work either in its original form or in any form recognizably
derived from the original: Provided, That the copyright in any such work shall not
include the right to control the reconstruction or rehabilitation in the same style as
the original of a building to which that copyright relates. (n)
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Section 187. Reproduction of Published Work. - 187.1. Notwithstanding the
provision of Section 177, and subject to the provisions of Subsection 187.2, the
private reproduction of a published work in a single copy, where the reproduction is
made by a natural person exclusively for research and private study, shall be
permitted, without the authorization of the owner of copyright in the work.
187.2. The permission granted under Subsection 187.1 shall not extend to the
reproduction of:
(a) A work of architecture in the form of building or other construction;
(b) An entire book, or a substantial part thereof, or of a musical work in
graphic form by reprographic means;
(c) A compilation of data and other materials;
(d) A computer program except as provided in Section 189; and
(e) Any work in cases where reproduction would unreasonably conflict with
a normal exploitation of the work or would otherwise unreasonably
prejudice the legitimate interests of the author. (n)
Section 188. Reprographic Reproduction by Libraries. - 188.1. Notwithstanding the
provisions of Subsection 177.6, any library or archive whose activities are not for
profit may, without the authorization of the author of copyright owner, make a
single copy of the work by reprographic reproduction:
(a) Where the work by reason of its fragile character or rarity cannot be lent
to user in its original form;
(b) Where the works are isolated articles contained in composite works or
brief portions of other published works and the reproduction is necessary to
supply them, when this is considered expedient, to persons requesting their
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loan for purposes of research or study instead of lending the volumes or
booklets which contain them; and
(c) Where the making of such a copy is in order to preserve and, if necessary
in the event that it is lost, destroyed or rendered unusable, replace a copy,
or to replace, in the permanent collection of another similar library or
archive, a copy which has been lost, destroyed or rendered unusable and
copies are not available with the publisher.
188.2. Notwithstanding the above provisions, it shall not be permissible to produce
a volume of a work published in several volumes or to produce missing tomes or
pages of magazines or similar works, unless the volume, tome or part is out of stock:
Provided, That every library which, by law, is entitled to receive copies of a printed
work, shall be entitled, when special reasons so require, to reproduce a copy of a
published work which is considered necessary for the collection of the library but
which is out of stock. (Sec. 13, P.D. 49a)
Section 189. Reproduction of Computer Program. - 189.1. Notwithstanding the
provisions of Section 177, the reproduction in one (1) back-up copy or adaptation of
a computer program shall be permitted, without the authorization of the author of,
or other owner of copyright in, a computer program, by the lawful owner of that
computer program: Provided, That the copy or adaptation is necessary for:
(a) The use of the computer program in conjunction with a computer for the
purpose, and to the extent, for which the computer program has been
obtained; and
(b) Archival purposes, and, for the replacement of the lawfully owned copy
of the computer program in the event that the lawfully obtained copy of the
computer program is lost, destroyed or rendered unusable.
189.2. No copy or adaptation mentioned in this Section shall be used for any
purpose other than the ones determined in this Section, and any such copy or
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adaptation shall be destroyed in the event that continued possession of the copy of
the computer program ceases to be lawful.
189.3. This provision shall be without prejudice to the application of Section 185
whenever appropriate. (n)
Section 190. Importation for Personal Purposes. - 190.1. Notwithstanding the
provision of Subsection 177.6, but subject to the limitation under the Subsection
185.2, the importation of a copy of a work by an individual for his personal purposes
shall be permitted without the authorization of the author of, or other owner of
copyright in, the work under the following circumstances:
(a) When copies of the work are not available in the Philippines and:
(i) Not more than one (1) copy at one time is imported for strictly
individual use only; or
(ii) The importation is by authority of and for the use of the
Philippine Government; or
(iii) The importation, consisting of not more than three (3) such
copies or likenesses in any one invoice, is not for sale but for the use
only of any religious, charitable, or educational society or institution
duly incorporated or registered, or is for the encouragement of the
fine arts, or for any state school, college, university, or free public
library in the Philippines.
(b) When such copies form parts of libraries and personal baggage
belonging to persons or families arriving from foreign countries and are not
intended for sale: Provided, That such copies do not exceed three (3).
190.2. Copies imported as allowed by this Section may not lawfully be used in any
way to violate the rights of owner the copyright or annul or limit the protection
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secured by this Act, and such unlawful use shall be deemed an infringement and
shall be punishable as such without prejudice to the proprietor's right of action.
190.3. Subject to the approval of the Secretary of Finance, the Commissioner of
Customs is hereby empowered to make rules and regulations for preventing the
importation of articles the importation of which is prohibited under this Section and
under treaties and conventions to which the Philippines may be a party and for
seizing and condemning and disposing of the same in case they are discovered after
they have been imported. (Sec. 30, P.D. No. 49)
CHAPTER IX
DEPOSIT AND NOTICE
Section 191. Registration and Deposit with National Library and the Supreme Court
Library. - After the first public dissemination of performance by authority of the
copyright owner of a work falling under Subsections 172.1, 172.2 and 172.3 of this
Act, there shall, for the purpose of completing the records of the National Library
and the Supreme Court Library, within three (3) weeks, be registered and deposited
with it, by personal delivery or by registered mail two (2) complete copies or
reproductions of the work in such form as the directors of said libraries may
prescribe. A certificate of deposit shall be issued for which the prescribed fee shall
be collected and the copyright owner shall be exempt from making additional
deposit of the works with the National Library and the Supreme Court Library under
other laws. If, within three (3) weeks after receipt by the copyright owner of a
written demand from the directors for such deposit, the required copies or
reproductions are not delivered and the fee is not paid, the copyright owner shall be
liable to pay a fine equivalent to the required fee per month of delay and to pay to
the National Library and the Supreme Court Library the amount of the retail price of
the best edition of the work. Only the above mentioned classes of work shall be
accepted for deposit by the National Library and the Supreme Court Library. (Sec.
26, P.D. No. 49a)
Section 192. Notice of Copyright. - Each copy of a work published or offered for sale
may contain a notice bearing the name of the copyright owner, and the year of its
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first publication, and, in copies produced after the creator's death, the year of such
death. (Sec. 27, P.D. No. 49a)
CHAPTER X
MORAL RIGHTS
Section 193. Scope of Moral Rights. - The author of a work shall, independently of
the economic rights in Section 177 or the grant of an assignment or license with
respect to such right, have the right:
193.1. To require that the authorship of the works be attributed to him, in
particular, the right that his name, as far as practicable, be indicated in a prominent
way on the copies, and in connection with the public use of his work;
193.2. To make any alterations of his work prior to, or to withhold it from
publication;
193.3. To object to any distortion, mutilation or other modification of, or other
derogatory action in relation to, his work which would be prejudicial to his honor or
reputation; and
193.4. To restrain the use of his name with respect to any work not of his own
creation or in a distorted version of his work. (Sec. 34, P.D. No. 49)
Section 194. Breach of Contract. - An author cannot be compelled to perform his
contract to create a work or for the publication of his work already in existence.
However, he may be held liable for damages for breach of such contract. (Sec. 35,
P.D. No. 49)
Section 195. Waiver of Moral Rights. - An author may waive his rights mentioned in
Section 193 by a written instrument, but no such waiver shall be valid where its
effects is to permit another:
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195.1. To use the name of the author, or the title of his work, or otherwise to make
use of his reputation with respect to any version or adaptation of his work which,
because of alterations therein, would substantially tend to injure the literary or
artistic reputation of another author; or
195.2. To use the name of the author with respect to a work he did not create. (Sec.
36, P.D. No. 49)
Section 196. Contribution to Collective Work. - When an author contributes to a
collective work, his right to have his contribution attributed to him is deemed
waived unless he expressly reserves it. (Sec. 37, P.D. No. 49)
Section 197. Editing, Arranging and Adaptation of Work. - In the absence of a
contrary stipulation at the time an author licenses or permits another to use his
work, the necessary editing, arranging or adaptation of such work, for publication,
broadcast, use in a motion picture, dramatization, or mechanical or electrical
reproduction in accordance with the reasonable and customary standards or
requirements of the medium in which the work is to be used, shall not be deemed
to contravene the author's rights secured by this chapter. Nor shall complete
destruction of a work unconditionally transferred by the author be deemed to
violate such rights. (Sec. 38, P.D. No. 49)
Section 198. Term of Moral Rights. - 198.1. The rights of an author under this
chapter shall last during the lifetime of the author and for fifty (50) years after his
death and shall not be assignable or subject to license. The person or persons to be
charged with the posthumous enforcement of these rights shall be named in writing
to be filed with the National Library. In default of such person or persons, such
enforcement shall devolve upon either the author's heirs, and in default of the heirs,
the Director of the National Library.
198.2. For purposes of this Section, "Person" shall mean any individual, partnership,
corporation, association, or society. The Director of the National Library may
prescribe reasonable fees to be charged for his services in the application of
provisions of this Section. (Sec. 39, P.D. No. 49)
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Section 199. Enforcement Remedies. - Violation of any of the rights conferred by this
Chapter shall entitle those charged with their enforcement to the same rights and
remedies available to a copyright owner. In addition, damages which may be availed
of under the Civil Code may also be recovered. Any damage recovered after the
creator's death shall be held in trust for and remitted to his heirs, and in default of
the heirs, shall belong to the government. (Sec. 40, P D No. 49)
CHAPTER XI
RIGHTS TO PROCEEDS IN SUBSEQUENT TRANSFERS
Section 200. Sale or Lease of Work. - In every sale or lease of an original work of
painting or sculpture or of the original manuscript of a writer or composer,
subsequent to the first disposition thereof by the author, the author or his heirs
shall have an inalienable right to participate in the gross proceeds of the sale or
lease to the extent of five percent (5%). This right shall exist during the lifetime of
the author and for fifty (50) years after his death. (Sec. 31, P.D. No. 49)
Section 201. Works Not Covered. - The provisions of this Chapter shall not apply to
prints, etchings, engravings, works of applied art, or works of similar kind wherein
the author primarily derives gain from the proceeds of reproductions. (Sec. 33, P.D.
No. 49)
CHAPTER XII
RIGHTS OF PERFORMERS, PRODUCERS OF SOUNDS RECORDINGS AND
BROADCASTING ORGANIZATIONS
Section 202. Definitions. - For the purpose of this Act, the following terms shall have
the following meanings:
202.1. "Performers" are actors, singers, musicians, dancers, and other persons who
act, sing, declaim, play in, interpret, or otherwise perform literary and artistic work;
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202.2. "Sound recording" means the fixation of the sounds of a performance or of
other sounds, or representation of sound, other than in the form of a fixation
incorporated in a cinematographic or other audiovisual work;
202.3. An "audiovisual work or fixation" is a work that consists of a series of related
images which impart the impression of motion, with or without accompanying
sounds, susceptible of being made visible and, where accompanied by sounds,
susceptible of being made audible;
202.4. "Fixation" means the embodiment of sounds, or of the representations
thereof, from which they can be perceived, reproduced or communicated through a
device;
202. 5. "Producer of a sound recording" means the person, or the legal entity, who
or which takes the initiative and has the responsibility for the first fixation of the
sounds of a performance or other sounds, or the representation of sounds;
202.6. "Publication of a fixed performance or a sound recording" means the offering
of copies of the fixed performance or the sound recording to the public, with the
consent of the right holder: Provided, That copies are offered to the public in
reasonable quality;
202.7. "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;
202.8. "Broadcasting organization" shall include a natural person or a juridical entity
duly authorized to engage in broadcasting; and
202.9 "Communication to the public of a performance or a sound recording" means
the transmission to the public, by any medium, otherwise than by broadcasting, of
sounds of a performance or the representations of sounds fixed in a sound
recording. For purposes of Section 209, "communication to the public" includes
Nigel Carmelo Q. Reago 303

making the sounds or representations of sounds fixed in a sound recording audible
to the public.
Section 203. Scope of Performers' Rights. - Subject to the provisions of Section 212,
performers shall enjoy the following exclusive rights:
203.1. As regards their performances, the right of authorizing:
(a) The broadcasting and other communication to the public of their
performance; and
(b) The fixation of their unfixed performance.
203.2. The right of authorizing the direct or indirect reproduction of their
performances fixed in sound recordings, in any manner or form;
203.3. Subject to the provisions of Section 206, the right of authorizing the first
public distribution of the original and copies of their performance fixed in the sound
recording through sale or rental or other forms of transfer of ownership;
203.4. The right of authorizing the commercial rental to the public of the original
and copies of their performances fixed in sound recordings, even after distribution
of them by, or pursuant to the authorization by the performer; and
203.5. The right of authorizing the making available to the public of their
performances fixed in sound recordings, by wire or wireless means, in such a way
that members of the public may access them from a place and time individually
chosen by them. (Sec. 42, P.D. No. 49a)
Section 204. Moral Rights of Performers. - 204.1. Independently of a performer's
economic rights, the performer, shall, as regards his live aural performances or
performances fixed in sound recordings, have the right to claim to be identified as
the performer of his performances, except where the omission is dictated by the
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manner of the use of the performance, and to object to any distortion, mutilation or
other modification of his performances that would be prejudicial to his reputation.
204.2. The rights granted to a performer in accordance with Subsection 203.1 shall
be maintained and exercised fifty (50) years after his death, by his heirs, and in
default of heirs, the government, where protection is claimed. (Sec. 43, P.D. No. 49)
Section 205. Limitation on Right. - 205.1. Subject to the provisions of Section 206,
once the performer has authorized the broadcasting or fixation of his performance,
the provisions of Sections 203 shall have no further application.
205.2. The provisions of Section 184 and Section 185 shall apply mutatis mutandis to
performers. (n)
Section 206. Additional Remuneration for Subsequent Communications or
Broadcasts. - Unless otherwise provided in the contract, in every communication to
the public or broadcast of a performance subsequent to the first communication or
broadcast thereof by the broadcasting organization, the performer shall be entitled
to an additional remuneration equivalent to at least five percent (5%) of the original
compensation he or she received for the first communication or broadcast. (n)
Section 207. Contract Terms. - Nothing in this Chapter shall be construed to deprive
performers of the right to agree by contracts on terms and conditions more
favorable for them in respect of any use of their performance. (n)
CHAPTER XIII
PRODUCERS OF SOUND RECORDINGS
Section 208. Scope of Right. - Subject to the provisions of Section 212, producers of
sound recordings shall enjoy the following exclusive rights:
208.1. The right to authorize the direct or indirect reproduction of their sound
recordings, in any manner or form; the placing of these reproductions in the market
and the right of rental or lending;
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208.2. The right to authorize the first public distribution of the original and copies of
their sound recordings through sale or rental or other forms of transferring
ownership; and
208.3. The right to authorize the commercial rental to the public of the original and
copies of their sound recordings, even after distribution by them by or pursuant to
authorization by the producer. (Sec. 46, P.D. No. 49a)
Section 209. Communication to the Public. - If a sound recording published for
commercial purposes, or a reproduction of such sound recording, is used directly for
broadcasting or for other communication to the public, or is publicly performed with
the intention of making and enhancing profit, a single equitable remuneration for
the performer or performers, and the producer of the sound recording shall be paid
by the user to both the performers and the producer, who, in the absence of any
agreement shall share equally. (Sec. 47, P.D. No. 49a)
Section 210. Limitation of Right. - Sections 184 and 185 shall apply mutatis mutandis
to the producer of sound recordings. (Sec. 48, P.D. No. 49a)
CHAPTER XIV
BROADCASTING ORGANIZATIONS
Section 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;
211.2. The recording in any manner, including the making of films or the use of
video tape, of their broadcasts for the purpose of communication to the public of
television broadcasts of the same; and
211.3. The use of such records for fresh transmissions or for fresh recording. (Sec.
52, P.D. No. 49)
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CHAPTER XV
LIMITATIONS ON PROTECTION
Section 212. Limitations on Rights. - Sections 203, 208 and 209 shall not apply
where the acts referred to in those Sections are related to:
212.1. The use by a natural person exclusively for his own personal purposes;
212.2. Using short excerpts for reporting current events;
212.3. Use solely for the purpose of teaching or for scientific research; and
212.4. Fair use of the broadcast subject to the conditions under Section 185. (Sec.
44, P.D. No. 49a)
CHAPTER XVI
TERM OF PROTECTION
Section 213. Term of Protection. - 213.1. Subject to the provisions of Subsections
213.2 to 213.5, the copyright in works under Sections 172 and 173 shall be
protected during the life of the author and for fifty (50) years after his death. This
rule also applies to posthumous works. (Sec. 21, first sentence, P.D. No. 49a)
213.2. In case of works of joint authorship, the economic rights shall be protected
during the life of the last surviving author and for fifty (50) years after his death.
(Sec. 21, second sentence, P.D. No. 49)
213.3. In case of anonymous or pseudonymous works, the copyright shall be
protected for fifty (50) years from the date on which the work was first lawfully
published: Provided, That where, before the expiration of the said period, the
author's identity is revealed or is no longer in doubt, the provisions of Subsections
213.1. and 213.2 shall apply, as the case may be: Provided, further, That such works
if not published before shall be protected for fifty (50) years counted from the
making of the work. (Sec. 23, P.D. No. 49)
Nigel Carmelo Q. Reago 305

213.4. In case of works of applied art the protection shall be for a period of twenty-
five (25) years from the date of making. (Sec. 24(B), P.D. No. 49a)
213.5. In case of photographic works, the protection shall be for fifty (50) years from
publication of the work and, if unpublished, fifty (50) years from the making. (Sec.
24(C), P.D. 49a)
213.6. In case of audio-visual works including those produced by process analogous
to photography or any process for making audio-visual recordings, the term shall be
fifty (50) years from date of publication and, if unpublished, from the date of
making. (Sec. 24(C), P.D. No. 49a)
Section 214. Calculation of Term. - The term of protection subsequent to the death
of the author provided in the preceding Section shall run from the date of his death
or of publication, but such terms shall always be deemed to begin on the first day of
January of the year following the event which gave rise to them. (Sec. 25, P.D. No.
49)
Section 215. Term of Protection for Performers, Producers and Broadcasting
Organizations. - 215.1. The rights granted to performers and producers of sound
recordings under this law shall expire:
(a) For performances not incorporated in recordings, fifty (50) years from
the end of the year in which the performance took place; and
(b) For sound or image and sound recordings and for performances
incorporated therein, fifty (50) years from the end of the year in which the
recording took place.
215.2. In case of broadcasts, the term shall be twenty (20) years from the date the
broadcast took place. The extended term shall be applied only to old works with
subsisting protection under the prior law. (Sec. 55, P.D. No. 49a)
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CHAPTER XVII
INFRINGEMENT
Section 216. Remedies for Infringement. - 216.1. Any person infringing a right
protected under this law shall be liable:
(a) To an injunction restraining such infringement. The court may also order
the defendant to desist from an infringement, among others, to prevent the
entry into the channels of commerce of imported goods that involve an
infringement, immediately after customs clearance of such goods.
(b) Pay to the copyright proprietor or his assigns or heirs such actual
damages, including legal costs and other expenses, as he may have incurred
due to the infringement as well as the profits the infringer may have made
due to such infringement, and in proving profits the plaintiff shall be
required to prove sales only and the defendant shall be required to prove
every element of cost which he claims, or, in lieu of actual damages and
profits, such damages which to the court shall appear to be just and shall
not be regarded as penalty.
(c) Deliver under oath, for impounding during the pendency of the action,
upon such terms and conditions as the court may prescribe, sales invoices
and other documents evidencing sales, all articles and their packaging
alleged to infringe a copyright and implements for making them.
(d) Deliver under oath for destruction without any compensation all
infringing copies or devices, as well as all plates, molds, or other means for
making such infringing copies as the court may order.
(e) Such other terms and conditions, including the payment of moral and
exemplary damages, which the court may deem proper, wise and equitable
and the destruction of infringing copies of the work even in the event of
acquittal in a criminal case.
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216.2. In an infringement action, the court shall also have the power to order the
seizure and impounding of any article which may serve as evidence in the court
proceedings. (Sec. 28, P.D. No. 49a)
Section 217. Criminal Penalties. - 217.1. Any person infringing any right secured by
provisions of Part IV of this Act or aiding or abetting such infringement shall be
guilty of a crime punishable by:
(a) Imprisonment of one (1) year to three (3) years plus a fine ranging from
Fifty thousand pesos (P50,000) to One hundred fifty thousand pesos
(P150,000) for the first offense.
(b) Imprisonment of three (3) years and one (1) day to six (6) years plus a
fine ranging from One hundred fifty thousand pesos (P150,000) to Five
hundred thousand pesos (P500,000) for the second offense.
(c) Imprisonment of six (6) years and one (1) day to nine (9) years plus a fine
ranging from five hundred thousand pesos (P500,000) to One million five
hundred thousand pesos (P1,500,000) for the third and subsequent
offenses.
(d) In all cases, subsidiary imprisonment in cases of insolvency.
217.2. In determining the number of years of imprisonment and the amount of fine,
the court shall consider the value of the infringing materials that the defendant has
produced or manufactured and the damage that the copyright owner has suffered
by reason of the infringement.
217.3. Any person who at the time when copyright subsists in a work has in his
possession an article which he knows, or ought to know, to be an infringing copy of
the work for the purpose of:
(a) Selling, letting for hire, or by way of trade offering or exposing for sale,
or hire, the article;
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(b) Distributing the article for purpose of trade, or for any other purpose to
an extent that will prejudice the rights of the copyright owner in the work;
or
(c) Trade exhibit of the article in public, shall be guilty of an offense and
shall be liable on conviction to imprisonment and fine as above mentioned.
(Sec. 29, P.D. No. 49a)
Section 218. Affidavit Evidence. - 218.1. In an action under this Chapter, an affidavit
made before a notary public by or on behalf of the owner of the copyright in any
work or other subject matter and stating that:
(a) At the time specified therein, copyright subsisted in the work or other
subject matter;
(b) He or the person named therein is the owner of the copyright; and
(c) The copy of the work or other subject matter annexed thereto is a true
copy thereof, shall be admitted in evidence in any proceedings for an
offense under this Chapter and shall be prima facie proof of the matters
therein stated until the contrary is proved, and the court before which such
affidavit is produced shall assume that the affidavit was made by or on
behalf of the owner of the copyright.
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
Nigel Carmelo Q. Reago 307

of the copyright and the defendant does not put in issue the question of his
ownership.
(c) Where the defendant, without good faith, puts in issue the questions of
whether copyright subsists in a work or other subject matter to which the
action relates, or the ownership of copyright in such work or subject matter,
thereby occasioning unnecessary costs or delay in the proceedings, the
court may direct that any costs to the defendant in respect of the action
shall not be allowed by him and that any costs occasioned by the defendant
to other parties shall be paid by him to such other parties. (n)
Section 219. Presumption of Authorship. - 219.1. The natural person whose name is
indicated on a work in the usual manner as the author shall, in the absence of proof
to the contrary, be presumed to be the author of the work. This provision shall be
applicable even if the name is a pseudonym, where the pseudonym leaves no doubt
as to the identity of the author.
219.2. The person or body corporate whose name appears on a audio-visual work in
the usual manner shall, in the absence of proof to the contrary, be presumed to be
the maker of said work. (n)
Section 220. International Registration of Works. - A statement concerning a work,
recorded in an international register in accordance with an international treaty to
which the Philippines is or may become a party, shall be construed as true until the
contrary is proved except:
220.1. Where the statement cannot be valid under this Act or any other law
concerning intellectual property.
220.2. Where the statement is contradicted by another statement recorded in the
international register. (n)
CHAPTER XVIII
SCOPE OF APPLICATION
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Section 221. Points of Attachment for Works under Sections 172 and 173. - 221.1.
The protection afforded by this Act to copyrightable works under Sections 172 and
173 shall apply to:
(a) Works of authors who are nationals of, or have their habitual residence
in, the Philippines;
(b) Audio-visual works the producer of which has his headquarters or
habitual residence in the Philippines;
(c) Works of architecture erected in the Philippines or other artistic works
incorporated in a building or other structure located in the Philippines;
(d) Works first published in the Philippines; and
(e) Works first published in another country but also published in the
Philippines within thirty days, irrespective of the nationality or residence of
the authors.
221.2. The provisions of this Act shall also apply to works that are to be protected by
virtue of and in accordance with any international convention or other international
agreement to which the Philippines is a party. (n)
Section 222. Points of Attachment for Performers. - The provisions of this Act on the
protection of performers shall apply to:
222.1. Performers who are nationals of the Philippines;
222.2. Performers who are not nationals of the Philippines but whose
performances:
(a) Take place in the Philippines; or
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(b) Are incorporated in sound recordings that are protected under this Act;
or
(c) Which has not been fixed in sound recording but are carried by broadcast
qualifying for protection under this Act. (n)
Section 223. Points of Attachment for Sound Recordings. - The provisions of this Act
on the protection of sound recordings shall apply to:
223.1. Sound recordings the producers of which are nationals of the Philippines; and
223.2. Sound recordings that were first published in the Philippines. (n)
Section 224. Points of Attachment for Broadcasts. - 224.1. The provisions of this Act
on the protection of broadcasts shall apply to:
(a) Broadcasts of broadcasting organizations the headquarters of which are
situated in the Philippines; and
(b) Broadcasts transmitted from transmitters situated in the Philippines.
224.2. The provisions of this Act shall also apply to performers who, and to
producers of sound recordings and broadcasting organizations which, are to be
protected by virtue of and in accordance with any international convention or other
international agreement to which the Philippines is a party. (n)
CHAPTER XIX
INSTITUTION OF ACTIONS
Section 225. Jurisdiction. - Without prejudice to the provisions of Subsection 7.1(c),
actions under this Act shall be cognizable by the courts with appropriate jurisdiction
under existing law. (Sec. 57, P.D. No. 49a)
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Section 226. Damages. - No damages may be recovered under this Act after four (4)
years from the time the cause of action arose. (Sec. 58, P.D. No. 49)
CHAPTER XX
MISCELLANEOUS PROVISIONS
Section 227. Ownership of Deposit and Instruments. - All copies deposited and
instruments in writing filed with the National Library and the Supreme Court Library
in accordance with the provisions of this Act shall become the property of the
Government. (Sec. 60, P.D. No. 49)
Section 228. Public Records. - The section or division of the National Library and the
Supreme Court Library charged with receiving copies and instruments deposited and
with keeping records required under this Act and everything in it shall be opened to
public inspection. The Director of the National Library is empowered to issue such
safeguards and regulations as may be necessary to implement this Section and other
provisions of this Act. (Sec. 61, P.D. No. 49)
Section 229. Copyright Division; Fees. - The Copyright Section of the National Library
shall be classified as a Division upon the effectivity of this Act. The National Library
shall have the power to collect, for the discharge of its services under this Act, such
fees as may be promulgated by it from time to time subject to the approval of the
Department Head. (Sec. 62, P.D. 49a)
PART V
FINAL PROVISIONS
Section 230. Equitable Principles to Govern Proceedings. - In all inter partes
proceedings in the Office under this Act, the equitable principles of laches, estoppel,
and acquiescence where applicable, may be considered and applied. (Sec. 9-A, R.A.
No. 165)
Section 231. Reverse Reciprocity of Foreign Laws. - Any condition, restriction,
limitation, diminution, requirement, penalty or any similar burden imposed by the
Nigel Carmelo Q. Reago 309

law of a foreign country on a Philippine national seeking protection of intellectual
property rights in that country, shall reciprocally be enforceable upon nationals of
said country, within Philippine jurisdiction. (n)
Section 232. Appeals. - 232.1. Appeals from decisions of regular courts shall be
governed by the Rules of Court. Unless restrained by a higher court, the judgment of
the trial court shall be executory even pending appeal under such terms and
conditions as the court may prescribe.
232.2. Unless expressly provided in this Act or other statutes, appeals from decisions
of administrative officials shall be provided in the Regulations. (n)
Section 233. Organization of the Office; Exemption from the Salary Standardization
Law and the Attrition Law. - 233.1. The Office shall be organized within one (1) year
after the approval of this Act. It shall not be subject to the provisions of Republic Act
No. 7430.
233.2. The Office shall institute its own compensation structure: Provided, That the
Office shall make its own system conform as closely as possible with the principles
provided for under Republic Act No. 6758. (n)
Section 234. Abolition of the Bureau of Patents, Trademarks, and Technology
Transfer. - The Bureau of Patents, Trademarks, and Technology Transfer under the
Department of Trade and Industry is hereby abolished. All unexpended funds and
fees, fines, royalties and other charges collected for the calendar year, properties,
equipment and records of the Bureau of Patents, Trademarks and Technology
Transfer, and such personnel as may be necessary are hereby transferred to the
Office. Personnel not absorbed or transferred to the Office shall enjoy the
retirement benefits granted under existing law, otherwise, they shall be paid the
equivalent of one month basic salary for every year of service, or the equivalent
nearest fractions thereof favorable to them on the basis of the highest salary
received.(n)
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Section 235. Applications Pending on Effective Date of Act. - 235.1. All applications
for patents pending in the Bureau of Patents, Trademarks and Technology Transfer
shall be proceeded with and patents thereon granted in accordance with the Acts
under which said applications were filed, and said Acts are hereby continued to be
enforced, to this extent and for this purpose only, notwithstanding the foregoing
general repeal thereof: Provided, That applications for utility models or industrial
designs pending at the effective date of this Act, shall be proceeded with in
accordance with the provisions of this Act, unless the applicants elect to prosecute
said applications in accordance with the Acts under which they were filed.
235.2. All applications for registration of marks or trade names pending in the
Bureau of Patents, Trademarks and Technology Transfer at the effective date of this
Act may be amended, if practicable to bring them under the provisions of this Act.
The prosecution of such applications so amended and the grant of registrations
thereon shall be proceeded with in accordance with the provisions of this Act. If
such amendments are not made, the prosecution of said applications shall be
proceeded with and registrations thereon granted in accordance with the Acts
under which said applications were filed, and said Acts are hereby continued in
force to this extent for this purpose only, notwithstanding the foregoing general
repeal thereof (n)
Section 236. Preservation of Existing Rights. - Nothing herein shall adversely affect
the rights on the enforcement of rights in patents, utility models, industrial designs,
marks and works, acquired in good faith prior to the effective date of this Act. (n)
Section 237. Notification on Berne Appendix. - The Philippines shall by proper
compliance with the requirements set forth under the Appendix of the Berne
Convention (Paris Act, 1971) avail itself of the special provisions regarding
developing countries, including provisions for licenses grantable by competent
authority under the Appendix. (n)
Section 238. Appropriations. - The funds needed to carry out the provisions of this
Act shall be charged to the appropriations of the Bureau of Patents, Trademarks,
and Technology Transfer under the current General Appropriations Act and the fees,
Nigel Carmelo Q. Reago 310
 COMMERCIAL LAW 2018

fines, royalties and other charges collected by the Bureau for the calendar year
pursuant to Sections 14.1 and 234 of this Act. Thereafter such sums as may be
necessary for its continued implementations shall be included in the annual General
Appropriations Act. (n)

Section 239. Repeals. - 239.1. All Acts and parts of Acts inconsistent herewith, more
particularly Republic Act No. 165, as amended; Republic Act No. 166, as amended;
and Articles 188 and 189 of the Revised Penal Code; Presidential Decree No. 49,
including Presidential Decree No. 285, as amended, are hereby repealed.

239.2. Marks registered under Republic Act No. 166 shall remain in force but shall
be deemed to have been granted under this Act and shall be due for renewal within
the period provided for under this Act and, upon renewal shall be reclassified in
accordance with the International Classification. Trade names and marks registered
in the Supplemental Register under Republic Act No. 166 shall remain in force but
shall no longer be subject to renewal.

239.3. The provisions of this Act shall apply to works in which copyright protection
obtained prior to the effectivity of this Act is subsisting: Provided, That the
application of this Act shall not result in the diminution of such protection. (n)

Section 240. Separability. - If any provision of this Act or the application of such
provision to any circumstances is held invalid, the remainder of the Act shall not be
affected thereby. (n)

Section 241. Effectivity. - This Act shall take effect on 1 January 1998. (n)

Approved: June 6, 1997

Nigel Carmelo Q. Reago 311


REPUBLIC ACT NO. 10372
AN ACT AMENDING CERTAIN PROVISIONS OF REPUBLIC
ACT NO. 8293, OTHERWISE KNOWN AS THE
"INTELLECTUAL PROPERTY CODE OF THE PHILIPPINES",
AND FOR OTHER PURPOSES
Section 1. Section 6 of Republic Act No. 8293, otherwise known as the "Intellectual
Property Code of the Philippines", is hereby amended to read as follows:
"SEC. 6. The Organizational Structure of the IPO. – x x x
"6.2. the Office shall be divided into seven (7) Bureaus, each of which shall
be headed by a Director and assisted by an Assistant Director. These
Bureaus are:
"x x x
"(f) the Administrative, Financial and Personnel Services Bureau;
and
"(g) the Bureau of Copyright and Other Related Rights."
Section 2. Section 7 of Republic Act No. 8293 is hereby amended to read as follows:
"SEC. 7. The Director General and Deputies Director General. –
"x x x
"(b) Exercise exclusive appellate jurisdiction over all decisions rendered by
the Director of Legal Affairs, the Director of Patents, the Director of
Trademarks, the Director of Copyright and Other Related Rights, and the
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Director of the Documentation, Information and Technology Transfer
Bureau. the decisions of the Director General in the exercise of his appellate
jurisdiction in respect of the decisions of the Director of Patents, the
Director of Trademarks and the Director of Copyright and Other Related
Rights shall be appealable to the Court of Appeals in accordance with the
Rules of Court; and those in respect of the decisions of the Director of the
Documentation, Information and Technology Transfer Bureau shall be
appealable to the Secretary of Trade and Industry;
"(c) Undertake enforcement functions supported by concerned agencies
such as the Philippine National Police, the National Bureau of Investigation,
the Bureau of Customs, the Optical Media Board, and the local government
units, among others;
"(d) Conduct visits during reasonable hours to establishments and
businesses engaging in activities violating intellectual property rights and
provisions of this Act based on report, information or complaint received by
the office; and
"(e) Such other functions in furtherance of protecting IP rights and
objectives of this Act."
Section 3. A new Section 9A is hereby inserted after Section 9 of Republic Act No.
8293, to read as follows:
"SEC. 9A. The Bureau of Copyright and Other Related Rights. – the Bureau of
Copyright and Other Related Rights shall have the following functions:
"9A.1. Exercise original jurisdiction to resolve disputes relating to
the terms of a license involving the author’s right to public
performance or other communication of his work;
Nigel Carmelo Q. Reago 312

"9A.2. Accept, review and decide on applications for the
accreditation of collective management organizations or similar
entities;
"9A.3. Conduct studies and researches in the field of copyright and
related rights; and
"9A.4. Provide other copyright and related rights service and charge
reasonable fees therefor."
Section 4. Section 171.3. of Republic Act No. 8293 is hereby amended to read as
follows:
"SEC. 171. Definitions. – x x x
"171.3. ‘Communication to the public’ or ‘communicate to the public’
means any communication to the public, including broadcasting,
rebroadcasting, retransmitting by cable, broadcasting and retransmitting by
satellite, and includes the making of a work available to the public by wire or
wireless means in such a way that members of the public may access these
works from a place and time individually chosen by them;"
Section 5. Section 171.9. of Republic Act No. 8293 is hereby amended to read as
follows:
"171.9. ‘Reproduction’ is the making of one (1) or more copies, temporary
or permanent, in whole or in part, of a work or a sound recording in any
manner or form without prejudice to the provisions of Section 185 of this
Act (Sec. 41[E], P.D. No. 49a);"
Section 6. There shall be two new subsections to be added at the end of Section
171.11. to be known as 171.12. and 171.13., both to read as follows:
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"171.12. ‘Technological measure’ means any technology, device or
component that, in the normal course of its operation, restricts acts in
respect of a work, performance or sound recording, which are not
authorized by the authors, performers or producers of sound recordings
concerned or permitted by law;
"171.13. ‘Rights management information’ means information which
identifies the work, sound recording or performance; the author of the
work, producer of the sound recording or performer of the performance;
the owner of any right in the work, sound recording or performance; or
information about the terms and conditions of the use of the work, sound
recording or performance; and any number or code that represent such
information, when any of these items is attached to a copy of the work,
sound recording or fixation of performance or appears in conjunction with
the communication to the public of a work, sound recording or
performance."
Section 7. the Chapter Title of Chapter VII, Part IV, the Law on Copyright, is hereby
amended to read as follows:
"CHAPTER VII
TRANSFER, ASSIGNMENT AND LICENSING OF COPYRIGHT"
Section 8. Section 180 of Republic Act No. 8293 is hereby amended to read as
follows:
"SEC. 180. Rights of Assignee or Licensee. – 180.1. the copyright may be
assigned or licensed in whole or in part. Within the scope of the assignment
or license, the assignee or licensee is entitled to all the rights and remedies
which the assignor or licensor had with respect to the copyright.
"180.2. the copyright is not deemed assigned or licensed inter vivos, in
whole or in part, unless there is a written indication of such intention.
Nigel Carmelo Q. Reago 313

"x x x
"180.4. Any exclusivity in the economic rights in a work may be exclusively
licensed. Within the scope of the exclusive license, the licensee is entitled to
all the rights and remedies which the licensor had with respect to the
copyright.
"180.5. the copyright owner has the right to regular statements of accounts
from the assignee or the licensee with regard to assigned or licensed work."
Section 9. Section 181 of Republic Act No. 8293 is hereby amended to read as
follows:
"SEC. 181. Copyright and Material Object. – the copyright is distinct from
the property in the material object subject to it. Consequently, the transfer,
assignment or licensing of the copyright shall not itself constitute a transfer
of the material object. Nor shall a transfer or assignment of the sole copy or
of one or several copies of the work imply transfer, assignment or licensing
of the copyright. (Sec. 16, P.D. No. 49)"
Section 10. Section 183 of Republic Act No. 8293 is hereby amended to read as
follows:
"SEC. 183. Designation of Society. – the owners of copyright and related
rights or their heirs may designate a society of artists, writers, composers
and other right-holders to collectively manage their economic or moral
rights on their behalf. For the said societies to enforce the rights of their
members, they shall first secure the necessary accreditation from the
Intellectual Property Office. (Sec. 32, P.D. No. 49a)"
Section 11. Section 184.1. of Republic Act No. 8293 is hereby amended to read as
follows:
"SEC. 184. Limitations on Copyright. – x x x
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"(1) the reproduction or distribution of published articles or materials in a
specialized format exclusively for the use of the blind, visually- and reading-
impaired persons: Provided, That such copies and distribution shall be made
on a nonprofit basis and shall indicate the copyright owner and the date of
the original publication."
Section 12. Section 185.1. of Republic Act No. 8293 is hereby amended to read as
follows:
"SEC. 185. Fair Use of a Copyrighted Work. – 185.1. the fair use of a
copyrighted work for criticism, comment, news reporting, teaching including
limited number of copies for classroom use, scholarship, research, and
similar purposes is not an infringement of copyright. Decompilation, which
is understood here to be the reproduction of the code and translation of the
forms of a computer program to achieve the interoperability of an
independently created computer program with other programs may also
constitute fair use under the criteria established by this section, to the
extent that such decompilation is done for the purpose of obtaining the
information necessary to achieve such interoperability.
"x x x."
Section 13. Section 188.1. of Republic Act No. 8293 is hereby amended to read as
follows:
"SEC. 188. Reprographic Reproduction by Libraries. – 188.1. Notwithstanding
the provisions of Subsection 177.1., any library or archive whose activities
are not for profit may, without the authorization of the author or copyright
owner, make a limited number of copies of the work, as may be necessary
for such institutions to fulfill their mandate, by reprographic reproduction:
"x x x
Nigel Carmelo Q. Reago 314

"(c) Where the making of such limited copies is in order to preserve and, if
necessary in the event that it is lost, destroyed or rendered unusable,
replace a copy, or to replace, in the permanent collection of another similar
library or archive, a copy which has been lost, destroyed or rendered
unusable and copies are not available with the publisher."
Section 14. Sections 190.1. and 190.2. of Republic Act No. 8293 are deleted in their
entirety.
Section 15. Section 190.3. of Republic Act No. 8293 is hereby renumbered and
amended as the sole provision under Section 190 to read as follows:
"SEC 190. Importation and Exportation of Infringing Materials. – Subject to
the approval of the Secretary of Finance, the Commissioner of Customs is
hereby empowered to make rules and regulations for preventing the
importation or exportation of infringing articles prohibited under Part IV of
this Act and under relevant treaties and conventions to which the
Philippines may be a party and for seizing and condemning and disposing of
the same in case they are discovered after they have been imported or
before they are exported. (Sec. 30, P.D. No. 49)"
Section 16. Section 191 of Republic Act No. 8293 is hereby amended to read as
follows:
"SEC 191. Deposit and Notice of Deposit with the National Library and the
Supreme Court Library. – At any time during the subsistence of the
copyright, the owner of the copyright or of any exclusive right in the work
may, for the purpose of completing the records of the National Library and
the Supreme Court Library, register and deposit with them, by personal
delivery or by registered mail, two (2) complete copies or reproductions of
the work in such form as the Directors of the said libraries may prescribe in
accordance with regulations: Provided, That only works in the field of law
shall be deposited with the Supreme Court Library. Such registration and
deposit is not a condition of copyright protection."
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Section 17. Section 198 of Republic Act No. 8293 is hereby amended to read as
follows:
"SEC. 198. Term of Moral Rights. – 198.1. the right of an author under
Section 193.1. shall last during the lifetime of the author and in perpetuity
after his death while the rights under Sections 193.2. 193.3. and 193.4. shall
be coterminous with the economic rights, the moral rights shall not be
assignable or subject to license. the person or persons to be charged with
the posthumous enforcement of these rights shall be named in a written
instrument which shall be filed with the National Library. In default of such
person or persons, such enforcement shall devolve upon either the author’s
heirs, and in default of the heirs, the Director of the National Library."
Section 18. Section 203 of Republic Act No. 8293 is hereby amended to read as
follows;
"x x x
"203.2. the right of authorizing the direct or indirect reproduction of their
performances fixed in sound recordings or audiovisual works or fixations in
any manner or form;
"203.3. Subject to the provisions of Section 206, the right of authorizing the
first public distribution of the original and copies of their performance fixed
in sound recordings or audiovisual works or fixations through sale or rental
of other forms of transfer of ownership;
"203.4. the right of authorizing the commercial rental to the public of the
original and copies of their performances fixed in sound recordings or
audiovisual works or fixations, even after distribution of them by, or
pursuant to the authorization by the performer; and
"203.5. the right of authorizing the making available to the public of their
performances fixed in sound recordings or audiovisual works or fixations, by
Nigel Carmelo Q. Reago 315

wire or wireless means, in such a way that members of the public may
access them from a place and time individually chosen by them. (Sec. 42,
P.D. No. 49A)."
Section 19. Section 204.1. of Republic Act No. 8293 is hereby amended to read as
follows;
"204.1. Independently of a performer’s economic rights, the performer
shall, as regards his live aural performances or performances fixed in sound
recordings or in audiovisual works or fixations, have the right to claim to be
identified as the performer of his performances, except where the omission
is dictated by the manner of the use of the performance, and to object to
any distortion, mutilation or other modification of his performances that
would be prejudicial to his reputation."
Section 20. Section 208 of Republic Act No. 8293 is hereby amended to read as
follows:
"SEC. 208. Scope of Right. – x x x
"208.4. the right to authorize the making available to the public of their
sound recordings in such a way that members of the public may access the
sound recording from a place and at a time individually chosen or selected
by them, as well as other transmissions of a sound recording with like
effect."
Section 21. Section 212 of Republic Act No. 8293 is hereby amended to read as
follows:
"SEC. 212. Limitations on Rights. – the provisions of Chapter VIII shall
apply mutatis mutandis to the rights of performers, producers of sound
recordings and broadcasting organizations."
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Section 22. Section 216 of Republic Act No. 8293 is hereby amended to read as
follows:
"SEC. 216. Infringement. – A person infringes a right protected under this
Act when one:
"(a) Directly commits an infringement;
"(b) Benefits from the infringing activity of another person who
commits an infringement if the person benefiting has been given
notice of the infringing activity and has the right and ability to
control the activities of the other person;
"(c) With knowledge of infringing activity, induces, causes or
materially contributes to the infringing conduct of another.
"216.1. Remedies for Infringement. – Any person infringing a right protected
under this law shall be liable:
"x x x
"(b) To pay to the copyright proprietor or his assigns or heirs such
actual damages, including legal costs and other expenses, as he may
have incurred due to the infringement as well as the profits the
infringer may have made due to such infringement, and in proving
profits the plaintiff shall be required to prove sales only and the
defendant shall be required to prove every element of cost which
he claims, or, in lieu of actual damages and profits, such damages
which to the court shall appear to be just and shall not be regarded
as penalty: Provided, That the amount of damages to be awarded
shall be doubled against any person who:
"(i) Circumvents effective technological measures; or
Nigel Carmelo Q. Reago 316

"(ii) Having reasonable grounds to know that it will induce,
enable, facilitate or conceal the infringement, remove or
alter any electronic rights management information from a
copy of a work, sound recording, or fixation of a
performance, or distribute, import for distribution,
broadcast, or communicate to the public works or copies of
works without authority, knowing that electronic rights
management information has been removed or altered
without authority.
"x x x
"The copyright owner may elect, at any time before final judgment is
rendered, to recover instead of actual damages and profits, an award of
statutory damages for all infringements involved in an action in a sum
equivalent to the filing fee of the infringement action but not less than Fifty
thousand pesos (Php50,000.00). In awarding statutory damages, the court
may consider the following factors:
"(1) the nature and purpose of the infringing act;
"(2) the flagrancy of the infringement;
"(3) Whether the defendant acted in bad faith;
"(4) the need for deterrence;
"(5) Any loss that the plaintiff has suffered or is likely to suffer by
reason of the infringement; and
"(6) Any benefit shown to have accrued to the defendant by reason
of the infringement.
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"In case the infringer was not aware and had no reason to believe that his
acts constitute an infringement of copyright, the court in its discretion may
reduce the award of statutory damages to a sum of not more than Ten
thousand pesos (Php10,000.00): Provided, That the amount of damages to
be awarded shall be doubled against any person who:
"(i) Circumvents effective technological measures; or
"(ii) Having reasonable grounds to know that it will induce, enable,
facilitate or conceal the infringement, remove or alter any electronic
rights management information from a copy of a work, sound
recording, or fixation of a performance, or distribute, import for
distribution, broadcast, or communicate to the public works or
copies of works without authority, knowing that electronic rights
management information has been removed or altered without
authority.
"x x x
"216.2. In an infringement action, the court shall also have the power to
order the seizure and impounding of any article which may serve as
evidence in the court proceedings, in accordance with the rules on search
and seizure involving violations of intellectual property rights issued by the
Supreme Court. (Sec. 28, P.D. No. 49a)
"The foregoing shall not preclude an independent suit for relief by the
injured party by way of damages, injunction, accounts or otherwise."
Section 23. Section 217.2. of Republic Act No. 8293 hereby amended to read as
follows:
"217.2. In determining the number of years of imprisonment and the
amount of fine, the court shall consider the value of the infringing materials
that the defendant has produced or manufactured and the damage that the
Nigel Carmelo Q. Reago 317

copyright owner has suffered by reason of the infringement: Provided, That
the respective maximum penalty stated in Section 217.1. (a), (b) and (c)
herein for the first, second, third and subsequent offense, shall be imposed
when the infringement is committed by:
"(a) the circumvention of effective technological measures;
"(b) the removal or alteration of any electronic rights management
information from a copy of a work, sound recording, or fixation of a
performance, by a person, knowingly and without authority; or
"(c) the distribution, importation for distribution, broadcast, or
communication to the public of works or copies of works, by a
person without authority, knowing that electronic rights
management information has been removed or altered without
authority."
Section 24. Section 218.1. of Republic Act No. 8293 is hereby amended to read as
follows:
"SEC. 218. Affidavit Evidence. – x x x
"(c) the copy of the work or other subject matter annexed thereto is a true
copy thereof.
"The affidavit shall be admitted in evidence in any proceedings under this
Chapter and shall be prima facie proof of the matters therein stated until
the contrary is proved, and the court before which such affidavit is
produced shall assume that the affidavit was made by or on behalf of the
owner of the copyright."
Section 25. A new Section 220A shall be inserted after Section 220.2. of Republic Act
No. 8293 to read as follows:
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"SEC. 220A. Disclosure of Information. – Where any article or its packaging
or an implement for making it is seized or detained under a valid search and
seizure under this Act is, or is reasonably suspected to be, by an authorized
enforcement officer, in violation of this Act, the said officer, shall, wherever
reasonably practicable, notify the owner of the copyright in question or his
authorized agent of the seizure or detention, as the case may be."
Section 26. Section 226 of Republic Act No. 8293 is hereby amended to read as
follows:
"SEC. 226. Damages. – No damages may be recovered under this Act after
the lapse of four (4) years from the time the cause of action arose. (Sec. 58,
P.D. No. 49)."
Section 27. Chapter XX of Republic Act No. 8293 is hereby amended by adding a
new section at the end thereof to be denominated as Section 230, to read as
follows:
"SEC. 230. Adoption of Intellectual Property (IP) Policies. – Schools and
universities shall adopt intellectual property policies that would govern the
use and creation of intellectual property with the purpose of safeguarding
the intellectual creations of the learning institution and its employees, and
adopting locally-established industry practice fair use guidelines. These
policies may be developed in relation to licensing agreements entered into
by the learning institution with a collective licensing organization."
Section 28. Section 230 of Republic Act No. 8293 is hereby renumbered as Section
231, and all succeeding sections of the same Act are hereby renumbered
accordingly.
Section 29. Implementing Rules and Regulations. – Within one hundred eighty (180)
days from the effectivity of this Act, the Intellectual Property Office, in consultation
with the National Book Development Board, the National Library, the Supreme
Nigel Carmelo Q. Reago 318
 COMMERCIAL LAW 2018

Court Library and other relevant agencies, shall promulgate the rules and
regulations necessary to effectively implement the provisions of this Act.

Section 30. Repealing Clause. – All laws, decrees, executive orders, issuances or
regulations inconsistent with the provisions of this Act are hereby revised or
amended accordingly.

Section 31. Separability Clause. – If any part of this Act is declared unconstitutional
or invalid, such parts or provisions thereof not so declared shall remain valid and
subsisting.

Section 32. Effectivity Clause. – This Act shall take effect fifteen (15) days after its
publication in at least two (2) newspapers of general circulation.

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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
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(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;
Nigel Carmelo Q. Reago 320

(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;
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(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;
Nigel Carmelo Q. Reago 321

(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.
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(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;
Nigel Carmelo Q. Reago 322

(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
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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
Nigel Carmelo Q. Reago 323

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
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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
Nigel Carmelo Q. Reago 324

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.
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(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
Nigel Carmelo Q. Reago 325

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
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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
Nigel Carmelo Q. Reago 326

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.
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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
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 COMMERCIAL LAW 2018

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.

Nigel Carmelo Q. Reago 328


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:
SECTION 3. Section 3(i) of the same Act is further amended to read 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;
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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."
"(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;
Nigel Carmelo Q. Reago 329

"(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;
SECTION 5. Section 7 of the same Act is hereby amended as follows:
"(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:
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(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."
"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.
Nigel Carmelo Q. Reago 330

"(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
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"(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
Nigel Carmelo Q. Reago 331

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 parte by 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.
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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,
Nigel Carmelo Q. Reago 332
 COMMERCIAL LAW 2018

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.

Nigel Carmelo Q. Reago 333


REPUBLIC ACT NO. 8792 June 14, 2000
AN ACT PROVIDING FOR THE RECOGNITION AND USE OF
ELECTRONIC COMMERCIAL AND NON-COMMERCIAL
TRANSACTIONS AND DOCUMENTS, PENALTIES FOR
UNLAWFUL USE THEREOF, AND FOR OTHER PURPOSES
PART I
SHORT TITLE AND DECLARATION OF POLICY
Section 1. Short Title - This Act shall be known as the "Electronic Commerce Act of
2000."
Section 2. Declaration of Policy - The State recognizes the vital role of information
and communications technology (ICT) in nation-building; the need to create an
information-friendly environment which supports and ensures the availability,
diversity and affordability of ICT products and services; the primary responsibility of
the private sector in contributing investments and services in telecommunications
and information technology; the need to develop, with appropriate training
programs and institutional policy changes, human resources for the information
technology age, a labor force skilled in the use of ICT and a population capable of
operating and utilizing electronic appliances and computers; its obligation to
facilitate the transfer and promotion of technology; to ensure network security,
connectivity and neutrality of technology for the national benefit; and the need to
marshal, organize and deploy national information infrastructures, comprising in
both telecommunications network and strategic information services, including
their interconnection to the global information networks, with the necessary and
appropriate legal, financial, diplomatic and technical framework, systems and
facilities.
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PART II
ELECTRONIC COMMERCE IN GENERAL
CHAPTER I
GENERAL PROVISIONS
Section 3. Objective - This Act aims to facilitate domestic and international dealings,
transactions, arrangements agreements, contracts and exchanges and storage of
information through the utilization of electronic, optical and similar medium, mode,
instrumentality and technology to recognize the authenticity and reliability of
electronic documents related to such activities and to promote the universal use of
electronic transaction in the government and general public.
Section 4. Sphere of Application - This Act shall apply to any kind of data message
and electronic document used in the context of commercial and non-commercial
activities to include domestic and international dealings, transactions,
arrangements, agreements contracts and exchanges and storage of information.
Section 5. Definition of Terms - For the purposes of this Act, the following terms are
defined, as follows:
(a) "Addressee" refers to a person who is intended by the originator to
receive the electronic data message or electronic document. The term does
not include a person acting as an intermediary with respect to that
electronic data message or electronic data document.
(b) "Computer" refers to any device or apparatus which, by electronic,
electro-mechanical, or magnetic impulse, or by other means, is capable of
receiving, recording, transmitting, storing, processing, retrieving, or
producing information, data, figures, symbols or other modes of written
expression according to mathematical and logical rules or of performing any
one or more of these functions.
Nigel Carmelo Q. Reago 334

(c) "Electronic Data Message" refers to information generated, sent,
received or stored by electronic, optical or similar means.
(d) "Information and Communications System" refers to a system intended
for and capable of generating, sending, receiving, storing, or otherwise
processing electronic data messages or electronic documents and includes
the computer system or other similar device by or in which data is recorded
or stored and any procedures related to the recording or storage of
electronic data message or electronic document.
(e) "Electronic Signature" refers to any distinctive mark, characteristic
and/or sound in electronic form, representing the identity of a person and
attached to or logically associated with the electronic data message or
electronic document or any methodology or procedures employed or
adopted by a person and executed or adopted by such person with the
intention of authenticating or approving an electronic data message or
electronic document.
(f) "Electronic Document" refers to information or the representation of
information, data, figures, symbols or other modes of written expression,
described or however represented, by which a right is established or an
obligation extinguished, or by which a fact may be prove and affirmed,
which is receive, recorded, transmitted, stored, processed, retrieved or
produced electronically.
(g) "Electronic Key" refers to a secret code which secures and defends
sensitive information that cross over public channels into a form
decipherable only with a matching electronic key.
(h) "Intermediary" refers to a person who in behalf of another person and
with respect to a particular electronic document sends, receives and/or
stores provides other services in respect of that electronic data message or
electronic document.
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(i) "Originator" refers to a person by whom, or on whose behalf, the
electronic document purports to have been created, generated and/or sent.
The term does not include a person acting as an intermediary with respect
to that electronic document.
(j) "Service provider" refers to a provider of -
i. On-line services or network access or the operator of facilities
therefor, including entities offering the transmission, routing, or
providing of connections for online communications, digital or
otherwise, between or among points specified by a user, of
electronic documents of the user's choosing; or
ii. The necessary technical means by which electronic documents of
an originator may be stored and made accessible to designated or
undesignated third party.
Such service providers shall have no authority to modify or alter the content of the
electronic data message or electronic document received or to make any entry
therein on behalf of the originator, addressee or any third party unless specifically
authorized to do so, and who shall retain the electronic document in accordance
with the specific request or as necessary for the purpose of performing the services
it was engaged to perform.
CHAPTER II
LEGAL RECOGNITION OF ELECTRONIC WRITING
OR DOCUMENT AND DATA MESSAGES
Section 6. Legal Recognition of Electronic Data Messages - Information shall not be
denied legal effect, validity or enforceability solely on the grounds that it is in the
data message purporting to give rise to such legal effect, or that it is merely referred
to in that electronic data message.
Nigel Carmelo Q. Reago 335

Section 7. Legal Recognition of Electronic Documents - Electronic documents shall
have the legal effect, validity or enforceability as any other document or legal
writing, and -
(a) Where the law requires a document to be in writing, that requirement is
met by an electronic document if the said electronic document maintains its
integrity and reliability and can be authenticated so as to be usable for
subsequent reference, in that -
i. The electronic document has remained complete and unaltered,
apart from the addition of any endorsement and any authorized
change, or any change which arises in the normal course of
communication, storage and display; and
ii. The electronic document is reliable in the light of the purpose for
which it was generated and in the light of all relevant circumstances.
(b) Paragraph (a) applies whether the requirement therein is in the form of
an obligation or whether the law simply provides consequences for the
document not being presented or retained in its original from.
(c) Where the law requires that a document be presented or retained in its
original form, that requirement is met by an electronic document if -
i. There exists a reliable assurance as to the integrity of the
document from the time when it was first generated in its final
form; and
ii. That document is capable of being displayed to the person to
whom it is to be presented: Provided, That no provision of this Act
shall apply to vary any and all requirements of existing laws on
formalities required in the execution of documents for their validity.
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For evidentiary purposes, an electronic document shall be the functional equivalent
of a written document under existing laws.
This Act does not modify any statutory rule relating to admissibility of electronic
data massages or electronic documents, except the rules relating to authentication
and best evidence.
Section 8. Legal Recognition of Electronic Signatures. - An electronic signature on
the electronic document shall be equivalent to the signature of a person on a
written document if that signature is proved by showing that a prescribed
procedure, not alterable by the parties interested in the electronic document,
existed under which -
(a) A method is used to identify the party sought to be bound and to
indicate said party's access to the electronic document necessary for his
consent or approval through the electronic signature;
(b) Said method is reliable and appropriate for the purpose for which the
electronic document was generated or communicated, in the light of all
circumstances, including any relevant agreement;
(c) It is necessary for the party sought to be bound, in or order to proceed
further with the transaction, to have executed or provided the electronic
signature; and
(d) The other party is authorized and enabled to verify the electronic
signature and to make the decision to proceed with the transaction
authenticated by the same.
Section 9. Presumption Relating to Electronic Signatures - In any proceedings
involving an electronic signature, it shall be presumed that -
(a) The electronic signature is the signature of the person to whom it
correlates; and
Nigel Carmelo Q. Reago 336

(b) The electronic signature was affixed by that person with the intention of
signing or approving the electronic document unless the person relying on
the electronically signed electronic document knows or has noticed of
defects in or unreliability of the signature or reliance on the electronic
signature is not reasonable under the circumstances.
Section 10. Original Documents. -
(1) Where the law requires information to be presented or retained in its
original form, that requirement is met by an electronic data message or
electronic document if;
(a) the integrity of the information from the time when it was first
generated in its final form, as an electronic data message or
electronic document is shown by evidence aliunde or otherwise;
and
(b) where it is required that information be resented, that the
information is capable of being displayed to the person to whom it
is to be presented.
(2) Paragraph (1) applies whether the requirement therein is in the form of
an obligation or whether the law simply provides consequences for the
information not being presented or retained in its original form.
(3) For the purpose of subparagraph (a) of paragraph (1):
(a) the criteria for assessing integrity shall be whether the
information has remained complete and unaltered, apart from the
addition of any endorsement and any change which arises in the
normal course of communication, storage and display ; and
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(b) the standard of reliability required shall be assessed in the light
of purposed for which the information was generated and in the
light of all the relevant circumstances.
Section 11. Authentication of Electronic Data Messages and Electronic Documents. -
Until the Supreme Court by appropriate rules shall have so provided, electronic
documents, electronic data messages and electronic signatures, shall be
authenticated by demonstrating, substantiating and validating a claimed identity of
a user, device, or another entity is an information or communication system, among
other ways, as follows;
(a) The electronic signature shall be authenticated by proof than a letter ,
character, number or other symbol in electronic form representing the
persons named in and attached to or logically associated with an electronic
data message, electronic document, or that the appropriate methodology or
security procedures, when applicable, were employed or adopted by such
person, with the intention of authenticating or approving in an electronic
data message or electronic document;
(b) The electronic data message or electronic document shall be
authenticated by proof that an appropriate security procedure, when
applicable was adopted and employed for the purpose of verifying the
originator of an electronic data message and/or electronic document, or
detecting error or alteration in the communication, content or storage of an
electronic document or electronic data message from a specific point,
which, using algorithm or codes, identifying words or numbers, encryptions,
answers back or acknowledgement procedures, or similar security devices.
The supreme court may adopt such other authentication procedures, including the
use of electronic notarization systems as necessary and advisable, as well as the
certificate of authentication on printed or hard copies of the electronic document or
electronic data messages by electronic notaries, service providers and other duly
recognized or appointed certification authorities.
Nigel Carmelo Q. Reago 337

The person seeking to introduce an electronic data message or electronic document
in any legal proceeding has the burden of proving its authenticity by evidence
capable of supporting a finding that the electronic data message or electronic
document is what the person claims it be.
In the absence of evidence to the contrary, the integrity of the information and
communication system in which an electronic data message or electronic document
is recorded or stored may be established in any legal proceeding -
a.) By evidence that at all material times the information and
communication system or other similar device was operating in a manner
that did not affect the integrity of the electronic data message and/or
electronic document, and there are no other reasonable grounds to doubt
the integrity of the information and communication system,
b.) By showing that the electronic data message and/or electronic
document was recorded or stored by a party to the proceedings who is
adverse in interest to the party using it; or
c.) By showing that the electronic data message and/or electronic document
was recorded or stored in the usual and ordinary course of business by a
person who is not a party to the proceedings and who did not act under the
control of the party using the record.
Section 12. Admissibility and Evidential Weight of Electronic Data Message or
Electronic Document. - In any legal proceedings, nothing in the application of the
rules on evidence shall deny the admissibility of an electronic data message or
electronic document in evidence -
(a) On the sole ground that it is in electronic form; or
(b) On the ground that it is not in the standard written form, and the
electronic data message or electronic document meeting, and complying
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with the requirements under Sections 6 or 7 hereof shall be the best
evidence of the agreement and transaction contained therein.
In assessing the evidential weight of an electronic data message or electronic
document, the reliability of the manner in which it was generated, stored or
communicated, the reliability of the manner in which its originator was identified,
and other relevant factors shall be given due regard.
Section 13. Retention of Electronic Data Message or Electronic Document. -
Notwithstanding any provision of law, rule or regulation to the contrary -
(a) The requirement in any provision of law that certain documents be
retained in their original form is satisfied by retaining them in the form of an
electronic data message or electronic document which -
(i) Remains accessible so as to be usable for subsequent reference;
(ii) Is retained in the format in which it was generated, sent or
received, or in a format which can be demonstrated to accurately
represent the electronic data message or electronic document
generated, sent or received;
(iii) Enables the identification of its originator and addressee, as well
as the determination of the date and the time it was sent or
received.
(b) The requirement referred to in paragraph (a) is satisfied by using the
services of a third party, provided that the conditions set fourth in
subparagraph s (i), (ii) and (iii) of paragraph (a) are met.
Section 14. Proof by Affidavit. - The matters referred to in Section 12, on
admissibility and Section 9, on the presumption of integrity, may be presumed to
have been established by an affidavit given to the best of the deponent's knowledge
subject to the rights of parties in interest as defined in the following section.
Nigel Carmelo Q. Reago 338

Section 15. Cross - Examination.
(1) A deponent of an affidavit referred to in Section 14 that has been
introduced in evidence may be cross-examined as of right by a party to the
proceedings who is adverse in interest to the party who has introduced the
affidavit or has caused the affidavit to be introduced.
(2) Any party to the proceedings has the right to cross-examine a person
referred to in section 11, paragraph 4, sub paragraph c.
CHAPTER III.
COMMUNICATION OF ELECTRONIC DATA MESSAGES OR ELECTRONIC DOCUMENTS
Section 16. Formation of Validity of Electronic Contracts.
(1) Except as otherwise agreed by the parties, an offer, the acceptance of an
offer and such other elements required under existing laws for the
formation of contracts may be expressed in, demonstrated and proved by
means of electronic data messages or electronic documents and no contract
shall be denied validity or enforceability on the sole ground that it is in the
form of an electronic data message or electronic document, or that any or
all of the elements required under existing laws for the formation of
contracts is expressed, demonstrated and proved by means of electronic
data messages or electronic documents.
(2) Electronic transactions made through networking among banks, or
linkages thereof with other entities or networks, and vice versa, shall be
deemed consummated upon the actual dispensing of cash or the debit of
one account and the corresponding credit to another, whether such
transaction is initiated by the depositor or by an authorized collecting party:
Provided, that the obligation of one bank, entity, or person similarly situated
to another arising therefrom shall be considered absolute and shall not be
subjected to the process of preference of credits.
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Section 17. Recognition by Parties of Electronic Data Message or Electronic
Document. - As between the originator and the addressee of an electronic data
message or electronic document, a declaration of will or other statement shall not
be denied legal effect, validity or enforceability solely on the ground that it is in the
form of an electronic data message.
Section 18. Attribution of Electronic Data Message. -
(1) An electronic data message or electronic document is that of the
originator if it was sent by the originator himself.
(2) As between the originator and the addressee, an electronic data
message or electronic document is deemed to be that of the originator if it
was sent:
(a) by a person who had the authority to act on behalf of the
originator with respect to that electronic data message or electronic
document; or
(b) by an information system programmed by, or on behalf of the
originator to operate automatically.
(3) As between the originator and the addressee, an addressee is entitled to
regard an electronic data message or electronic document as being that of
the originator, and to act on that assumption, if:
(a) in order to ascertain whether the electronic data message or
electronic document was that of the originator, the addressee
properly applied a procedure previously agreed to by the originator
for that purpose; or
(b) the electronic data message or electronic document as received
by the addressee resulted from the actions of a person whose
relationship with the originator or with any agent of the originator
Nigel Carmelo Q. Reago 339

enabled that person to gain access to a method used by the
originator to identify electronic data messages as his own.
(4) Paragraph (3) does not apply:
(a) as of the time when the addressee has both received notice from
the originator that the electronic data message or electronic
document is not that of the originator, and has reasonable time to
act accordingly; or
(b) in a case within paragraph (3) sub-paragraph (b), at any time
when the addressee knew or should have known, had it exercised
reasonable care of used any agreed procedure, that the electronic
data message or electronic document was not that of the originator.
(5) Where an electronic data message or electronic document is that of the
originator or is deemed to be that of the originator, or the addressee is
entitled to act on that assumption, then, as between the originator and the
addressee, the addressee is entitled to regard the electronic data message
or electronic document as received as being what the originator intended to
send, and to act on that assumption. The addressee is not so entitled when
it knew or should have known, had it exercised treasonable care or used any
agreed procedure, that the transmission resulted in any error in the
electronic data message or electronic document as received.
(6) The addressee is entitled to regard each electronic data message or
electronic document received as a separate electronic data message or
electronic document and to act on that assumption, except to the extent
that it duplicates another electronic data message or electronic document
and the addressee knew or should have known, had it exercised reasonable
care or used any agreed procedure, that the electronic data message or
electronic document was a duplicate.
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Section 19. Error on Electronic Data Message or Electronic Document. - The
addressee is entitled to regard the electronic data message or electronic document
received as that which the originator intended to send, and to act on that
assumption, unless the addressee knew or should have known, had the addressee
exercised reasonable care or used the appropriate procedure -
(a) That the transmission resulted in any error therein or in the electronic
document when the electronic data message or electronic document enters
the designated information system, or
(b) That electronic data message or electronic document is sent to an
information system which is not so designated by the addressee for the
purposes.
Section 20. Agreement on Acknowledgement of Receipt of Electronic Data Messages
or Electronic Documents. - The following rules shall apply where, on or before
sending an electronic data message or electronic document, the originator and the
addressee have agreed, or in that electronic document or electronic data message,
the originator has requested, that receipt of the electronic document or electronic
data message be acknowledged:
a.) Where the originator has not agreed with the addressee that the
acknowledgement be given in a particular form or by a particular method,
an acknowledgement may be given by or through any communication by
the addressee, automated or otherwise, or any conduct of the addressee,
sufficient to indicate to the originator that the electronic data message or
electronic document has been received.
b.) Where the originator has stated that the effect or significance of the
electronic data message or electronic document is conditional on receipt of
the acknowledgement thereof, the electronic data message or electronic
document is treated as though it has never been sent, until the
acknowledgement is received.
Nigel Carmelo Q. Reago 340

c.) Where the originator has not stated that the effect or significance of the
electronic data message or electronic document is conditional on receipt of
the acknowledgement, and the acknowledgement has not been received by
the originator within the time specified or agreed or, if no time has been
specified or agreed, within the reasonable time, the originator may give
notice to the addressee stating that no acknowledgement has been received
and specifying a reasonable time by which the acknowledgement must be
received; and if the acknowledgement is not received within the time
specified in subparagraph (c), the originator may, upon notice to the
addressee, treat the electronic document or electronic data as though it had
never been sent, or exercise any other rights it may have.
Section 21. Time of Dispatch of Electronic Data Messages or Electronic Documents. -
Unless otherwise agreed between the originator and the addressee, the dispatch of
an electronic data message or electronic document occurs when it enters an
information system outside the control of the originator or of the person who sent
the electronic data message or electronic document on behalf of the originator.
Section 22. Time of Receipt of Electronic Data Messages or Electronic Documents. -
Unless otherwise agreed between the originator and the addressee, the time of
receipt of an electronic data message or electronic document is as follows:
a.) If the addressee has designated an information system for the purpose of
receiving electronic data message or electronic document, receipt occurs at
the time when the electronic data message or electronic document enters
the designated information system: Provide, however, that if the originator
and the addressee are both participants in the designated information
system, receipt occurs at the time when the electronic data message or
electronic document is retrieved by the addressee;
b.) If the electronic data message or electronic document is sent to an
information system of the addressee that is not the designated information
system, receipt occurs at the time when the electronic data message or
electronic document is retrieved by the addressee;
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c.) If the addressee has not designated an information system, receipt
occurs when the electronic data message or electronic document enters an
information system of the addressee.
These rules apply notwithstanding that the place where the information system is
located may be different from the place where the electronic data message or
electronic document is deemed to be received.
Section 23. Place of Dispatch and Receipt of Electronic Data Messages or Electronic
Documents. - Unless otherwise agreed between the originator and the addressee,
an electronic data message or electronic document is deemed to be dispatched at
the place where the originator has its place of business and received at the place
where the addressee has its place of business. This rule shall apply even if the
originator or addressee had used a laptop other portable device to transmit or
received his electronic data message or electronic document. This rule shall also
apply to determine the tax situs of such transaction.
For the purpose hereof -
a. If the originator or addressee has more than one place of business, the
place of business is that which has the closest relationship to the underlying
transaction or, where there is no underlying transaction, the principal place
of business.
b. If the originator or the addressee does not have a place of business,
reference is to be made to its habitual residence; or
c. The "usual place of residence" in relation to a body corporate, means the
place where it is incorporated or otherwise legally constituted.
Section 24. Choice of Security Methods. - Subject to applicable laws and /or rules
and guidelines promulgated by the Department of Trade and Industry with other
appropriate government agencies, parties to any electronic transaction shall be free
to determine the type of level of electronic data message and electronic document
Nigel Carmelo Q. Reago 341
 COMMERCIAL LAW 2018

security needed, and to select and use or implement appropriate technological (e) undertaking to deliver goods to a named person or a person authorized
methods that suit their need. to claim delivery;

PART III (f) granting, acquiring, renouncing, surrendering, transferring or negotiating

ELECTRONIC COMMERCE IN SPECIFIC AREAS rights in goods;

CHAPTER I.
CARRIAGE OF GOODS
Section 25. Actions Related to Contracts of Carriage of Goods. - Without derogating
from the provisions of part two of this law, this chapter applies to any action in
connection with, or in pursuance of, a contract of carriage of goods, including but
not limited to:
(a) (i) furnishing the marks, number, quantity or weight of goods;
(ii) stating or declaring the nature or value of goods;
(iii) issuing a receipt for goods;
(iv) confirming that goods have been loaded;
(b) (i) notifying a person of terms and conditions of the contract;
(g) acquiring or transferring rights and obligations under the contract.
Section 26. Transport Documents. - (1) Where the law requires that any action
referred to contract of carriage of goods be carried out in writing or by using a paper
document, that requirement is met if the action is carried out by using one or more
data messages or electronic documents.
(2) Paragraph (1) applies whether the requirement there in is in the form of
an obligation or whether the law simply provides consequences for failing
either to carry out the action in writing or to use a paper document.
(3) If a right is to be granted to, or an obligation is to be acquired by, one
person and no person, and if the law requires that, in order to effect this,
the right or obligation must be conveyed to that person by the transfer, or
use of, a paper document, that requirement is met if the right or obligation
is conveyed by using one or more electronic data messages or electronic
documents unique;

(ii) giving instructions to a carrier; (4) For the purposes of paragraph (3), the standard of reliability required
shall be assessed in the light of the purpose for which the right or obligation
(c) (i) claiming delivery of goods; was conveyed and in the light of all the circumstances, including any
relevant agreement.
(ii) authorizing release of goods;
(5) Where one or more data messages are used to effect any action in
(iii) giving notice of loss of, or damage to goods; subparagraphs (f) and (g) of Section 25, no paper document used to effect
any such action is valid unless the use of electronic data message or
(d) giving any other notice or statement in connection with the performance electronic document has been terminated and replaced by the used of
of the contract; paper documents. A paper document issued in these circumstances shall

Nigel Carmelo Q. Reago 342


contain a statement of such termination. The replacement of the electronic
data messages or electronic documents by paper documents shall not affect
the rights or obligation of the parties involved.
(6) If a rule of laws is compulsorily applicable to a contract of carriage of
goods which is in, or is evidenced by, a paper document, that rule shall not
be inapplicable to such a contract of carriage of goods which is evidenced by
one or more electronic data messages or electronic documents by reason of
the fact that the contract is evidenced by such electronic data messages or
electronic documents instead of by a paper document.
PART IV
ELECTRONIC TRANSACTIONS IN GOVERNMENT
Section 27. Government Use of Electronic Data Messages, Electronic Documents and
Electronic Signatures. - Notwithstanding any law to the contrary, within two (2)
years from the date of the effectivity of this Act, all departments, bureaus, offices
and agencies of the government, as well as all government-owned and -controlled
corporations, that pursuant to law require or accept the filling of documents,
require that documents be created, or retained and/or submitted, issue permits,
licenses or certificates of registration or approval, or provide for the method and
manner of payment or settlement of fees and other obligations to the government,
shall -
(a) accept the creation, filing or retention of such documents in the form of
electronic data messages or electronic documents;
(b) issue permits, licenses, or approval in the form of electronic data
messages or electronic documents;
(c) require and/or accept payments, and issue receipts acknowledging such
payments, through systems using electronic data messages or electronic
documents; or
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(d) transact the government business and/or perform governmental
functions using electronic data messages or electronic documents, and for
the purpose, are authorized to adopt and promulgate, after appropriate
public hearing and with due publication in newspapers of general
circulation, the appropriate rules, regulations, or guidelines, to, among
others, specify -
1) the manner and format in which such electronic data messages or
electronic documents shall be filed, created, retained or issued;
2) where and when such electronic data messages or electronic
documents have to signed, the use of an electronic signature, the
type of electronic signature required;
3) the format of an electronic data message or electronic document
and the manner the electronic signature shall be affixed to the
electronic data message or electronic document;
4) the control processes and procedures as appropriate to ensure
adequate integrity, security and confidentiality of electronic data
messages or electronic documents or records of payments;
5) other attributes required to electronic data messages or
electronic documents or payments; and
6) the full or limited use of the documents and papers for
compliance with the government requirements: Provided, that this
Act shall be itself mandate any department of the government,
organ of state or statutory corporation to accept or issue any
document in the form of electronic data messages or electronic
documents upon the adoption, promulgation and publication of the
appropriate rules, regulations or guidelines.
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Section 28. RPWEB To Promote the Use of Electronic Documents or Electronic Data
Messages In Government and to the General Public. - Within two (2) years from the
effectivity of this Act, there shall be installed an electronic online network in
accordance with Administrative Order 332 and House of Representatives Resolution
890, otherwise known as RPWEB, to implement Part IV of this Act to facilitate the
open, speedy and efficient electronic online transmission, conveyance and use of
electronic data messages or electronic documents amongst all government
departments, agencies, bureaus, offices down to the division level and to the
regional and provincial offices as practicable as possible, government owned and
controlled corporations, local government units, other public instrumentalities,
universities, colleges and other schools, and universal access to the general public.
The RPWEB network shall serve as initial platform of the government information
infrastructure (GII) to facilitate the electronic online transmission and conveyance of
government services to evolve and improve by better technologies or kinds and
electronic online wide area networks utilizing, but not limited to, fiber optic,
satellite, wireless and other broadband telecommunication mediums or modes.
To facilitate the rapid development of the GII, the Department of Transportation
and Communications, National Telecommunications Commission and the National
Computer Center are hereby directed to aggressively promote and implement a
policy environment and regulatory framework that shall lead to the substantial
reduction of costs of including, but not limited to, lease lines, land, satellite and dial-
up telephone access, cheap broadband and wireless accessibility by government
departments, agencies, bureaus, offices, government owned and controlled
corporations, local government units, other public instrumentalities and the general
public, to include the establishment of a government website portal and a domestic
internal exchange system to facilitate strategic access to government and amongst
agencies thereof and the general public and for the speedier flow of locally
generated internal traffic within the Philippines.
The physical infrastructure of cable and wireless system for cable TV and broadcast
excluding programming content and the management thereof shall be considered as
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within the activity of telecommunications for the purpose of electronic commerce
and to maximize the convergence of ICT in the installation of the GII.
Section 29. Authority of the Department of Trade and Industry and Participating
Entities. - The Department of Trade and Industry (DTI) shall direct supervise the
promotion and development of electronic commerce in the country with relevant
government agencies, without prejudice to the provisions of Republic Act 7653
(Charter of Bangko Sentral ng Pilipinas) and Republic Act No. 337, (General Banking
Act) as amended.
Among others, the DTI is empowered to promulgate rules and regulations, as well as
provide quality standards or issue certifications, as the case may be, and perform
such other functions as may be necessary for the implementation of this Act in the
area of electronic commerce to include, but shall not limited to, the installation of
an online public information and quality and price monitoring system for goods and
services aimed in protecting the interests of the consuming public availing of the
advantages of this Act.
PART V
FINAL PROVISIONS
Section 30. Extent of Liability of a Service Provider. - Except as otherwise provided in
this Section, no person or party shall be subject to any civil or criminal liability in
respect of the electronic data message or electronic document for which the person
or party acting as a service provider as defined in Section 5 merely provides access if
such liability is founded on -
(a) The obligations and liabilities of the parties under the electronic data
message or electronic document;
(b) The making, publication, dissemination or distribution of such material
or any statement made in such material, including possible infringement of
any right subsisting in or in relation to such material. Provided, That:
Nigel Carmelo Q. Reago 344

i. The service provider does not have actual knowledge, or is not
aware of the facts or circumstances from which it is apparent, that
the making, publication, dissemination or distribution of such
material is unlawful or infringes any rights subsisting in or in relation
to such material;
ii The service provider does not knowingly receive a financial benefit
directly attributable to the unlawful or infringing activity; and
iii. The service provider does not directly commit any infringement
or other unlawful act and does not induce or cause another person
or party to commit any infringement or other unlawful act and/or
does not benefit financially from the infringing activity or unlawful
act or another person or party; Provider, further, That nothing in
this Section shall affect -
(a) Any obligation founded on contract;
(b) The obligation of a service provider as such under a licensing or other
regulatory regime established under written law; or
(c) Any obligation imposed under any written law;
(d) The civil liability of any party to the extent that such liability forms the
basis for injunctive relief issued by a court under any law requiring that the
service provider take or refrain from actions necessary to remove, block or
deny access to any material, or to preserve evidence of a violation of law.
Section 31. Lawful Access. - Access to an electronic file, or an electronic signature of
an electronic data message or electronic document shall only be authorized and
enforced in favor of the individual or entity having a legal right to the possession or
the use of plaintext, electronic signature or file or solely for the authorized
purposes. The electronic key for identity or integrity shall not be made available to
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any person or party without the consent of the individual or entity in lawful
possession of that electronic key;
Section 32. Obligation of Confidentiality. - Except for the purposes authorized under
this Act, any person who obtained access to any electronic key, electronic data
message or electronic document, book, register, correspondence, information, or
other material pursuant to any powers conferred under this Act, shall not convey to
or share the same with any other person.
Section 33. Penalties. - The following Acts, shall be penalized by fine and/or
imprisonment, as follows:
(a) Hacking or crackling with refers to unauthorized access into or
interference in a computer system/server or information and
communication system; or any access in order to corrupt, alter, steal, or
destroy using a computer or other similar information and communication
devices, without the knowledge and consent of the owner of the computer
or information and communications system, including the introduction of
computer viruses and the like, resulting in the corruption, destruction,
alteration, theft or loss of electronic data messages or electronic documents
shall be punished by a minimum fine of One Hundred Thousand pesos (P
100,000.00) and a maximum commensurate to the damage incurred and a
mandatory imprisonment of six (6) months to three (3) years;
(b) Piracy or the unauthorized copying, reproduction, dissemination, or
distribution, importation, use, removal, alteration, substitution,
modification, storage, uploading, downloading, communication, making
available to the public, or broadcasting of protected material, electronic
signature or copyrighted works including legally protected sound recordings
or phonograms or information material on protected works, through the
use of telecommunication networks, such as, but not limited to, the
internet, in a manner that infringes intellectual property rights shall be
punished by a minimum fine of one hundred thousand pesos (P 100,000.00)
Nigel Carmelo Q. Reago 345

and a maximum commensurate to the damage incurred and a mandatory
imprisonment of six (6) months to three (3) years;
(c) Violations of the Consumer Act of Republic Act No. 7394 and other
relevant to pertinent laws through transaction covered by or using
electronic data messages or electronic documents, shall be penalized with
the same penalties as provided in those laws;
(d) Other violations of the provisions of this Act, shall be penalized with a
maximum penalty of one million pesos (P 1,000,000.00) or six (6) years
imprisonment.
Section 34. Implementing Rules and Regulations. - The DTI, Department of Budget
and Management and the Bangko Sentral ng Pilipinas are hereby empowered to
enforced the provisions of this Act and issue implementing rules and regulations
necessary, in coordination with the Department of Transportation and
Communications, National Telecommunications Commission, National Computer
Center, National Information Technology Council, Commission on Audit, other
concerned agencies and the private sector, to implement this Act within sixty (60)
days after its approval.
Failure to Issue rules and regulations shall not in any manner affect the executory
nature of the provisions of this Act.
Section 35. Oversight Committee. - There shall be Congressional Oversight
Committee composed of the Committees and Trade and Industry/Commerce,
Science and Technology, Finance and Appropriations of both the Senate and House
of Representatives, which shall meet at least every quarter of the first two years and
every semester for the third year after the approval of this Act to oversee its
implementation. The DTI, DBM, Bangko Sentral ng Pilipinas, and other government
agencies as may be determined by the Congressional Committee shall provide a
quarterly performance report of their actions taking in the implementation of this
Act for the first three (3) years.
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Section 36. Appropriations. - The amount necessary to carry out the provisions of
Sections 27 and 28 of this Act shall be charged against any available funds and/or
savings under the General Appropriations Act of 2000 in the first year of effectivity
of this Act. Thereafter, the funds needed for the continued implementation shall be
included in the annual General Appropriations Act.
Section 37. Statutory Interpretation. - Unless otherwise expressly provided for, the
interpretation of this Act shall give due regard to its international origin and the
need to promote uniformity in its application and the observance of good faith in
international trade relations. The generally accepted principles of international law
and convention on electronic commerce shall likewise be considered.
Section 38. Variation by Agreement. - As between parties involved in generating,
sending, receiving, storing or otherwise processing electronic data message or
electronic document, any provision of this Act may be varied by agreement between
and among them.
Section 39. Reciprocity. - All benefits, privileges, advantages or statutory rules
established under this Act, including those involving practice of profession, shall be
enjoyed only by parties whose country origin grants the same benefits and
privileges or advantages to Filipino citizens.
Section 40. Separability Clause. - The provisions of this Act are hereby declared
separable and in the event of any such provision is declared unconstitutional, the
other provisions, which are not affected, shall remain in force and effect.
Section 41. Repealing Clause. - All other laws, decrees, rules and regulations or parts
thereof which are inconsistent with the provisions of this Act are hereby repealed,
amended or modified accordingly.
Section 42. Effectivity. - This Act shall take effect immediately after its publication in
the Official Gazette or in at least two (2) national newspapers of general circulation.
Nigel Carmelo Q. Reago 346

A.M. No. 01-7-01-SC July 17, 2001
RULES ON ELECTRONIC EVIDENCE
Acting on the Memorandum dated 18 June 2001 of the Committee on the Revision
of the Rules of Court to Draft the Rules on E-Commerce Law [R.A. No.
8792] submitting the Rules on Electronic Evidence for this Court's consideration and
approval, the Court Resolved to APPROVED the same.
The Rules on Electronic Evidence shall apply to cases pending after their effectivity.
These Rules shall take effect on the first day of August 2001 following thier
publication before the 20th of July in two newspapers of general circulation in the
Philippines
17th July 2001.
RULES ON ELECTRONIC EVIDENCE
Rule 1
COVERAGE
Section 1. Scope. – Unless otherwise provided herein, these Rules shall apply
whenever an electronic document or electronic data message, as defined in Rule 2
hereof, is offered or used in evidence.
Section 2. Cases covered. – These Rules shall apply to all civil actions and
proceedings, as well as quasi-judicial and administrative cases.
Section 3. Application of other rules on evidence. – In all matters not specifically
covered by these Rules, the Rules of Court and pertinent provisions of statutes
containing rules on evidence shall apply.
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Rule 2
DEFINITION OF TERMS AND CONSTRUCTION
Section 1. Definition of terms. – For purposes of these Rules, the following terms are
defined, as follows:
(a) "Asymmetric or public cryptosystem" means a system capable of
generating a secure key pair, consisting of a private key for creating a digital
signature, and a public key for verifying the digital signature.
(b) "Business records" include records of any business, institution,
association, profession, occupation, and calling of every kind, whether or
not conducted for profit, or for legitimate or illegitimate purposes.
(c) "Certificate" means an electronic document issued to support a digital
signature which purports to confirm the identity or other significant
characteristics of the person who holds a particular key pair.
(d) "Computer" refers to any single or interconnected device or apparatus,
which, by electronic, electro-mechanical or magnetic impulse, or by other
means with the same function, can receive, record, transmit, store, process,
correlate, analyze, project, retrieve and/or produce information, data, text,
graphics, figures, voice, video, symbols or other modes of expression or
perform any one or more of these functions.
(e) "Digital signature" refers to an electronic signature consisting of a
transformation of an electronic document or an electronic data message
using an asymmetric or public cryptosystem such that a person having the
initial untransformed electronic document and the signer's public key can
accurately determine:
i. whether the transformation was created using the private key that
corresponds to the signer's public key; and
Nigel Carmelo Q. Reago 347

ii. whether the initial electronic document had been altered after
the transformation was made.
(f) "Digitally signed" refers to an electronic document or electronic data
message bearing a digital signature verified by the public key listed in a
certificate.
(g) "Electronic data message" refers to information generated, sent,
received or stored by electronic, optical or similar means.
(h) "Electronic document" refers to information or the representation of
information, data, figures, symbols or other modes of written expression,
described or however represented, by which a right is established or an
obligation extinguished, or by which a fact may be proved and affirmed,
which is received, recorded, transmitted, stored, processed, retrieved or
produced electronically. It includes digitally signed documents and any
print-out or output, readable by sight or other means, which accurately
reflects the electronic data message or electronic document. For purposes
of these Rules, the term "electronic document" may be used
interchangeably with "electronic data message".
(i) "Electronic key" refers to a secret code which secures and defends
sensitive information that crosses over public channels into a form
decipherable only with a matching electronic key.
(j) "Electronic signature" refers to any distinctive mark, characteristic and/or
sound in electronic form, representing the identity of a person and attached
to or logically associated with the electronic data message or electronic
document or any methodology or procedure employed or adopted by a
person and executed or adopted by such person with the intention of
authenticating, signing or approving an electronic data message or
electronic document. For purposes of these Rules, an electronic signature
includes digital signatures.
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(k) "Ephemeral electronic communication" refers to telephone
conversations, text messages, chatroom sessions, streaming audio,
streaming video, and other electronic forms of communication the evidence
of which is not recorded or retained.
(l) "Information and communication system" refers to a system for
generating, sending, receiving, storing or otherwise processing electronic
data messages or electronic documents and includes the computer system
or other similar devices by or in which data are recorded or stored and any
procedure related to the recording or storage of electronic data messages
or electronic documents.
(m) "Key pair" in an asymmetric cryptosystem refers to the private key and
its mathematically related public key such that the latter can verify the
digital signature that the former creates.
(n) "Private key" refers to the key of a key pair used to create a digital
signature.
(o) "Public key" refers to the key of a key pair used to verify a digital
signature.
Section 2. Construction. – These Rules shall be liberally construed to assist the
parties in obtaining a just, expeditious, and inexpensive determination of cases.
The interpretation of these Rules shall also take into consideration the international
origin of Republic Act No. 8792, otherwise known as the Electronic Commerce Act.
Rule 3
ELECTRONIC DOCUMENTS
Section 1. Electronic documents as functional equivalent of paper-based
documents. – Whenever a rule of evidence refers to the term writing, document,
Nigel Carmelo Q. Reago 348

record, instrument, memorandum or any other form of writing, such term shall be
deemed to include an electronic document as defined in these Rules.
Section 2. Admissibility. – An electronic document is admissible in evidence if it
complies with the rules on admissibility prescribed by the Rules of Court and related
laws and is authenticated in the manner prescribed by these Rules.
Section 3. Privileged communication. – The confidential character of a privileged
communication is not lost solely on the ground that it is in the form of an electronic
document.
Rule 4
BEST EVIDENCE RULE
Section 1. Original of an electronic document. – An electronic document shall be
regarded as the equivalent of an original document under the Best Evidence Rule if
it is a printout or output readable by sight or other means, shown to reflect the data
accurately.
Section 2. Copies as equivalent of the originals. – When a document is in two or
more copies executed at or about the same time with identical contents, or is a
counterpart produced by the same impression as the original, or from the same
matrix, or by mechanical or electronic re-recording, or by chemical reproduction, or
by other equivalent techniques which accurately reproduces the original, such
copies or duplicates shall be regarded as the equivalent of the original.
Notwithstanding the foregoing, copies or duplicates shall not be admissible to the
same extent as the original if:
(a) a genuine question is raised as to the authenticity of the original; or
(b) in the circumstances it would be unjust or inequitable to admit the copy
in lieu of the original.
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Rule 5
AUTHENTICATION OF ELECTRONIC DOCUMENTS
Section 1. Burden of proving authenticity. – The person seeking to introduce an
electronic document in any legal proceeding has the burden of proving its
authenticity in the manner provided in this Rule.
Section 2. Manner of authentication. – Before any private electronic document
offered as authentic is received in evidence, its authenticity must be proved by any
of the following means:
(a) by evidence that it had been digitally signed by the person purported to
have signed the same;
(b) by evidence that other appropriate security procedures or devices as
may be authorized by the Supreme Court or by law for authentication of
electronic documents were applied to the document; or
(c) by other evidence showing its integrity and reliability to the satisfaction
of the judge.
Section 3. Proof of electronically notarized document. – A document electronically
notarized in accordance with the rules promulgated by the Supreme Court shall be
considered as a public document and proved as a notarial document under the
Rules of Court.
Rule 6
ELECTRONIC SIGNATURES
Section 1. Electronic signature. – An electronic signature or a digital signature
authenticated in the manner prescribed hereunder is admissible in evidence as the
functional equivalent of the signature of a person on a written document.
Nigel Carmelo Q. Reago 349

Section 2. Authentication of electronic signatures. – An electronic signature may be
authenticated in any of the following manner:
(a) By evidence that a method or process was utilized to establish a digital
signature and verify the same;
(b) By any other means provided by law; or
(c) By any other means satisfactory to the judge as establishing the
genuineness of the electronic signature.
Section 3. Disputable presumptions relating to electronic signatures. – Upon the
authentication of an electronic signature, it shall be presumed that:
(a) The electronic signature is that of the person to whom it correlates;
(b) The electronic signature was affixed by that person with the intention of
authenticating or approving the electronic document to which it is related
or to indicate such person's consent to the transaction embodied therein;
and
(c) The methods or processes utilized to affix or verify the electronic
signature operated without error or fault.
Section 4. Disputable presumptions relating to digital signatures. – Upon the
authentication of a digital signature, it shall be presumed, in addition to those
mentioned in the immediately preceding section, that:
(a) The information contained in a certificate is correct;
(b) The digital signature was created during the operational period of a
certificate;
(c) No cause exists to render a certificate invalid or revocable;
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(d) The message associated with a digital signature has not been altered
from the time it was signed; and,
(e) A certificate had been issued by the certification authority indicated
therein.
Rule 7
EVIDENTIARY WEIGHT OF ELECTRONIC DOCUMENTS
Section 1. Factors for assessing evidentiary weight. – In assessing the evidentiary
weight of an electronic document, the following factors may be considered:
(a) The reliability of the manner or method in which it was generated,
stored or communicated, including but not limited to input and output
procedures, controls, tests and checks for accuracy and reliability of the
electronic data message or document, in the light of all the circumstances as
well as any relevant agreement;
(b) The reliability of the manner in which its originator was identified;
(c) The integrity of the information and communication system in which it is
recorded or stored, including but not limited to the hardware and computer
programs or software used as well as programming errors;
(d) The familiarity of the witness or the person who made the entry with the
communication and information system;
(e) The nature and quality of the information which went into the
communication and information system upon which the electronic data
message or electronic document was based; or
(f) Other factors which the court may consider as affecting the accuracy or
integrity of the electronic document or electronic data message.
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Section 2. Integrity of an information and communication system. – In any dispute
involving the integrity of the information and communication system in which an
electronic document or electronic data message is recorded or stored, the court
may consider, among others, the following factors:
(a) Whether the information and communication system or other similar
device was operated in a manner that did not affect the integrity of the
electronic document, and there are no other reasonable grounds to doubt
the integrity of the information and communication system;
(b) Whether the electronic document was recorded or stored by a party to
the proceedings with interest adverse to that of the party using it; or
(c) Whether the electronic document was recorded or stored in the usual
and ordinary course of business by a person who is not a party to the
proceedings and who did not act under the control of the party using it.
Rule 8
BUSINESS RECORDS AS EXCEPTION TO THE HEARSAY RULE
Section 1. Inapplicability of the hearsay rule. – A memorandum, report, record or
data compilation of acts, events, conditions, opinions, or diagnoses, made by
electronic, optical or other similar means at or near the time of or from transmission
or supply of information by a person with knowledge thereof, and kept in the
regular course or conduct of a business activity, and such was the regular practice to
make the memorandum, report, record, or data compilation by electronic, optical or
similar means, all of which are shown by the testimony of the custodian or other
qualified witnesses, is excepted from the rule on hearsay evidence.
Section 2. Overcoming the presumption. – The presumption provided for in Section
1 of this Rule may be overcome by evidence of the untrustworthiness of the source
of information or the method or circumstances of the preparation, transmission or
storage thereof.
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Rule 9
METHOD OF PROOF
Section 1. Affidavit evidence. – All matters relating to the admissibility and
evidentiary weight of an electronic document may be established by an affidavit
stating facts of direct personal knowledge of the affiant or based on authentic
records. The affidavit must affirmatively show the competence of the affiant to
testify on the matters contained therein.
Section 2. Cross-examination of deponent. – The affiant shall be made to affirm the
contents of the affidavit in open court and may be cross-examined as a matter of
right by the adverse party.
Rule 10
EXAMINATION OF WITNESSES
Section 1. Electronic testimony. – After summarily hearing the parties pursuant to
Rule 9 of these Rules, the court may authorize the presentation of testimonial
evidence by electronic means. Before so authorizing, the court shall determine the
necessity for such presentation and prescribe terms and conditions as may be
necessary under the circumstances, including the protection of the rights of the
parties and witnesses concerned.
Section 2. Transcript of electronic testimony. – When examination of a witness is
done electronically, the entire proceedings, including the questions and answers,
shall be transcribed by a stenographer, stenotypist or other recorder authorized for
the purpose, who shall certify as correct the transcript done by him. The transcript
should reflect the fact that the proceedings, either in whole or in part, had been
electronically recorded.
Section 3. Storage of electronic evidence. – The electronic evidence and recording
thereof as well as the stenographic notes shall form part of the record of the case.
Such transcript and recording shall be deemed prima facie evidence of such
proceedings.
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 COMMERCIAL LAW 2018

Rule 11
AUDIO, PHOTOGRAPHIC, VIDEO, AND EPHEMERAL EVIDENCE

Section 1. Audio, video and similar evidence. – Audio, photographic and video
evidence of events, acts or transactions shall be admissible provided it shall be
shown, presented or displayed to the court and shall be identified, explained or
authenticated by the person who made the recording or by some other person
competent to testify on the accuracy thereof.

Section 2. Ephemeral electronic communications. – Ephemeral electronic

communications shall be proven by the testimony of a person who was a party to
the same or has personal knowledge thereof. In the absence or unavailability of
such witnesses, other competent evidence may be admitted.

A recording of the telephone conversation or ephemeral electronic communication

shall be covered by the immediately preceding section.

If the foregoing communications are recorded or embodied in an electronic

document, then the provisions of Rule 5 shall apply.

Rule 12
EFFECTIVITY

Section 1. Applicability to pending cases. – These Rules shall apply to cases pending
after their effectivity.

Section 2. Effectivity. – These Rules shall take effect on the first day of August 2001
following their publication before the 20th of July 2001 in two newspapers of
general circulation in the Philippines.

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Republic Act No. 10667
AN ACT PROVIDING FOR A NATIONAL COMPETITION
POLICY PROHIBITING ANTI-COMPETITIVE AGREEMENTS,
ABUSE OF DOMINANT POSITION AND ANTI-
COMPETITIVE MERGERS AND ACQUISITIONS,
ESTABLISHING THE PHILIPPINE COMPETITION
COMMISSION AND APPROPRIATING FUNDS THEREFOR
CHAPTER I
GENERAL PROVISIONS
Section 1. Short Title. – This Act shall be known as the "Philippine Competition Act".
Section 2. Declaration of Policy. – The efficiency of market competition as a
mechanism for allocating goods and services is a generally accepted precept. The
State recognizes that past measures undertaken to liberalize key sectors in the
economy need to be reinforced by measures that safeguard competitive conditions.
The State also recognizes that the provision of equal opportunities to all promotes
entrepreneurial spirit, encourages private investments, facilitates technology
development and transfer and enhances resource productivity. Unencumbered
market competition also serves the interest of consumers by allowing them to
exercise their right of choice over goods and services offered in the market.
Pursuant to the constitutional goals for the national economy to attain 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 an expanding productivity as the key to raising the quality of life for all,
especially the underprivileged and the constitutional mandate that the State shall
regulate or prohibit monopolies when the public interest so requires and that no
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combinations in restraint of trade or unfair competition shall be allowed, the State
shall:
(a) Enhance economic efficiency and promote free and fair competition in
trade, industry and all commercial economic activities, as well as establish a
National Competition Policy to be implemented by the Government of the
Republic of the Philippines and all of its political agencies as a whole;
(b) Prevent economic concentration which will control the production,
distribution, trade, or industry that will unduly stifle competition, lessen,
manipulate or constrict the discipline of free markets; and
(c) Penalize all forms of anti-competitive agreements, abuse of dominant
position and anti-competitive mergers and acquisitions, with the objective
of protecting consumer welfare and advancing domestic and international
trade and economic development.
Section 3. Scope and Application. — This Act shall be enforceable against any person
or entity engaged in any trade, industry and commerce in the Republic of the
Philippines. It shall likewise be applicable to international trade having direct,
substantial, and reasonably foreseeable effects in trade, industry, or commerce in
the Republic of the Philippines, including those that result from acts done outside
the Republic of the Philippines.
This Act shall not apply to the combinations or activities of workers or employees
nor to agreements or arrangements with their employers when such combinations,
activities, agreements, or arrangements are designed solely to facilitate collective
bargaining in respect of conditions of employment.
Section 4. Definition of Terms. – As used in this Act:
(a) Acquisition refers to the purchase of securities or assets, through
contract or other means, for the purpose of obtaining control by:
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(1) One (1) entity of the whole or part of another;
(2) Two (2) or more entities over another; or
(3) One (1) or more entities over one (1) or more entities;
(b) Agreement refers to any type or form of contract, arrangement,
understanding, collective recommendation, or concerted action, whether
formal or informal, explicit or tacit, written or oral;
(c) Conduct refers to any type or form of undertaking, collective
recommendation, independent or concerted action or practice, whether
formal or informal;
(d) Commission refers to the Philippine Competition Commission created
under this Act;
(e) Confidential business information refers to information which concerns
or relates to the operations, production, sales, shipments, purchases,
transfers, identification of customers, inventories, or amount or source of
any income, profits, losses, expenditures;
(f) Control refers to the ability to substantially influence or direct the actions
or decisions of an entity, whether by contract, agency or otherwise;
(g) Dominant position refers to a position of economic strength that an
entity or entities hold which makes it capable of controlling the relevant
market independently from any or a combination of the following:
competitors, customers, suppliers, or consumers;
(h) Entity refers to any person, natural or juridical, sole proprietorship,
partnership, combination or association in any form, whether incorporated
or not, domestic or foreign, including those owned or controlled by the
government, engaged directly or indirectly in any economic activity;
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(i) Market refers to the group of goods or services that are sufficiently
interchangeable or substitutable and the object of competition, and the
geographic area where said goods or services are offered;
(j) Merger refers to the joining of two (2) or more entities into an existing
entity or to form a new entity;
(k) Relevant market refers to the market in which a particular good or
service is sold and which is a combination of the relevant product market
and the relevant geographic market, defined as follows:
(1) A relevant product market comprises all those goods and/or
services which are regarded as interchangeable or substitutable by
the consumer or the customer, by reason of the goods and/or
services’ characteristics, their prices and their intended use; and
(2) The relevant geographic market comprises the area in which the
entity concerned is involved in the supply and demand of goods and
services, in which the conditions of competition are sufficiently
homogenous and which can be distinguished from neighboring
areas because the conditions of competition are different in those
areas.
CHAPTER II
PHILIPPINE COMPETITION COMMISSION
Section 5. Philippine Competition Commission. – To implement the national
competition policy and attain the objectives and purposes of this Act, an
independent quasi-judicial body is hereby created, which shall be known as the
Philippine Competition Commission (PCC), hereinafter referred to as the
Commission, and which shall be organized within sixty (60) days after the effectivity
of this Act. Upon establishment of the Commission, Executive Order No. 45
designating the Department of Justice as the Competition Authority is hereby
amended. The Office for Competition (OFC) under the Office of the Secretary of
Nigel Carmelo Q. Reago 354

Justice shall however be retained, with its powers and functions modified pursuant
to Section 13 of this Chapter.
The Commission shall be an attached agency to the Office of the President.
Section 6. Composition of the Commission. – The Commission shall be composed of
a Chairperson and four (4) Commissioners. The Chairperson and the Commissioners
shall be citizens and residents of the Philippines, of good moral character, of
recognized probity and independence and must have distinguished themselves
professionally in public, civic or academic service in any of the following fields:
economics, law, finance, commerce or engineering. They must have been in the
active practice of their professions for at least ten (10) years, and must not have
been candidates for any elective national or local office in the immediately
preceding elections, whether regular or special: Provided, That at least one (1) shall
be a member of the Philippine Bar with at least ten (10) years of experience in the
active practice of law, and at least one (1) shall be an economist. The Chairperson
and the Commissioners who shall have the rank equivalent of cabinet secretary and
undersecretary, respectively, shall be appointed by the President.
Section 7. Term of Office. – The term of office of the Chairperson and the
Commissioners shall be seven (7) years without reappointment. Of the first set of
appointees, the Chairperson shall hold office for seven (7) years and of the first four
(4) Commissioners, two (2) shall hold office for a term of seven (7) years and two (2)
for a term of five (5) years. In case a vacancy occurs before the expiration of the
term of office, the appointment to such vacancy shall only be for the unexpired term
of the predecessor.
The Chairperson and the Commissioners shall enjoy security of tenure and shall not
be suspended or removed from office except for just cause as provided by law.
Section 8. Prohibitions and Disqualifications. – The Commissioners shall not, during
their tenure, hold any other office or employment. They shall not, during their
tenure, directly or indirectly practice any profession, except in a teaching capacity,
participate in any business, or be financially interested in any contract with, or any
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franchise, or special privileges granted by the government or any subdivision,
agency, or instrumentality thereof, including government-owned and -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 succeeding their cessation from office: Provided, That the
election mentioned hereof is not a Barangay election or a Sangguniang Kabataan
election. Provided, they shall not be allowed to personally appear or practice as
counsel or agent on any matter pending before the Commission for two (2) years
following their cessation from office.
No spouse or relative by consanguinity or affinity within the fourth civil degree of
any of the Commissioners, the Chairperson and the Executive Director of the
Commission may appear as counsel nor agent on any matter pending before the
Commission or transact business directly or indirectly therein during incumbency
and within two (2) years from cessation of office.
Section 9. Compensation and Other Emoluments for Members and Personnel of the
Commission.— Thecompensation and other emoluments for the members and
personnel of the Commission shall be exempted from the coverage of Republic Act
No. 6758, otherwise known as the "Salary Standardization Act". For this purpose,
the salaries and other emoluments of the Chairperson, the Commissioners, and
personnel of the Commission shall be set based on an objective classification
system, taking into consideration the importance and responsibilities attached to
the respective positions, and shall be submitted to the President of the Philippines
for his approval.
Section 10. Quorum. – Three (3) members of the Commission shall constitute a
quorum and the affirmative vote of three (3) members shall be necessary for the
adoption of any rule, ruling, order, resolution, decision or other acts of the
Commission.
Section 11. Staff. – The Commission shall appoint, fix the compensation, and
determine the status, qualifications, and duties of an adequate staff, which shall
include an Executive Director of the Commission. The Executive Director shall be
Nigel Carmelo Q. Reago 355

appointed by the Commission and shall have relevant experience in any of the fields
of law, economics, commerce, management, finance or engineering for at least ten
(10) years. The members of the technical staff, except those performing purely
clerical functions, shall possess at least a Bachelor’s Degree in any of the following
lines of specialization: economics, law, finance, commerce, engineering, accounting,
or management.
Section 12. Powers and Functions. — The Commission shall have original and
primary jurisdiction over the enforcement and implementation of the provisions of
this Act, and its implementing rules and regulations. The Commission shall exercise
the following powers and functions:
(a) Conduct inquiry, investigate, and hear and decide on cases involving any
violation of this Act and other existing competition laws motu proprio or
upon receipt of a verified complaint from an interested party or upon
referral by the concerned regulatory agency, and institute the appropriate
civil or criminal proceedings;
(b) Review proposed mergers and acquisitions, determine thresholds for
notification, determine the requirements and procedures for notification,
and upon exercise of its powers to review, prohibit mergers and acquisitions
that will substantially prevent, restrict, or lessen competition in the relevant
market;
(c) Monitor and undertake consultation with stakeholders and affected
agencies for the purpose of understanding market behavior;
(d) Upon finding, based on substantial evidence, that an entity has entered
into an anti-competitive agreement or has abused its dominant position
after due notice and hearing, stop or redress the same, by applying
remedies, such as, but not limited to, issuance of injunctions, requirement
of divestment, and disgorgement of excess profits under such reasonable
parameters that shall be prescribed by the rules and regulations
implementing this Act;
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(e) Conduct administrative proceedings, impose sanctions, fines or penalties
for any noncompliance with or breach of this Act and its implementing rules
and regulations (IRR) and punish for contempt;
(f) Issue subpoena duces tecum and subpoena ad testificandum to require
the production of books, records, or other documents or data which relate
to any matter relevant to the investigation and personal appearance before
the Commission, summon witnesses, administer oaths, and issue interim
orders such as show cause orders and cease and desist orders after due
notice and hearing in accordance with the rules and regulations
implementing this Act;
(g) Upon order of the court, undertake inspections of business premises and
other offices, land and vehicles, as used by the entity, where it reasonably
suspects that relevant books, tax records, or other documents which relate
to any matter relevant to the investigation are kept, in order to prevent the
removal, concealment, tampering with, or destruction of the books, records,
or other documents;
(h) Issue adjustment or divestiture orders including orders for corporate
reorganization or divestment in the manner and under such terms and
conditions as may be prescribed in the rules and regulations implementing
this Act. Adjustment or divestiture orders, which are structural remedies,
should only be imposed:
(1) Where there is no equally effective behavioral remedy; or
(2) Where any equally effective behavioral remedy would be more
burdensome for the enterprise concerned than the structural
remedy. Changes to the structure of an enterprise as it existed
before the infringement was committed would only be
proportionate to the substantial risk of a lasting or repeated
infringement that derives from the very structure of the enterprise;
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(i) Deputize any and all enforcement agencies of the government or enlist
the aid and support of any private institution, corporation, entity or
association, in the implementation of its powers and functions;
(j) Monitor compliance by the person or entities concerned with the cease
and desist order or consent judgment;
(k) Issue advisory opinions and guidelines on competition matters for the
effective enforcement of this Act and submit annual and special reports to
Congress, including proposed legislation for the regulation of commerce,
trade, or industry;
(l) Monitor and analyze the practice of competition in markets that affect
the Philippine economy; implement and oversee measures to promote
transparency and accountability; and ensure that prohibitions and
requirements of competition laws are adhered to;
(m) Conduct, publish, and disseminate studies and reports on anti-
competitive conduct and agreements to inform and guide the industry and
consumers;
(n) Intervene or participate in administrative and regulatory proceedings
requiring consideration of the provisions of this Act that are initiated by
government agencies such as the Securities and Exchange Commission, the
Energy Regulatory Commission and the National Telecommunications
Commission;
(o) Assist the National Economic and Development Authority, in
consultation with relevant agencies and sectors, in the preparation and
formulation of a national competition policy;
(p) Act as the official representative of the Philippine government in
international competition matters;
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(q) Promote capacity building and the sharing of best practices with other
competition-related bodies;
(r) Advocate pro-competitive policies of the government by:
(1) Reviewing economic and administrative regulations, motu
proprio or upon request, as to whether or not they adversely affect
relevant market competition, and advising the concerned agencies
against such regulations; and
(2) Advising the Executive Branch on the competitive implications of
government actions, policies and programs; and
(s) Charging reasonable fees to defray the administrative cost of the services
rendered.
Section 13. Office for Competition (OFC), Powers and Functions. — The OFC under
the Department of Justice (DOJ-OFC) shall only conduct preliminary investigation
and undertake prosecution of all criminal offenses arising under this Act and other
competition-related laws in accordance with Section 31 of Chapter VI of this Act.
The OFC shall be reorganized and allocated resources as may be required therefor
to effectively pursue such mandate.
CHAPTER III
PROHIBITED ACTS
Section 14. Anti-Competitive Agreements. –
(a) The following agreements, between or among competitors, are per
se prohibited:
(1) Restricting competition as to price, or components thereof, or
other terms of trade;
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(2) Fixing price at an auction or in any form of bidding including
cover bidding, bid suppression, bid rotation and market allocation
and other analogous practices of bid manipulation;
(b) The following agreements, between or among competitors which have
the object or effect of substantially preventing, restricting or lessening
competition shall be prohibited:
(1) Setting, Kmiting, or controlling production, markets, technical
development, or investment;
(2) Dividing or sharing the market, whether by volume of sales or
purchases, territory, type of goods or services, buyers or sellers or
any other means;
(c) Agreements other than those specified in (a) and (b) of this section which
have the object or effect of substantially preventing, restricting or lessening
competition shall also be prohibited: Provided, Those which contribute to
improving the production or distribution of goods and services or to
promoting technical or economic progress, while allowing consumers a fair
share of the resulting benefits, may not necessarily be deemed a violation of
this Act.
An entity that controls, is controlled by, or is under common control with another
entity or entities, have common economic interests, and are not otherwise able to
decide or act independently of each other, shall not be considered competitors for
purposes of this section.
Section 15. Abuse of Dominant Position. – It shall be prohibited for one or more
entities to abuse their dominant position by engaging in conduct that would
substantially prevent, restrict or lessen competition:
(a) Selling goods or services below cost with the object of driving
competition out of the relevant market: Provided, That in the Commission’s
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evaluation of this fact, it shall consider whether the entity or entities have
no such object and the price established was in good faith to meet or
compete with the lower price of a competitor in the same market selling the
same or comparable product or service of like quality;
(b) Imposing barriers to entry or committing acts that prevent competitors
from growing within the market in an anti-competitive manner except those
that develop in the market as a result of or arising from a superior product
or process, business acumen, or legal rights or laws;
(c) Making a transaction subject to acceptance by the other parties of other
obligations which, by their nature or according to commercial usage, have
no connection with the transaction;
(d) Setting prices or other terms or conditions that discriminate
unreasonably between customers or sellers of the same goods or services,
where such customers or sellers are contemporaneously trading on similar
terms and conditions, where the effect may be to lessen competition
substantially: Provided, That the following shall be considered permissible
price differentials:
(1) Socialized pricing for the less fortunate sector of the economy;
(2) Price differential which reasonably or approximately reflect
differences in the cost of manufacture, sale, or delivery resulting
from differing methods, technical conditions, or quantities in which
the goods or services are sold or delivered to the buyers or sellers;
(3) Price differential or terms of sale offered in response to the
competitive price of payments, services or changes in the facilities
furnished by a competitor; and
(4) Price changes in response to changing market conditions,
marketability of goods or services, or volume;
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(e) Imposing restrictions on the lease or contract for sale or trade of goods
or services concerning where, to whom, or in what forms goods or services
may be sold or traded, such as fixing prices, giving preferential discounts or
rebate upon such price, or imposing conditions not to deal with competing
entities, where the object or effect of the restrictions is to prevent, restrict
or lessen competition substantially: Provided, That nothing contained in this
Act shall prohibit or render unlawful:
(1) Permissible franchising, licensing, exclusive merchandising or
exclusive distributorship agreements such as those which give each
party the right to unilaterally terminate the agreement; or
(2) Agreements protecting intellectual property rights, confidential
information, or trade secrets;
(f) Making supply of particular goods or services dependent upon the
purchase of other goods or services from the supplier which have no direct
connection with the main goods or services to be supplied;
(g) Directly or indirectly imposing unfairly low purchase prices for the goods
or services of, among others, marginalized agricultural producers, fisherfolk,
micro-, small-, medium-scale enterprises, and other marginalized service
providers and producers;
(h) Directly or indirectly imposing unfair purchase or selling price on their
competitors, customers, suppliers or consumers, provided that prices that
develop in the market as a result of or due to a superior product or process,
business acumen or legal rights or laws shall not be considered unfair prices;
and
(i) Limiting production, markets or technical development to the prejudice
of consumers, provided that limitations that develop in the market as a
result of or due to a superior product or process, business acumen or legal
rights or laws shall not be a violation of this Act:
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Provided, That nothing in this Act shall be construed or interpreted as a prohibition
on having a dominant position in a relevant market or on acquiring, maintaining and
increasing market share through legitimate means that do not substantially prevent,
restrict or lessen competition:
Provided, further, That any conduct which contributes to improving production or
distribution of goods or services within the relevant market, or promoting technical
and economic progress while allowing consumers a fair share of the resulting
benefit may not necessarily be considered an abuse of dominant position:
Provided, finally, That the foregoing shall not constrain the Commission or the
relevant regulator from pursuing measures that would promote fair competition or
more competition as provided in this Act.
CHAPTER IV
MERGERS AND ACQUISITIONS
Section 16. Review of Mergers and Acquisitions. — The Commission shall have the
power to review mergers and acquisitions based on factors deemed relevant by the
Commission.
Section 17. Compulsory Notification. – Parties to the merger or acquisition
agreement referred to in the preceding section wherein the value of the transaction
exceeds one billion pesos (P1,000,000,000.00) are prohibited from consummating
their agreement until thirty (30) days after providing notification to the Commission
in the form and containing the information specified in the regulations issued by the
Commission: Provided, That the Commission shall promulgate other criteria, such as
increased market share in the relevant market in excess of minimum thresholds,
that may be applied specifically to a sector, or across some or all sectors, in
determining whether parties to a merger or acquisition shall notify the Commission
under this Chapter.
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An agreement consummated in violation of this requirement to notify the
Commission shall be considered void and subject the parties to an administrative
fine of one percent (1%) to five percent (5%) of the value of the transaction.
Should the Commission deem it necessary, it may request further information that
are reasonably necessary and directly relevant to the prohibition under Section 20
hereof from the parties to the agreement before the expiration of the thirty (30)-
day period referred. The issuance of such a request has the effect of extending the
period within which the agreement may not be consummated for an additional sixty
(60) days, beginning on the day after the request for information is received by the
parties: Provided, That, in no case shall the total period for review by the
Commission of the subject agreement exceed ninety (90) days from initial
notification by the parties.
When the above periods have expired and no decision has been promulgated for
whatever reason, the merger or acquisition shall be deemed approved and the
parties may proceed to implement or consummate it. All notices, documents and
information provided to or emanating from the Commission under this section shall
be subject to confidentiality rule under Section 34 of this Act except when the
release of information contained therein is with the consent of the notifying entity
or is mandatorily required to be disclosed by law or by a valid order of a court of
competent jurisdiction, or of a government or regulatory agency, including an
exchange.
In the case of the merger or acquisition of banks, banking institutions, building and
loan associations, trust companies, insurance companies, public utilities,
educational institutions and other special corporations governed by special laws, a
favorable or no-objection ruling by the Commission shall not be construed as
dispensing of the requirement for a favorable recommendation by the appropriate
government agency under Section 79 of the Corporation Code of the Philippines.
A favorable recommendation by a governmental agency with a competition
mandate shall give rise to a disputable presumption that the proposed merger or
acquisition is not violative of this Act.
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Section 18. Effect of Notification. — If within the relevant periods stipulated in the
preceding section, the Commission determines that such agreement is prohibited
under Section 20 and does not qualify for exemption under Section 21 of this
Chapter, the Commission may:
(a) Prohibit the implementation of the agreement;
(b) Prohibit the implementation of the agreement unless and until it is
modified by changes specified by the Commission.
(c) Prohibit the implementation of the agreement unless and until the
pertinent party or parties enter into legally enforceable agreements
specified by the Commission.
Section 19. Notification Threshold. – The Commission shall, from time to time, adopt
and publish regulations stipulating:
(a) The transaction value threshold and such other criteria subject to the
notification requirement of Section 17 of this Act;
(b) The information that must be supplied for notified merger or acquisition;
(c) Exceptions or exemptions from the notification requirement; and
(d) Other rules relating to the notification procedures.
Section 20. Prohibited. Mergers and Acquisitions. – Merger or acquisition
agreements that substantially prevent, restrict or lessen competition in the relevant
market or in the market for goods or services as may be determined by the
Commission shall be prohibited.
Section 21. Exemptions from Prohibited. Mergers and Acquisitions. – Merger or
acquisition agreement prohibited under Section 20 of this Chapter may,
Nigel Carmelo Q. Reago 360

nonetheless, be exempt from prohibition by the Commission when the parties
establish either of the following:
(a) The concentration has brought about or is likely to bring about gains in
efficiencies that are greater than the effects of any limitation on
competition that result or likely to result from the merger or acquisition
agreement; or
(b) A party to the merger or acquisition agreement is faced with actual or
imminent financial failure, and the agreement represents the least anti-
competitive arrangement among the known alternative uses for the failing
entity’s assets:
Provided, That an entity shall not be prohibited from continuing to own and hold the
stock or other share capital or assets of another corporation which it acquired prior
to the approval of this Act or acquiring or maintaining its market share in a relevant
market through such means without violating the provisions of this Act:
Provided, further, That the acquisition of the stock or other share capital of one or
more corporations solely for investment and not used for voting or exercising
control and not to otherwise bring about, or attempt to bring about the prevention,
restriction, or lessening of competition in the relevant market shall not be
prohibited.
Section 22. Burden of Proof. – The burden of proof under Section 21 lies with the
parties seeking the exemption. A party seeking to rely on the exemption specified in
Section 21(a) must demonstrate that if the agreement were not implemented,
significant efficiency gains would not be realized.
Section 23. Finality of Ridings on Mergers and Acquisitions. – Merger or acquisition
agreements that have received a favorable ruling from the Commission, except
when such ruling was obtained on the basis of fraud or false material information,
may not be challenged under this Act.
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CHAPTER V
DISPOSITION OF CASES
Section 24. Relevant Market. – For purposes of determining the relevant market,
the following factors, among others, affecting the substitutability among goods or
services constituting such market and the geographic area delineating the
boundaries of the market shall be considered:
(a) The possibilities of substituting the goods or services in question, with
others of domestic or foreign origin, considering the technological
possibilities, extent to which substitutes are available to consumers and
time required for such substitution;
(b) The cost of distribution of the good or service, its raw materials, its
supplements and substitutes from other areas and abroad, considering
freight, insurance, import duties and non-tariff restrictions; the restrictions
imposed by economic agents or by their associations; and the time required
to supply the market from those areas;
(c) The cost and probability of users or consumers seeking other markets;
and
(d) National, local or international restrictions which limit access by users or
consumers to alternate sources of supply or the access of suppliers to
alternate consumers.
Section 25. Control of an Entity. – In determining the control of an entity, the
Commission may consider the following:
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 entity, unless in
exceptional circumstances, it can clearly be demonstrated that such ownership does
not constitute control. Control also exists even when an entity owns one half (1/2)
or less of the voting power of another entity when:
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(a) There is power over more than one half (1/2) of the voting rights by
virtue of an agreement with investors;
(b) There is power to direct or govern the financial and operating policies of
the entity under a statute or agreement;
(c) There is power to appoint or remove the majority of the members of the
board of directors or equivalent governing body;
(d) There is power to cast the majority votes at meetings of the board of
directors or equivalent governing body;
(e) There exists ownership over or the right to use all or a significant part of
the assets of the entity;
(f) There exist rights or contracts which confer decisive influence on the
decisions of the entity.
Section 26. Determination of Anti-Competitive Agreement or Conduct. – In
determining whether anti-competitive agreement or conduct has been committed,
the Commission shall:
(a) Define the relevant market allegedly affected by the anti-competitive
agreement or conduct, following the principles laid out in Section 24 of this
Chapter;
(b) Determine if there is actual or potential adverse impact on competition
in the relevant market caused by the alleged agreement or conduct, and if
such impact is substantial and outweighs the actual or potential efficiency
gains that result from the agreement or conduct;
(c) Adopt a broad and forward-looking perspective, recognizing future
market developments, any overriding need to make the goods or services
available to consumers, the requirements of large investments in
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infrastructure, the requirements of law, and the need of our economy to
respond to international competition, but also taking account of past
behavior of the parties involved and prevailing market conditions;
(d) Balance the need to ensure that competition is not prevented or
substantially restricted and the risk that competition efficiency, productivity,
innovation, or development of priority areas or industries in the general
interest of the country may be deterred by overzealous or undue
intervention; and
(e) Assess the totality of evidence on whether it is more likely than not that
the entity has engaged in anti-competitive agreement or conduct including
whether the entity’s conduct was done with a reasonable commercial
purpose such as but not limited to phasing out of a product or closure of a
business, or as a reasonable commercial response to the market entry or
conduct of a competitor.
Section 27. Market Dominant Position. – In determining whether an entity has
market dominant position for purposes of this Act, the Commission shall consider
the following:
(a) The share of the entity in the relevant market and whether it is able to
fix prices unilaterally or to restrict supply in the relevant market;
(b) The existence of barriers to entry and the elements which could
foreseeably alter both said barriers and the supply from competitors;
(c) The existence and power of its competitors;
(d) The possibility of access by its competitors or other entities to its sources
of inputs;
(e) The power of its customers to switch to other goods or services;
Nigel Carmelo Q. Reago 362

(f) Its recent conducts; and
(g) Other criteria established by the regulations of this Act.
There shall be a rebuttable presumption of market dominant position if the market
share of an entity in the relevant market is at least fifty percent (50%), unless a new
market share threshold is determined by the Commission for that particular sector.
The Commission shall from time to time determine and publish the threshold for
dominant position or minimum level of share in the relevant market that could give
rise to a presumption of dominant position. In such determination, the Commission
would consider the structure of the relevant market, degree of integration, access
to end-users, technology and financial resources, and other factors affecting the
control of a market, as provided in subsections (a) to (g) of this section.
The Commission shall not consider the acquiring, maintaining and increasing of
market share through legitimate means not substantially preventing, restricting, or
lessening competition in the market such as but not limited to having superior skills,
rendering superior service, producing or distributing quality products, having
business acumen, and the enjoyment and use of protected intellectual property
rights as violative of this Act.
Section 28. Forbearance. – The Commission may forbear from applying the
provisions of this Act, for a limited time, in whole or in part, in all or specific cases,
on an entity or group of entities, if in its determination:
(a) Enforcement is not necessary to the attainment of the policy objectives
of this Act;
(b) Forbearance will neither impede competition in the market where the
entity or group of entities seeking exemption operates nor in related
markets; and
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(c) Forbearance is consistent with public interest and the benefit and
welfare of the consumers.
A public hearing shall be held to assist the Commission in making this
determination.
The Commission’s order exempting the relevant entity or group of entities under
this section shall be made public. Conditions may be attached to the forbearance if
the Commission deems it appropriate to ensure the long-term interest of
consumers.
In the event that the basis for the issuance of the exemption order ceases to be
valid, the order may be withdrawn by the Commission.
CHAPTER VI
FINES AND PENALTIES
Section 29. Administrative Penalties. –
(a) Administrative Fines. – In any investigation under Chapter III, Sections 14
and 15, and Chapter IV, Sections 17 and 20 of this Act, after due notice and
hearing, the Commission may impose the following schedule of
administrative fines on any entity found to have violated the said sections:
First offense: Fine of up to one hundred million pesos
(P100,000,000.00);
Second offense: Fine of not less than one hundred million pesos
(P100,000,000.00) but not more than two hundred fifty million
pesos (P250,000,000.00).
In fixing the amount of the fine, the Commission shall have regard to both
the gravity and the duration of the violation.
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(b) Failure to Comply With an Order of the Commission. – An entity which
fails or refuses to comply with a ruling, order or decision issued by the
Commission shall pay a penalty of not less than fifty thousand pesos
(P50,000.00) up to two million pesos (P2,000,000.00) for each violation and
a similar amount of penalty for each day thereafter until the said entity fully
complies. Provided that these fines shall only accrue daily beginning forty-
five (45) days from the time that the said decision, order or ruling was
received.
(c) Supply of Incorrect or Misleading Information. – The Commission may
likewise impose upon any entity fines of up to one million pesos
(PI,000,000.00) where, intentionally or negligently, they supply incorrect or
misleading information in any document, application or other paper filed
with or submitted to the Commission or supply incorrect or misleading
information in an application for a binding ruling, a proposal for a consent
judgment, proceedings relating to a show cause order, or application for
modification of the Commission’s ruling, order or approval, as the case may
be.
(d) Any other violations not specifically penalized under the relevant
provisions of this Act shall be penalized by a fine of not less than fifty
thousand pesos (P50,000.00) up to two million pesos (P2,000,000.00).
Provided that the schedule of fines indicated in this section shall be increased by the
Commission every five (5) years to maintain their real value from the time it was set.
Section 30. Criminal Penalties. – An entity that enters into any anti-competitive
agreement as covered by Chapter III, Section 14(a) and 14(b) under this Act shall, for
each and every violation, be penalized by imprisonment from two (2) to seven (7)
years, and a fine of not less than fifty million pesos (P50,000,000.00) but not more
than two hundred fifty million pesos (P250,000,000.00). The penalty of
imprisonment shall be imposed upon the responsible officers, and directors of the
entity.
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When the entities involved are juridical persons, the penalty of. imprisonment shall
be imposed on its officers, directors, or employees holding managerial positions,
who are knowingly and willfully responsible for such violation.
CHAPTER VII
ENFORCEMENT
Section 31. Fact Finding; Preliminary Inquiry. – The Commission, motu proprio, or
upon the filing of a verified complaint by an interested party or upon referral by a
regulatory agency, shall have the sole and exclusive authority to initiate and conduct
a fact-finding or preliminary inquiry for the enforcement of this Act based on
reasonable grounds.
The Commission, after considering the statements made, or documents or articles
produced in the course of the fact-finding or preliminary inquiry, shall terminate the
same by:
(a) Issuing a resolution ordering its closure if no violation or infringement of
this Act is found; or
(b) Issuing a resolution to proceed, on the basis of reasonable grounds, to
the conduct of a full administrative investigation.
The Commission, after due notice and hearing, and on the basis of facts and
evidence presented, may issue an order for the temporary cessation or desistance
from the performance of certain acts by the respondent entity, the continued
performance of which would result in a material and adverse effect on consumers or
competition in the relevant market.
If the evidence so warrants, the Commission may file before the DOJ criminal
complaints for violations of this Act or relevant laws for preliminary investigation
and prosecution before the proper court. The DOJ shall conduct such preliminary
investigation in accordance with the Revised Rules of Criminal Procedure.
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The preliminary inquiry shall, in all cases, be completed by the Commission within
ninety (90) days from submission of the verified complaint, referral, or date of
initiation by the Commission, motu proprio, of the same.
Except as provided in Section 12(i) of Chapter II of this Act, no law enforcement
agency shall conduct any kind of fact-finding, inquiry or investigation into any
competition-related matters.
Section 32. Relationship With Sector Regulators. – The Commission shall have
original and primary jurisdiction in the enforcement and regulation of all
competition-related issues.
The Commission shall still have jurisdiction if the issue involves both competition
and noncompetition issues, but the concerned sector regulator shall be consulted
and afforded reasonable opportunity to submit its own opinion and
recommendation on the matter before the Commission makes a decision on any
case.
Where appropriate, the Commission and the sector regulators shall work together
to issue rules and regulations to promote competition, protect consumers, and
prevent abuse of market power by dominant players within their respective sectors.
Section 33. Power to Investigate and Enforce Orders and Resolutions. – The
Commission shall conduct inquiries by administering oaths, issuing subpoena duces
tecum and summoning witnesses, and commissioning consultants or experts. It shall
determine if any provision of this Act has been violated, enforce its orders and carry
out its resolutions by making use of any available means, provisional or otherwise,
under existing laws and procedures including the power to punish for contempt and
to impose fines.
Section 34. Confidentiality of Information. – Confidential business information
submitted by entities, relevant to any inquiry or investigation being conducted
pursuant to this Act as well as any deliberation in relation thereto, shall not, in any
manner, be directly or indirectly disclosed, published, transferred, copied, or
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disseminated. Likewise, the Commission shall, to the extent possible, subject such
information to the confidentiality rule provided under this section when it issues
notices, bulletins, rulings and other documents: Pi’ovided., That the confidentiality
rule shall not apply if the notifying entity consents to the disclosure, or the
document or information is mandatorily required to be disclosed by law or by a valid
order of a court of competent jurisdiction or of a government or regulatory agency,
including an exchange. The identity of the persons who provide information to the
Commission under condition of anonymity, shall remain confidential, unless such
confidentiality is expressly waived by these persons.
Any violation of this provision shall be imposed a fine of not less than one million
pesos (PI,000,000.00) but not more than five million pesos (P5,000,000.00).
Section 35. Leniency Program. – The Commission shall develop a Leniency Program
to be granted to any entity in the form of immunity from suit or reduction of any
fine which would otherwise be imposed on a participant in an anti-competitive
agreement as provided in Section 14(a) and 14(b) of this Act in exchange for the
voluntary disclosure of information regarding such an agreement which satisfies
specific criteria prior to or during the fact-finding or preliminary inquiry stage of the
case.
Immunity from suit will be granted to an entity reporting illegal anti-competitive
activity before a fact-finding or preliminary inquiry has begun if the following
conditions are met:
(a) At the time the entity comes forward, the Commission has not received
information about the activity from any other source;
(b) Upon the entity’s discovery of illegal activity, it took prompt and
effective action to terminate its participation therein;
(c) The entity reports the wrongdoing with candor and completeness and
provides full, continuing, and complete cooperation throughout the
investigation; and
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(d) The entity did not coerce another party to participate in the activity and
clearly was not the leader in, or the originator of, the activity.
Even after the Commission has received information about the illegal activity after a
fact-finding or preliminary inquiry has commenced, the reporting entity will be
granted leniency, provided preceding conditions (b) and (c) and the following
additional requirements are complied with:
(1) The entity is the first to come forward and qualify for leniency;
(2) At the time the entity comes forward, the Commission does not have
evidence against the entity that is likely to result in a sustainable conviction;
and
(3) The Commission determines that granting leniency would not be unfair
to others.
Such program shall include the immunity from any suit or charge of affected parties
and third parties, exemption, waiver, or gradation of fines and/or penalties giving
precedence to the entity submitting such evidence. An entity cooperating or
furnishing information, document or data to the Commission in connection to an
investigation being conducted shall not be subjected to any form of reprisal or
discrimination. Such reprisal or discrimination shall be considered a violation of this
Act subject to the sanctions provided in this Act.
Nothing in this section shall preclude prosecution for entities that report to the
Commission false, misleading, or malicious information, data or documents
damaging to the business or integrity of the entities under inquiry as a violation of
said section. An entity found to have reported false, misleading or malicious
information, data, or document may be penalized by a fine not less than the penalty
imposed in the section reported to have been violated by the entity complained of.
The DOJ-OFC may likewise grant leniency or immunity as provided in this section in
the event that there is already a preliminary investigation pending before it.
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Section 36. Nolo Contendere. – An entity charged in a criminal proceeding pursuant
to Section 14(a) and 14(b) of this Act may enter a plea of Nolo Contendere, in which
he does not accept nor deny responsibility for the charges but agrees to accept
punishment as if he had pleaded guilty. The plea cannot be used against the
defendant entity to prove liability in a civil suit arising from the criminal action nor in
another cause of action: Provided, That a plea of Nolo Contendere may be entered
only up to arraignment and subsequently, only with the permission of the court
which shall accept it only after weighing its effect on the parties, the public and the
administration of justice.
Section 37. Non-Adversarial Remedies. — As an implementing and enforcement
policy, the Commission shall, under such rules and regulations it may prescribe,
encourage voluntary compliance with this Act and other competition laws by
making available to the parties concerned the following and other analogous non-
adversarial administrative remedies, before the institution of administrative, civil or
criminal action:
(a) Binding Ruling. — Where no prior complaint or investigation has been
initiated, any entity that is in doubt as to whether a contemplated act,
course of conduct, agreement, or decision, is in compliance with, is exempt
from, or is in violation of any of the provisions of this Act, other competition
laws, or implementing rules and regulations thereof, may request the
Commission, in writing, to render a binding ruling thereon: Provided,That
the ruling is for a specified period, subject to extension as may be
determined by the Commission, and based on substantial evidence.
In the event of an adverse binding ruling on an act, course or conduct,
agreement, or decision, the applicant shall be provided with a reasonable
period, which in no case shall be more than ninety (90) days, to abide by the
ruling of the Commission and shall not be subject to administrative, civil, or
criminal action unless the applicant fails to comply with the provisions of
this Act;
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(b) Show Cause Order. — Upon preliminary findings motu proprio or on
written complaint under oath by an interested party that any entity is
conducting its business, in whole or in part in a manner that may not be in
accord with the provisions of this Act or other competition laws, and it finds
that the issuance of a show cause order would be in the interest of the
public, the Commission shall issue and serve upon such entity or entities a
written description of its business conduct complained of, a statement of
the facts, data, and information together with a summary of the evidence
thereof, with an order requiring the said entity or entities to show cause,
within the period therein fixed, why no order shall issue requiring such
person or persons to cease and desist from continuing with its identified
business conduct, or pay the administrative fine therein specified, or
readjust its business conduct or practices;
(c) Consent Order. – At any time prior to the conclusion by the Commission
of its inquiry, any entity under inquiry may, without in any manner
admitting a violation of this Act or any other competition laws, submit to
the Commission a written proposal for the entry of a consent order,
specifying therein the terms and conditions of the proposed consent order
which shall include among others the following:
(1) The payment of an amount within the range of fines provided for
under this Act;
(2) The required compliance report as well as an entity to submit
regular compliance reports;
(3) Payment of damages to any private party/parties who may have
suffered injury; and
(4) Other terms and conditions that the Commission deems
appropriate and necessary for the effective enforcement of this Act
or other Competition Laws:
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Provided, That a consent order shall not bar any inquiry for the same or
similar acts if continued or repeated;
(d) Monitoring of Compliance. – The Commission shall monitor the
compliance by the entity or entities concerned, their officers, and
employees, with the final and executory binding ruling, cease and desist
order, or approval of a consent judgment. Upon motion of an interested
party/parties, the Commission shall issue a certification or resolution to the
effect that the entity or entities concerned have, or have not, as the case
may be, complied with a final and executory ruling, order, or approval.
(e) Inadmissibility of Evidence in Criminal Proceedings. – The request for a
binding ruling, the show cause order, or the proposal for consent order; the
facts, data, and information therein contained or subsequently supplied by
the entity or entities concerned; admissions, oral or written, made by them
against their interest; all other documents filed by them, including their
evidence presented in the proceedings before the Commission; and the
judgment or order rendered thereon; shall not be admissible as evidence in
any criminal proceedings arising from the same act subject of the binding
ruling, show cause order or consent order against such entity or entities,
their officers, employees, and agents.
Section 38. Contempt. — The Commission may summarily punish for contempt by
imprisonment not exceeding thirty (30) days or by a fine not exceeding one hundred
thousand pesos (P 100,000.00), or both, any entity guilty of such misconduct in the
presence of the Commission in its vicinity as to seriously interrupt any hearing,
session or any proceeding before it, including cases in which an entity willfully fails
or refuses, without just cause, to comply with a summons, subpoena or
subpoena duces tecum legally issued by the Commission being present at a hearing,
proceeding, session or investigation, refused to be sworn as a witness or to answer
questions or to furnish information when lawfully required to do so.
Section 39. Appeals of the Decisions of the Commission. – Decisions of the
Commission shall be appealable to the Court of Appeals in accordance with the
Nigel Carmelo Q. Reago 367

Rules of Court. The appeal shall not stay the order, ruling or decision sought to be
reviewed, unless the Court of Appeals shall direct otherwise upon such terms and
conditions it may deem just. In the appeal, the Commission shall be included as a
party respondent to the case.
Section 40. ‘Writ of Execution. – Upon the finality of its binding ruling, order,
resolution, decision, judgment, or rule or regulation, collectively, the Commission
may issue a writ of execution to enforce its decision and the payment of the
administrative fines provided in the preceding sections.
Section 41. Basic Necessities and Prime Commodities. – If the violation involves the
trade or movement of basic necessities and prime commodities as defined by
Republic Act No. 7581, as amended, the fine imposed by the Commission or the
courts, as the case may be, shall be tripled.
Section 42. Immunity from Suit. – The Chairperson,the Commissioners, officers,
employees and agents of the Commission shall not be subject to any action, claim or
demand in connection with any act done or omitted by them in the performance of
their duties and exercise of their powers except for those actions and omissions
done in evident bad faith or gross negligence.
Section 43. Indemnity. – Unless the actions of the Commission or its Chairperson,
any of its Commissioners, officers, employees and agents are found to be in willful
violation of this Act, performed with evident bad faith or gross negligence, the
Commission, its Chairperson, Commissioners, 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 exercise of their powers and performance of their
duties and functions.
The Commission shall underwrite or advance litigation costs and expenses, including
legal fees and other expenses of external counsel, or provide legal assistance to its
Chairperson, Commissioners, officers, employees, or agents in connection with any
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civil, criminal, administrative or any other action or proceeding, to which they are
made a party by reason of, or in connection with, the exercise of authority or
performance of duties and functions 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 Commission, against such Chairperson,
Commissioners, officers, employees, or agents: Provided, further, That the
Chairperson, Commissioners, 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
Commission: 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 Commission is advised by counsel that the persons 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 Commission in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf of the
Chairperson, Commissioner, officer, employee, or agent to repay the amount
advanced should it ultimately be determined by the Commission that one is not
entitled to be indemnified as provided in this section.
Section 44. Jurisdiction of the Regional Trial Court. – The Regional Trial Court of the
city or province where the entity or any of the entities whose business act or
conduct Constitutes the subject matter of a case, conducts its principal place of
business, shall have original and exclusive jurisdiction, regardless of the penalties
and fines herein imposed, of all criminal and civil cases involving violations of this
Act and other competition-related laws. If the defendant or anyone is charged in the
capacity of a director, officer, shareholder, employee, or agent of a corporation or
other juridical entity who knowingly and willfully authorized the commission of the
offense charged, the Regional Trial Court of the city or province where such
corporation or juridical entity conducts its principal place of business, shall have
jurisdiction.
Nigel Carmelo Q. Reago 368

Section 45. Private Action. – Any person who suffers direct injury by reason of any
violation of this Act may institute a separate and independent civil action after the
Commission has completed the preliminary inquiry provided under Section 31.
CHAPTER VIII
OTHER PROVISIONS
Section 46. Statute of Limitations. — Any action arising from a violation of any
provision of this Act shall be forever barred unless commenced within five (5) years
from:
• For criminal actions, the time the violation is discovered by the offended
party, the authorities, or their agents; and
• For administrative and civil actions, the time the cause of action accrues.
Section 47. Prohibition on the Issuance of Temporary Restraining Orders, Preliminary
Injunctions and Preliminary Mandatory Injunctions. — Except for the Court of
Appeals and the Supreme Court, no other court shall issue any temporary
restraining order, preliminary injunction or preliminary mandatory injunction
against the Commission in the exercise of its duties or functions: Provided, That, this
prohibition shall apply in all cases, disputes or controversies instituted by a private
party, including, but not limited to, cases filed by entities or those claiming to have
rights through such entities: Provided, however, That, this prohibition shall not apply
when the matter is of extreme urgency involving a constitutional issue, such that the
non-issuance of a temporary restraining order will result in grave injustice and
irreparable injury to the public: Provided, further, That, the applicant shall file a
bond, in an amount to be fixed by the Court, but in no case shall it exceed twenty
percent (20%) of the imposable fines provided for under Chapter VI, Section 29 of
this Act: Provided, finally, That in the event that the court finally decides that the
applicant was not entitled to the relief applied for, the bond shall accrue in favor of
the Commission.
Any temporary restraining order, preliminary injunction or preliminary mandatory
injunction issued in violation of this section is void and of no force and effect. Any
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judge who violates this section shall be penalized by suspension of at least one (1)
year without pay in addition to other criminal, civil or administrative penalties.
Section 48. Trade Associations. – Nothing contained in this Act shall be construed to
prohibit the existence and operation of trade associations organized to promote
quality standards and safety issues: Pi’ovided, That, these associations shall not in
any way be used to justify any violation of this Act: Provided, however, That it shall
not be illegal to use the association as a forum to discuss or promote quality
standards, efficiency, safety, security, productivity, competitiveness and other
matters of common interest involving the industry: Provided, further, That such is
done without any anti-competitive intent or effect.
Section 49. Congressional Oversight Committee. – To oversee the implementation of
this Act, there shall be created a Congressional Oversight Committee on
Competition (COCC) to be composed of the Chairpersons of the Senate Committees
on Trade and Commerce, Economic Affairs, and Finance, the Chairpersons of the
House of Representatives Committees on Economic Affairs, Trade and Industry, and
Appropriations and two (2) members each from the Senate and the House of
Representatives who shall be designated by the Senate President and the Speaker of
the House of Representatives: Provided, That one (1) of the two (2) Senators and
one (1) of the two (2) House Members shall be nominated by the respective
Minority Leaders of the Senate and the House of Representatives. The
Congressional Oversight Committee shall be jointly chaired by the Chairpersons of
the Senate Committee on Trade and Commerce and the House of Representatives
Committee on Economic Affairs. The Vice Chairperson of the Congressional
Oversight Committee shall be jointly held by the Chairpersons of the Senate
Committee on Economic Affairs and the House of Representatives Committee on
Trade and Industry.
The Secretariat of the COCC shall be drawn from the existing personnel of the
Senate and House of Representatives committees comprising the Congressional
Oversight Committee.
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CHAPTER IX
FINAL PROVISIONS
Section 50. Implementing Rules and Regulations. — Within one hundred eighty
(180) days from the effectivity of this Act, the Commission, in consultation with the
DOJ-OFC and concerned sector regulators shall promulgate the necessary
implementing rules and regulations for the implementation of this
Act: Provided, That, the Commission may revise such implementing rules and
regulations as it deems necessary: Provided, however, That such revised
implementing rules and regulations shall only take effect fifteen (15) days following
its publication in two (2) newspapers of general circulation.
Section 51. Appropriations and Use of Fees, Charges and Penalties. – The initial
budgetary requirements of the Commission of three hundred million pesos
(P300,000,000.00) is hereby appropriated.
All fees, fines, penalties collected by the Commission shall not be retained by the
Commission, but will be remitted to the National Treasury and shall accrue to the
general funds.
Such funds necessary for the continuous and effective operation of the Commission
shall be included in the annual General Appropriations Act.
Section 52. Transparency Clause. — Final decisions, orders and rulings of the
Commission shall be published on the official website subject to Section 34 of this
Act.
Records of public proceedings shall be made available to the public subject to
Section 34 of this Act.1âwphi1
Section 53. Transitional Clause. — In order to allow affected parties time to
renegotiate agreements or restructure their business to comply with the provisions
of this Act, an existing business structure, conduct, practice or any act that may be
in violation of this Act shall be subject to the administrative, civil and criminal
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penalties prescribed herein only if it is not cured or is continuing upon the expiration
of two (2) years after the effectivity of this Act: Provided, That this section shall not
apply to administrative, civil and criminal proceedings against anticompetitive
agreement or conduct, abuse of dominant position, and anti-competitive mergers
and acquisitions, initiated prior to the entry into force of this Act: Provided,
further, That during the said two (2)-year period, the government shall undertake an
advocac program to inform the general public of the provisions of this Act.
Section 54. Separability Clause. – If any clause, sentence, section or part of this Act
shall be adjudged by a court of competent jurisdiction to be invalid, such judgment
shall not affect, impair or invalidate the remainder of this Act, but shall be confined
in its operation to the clause, sentence, paragraph, section, or part thereof directly
involved in the controversy.
Section 55. Repealing Clause. – The following laws, and all other laws, decrees,
executive orders and regulations, or part or parts thereof inconsistent with any
provision of this Act, are hereby repealed, amended or otherwise modified
accordingly:
(a) Article 186 of Act No. 3815, otherwise known as the Revised Penal
Code: Provided, That violations of Article 186 of the Revised Penal Code
committed before the effectivity of this Act may continue to be prosecuted
unless the same have been barred by prescription, and subject to the
procedure under Section 31 of this Act;
(b) Section 4 of Commonwealth Act No. 138;
(c) Section 43(u) on Functions of the ERC of Republic Act No. 9136, entitled
"An Act Ordaining Reforms in the Electric Power Industry, Amending for the
Purpose Certain Laws and for Other Purposes", otherwise known as the
"Electric Power Industry Reform Act of2001", insofar as the provision
thereof is inconsistent with this Act;
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(d) Section 24 on Illegal Acts of Price Manipulation and Section 25 on

Penalty for Illegal Acts of Price Manipulation of Republic Act No. 9502,
entitled "An Act Providing for Cheaper and Quality Medicines, Amending for
the Purpose Republic Act No. 8293 or the Intellectual Property Code,
Republic Act No. 6675 or the Generics Act of 1988, and Republic Act No.
5921 or the Pharmacy Law, and for Other Purposes", otherwise known as
the "Universally Accessible Cheaper and Quabrty Medicines Act of 2008".
insofar as the provisions thereof are inconsistent with this Act; and

(e) Executive Order No. 45, Series of 2011, Designating the Department of
Justice as the Competition Authority, Department of Justice Circular 005
Series of 2015, and other related issuances, insofar as they are inconsistent
with the provisions of this Act.

Section 56.Effectivity Clause. – This Act shall take effect fifteen (15) days following
its publication in the Official Gazette or at least two (2) national newspapers of
general circulation. Notwithstanding any provision herein, this Act shall have no
retroactive effect.

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REPUBLIC ACT No. 10142
AN ACT PROVIDING FOR THE REHABILITATION OR
LIQUIDATION OF FINANCIALLY DISTRESSED ENTERPRISES
AND INDIVIDUALS
Be it enacted by the Senate and House of Representatives of the Philippines in
Congress assembled:
CHAPTER I
GENERAL PROVISIONS
Section 1. Title. - This Act shall be known as the "Financial Rehabilitation and
Insolvency Act (FRIA) of 2010".
Section 2. Declaration of Policy. - It is the policy of the State to encourage debtors,
both juridical and natural persons, and their creditors to collectively and realistically
resolve and adjust competing claims and property rights. In furtherance thereof, the
State shall ensure a timely, fair, transparent, effective and efficient rehabilitation or
liquidation of debtors. The rehabilitation or liquidation shall be made with a view to
ensure or maintain certainly and predictability in commercial affairs, preserve and
maximize the value of the assets of these debtors, recognize creditor rights and
respect priority of claims, and ensure equitable treatment of creditors who are
similarly situated. When rehabilitation is not feasible, it is in the interest of the State
to facilities a speedy and orderly liquidation of these debtor's assets and the
settlement of their obligations.
Section 3. Nature of Proceedings. - The proceedings under this Act shall be in rem.
Jurisdiction over all persons affected by the proceedings shall be considered as
acquired upon publication of the notice of the commencement of the proceedings
in any newspaper of general circulation in the Philippines in the manner prescribed
by the rules of procedure to be promulgated by the Supreme Court.
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The proceedings shall be conducted in a summary and non-adversarial manner
consistent with the declared policies of this Act and in accordance with the rules of
procedure that the Supreme Court may promulgate.
Section 4. Definition of Terms. - As used in this Act, the term:
(a) Administrative expenses shall refer to those reasonable and necessary
expenses:
(1) incurred or arising from the filing of a petition under the
provisions of this Act;
(2) arising from, or in connection with, the conduct of the
proceedings under this Act, including those incurred for the
rehabilitation or liquidation of the debtor;
(3) incurred in the ordinary course of business of the debtor after
the commencement date;
(4) for the payment of new obligations obtained after the
commencement date to finance the rehabilitation of the debtor;
(5) incurred for the fees of the rehabilitation receiver or liquidator
and of the professionals engaged by them; and
(6) that are otherwise authorized or mandated under this Act or
such other expenses as may be allowed by the Supreme Court in its
rules.
(b) Affiliate shall refer to a corporation that directly or indirectly, through
one or more intermediaries, is controlled by, or is under the common
control of another corporation.
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(c) Claim shall refer to all claims or demands of whatever nature or
character against the debtor or its property, whether for money or
otherwise, liquidated or unliquidated, fixed or contingent, matured or
unmatured, disputed or undisputed, including, but not limited to; (1) all
claims of the government, whether national or local, including taxes, tariffs
and customs duties; and (2) claims against directors and officers of the
debtor arising from acts done in the discharge of their functions falling
within the scope of their authority: Provided, That, this inclusion does not
prohibit the creditors or third parties from filing cases against the directors
and officers acting in their personal capacities.
(d) Commencement date shall refer to the date on which the court issues
the Commencement Order, which shall be retroactive to the date of filing of
the petition for voluntary or involuntary proceedings.
(e) Commencement Order shall refer to the order issued by the court under
Section 16 of this Act.
(f) Control shall refer to 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 or affiliates, 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:
(1) over more than one-half (1/2) of the voting rights by virtue of an
agreement with investors;
(2) to direct or govern the financial and operating policies of the
enterprise under a statute or an agreement;
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(3) to appoint or remove the majority of the members of the board
of directors or equivalent governing body; or
(4) to cast the majority votes at meetings of the board of directors
or equivalent governing body.
(g) Court shall refer to the court designated by the Supreme Court to hear
and determine, at the first instance, the cases brought under this Act.
(h) Creditor shall refer to a natural or juridical person which has a claim
against the debtor that arose on or before the commencement date.
(i) Date of liquidation shall refer to the date on which the court issues the
Liquidation Order.
(j) Days shall refer to calendar days unless otherwise specifically stated in
this Act.
(k) Debtor shall refer to, unless specifically excluded by a provision of this
Act, a sole proprietorship duly registered with the Department of Trade and
Industry (DTI), a partnership duly registered with the Securities and
Exchange Commission (SEC), a corporation duly organized and existing
under Philippine laws, or an individual debtor who has become insolvent as
defined herein.
(l) Encumbered property shall refer to real or personal property of the
debtor upon which a lien attaches.
(m) General unsecured creditor shall refer to a creditor whose claim or a
portion thereof its neither secured, preferred nor subordinated under this
Act.
(n) Group of debtors shall refer to and can cover only: (1) corporations that
are financially related to one another as parent corporations, subsidiaries or
Nigel Carmelo Q. Reago 373

affiliates; (2) partnerships that are owned more than fifty percent (50%) by
the same person; and (3) single proprietorships that are owned by the same
person. When the petition covers a group of debtors, all reference under
these rules to debtor shall include and apply to the group of debtors.
(o) Individual debtor shall refer to a natural person who is a resident and
citizen of the Philippines that has become insolvent as defined herein.
(p) Insolvent shall refer to the financial condition of a debtor that is
generally unable to pay its or his liabilities as they fall due in the ordinary
course of business or has liabilities that are greater than its or his assets.
(q) Insolvent debtor's estate shall refer to the estate of the insolvent debtor,
which includes all the property and assets of the debtor as of
commencement date, plus the property and assets acquired by the
rehabilitation receiver or liquidator after that date, as well as all other
property and assets in which the debtor has an ownership interest, whether
or not these property and assets are in the debtor's possession as of
commencement date: Provided, That trust assets and bailment, and other
property and assets of a third party that are in the possession of the debtor
as of commencement date, are excluded therefrom.
(r) Involuntary proceedings shall refer to proceedings initiated by creditors.
(s) 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.
(t) Lien shall refer to a statutory or contractual claim or judicial charge on
real or personal property that legality entities a creditor to resort to said
property for payment of the claim or debt secured by such lien.
(u) Liquidation shall refer to the proceedings under Chapter V of this Act.
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(v) Liquidation Order shall refer to the Order issued by the court under
Section 112 of this Act.
(w) Liquidator shall refer to the natural person or juridical entity appointed
as such by the court and entrusted with such powers and duties as set forth
in this Act: Provided, That, if the liquidator is a juridical entity, it must
designated a natural person who possesses all the qualifications and none of
the disqualifications as its representative, it being understood that the
juridical entity and the representative are solidarity liable for all obligations
and responsibilities of the liquidator.
(x) Officer shall refer to a natural person holding a management position
described in or contemplated by a juridical entity's articles of incorporation,
bylaws or equivalent documents, except for the corporate secretary, the
assistant corporate secretary and the external auditor.
(y) Ordinary course of business shall refer to transactions in the pursuit of
the individual debtor's or debtor's business operations prior to
rehabilitation or insolvency proceedings and on ordinary business terms.
(z) Ownership interest shall refer to the ownership interest of third parties in
property held by the debtor, including those covered by trust receipts or
assignments of receivables.
(aa) Parent shall refer to a corporation which has control over another
corporation either directly or indirectly through one or more intermediaries.
(bb) Party to the proceedings shall refer to the debtor, a creditor, the
unsecured creditors' committee, a stakeholder, a party with an ownership
interest in property held by the debtor, a secured creditor, the rehabilitation
receiver, liquidator or any other juridical or natural person who stands to be
benefited or injured by the outcome of the proceedings and whose notice of
appearance is accepted by the court.
Nigel Carmelo Q. Reago 374

(cc) Possessory lien shall refer to a lien on property, the possession of which
has been transferred to a creditor or a representative or agent thereof.
(dd) Proceedings shall refer to judicial proceedings commenced by the
court's acceptance of a petition filed under this Act.
(ee) Property of others shall refer to property held by the debtor in which
other persons have an ownership interest.
(ff) Publication notice shall refer to notice through publication in a
newspaper of general circulation in the Philippines on a business day for
two (2) consecutive weeks.
(gg) Rehabilitation shall refer to the restoration of the debtor to a condition
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 debtor
continues as a going concern than if it is immediately liquidated.
(hh) Rehabilitation receiver shall refer to the person or persons, natural or
juridical, appointed as such by the court pursuant to this Act and which shall
be entrusted with such powers and duties as set forth herein.
(ii) Rehabilitation Plan shall refer to a plan by which the financial well-being
and viability of an insolvent debtor can be restored using various means
including, but not limited to, debt forgiveness, debt rescheduling,
reorganization or quasi-reorganization, dacion en pago, debt-equity
conversion and sale of the business (or parts of it) as a going concern, or
setting-up of new business entity as prescribed in Section 62 hereof, or
other similar arrangements as may be approved by the court or creditors.
(jj) Secured claim shall refer to a claim that is secured by a lien.
(kk) Secured creditor shall refer to a creditor with a secured claim.
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(ll) Secured party shall refer to a secured creditor or the agent or
representative of such secured creditor.
(mm) Securities market participant shall refer to a broker dealer,
underwriter, transfer agent or other juridical persons transacting securities
in the capital market.
(nn) Stakeholder shall refer, in addition to a holder of shares of a
corporation, to a member of a nonstock corporation or association or a
partner in a partnership.
(oo) Subsidiary shall refer to 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.
(pp) Unsecured claim shall refer to a claim that is not secured by a lien.
(qq) Unsecured creditor shall refer to a creditor with an unsecured claim.
(rr) Voluntary proceedings shall refer to proceedings initiated by the debtor.
(ss) Voting creditor shall refer to a creditor that is a member of a class of
creditors, the consent of which is necessary for the approval of a
Rehabilitation Plan under this Act.
Section 5. Exclusions. - The term debtor does not include banks, insurance
companies, pre-need companies, and national and local government agencies or
units.
For purposes of this section:
(a) Bank shall refer to any duly licensed bank or quasi-bank that is
potentially or actually subject to conservatorship, receivership or liquidation
Nigel Carmelo Q. Reago 375

proceedings under the New Central Bank Act (Republic Act No. 7653) or
successor legislation;
(b) Insurance company shall refer to those companies that are potentially or
actually subject to insolvency proceedings under the Insurance Code
(Presidential Decree No. 1460) or successor legislation; and
(c) Pre-need company shall refer to any corporation authorized/licensed to
sell or offer to sell pre-need plans.
Provided, That government financial institutions other than banks and government-
owned or controlled corporations shall be covered by this Act, unless their specific
charter provides otherwise.
Section 6. Designation of Courts and Promulgation of Procedural Rules. - The
Supreme Court shall designate the court or courts that will hear and resolve cases
brought under this Act and shall promulgate the rules of pleading, practice and
procedure to govern the proceedings brought under this Act.
Section 7. Substantive and Procedural Consolidation. - Each juridical entity shall be
considered as a separate entity under the proceedings in this Act. Under these
proceedings, the assets and liabilities of a debtor may not be commingled or
aggregated with those of another, unless the latter is a related enterprise that is
owned or controlled directly or indirectly by the same interests: Provided,
however, That the commingling or aggregation of assets and liabilities of the debtor
with those of a related enterprise may only be allowed where:
(a) there was commingling in fact of assets and liabilities of the debtor and
the related enterprise prior to the commencement of the proceedings;
(b) the debtor and the related enterprise have common creditors and it will
be more convenient to treat them together rather than separately;
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(c) the related enterprise voluntarily accedes to join the debtor as party
petitioner and to commingle its assets and liabilities with the debtor's; and
(d) The consolidation of assets and liabilities of the debtor and the related
enterprise is beneficial to all concerned and promotes the objectives of
rehabilitation.
Provided, finally, That nothing in this section shall prevent the court from joining
other entities affiliated with the debtor as parties pursuant to the rules of procedure
as may be promulgated by the Supreme Court.
Section 8. Decisions of Creditors. - Decisions of creditors shall be made according to
the relevant provisions of the Corporation Code in the case of stock or nonstock
corporations or the Civil Code in the case of partnerships that are not inconsistent
with this Act.
Section 9. Creditors Representatives. - Creditors may designate representatives to
vote or otherwise act on their behalf by filing notice of such representation with the
court and serving a copy on the rehabilitation receiver or liquidator.
Section 10. Liability of Individual Debtor, Owner of a Sole Proprietorship, Partners in
a Partnership, or Directors and Officers. - Individual debtor, owner of a sole
proprietorship, partners in a partnership, or directors and officers of a debtor shall
be liable for double the value of the property sold, embezzled or disposed of or
double the amount of the transaction involved, whichever is higher to be recovered
for benefit of the debtor and the creditors, if they, having notice of the
commencement of the proceedings, or having reason to believe that proceedings
are about to be commenced, or in contemplation of the proceedings, willfully
commit the following acts:
(a) Dispose or cause to be disposed of any property of the debtor other than
in the ordinary course of business or authorize or approve any transaction in
fraud of creditors or in a manner grossly disadvantageous to the debtor
and/or creditors; or
Nigel Carmelo Q. Reago 376

(b) Conceal or authorize or approve the concealment, from the creditors, or
embezzles or misappropriates, any property of the debtor.
The court shall determine the extent of the liability of an owner, partner, director or
officer under this section. In this connection, in case of partnerships and
corporations, the court shall consider the amount of the shareholding or partnership
or equity interest of such partner, director or officer, the degree of control of such
partner, director or officer over the debtor, and the extent of the involvement of
such partner, director or debtor in the actual management of the operations of the
debtor.
Section 11. Authorization to Exchange Debt for Equity. - Notwithstanding applicable
banking legislation to the contrary, any bank, whether universal or not, may acquire
and hold an equity interest or investment in a debtor or its subsidiaries when
conveyed to such bank in satisfaction of debts pursuant to a Rehabilitation or
Liquidation Plan approved by the court: Provided, That such ownership shall be
subject to the ownership limits applicable to universal banks for equity investments
and: Provided, further, That any equity investment or interest acquired or held
pursuant to this section shall be disposed by the bank within a period of five (5)
years or as may be prescribed by the Monetary Board.
CHAPTER II
COURT-SUPERVISED REHABILITATION
(A) Initiation Proceedings.
(1) Voluntary Proceedings.
Section 12. Petition to Initiate Voluntary Proceedings by Debtor. - When approved
by the owner in case of a sole proprietorship, or by a majority of the partners in case
of a partnership, or in case of a corporation, by a majority vote of the board of
directors or trustees and authorized by the vote of the stockholders representing at
least two-thirds (2/3) of the outstanding capital stock, or in case of nonstock
corporation, by the vote of at least two-thirds (2/3) of the members, in a
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stockholder's or member's meeting duly called for the purpose, an insolvent debtor
may initiate voluntary proceedings under this Act by filing a petition for
rehabilitation with the court and on the grounds hereinafter specifically provided.
The petition shall be verified to establish the insolvency of the debtor and the
viability of its rehabilitation, and include, whether as an attachment or as part of the
body of the petition, as a minimum the following:
(a) Identification of the debtor, its principal activities and its addresses;
(b) Statement of the fact of and the cause of the debtor's insolvency or
inability to pay its obligations as they become due;
(c) The specific relief sought pursuant to this Act;
(d) The grounds upon which the petition is based;
(e) Other information that may be required under this Act depending on the
form of relief requested;
(f) Schedule of the debtor's debts and liabilities including a list of creditors
with their addresses, amounts of claims and collaterals, or securities, if any;
(g) An inventory of all its assets including receivables and claims against
third parties;
(h) A Rehabilitation Plan;
(i) The names of at least three (3) nominees to the position of rehabilitation
receiver; and
(j) Other documents required to be filed with the petition pursuant to this
Act and the rules of procedure as may be promulgated by the Supreme
Court.
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A group of debtors may jointly file a petition for rehabilitation under this Act when
one or more of its members 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 members of the group and/or the
participation of the other members of the group is essential under the terms and
conditions of the proposed Rehabilitation Plan.
(2) Involuntary Proceedings.
Section 13. Circumstances Necessary to Initiate Involuntary Proceedings. - Any
creditor or group of creditors with a claim of, or the aggregate of whose claims is, at
least One Million Pesos (Php1,000,000.00) or at least twenty-five percent (25%) of
the subscribed capital stock or partners' contributions, whichever is higher, may
initiate involuntary proceedings against the debtor by filing a petition for
rehabilitation with the court if:
(a) there is no genuine issue of fact on law on the claim/s of the
petitioner/s, and that the due and demandable payments thereon have not
been made for at least sixty (60) days or that the debtor has failed generally
to meet its liabilities as they fall due; or
(b) a creditor, other than the petitioner/s, has initiated foreclosure
proceedings against the debtor that will prevent the debtor from paying its
debts as they become due or will render it insolvent.
Section 14. Petition to Initiate Involuntary Proceedings. - The creditor/s' petition for
rehabilitation shall be verified to establish the substantial likelihood that the debtor
may be rehabilitated, and include:
(a) identification of the debtor its principal activities and its address;
(b) the circumstances sufficient to support a petition to initiate involuntary
rehabilitation proceedings under Section 13 of this Act;
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(c) the specific relief sought under this Act;
(d) a Rehabilitation Plan;
(e) the names of at least three (3) nominees to the position of rehabilitation
receiver;
(f) other information that may be required under this Act depending on the
form of relief requested; and
(g) other documents required to be filed with the petition pursuant to this
Act and the rules of procedure as may be promulgated by the Supreme
Court.
(B) Action on the Petition and Commencement of Proceedings.
Section 15. Action on the Petition. - If the court finds the petition for rehabilitation
to be sufficient in form and substance, it shall, within five (5) working days from the
filing of the petition, issue a Commencement Order. If, within the same period, the
court finds the petition deficient in form or substance, the court may, in its
discretion, give the petitioner/s a reasonable period of time within which to amend
or supplement the petition, or to submit such documents as may be necessary or
proper to put the petition in proper order. In such case, the five (5) working days
provided above for the issuance of the Commencement Order shall be reckoned
from the date of the filing of the amended or supplemental petition or the
submission of such documents.
Section 16. Commencement of Proceedings and Issuance of a Commencement
Order. - The rehabilitation proceedings shall commence upon the issuance of the
Commencement Order, which shall:
(a) identify the debtor, its principal business or activity/ies and its principal
place of business;
Nigel Carmelo Q. Reago 378

(b) summarize the ground/s for initiating the proceedings;
(c) state the relief sought under this Act and any requirement or procedure
particular to the relief sought;
(d) state the legal effects of the Commencement Order, including those
mentioned in Section 17 hereof;
(e) declare that the debtor is under rehabilitation;
(f) direct the publication of the Commencement Order in a newspaper of
general circulation in the Philippines 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;
(g) If the petitioner is the debtor direct the service by personal delivery of a
copy of the petition on each creditor holding at least ten percent (10%) of
the total liabilities of the debtor as determined from the schedule attached
to the petition within five (5) days; if the petitioner/s is/are creditor/s, direct
the service by personal delivery of a copy of the petition on the debtor
within five (5) days;
(h) appoint a rehabilitation receiver who may or not be from among the
nominees of the petitioner/s and who shall exercise such powers and duties
defined in this Act as well as the procedural rules that the Supreme Court
will promulgate;
(i) summarize the requirements and deadlines for creditors to establish their
claims against the debtor and direct all creditors to their claims with the
court at least five (5) days before the initial hearing;
(j) direct Bureau of internal Revenue (BIR) to file and serve on the debtor its
comment on or opposition to the petition or its claim/s against the debtor
under such procedures as the Supreme Court provide;
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(k) prohibit the debtor's suppliers of goods or services from withholding the
supply of goods and services in the ordinary course of business for as long as
the debtor makes payments for the services or goods supplied after the
issuance of the Commencement Order;
(l) authorize the payment of administrative expenses as they become due;
(m) set the case for initial hearing, which shall not be more than forty (40)
days from the date of filing of the petition for the purpose of determining
whether there is substantial likelihood for the debtor to be rehabilitated;
(n) make available copies of the petition and rehabilitation plan for
examination and copying by any interested party;
(o) indicate the location or locations at which documents regarding the
debtor and the proceedings under Act may be reviewed and copied;
(p) state that any creditor or debtor who is not the petitioner, may submit
the name or nominate any other qualified person to the position of
rehabilitation receiver at least five (5) days before the initial hearing;
(q) include s Stay or Suspension Order which shall:
(1) suspend all actions or proceedings, in court or otherwise, for the
enforcement of claims against the debtor;
(2) suspend all actions to enforce any judgment, attachment or
other provisional remedies against the debtor;
(3) prohibit the debtor from selling, encumbering, transferring or
disposing in any manner any of its properties except in the ordinary
course of business; and
Nigel Carmelo Q. Reago 379

(4) prohibit the debtor from making any payment of its liabilities
outstanding as of the commencement date except as may be
provided herein.
Section 17. Effects of the Commencement Order. - Unless otherwise provided for in
this Act, the court's issuance of a Commencement Order shall, in addition to the
effects of a Stay or Suspension Order described in Section 16 hereof:
(a) vest the rehabilitation with all the powers and functions provided for this
Act, such as the right to review and obtain records to which the debtor's
management and directors have access, including bank accounts or
whatever nature of the debtor subject to the approval by the court of the
performance bond filed by the rehabilitation receiver;
(b) prohibit or otherwise serve as the legal basis rendering null and void the
results of any extrajudicial activity or process to seize property, sell
encumbered property, or otherwise attempt to collection or enforce a claim
against the debtor after commencement date unless otherwise allowed in
this Act, subject to the provisions of Section 50 hereof;
(c) serve as the legal basis for rendering null and void any setoff after the
commencement date of any debt owed to the debtor by any of the debtor's
creditors;
(d) serve as the legal basis for rendering null and void the perfection of any
lien against the debtor's property after the commencement date; and
(e) consolidate the resolution of all legal proceedings by and against the
debtor to the court Provided. However, That the court may allow the
continuation of cases on other courts where the debtor had initiated the
suit.
Attempts to seek legal of other resource against the debtor outside these
proceedings shall be sufficient to support a finding of indirect contempt of court.
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Section 18. Exceptions to the Stay or Suspension Order. - The Stay or Suspension
Order shall not apply:
(a) to cases already pending appeal in the Supreme Court as of
commencement date Provided, That any final and executory judgment
arising from such appeal shall be referred to the court for appropriate
action;
(b) subject to the discretion of the court, to cases pending or filed at a
specialized court or quasi-judicial agency which, upon determination by the
court is capable of resolving the claim more quickly, fairly and efficiently
than the court: Provided, That any final and executory judgment of such
court or agency shall be referred to the court and shall be treated as a non-
disputed claim;
(c) to the enforcement of claims against sureties and other persons
solidarily liable with the debtor, and third party or accommodation
mortgagors as well as issuers of letters of credit, unless the property subject
of the third party or accommodation mortgage is necessary for the
rehabilitation of the debtor as determined by the court upon
recommendation by the rehabilitation receiver;
(d) to any form of action of customers or clients of a securities market
participant to recover or otherwise claim moneys and securities entrusted
to the latter in the ordinary course of the latter's business as well as any
action of such securities market participant or the appropriate regulatory
agency or self-regulatory organization to pay or settle such claims or
liabilities;
(e) to the actions of a licensed broker or dealer to sell pledged securities of a
debtor pursuant to a securities pledge or margin agreement for the
settlement of securities transactions in accordance with the provisions of
the Securities Regulation Code and its implementing rules and regulations;
Nigel Carmelo Q. Reago 380

(f) the clearing and settlement of financial transactions through the facilities
of a clearing agency or similar entities duly authorized, registered and/or
recognized by the appropriate regulatory agency like the Bangko Sentral ng
Pilipinas (BSP) and the SEC as well as any form of actions of such agencies or
entities to reimburse themselves for any transactions settled for the debtor;
and
(g) any criminal action against individual debtor or owner, partner, director
or officer of a debtor shall not be affected by any proceeding commend
under this Act.
Section 19. Waiver of taxes and Fees Due to the National Government and to Local
Government Units (LGUs). - Upon issuance of the Commencement Order by the
court, and until the approval of the Rehabilitation Plan or dismissal of the petition,
whichever is earlier, the imposition of all taxes and fees including penalties,
interests and charges thereof due to the national government or to LGUs shall be
considered waived, in furtherance of the objectives of rehabilitation.
Section 20. Application of Stay or Suspension Order to Government Financial
Institutions. - The provisions of this Act concerning the effects of the
Commencement Order and the Stay or Suspension Order on the suspension of
rights to foreclose or otherwise pursue legal remedies shall apply to government
financial institutions, notwithstanding provisions in their charters or other laws to
the contrary.
Section 21. Effectivity and Duration of Commencement Order. - Unless lifted by the
court, the Commencement Order shall be for the effective for the duration of the
rehabilitation proceedings for as long as there is a substantial likelihood that the
debtor will be successfully rehabilitated. In determining whether there is substantial
likelihood for the debtor to be successfully rehabilitated, the court shall ensure that
the following minimum requirements are met:
(a) The proposed Rehabilitation Plan submitted complies with the minimum
contents prescribed by this Act;
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(b) There is sufficient monitoring by the rehabilitation receiver of the
debtor's business for the protection of creditors;
(c) The debtor has met with its creditors to the extent reasonably possible in
attempts to reach consensus on the proposed Rehabilitation Plan;
(d) The rehabilitation receiver submits a report, based on preliminary
evaluation, stating that the underlying assumptions and the goals stated in
the petitioner's Rehabilitation Plan are realistic reasonable and reasonable
or if not, there is, in any case, a substantial likelihood for the debtor to be
successfully rehabilitated because, among others:
(1) there are sufficient assets with/which to rehabilitate the debtor;
(2) there is sufficient cash flow to maintain the operations of the
debtor;
(3) the debtor's, partners, stockholders, directors and officers have
been acting in good faith and which due diligence;
(4) the petition is not s sham filing intended only to delay the
enforcement of the rights of the creditor's or of any group of
creditors; and
(5) the debtor would likely be able to pursue a viable Rehabilitation
Plan;
(e) The petition, the Rehabilitation Plan and the attachments thereto do not
contain any materially false or misleading statement;
(f) If the petitioner is the debtor, that the debtor has met with its creditor/s
representing at least three-fourths (3/4) of its total obligations to the extent
reasonably possible and made a good faith effort to reach a consensus on
the proposed Rehabilitation Plan if the petitioner/s is/are a creditor or
Nigel Carmelo Q. Reago 381

group of creditors, that/ the petitioner/s has/have met with the debtor and
made a good faith effort to reach a consensus on the proposed
Rehabilitation Plan; and
(g) The debtor has not committed acts misrepresentation or in fraud of its
creditor/s or a group of creditors.
Section 22. Action at the Initial Hearing. - At the initial hearing, the court shall:
(a) determine the creditors who have made timely and proper filing of their
notice of claims;
(b) hear and determine any objection to the qualifications of the
appointment of the rehabilitation receiver and, if necessary appoint a new
one in accordance with this Act;
(c) direct the creditors to comment on the petition and the Rehabilitation
Plan, and to submit the same to the court and to the rehabilitation receiver
within a period of not more than twenty (20) days; and
(d) direct the rehabilitation receiver to evaluate the financial condition of
the debtor and to prepare and submit to the court within forty (40) days
from initial hearing the report provided in Section 24 hereof.
Section 23. Effect of Failure to File Notice of Claim. - A creditor whose claim is not
listed in the schedule of debts and liabilities and who fails to file a notice of claim in
accordance with the Commencement Order but subsequently files a belated claim
shall not be entitled to participate in the rehabilitation proceedings but shall be
entitled to receive distributions arising therefrom.
Section 24. Report of the Rehabilitation Receiver. - Within forty (40) days from the
initial hearing and with or without the comments of the creditors or any of them,
the rehabilitation receiver shall submit a report to the court stating his preliminary
findings and recommendations on whether:
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(a) the debtor is insolvent and if so, the causes thereof and any unlawful or
irregular act or acts committed by the owner/s of a sole proprietorship
partners of a partnership or directors or officers of a corporation in
contemplation of the insolvency of the debtor or which may have
contributed to the insolvency of the debtor;
(b) the underlying assumptions, the financial goals and the procedures to
accomplish such goals as stated in the petitioner's Rehabilitation Plan are
realistic, feasible and reasonable;
(c) there is a substantial likelihood for the debtor to be successfully
rehabilitated;
(d) the petition should be dismissed; and
(e) the debtor should be dissolved and/or liquidated.
Section 25. Giving Due Course to or Dismissal of Petition, or Conversion of
Proceedings. - Within ten (10) days from receipt of the report of the rehabilitation
receiver mentioned in Section 24 hereof the court may:
(a) give due course to the petition upon a finding that:
(1) the debtor is insolvent; and
(2) there is a substantial likelihood for the debtor to be successfully
rehabilitated;
(b) dismiss the petition upon a finding that:
(1)debtor is not insolvent;
Nigel Carmelo Q. Reago 382

(2) the petition i8 a sham filing intended only to delay the
enforcement of the rights of the creditor/s or of any group of
creditors;
(3)the petition, the Rehabilitation Plan and the attachments thereto
contain any materially false or misleading statements; or
(4)the debtor has committed acts of misrepresentation or in fraud
of its creditor/s or a group of creditors;
(c)convert the proceedings into one for the liquidation of the debtor upon a
finding that:
(1)the debtor is insolvent; and
(2)there is no substantial likelihood for the debtor to be successfully
rehabilitated as determined in accordance with the rules to be
promulgated by the Supreme Court.
Section 26.Petition Given Due Course. - If the petition is given due course, the court
shall direct the rehabilitation receiver to review, revise and/or recommend action
on the Rehabilitation Plan and submit the same or a new one to the court within a
period of not more than ninety (90) days.
The court may refer any dispute relating to the Rehabilitation Plan or the
rehabilitation proceedings pending before it to arbitration or other modes of
dispute resolution, as provided for under Republic Act No. 9285, Or the Alternative
Dispute Resolution Act of 2004, should it determine that such mode will resolve the
dispute more quickly, fairly and efficiently than the court.
Section 27.Dismissal of Petition. - If the petition is dismissed pursuant to paragraph
(b) of Section 25 hereof, then the court may, in its discretion, order the petitioner to
pay damages to any creditor or to the debtor, as the case may be, who may have
been injured by the filing of the petition, to the extent of any such injury.
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(C) The Rehabilitation Receiver, Management Committee and Creditors'
Committee.
Section 28.Who May Serve as a Rehabilitation Receiver. - Any qualified natural or
juridical person may serve as a rehabilitation receiver: Provided, That if the
rehabilitation receiver is a juridical entity, it must designate a natural person/s who
possess/es all the qualifications and none of the disqualification’s as its
representative, it being understood that the juridical entity and the representative/s
are solidarily liable for all obligations and responsibilities of the rehabilitation
receiver.
Section 29.Qualifications of a Rehabilitation Receiver. - The rehabilitation receiver
shall have the following minimum qualifications:
(a)A citizen of the Philippines or a resident of the Philippines in the six (6)
months immediately preceding his nomination;
(b)Of good moral character and with acknowledged integrity, impartiality
and independence;
(c)Has the requisite knowledge of insolvency and other relevant commercial
laws, rules and procedures, as well as the relevant training and/or
experience that may be necessary to enable him to properly discharge the
duties and obligations of a rehabilitation receiver; and
(d)Has no conflict of interest: Provided, That such conflict of interest may be
waived, expressly or impliedly, by a party who may be prejudiced thereby.
Other qualifications and disqualification’s of the rehabilitation receiver shall be set
forth in procedural rules, taking into consideration the nature of the business of the
debtor and the need to protect the interest of all stakeholders concerned.
Section 30.Initial Appointment of the Rehabilitation Receiver. - The court shall
initially appoint the rehabilitation receiver, who mayor may not be from among the
Nigel Carmelo Q. Reago 383

nominees of the petitioner, However, at the initial hearing of the petition, the
creditors and the debtor who are not petitioners may nominate other persons to
the position. The court may retain the rehabilitation receiver initially appointed or
appoint another who mayor may not be from among those nominated.
In case the debtor is a securities market participant, the court shall give priority to
the nominee of the appropriate securities or investor protection fund.
If a qualified natural person or entity is nominated by more than fifty percent (50%)
of the secured creditors and the general unsecured creditors, and satisfactory
evidence is submitted, the court shall appoint the creditors' nominee as
rehabilitation receiver.
Section 31.Powers, Duties and Responsibilities of the Rehabilitation Receiver. - The
rehabilitation receiver shall be deemed an officer of the court with the principal
duty of preserving and maximizing the value of the assets of the debtor during the
rehabilitation proceedings, determining the viability of the rehabilitation of the
debtor, preparing and recommending a Rehabilitation Plan to the court, and
implementing the approved Rehabilitation Plan, To this end, and without limiting
the generality of the foregoing, the rehabilitation receiver shall have the following
powers, duties and responsibilities:
(a)To verify the accuracy of the factual allegations in the petition and its
annexes;
(b)To verify and correct, if necessary, the inventory of all of the assets of the
debtor, and their valuation;
(c)To verify and correct, if necessary, the schedule of debts and liabilities of
the debtor;
(d)To evaluate the validity, genuineness and true amount of all the claims
against the debtor;
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(e)To take possession, custody and control, and to preserve the value of all
the property of the debtor;
(f)To sue and recover, with the approval of the court, all amounts owed to,
and all properties pertaining to the debtor;
(g)To have access to all information necessary, proper or relevant to the
operations and business of the debtor and for its rehabilitation;
(h) To sue and recover, with the. approval of the court, all
property or money of the debtor paid, transferred or disbursed in fraud of
the debtor or its creditors, or which constitute undue preference of
creditor/s;
(i) To monitor the operations and the business of the debtor to ensure that
no payments or transfers of property are made other than in the ordinary
course of business;
(j) With the court's approval, to engage the services of or to employ persons
or entities to assist him in the discharge of his functions;
(k) To determine the manner by which the debtor may be best rehabilitated,
to review) revise and/or recommend action on the Rehabilitation Plan and
submit the same or a new one to the court for approval;
(1) To implement the Rehabilitation Plan as approved by the court, if 80
provided under the Rehabilitation Plan;
(m) To assume and exercise the powers of management of the debtor, if
directed by the court pursuant to Section 36 hereof;
(n) To exercise such other powers as may, from time to time, be conferred
upon him by the court; and
Nigel Carmelo Q. Reago 384

To submit a status report on the rehabilitation proceedings every quarter or
as may be required by the court motu proprio. or upon motion of any
creditor. or as may be provided, in the Rehabilitation Plan.
Unless appointed by the court, pursuant to Section 36 hereof, the
rehabilitation receiver shall not take over the management and control of
the debtor but may recommend the appointment of a management
committee over the debtor in the cases provided by this Act.
Section 32.Removal of the Rehabilitation Receiver. – The rehabilitation receiver may
be removed at any time by the court either motu proprio or upon motion by any
creditor/s holding more than fifty percent (50%) of the total obligations of the
debtor, on such grounds as the rules of procedure may provide which shall include,
but are not limited to, the following:
(a) Incompetence, gross negligence, failure to perform or failure to exercise
the proper degree of care in the performance of his duties and powers;
(b) Lack of a particular or specialized competency required by the specific
case;
(c) Illegal acts or conduct in the performance of his duties and powers;
(d) Lack of qualification or presence of any disqualification;
(e) Conflict of interest that arises after his appointment; and
(f) Manifest lack of independence that is detrimental to the general body of
the stakeholders.
Section 33.Compensation and Terms of Service. The rehabilitation receiver and his
direct employees or independent contractors shall be entitled to compensation for
reasonable fees and expenses from the debtor according to the terms approved by
the court after notice and hearing. Prior to such hearing, the rehabilitation receiver
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and his direct employees shall be entitled to reasonable compensation based
on quantum meruit. Such costs shall be considered administrative expenses.
Section 34.Oath and Bond of the Rehabilitation Receiver. Prior to entering upon his
powers, duties and responsibilities, the rehabilitation receiver shall take an oath and
file a bond, in such amount to be fixed by the court, conditioned upon the faithful
and proper discharge of his powers, duties and responsibilities.
Section 35.Vacancy. - Incase the position of rehabilitation receiver is vacated for any
reason whatsoever. the court shall direct the debtor and the creditors to submit the
name/s of their nominee/s to the position. The court may appoint any of the
qualified nominees. or any other person qualified for the position.
Section 36.Displacement of Existing Management by the Rehabilitation
Receiver or Management Committee. – Upon motion of any interested party, the
court may appoint and direct the rehabilitation receiver to assume the powers of
management of the debtor, or appoint a management committee that will
undertake the management of the debtor. upon clear and convincing evidence of
any of the following circumstances:
(a) Actual or imminent danger of dissipation, loss, wastage or destruction of
the debtor’s assets or other properties;
(b) Paralyzation of the business operations of the debtor; or
(c) Gross mismanagement of the debtor. or fraud or other wrongful conduct
on the part of, or gross or willful violation of this Act by. existing
management of the debtor Or the owner, partner, director, officer or
representative/s in management of the debtor.
In case the court appoints the rehabilitation receiver to assume the powers of
management of the debtor. the court may:
(1) require the rehabilitation receiver to post an additional bond;
Nigel Carmelo Q. Reago 385

(2) authorize him to engage the services or to employ persona or entities to
assist him in the discharge of his managerial functions; and
(3) authorize a commensurate increase in his compensation.
Section 37.Role of the Management Committee. – When appointed pursuant to the
foregoing section, the management committee shall take the place of the
management and the governing body of the debtor and assume their rights and
responsibilities.
The specific powers and duties of the management committee, whose members
shall be considered as officers of the court, shall be prescribed by the procedural
rules.
Section 38.Qualifications of Members of the Management Committee. - The
qualifications and disqualification’s of the members of the management committee
shall be set forth in the procedural rules, taking into consideration the nature of the
business of the debtor and the need to protect the interest of all stakeholders
concerned.
Section 39.Employment of Professionals. - Upon approval of the court, and after
notice and hearing, the rehabilitation receiver or the management committee may
employ specialized professionals and other experts to assist each in the
performance of their duties. Such professionals and other experts shall be
considered either employees or independent contractors of the rehabilitation
receiver or the management committee, as the case may be. The qualifications and
disqualification’s of the professionals and experts may be set forth in procedural
rules, taking into consideration the nature of the business of the debtor and the
need to protect the interest of all stakeholders concerned.
Section 40.Conflict of Interest. - No person may be appointed as a rehabilitation
receiver, member of a_ management committee, or be employed by the
rehabilitation receiver or the management committee if he has a conflict of interest.
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An individual shall be deemed to have a conflict of interest if he is so situated as to
be materially influenced in the exercise of his judgment for or against any party to
the proceedings. Without limiting the generality of the foregoing, an individual shall
be deemed to have a conflict of interest if:
(a) he is a creditor, owner, partner or stockholder of the debtor;
(b) he is engaged in a line of business which competes with that of the
debtor;
(c) he is, or was, within five (5) years from the filing of the petition, a
director, officer, owner, partner or employee of the debtor or any of the
creditors, or the auditor or accountant of the debtor;
(d) he is, or was, within two (2) years from the filing of the petition, an
underwriter of the outstanding securities of the debtor;
(e) he is related by consanguinity or affinity within the fourth civil degree to
any individual creditor, owners of a sale proprietorship-debtor, partners of a
partnership- debtor or to any stockholder, director, officer, employee or
underwriter of a corporation-debtor; or
(f) he has any other direct or indirect material interest in the debtor or any
of the creditors.
Any rehabilitation receiver, member of the management committee or persons
employed or contracted by them possessing any conflict of interest shall make the
appropriate disclosure either to the court or to the creditors in case of out-of-court
rehabilitation proceedings. Any party to the proceeding adversely affected by the
appointment of any person with a conflict of interest to any of the positions
enumerated above may however waive his right to object to such appointment and,
if the waiver is unreasonably withheld, the court may disregard the conflict of
interest, taking into account the general interest of the stakeholders.
Nigel Carmelo Q. Reago 386

Section 41.Immunity. - The rehabilitation receiver and all persons employed by him,
and the members of the management committee and all persons employed by it,
shall not be subject to any action. claim or demand in connection with any act done
or omitted to be done by them in good faith in connection with the exercise of their
powers and functions under this Act or other actions duly approved by the
court.1awp++il
Section 42.Creditors' Committee. - After the creditors' meeting called pursuant to
Section 63 hereof, the creditors belonging to a class may formally organize a
committee among
themselves. In addition, the creditors may, as a body, agree to form a creditors'
committee composed of a representative from each class of creditors, such as the
following:
(a) Secured creditors;
(b) Unsecured creditors;
(c) Trade creditors and suppliers; and
(d) Employees of the debtor.
In the . election of the creditors' representatives, the rehabilitation receiver or his
representative shall attend such meeting and extend the appropriate assistance as
may be defined in the procedural rules.
Section 43.Role of Creditors' Committee. - The creditors' committee when
constituted pursuant to Section 42 of this Act shall assist the rehabilitation receiver
in communicating with the creditors and shall be the primary liaison between the
rehabilitation receiver and the creditors. The creditors' committee cannot exercise
or waive any right or give any consent on behalf of any creditor unless specifically
authorized in writing by such creditor. The creditors' committee may be authorized
by the court or by the rehabilitation receiver to perform such other tasks and
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functions as may be defined by the procedural rules in order to facilitate the
rehabilitation process.
(D) Determination of Claims.
Section 44.Registry of Claims. - Within twenty (20) days from his assumption into
office, the rehabilitation receiver shall establish a preliminary registry of claims. The
rehabilitation receiver shall make the registry available for public inspection and
provide
publication notice to the debtor, creditors and stakeholders on where and when
they may inspect it. All claims included in the registry of claims must be duly
supported by sufficient evidence.
Section 45.Opposition or Challenge of Claims. – Within thirty (30) days from the
expiration of the period stated in the immediately preceding section, the debtor,
creditors, stakeholders and other interested parties may submit a challenge to
claim/s to the court, serving a certified copy on the rehabilitation receiver and the
creditor holding the challenged claim/so Upon the expiration of the thirty (30)-day
period, the rehabilitation receiver shall submit to the court the registry of claims
which shall include undisputed claims that have not been subject to challenge.
Section 46.Appeal. - Any decision of the rehabilitation receiver regarding a claim
may be appealed to the court.
(E) Governance.
Section 47.Management. - Unless otherwise provided herein, the management of
the juridical debtor shall remain with the existing management subject to the
applicable law/s and agreement/s, if any, on the election or appointment of
directors, managers Or managing partner. However, all disbursements, payments or
sale, disposal, assignment, transfer or encumbrance of property , or any other act
affecting title or interest in property, shall be subject to the approval of the
rehabilitation receiver and/or the court, as provided in the following subchapter.
Nigel Carmelo Q. Reago 387

(F) Use, Preservation and Disposal of Assets and Treatment of Assets and Claims
after Commencement Date.
Section 48.Use or Disposition of Assets. - Except as otherwise provided herein, no
funds or property of the debtor shall he used or disposed of except in the ordinary
course of business of the debtor, or unless necessary to finance the administrative
expenses of the rehabilitation proceedings.
Section 49.Sale of Assets. - The court, upon application of the rehabilitation
receiver, may authorize the sale of unencumbered property of the debtor outside
the ordinary course of business upon a showing that the property, by its nature or
because of other circumstance, is perishable, costly to maintain, susceptible to
devaluation or otherwise injeopardy.
Section 50.Sale or Disposal of Encumbered Property of the Debtor and Assets of
Third Parties Held by Debtor. The court may authorize the sale, transfer, conveyance
or disposal of encumbered property of the debtor, or property of others held by the
debtor where there is a security interest pertaining to third parties under a financial,
credit or other similar transactions if, upon application of the rehabilitation receiver
and with the consent of the affected owners of the property, or secured creditor/s
in the case of encumbered property of the debtor and, after notice and hearing, the
court determines that:
(a) such sale, transfer, conveyance or disposal is necessary for the continued
operation of the debtor's business; and
(b) the debtor has made arrangements to provide a substitute lien or
ownership right that provides an equal level of security for the counter-
party's claim or right.
Provided, That properties held by the debtor where the debtor has authority to sell
such as trust receipt or consignment arrangements may be sold or disposed of by
the .debtor, if such sale or disposal is necessary for the operation of the debtor's
business, and the debtor has made arrangements to provide a substitute lien or
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ownership right that provides an equal level of security for the counter-party's claim
or right.
Sale or disposal of property under this section shall not give rise to any criminal
liability under applicable laws.
Section 51.Assets of Debtor Held by Third Parties. – In the case of possessory
pledges, mechanic's liens or similar claims, third parties who have in their
possession or control property of the debtor shall not transfer, conveyor otherwise
dispose of the same to persons other than the debtor, unless upon prior approval of
the rehabilitation receiver. The rehabilitation receiver may also:
(a) demand the surrender or the transfer of the possession or control of
such property to the rehabilitation receiver or any other person, subject to
payment of the claims secured by any possessory Iien/s thereon;
(b) allow said third parties to retain possession or control, if such an
arrangement would more likely preserve or increase the value of the
property in question or the total value of the assets of the debtor; or
(c) undertake any otI1er disposition of the said property as may be
beneficial for the rehabilitation of the debtor, after notice and hearing, and
approval of the court.
Section 52.Rescission or Nullity of Sale, Payment, Transfer or Conveyance of Assets. -
The court may rescind or declare as null and void any sale, payment, transfer or
conveyance of the debtor's unencumbered property or any encumbering thereof by
the debtor or its agents or representatives after the commencement date which are
not in the ordinary course of the business of the debtor: Provided, however, That
the unencumbered property may be sold, encumbered or otherwise disposed of
upon order of the court after notice and hearing:
(a) if such are in the interest of administering the debtor and facilitating the
preparation and implementation of a Rehabilitation Plan;
Nigel Carmelo Q. Reago 388

(b) in order to provide a substitute lien, mortgage or pledge of property
under this Act;
(c) for payments made to meet administrative expenses as they arise;
(d) for payments to victims of quasi delicts upon a showing that the claim is
valid and the debtor has insurance to reimburse the debtor for the
payments made;
(e) for payments made to repurchase property of the debtor that is
auctioned off in a judicial or extrajudicial sale under. This Act; or
(f) for payments made to reclaim property of the debtor held pursuant to a
possessory lien.
Section 53.Assets Subject to Rapid Obsolescence, Depreciation and Diminution of
Value. - Upon the application of a secured creditor holding a lien against or holder of
an ownership interest in property held by the debtor that is subject to potentially
rapid obsolescence, depreciation or diminution in value, the court shall, after notice
and hearing, order the debtor or rehabilitation receiver to take reasonable steps
necessary to prevent the depreciation. If depreciation cannot be avoided and such
depreciation is jeopardizing the security or property interest of the secured creditor
or owner, the court shall:
(a) allow the encumbered property to be foreclosed upon by the secured
creditor according to the relevant agreement between the debtor and the
secured creditor, applicable rules of procedure and relevant
legislation: Provided. That the proceeds of the sale will be distributed in
accordance with the order prescribed under the rules of concurrence and
preference of credits; or
(b) upon motion of, or with the consent of the affected secured creditor or
interest owner. order the conveyance of a lien against or ownership interest
in substitute property of the debtor to the secured creditor: Provided. That
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other creditors holding liens on such property, if any, do not object thereto,
or, if such property is not available;
(c) order the conveyance to the secured creditor or holder . of an ownership
interest of a lien on the residual funds from the sale of encumbered
property during the proceedings; or
(d) allow the sale or disposition of the property: Provided. That the sale or
disposition will maximize the value of the property for the benefit of the
secured creditor and the debtor, and the proceeds of the sale will be
distributed in accordance with the order prescribed under the rules of
concurrence and preference of credits.
Section 54.Post-commencement Interest. - The rate and term of interest, if any, on
secured and unsecured claims shall be determined and provided for in the approved
Rehabilitation Plan.
Section 55.Post-commencement Loans and Obligations. - With the approval of the
court upon the recommendation of the rehabilitation receiver, the debtor, in order
to enhance its
rehabilitation. may:
(a) enter into credit arrangements; or
(b) enter into credit arrangements, secured by mortgages of its
unencumbered property or secondary mortgages of encumbered property
with the approval of senior secured parties with regard to the encumbered
property; or
(c) incur other obligations as may be essential for its rehabilitation.
The payment of the foregoing obligations shall be considered administrative
expenses under this Act.
Nigel Carmelo Q. Reago 389

Section 56.Treatment of Employees, Claims. Compensation of employees required
to carry on the business shall be considered an administrative expense. Claims of
separation pay for months worked prior to the commencement date shall be
considered a pre- ommencement claim. Claims for salary and separation pay for
work performed after the commencement date shall be an administrative expense.
Section 57.Treatment of Contracts. - Unless cancelled by virtue of a final judgment
of a court of competent jurisdiction issued prior to the issuance of the
Commencement Order, or at anytime thereafter by the court before which the
rehabilitation proceedings are pending, all valid and subbsisting contracts of the
debtor with creditors and other third parties as at the commencement date shall
continue in force: Provided, That within ninety (90) days following the
commencement of proceedings, the debtor, with the consent of the rehabilitation
receiver, shall notify each contractual counter-party of whether it is confirming the
particular contract. Contractual obligations of the debtor arising or performed
during this period, and afterwards for confirmed contracts, shall be considered
administrative expenses. Contracts not confirmed within the required deadline shall
be considered terminated. Claims for actual damages, if any, arising as a result of
the election to terminate a contract shall be considered a pre-commencement claim
against the debtor. Nothing contained herein shall prevent the cancellation or
termination of any contract of the debtor for any ground provided by law.
(G) Avoidance Proceedings.
Section 58.Rescission or Nullity of Certain Pre-commencement Transactions. Any
transaction occurring prior to commencement date entered into by the debtor or
involving its funds or assets may be rescinded or declared null and void on the
ground that the same was executed with intent to defraud a creditor or creditors or
which constitute undue preference of creditors. Without limiting the generality of
the foregoing, a disputable presumption of such design shall arise if the transaction:
(a) provides unreasonably inadequate consideration to the debtor and is
executed within ninety (90) days prior to the commencement date;
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(b) involves an accelerated payment of a claim to a creditor within ninety
(90) days prior to the commencement date;
(c) provides security or additional security executed within ninety (90) days
prior to the commencement date;
(d) involves creditors, where a creditor obtained, or received the benefit of,
more than its pro rata share in the assets of the debtor, executed at a time
when the debtor was insolvent; or
(e) is intended to defeat, delay or hinder the ability of the creditors to
collect claims where the effect of the transaction is to put assets of the
debtor beyond the reach of creditors or to otherwise prejudice the interests
of creditors.
Provided, however, That nothing in this section shall prevent the court from
rescinding or declaring as null and void a transaction on other grounds provided by
relevant legislation and jurisprudence: Provided, further, That the provisions of the
Civil Code on rescission shall in any case apply to these transactions.
Section 59.Actions for Rescission or Nullity. - (a) The rehabilitation receiver or, with
his conformity, any creditor may initiate and prosecute any action to rescind, or
declare null and void any transaction described in Section 58 hereof. If the
rehabilitation receiver does not consent to the filing or prosecution of such action,
(b) If leave of court is granted under subsection (a), the rehabilitation receiver shall
assign and transfer to the creditor all rights, title and interest in the chose in action
or subject matter of the proceeding, including any document in support thereof.
(c) Any benefit derived from a proceeding taken pursuant to subsection (a), to the
extent of his claim and the costs, belongs exclusively to the creditor instituting the
proceeding, and the surplus, if any, belongs to the estate.
Nigel Carmelo Q. Reago 390

(d) Where, before an order is made under subsection (a), the rehabilitation receiver
(or liquidator) signifies to the court his readiness to institute the proceeding for the
benefit of the creditors, the order shall fix the time within which he shall do so and,
m that case, the benefit derived from the proceeding, if instituted within the time
limits so fixed, belongs to the estate.
(H) Treatment of Secured Creditors.
Section 60.No Diminution of Secured Creditor Rights. The issuance of the
Commencement Order and the Suspension or Stay Order, and any other provision of
this Act, shall not be
deemed in any way to diminish or impair the security or lien of a secured creditor,
or the value of his lien or security, except that his right to enforce said security or
lien may be suspended during the term of the Stay Order.
The court, upon motion or recommendation of the rehabilitation receiver, may
allow a secured creditor to enforce his security or lien, or foreclose upon property of
the debtor
securing his/its claim, if the said property is not necessary for the rehabilitation of
the debtor. The secured creditor and/or the other lien holders shall be admitted to
the rehabilitation proceedings only for the balance of his claim, if any.
Section 61.Lack of Adequate Protection. - The court, on motion or motu
proprio, may terminate, modify or set conditions for the continuance of suspension
of payment, or relieve a claim from the coverage thereof, upon showing that: (a) a
creditor does not have adequate protection over property securing its claim; or
(b) the value of a claim secured by a lien on property which is not necessary for
rehabilitation of the debtor exceeds the fair market value of the said property.
For purposes of this section, a creditor shall be deemed to lack adequate protection
if it can be shown that:
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(a) the debtor fails or refuses to honor a pre-existing agreement with the
creditor to keep the property insured;
(b) the debtor fails or refuses to take commercially reasonable steps to
maintain the property; or
(c) the property has depreciated to an extent that the creditor is under
secured.
Upon showing of a lack of protection, the court shall order the debtor or the
rehabilitation receiver to make arrangements to provide for the insurance or
maintenance of the property; or to make payments or otherwise provide additional
or replacement security such that the obligation is fully secured. If such
arrangements are not feasible, the court may modify the Stay Order to allow the
secured creditor lacking adequate protection to enforce its security claim against
the debtor: Provided, however, That the court may deny the creditor the remedies
in this paragraph if the property subject of the enforcement is required for the
rehabilitation of the debtor.
(i) Administration of Proceedings.
Section 62.Contents of a Rehabilitation Plan. – The Rehabilitation Plan shall, as a
minimum:
(a) specify the underlying assumptions, the financial goals and the
procedures proposed to accomplish such goals;
(b) compare the amounts expected to be received by the creditors under
the Rehabilitation Plan with those that they will receive if liquidation ensues
within the next one hundred twenty (120) days;
(c) contain information sufficient to give the various classes of creditors a
reasonable basis for determining whether supporting the Plan is in their
financial interest when compared to the immediate liquidation of the
Nigel Carmelo Q. Reago 391

debtor, including any reduction of principal interest and penalties payable
to the creditors;
(d) establish classes of voting creditors;
(e) establish subclasses of voting creditors if prior approval has been
granted by the court;
(f) indicate how the insolvent debtor will be rehabilitated including, but not
limited to, debt forgiveness, debt rescheduling, reorganization or quasi-
reorganization. dacion en pago, debt-equity conversion and sale of the
business (or parts of it) as a going concern, or setting-up of a new business
entity or other similar arrangements as may be necessary to restore the
financial well-being and visibility of the insolvent debtor;
(g) specify the treatment of each class or subclass described in subsections
(d) and (e);
(h) provide for equal treatment of all claims within the same class or
subclass, unless a particular creditor voluntarily agrees to less favorable
treatment;
(i) ensure that the payments made under the plan follow the priority
established under the provisions of the Civil Code on concurrence and
preference of credits and other applicable laws;
(j) maintain the security interest of secured creditors and preserve the
liquidation value of the security unless such has been waived or modified
voluntarily;
(k) disclose all payments to creditors for pre-commencement debts made
during the proceedings and the justifications thereof;
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(1) describe the disputed claims and the provisioning of funds to account for
appropriate payments should the claim be ruled valid or its amount
adjusted;
(m) identify the debtor's role in the implementation of the Plan;
(n) state any rehabilitation covenants of the debtor, the breach of which
shall be considered a material breach of the Plan;
(o) identify those responsible for the future management of the debtor and
the supervision and implementation of the Plan, their affiliation with the
debtor and their remuneration;
(p) address the treatment of claims arising after the confirmation of the
Rehabilitation Plan;
(q) require the debtor and its counter-parties to adhere to the terms of all
contracts that the debtor has chosen to confirm;
(r) arrange for the payment of all outstanding administrative expenses as a
condition to the Plan's approval unless such condition has been waived in
writing by the creditors concerned;
(s) arrange for the payment" of all outstanding taxes and assessments, or an
adjusted amount pursuant to a compromise settlement with the BlR Or
other applicable tax authorities;
(t) include a certified copy of a certificate of tax clearance or evidence of a
compromise settlement with the BIR;
(u) include a valid and binding r(,solution of a meeting of the debtor's
stockholders to increase the shares by the required amount in cases where
the Plan contemplates an additional issuance of shares by the debtor;
Nigel Carmelo Q. Reago 392

(v) state the compensation and status, if any, of the rehabilitation receiver
after the approval of the Plan; and
(w) contain provisions for conciliation and/or mediation as a prerequisite to
court assistance or intervention in the event of any disagreement in the
interpretation or implementation of the Rehabilitation Plan.
Section 63.Consultation with Debtor and Creditors. – if the court gives due course to
the petition, the rehabilitation receiver shall confer with the debtor and all the
classes of creditors, and may consider their views and proposals ill the review,
revision or preparation of a new Rehabilitation Plan.
Section 64.Creditor Approval of Rehabilitation Plan. – The rehabilitation receiver
shall notify the creditors and stakeholders that the Plan is ready for their
examination. Within twenty (2Q) days from the said notification, the rehabilitation
receiver shall convene the creditors, either as a whole or per class, for purposes of
voting on the approval of the Plan. The Plan shall be deemed rejected unless
approved by all classes of creditors w hose rights are adversely modified or affected
by the Plan. For purposes of this section, the Plan is deemed to have been approved
by a class of creditors if members of the said class holding more than fifty percent
(50%) of the total claims of the said class vote in favor of the Plan. The votes of the
creditors shall be based solely on the amount of their respective claims based on the
registry of claims submitted by the rehabilitation receiver pursuant to Section 44
hereof.
Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the
Rehabilitation Plan if all of the following circumstances are present:
(a)The Rehabilitation Plan complies with the requirements specified in this
Act.
(b) The rehabilitation receiver recommends the confirmation of the
Rehabilitation Plan;
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(c) The shareholders, owners or partners of the juridical debtor lose at least
their controlling interest as a result of the Rehabilitation Plan; and
(d) The Rehabilitation Plan would likely provide the objecting class of
creditors with compensation which has a net present value greater than
that which they would have received if the debtor were under liquidation.
Section 65.Submission of Rehabilitation Plan to the Court. - 1fthe Rehabilitation Plan
is approved, the rehabilitation receiver shall submit the same to the court for
confirmation. Within five (5) days from receipt of the Rehabilitation Plan, the court
shall notify the creditors that the Rehabilitation Plan has been submitted for
confirmation, that any creditor may obtain copies of the Rehabilitation Plan and that
any creditor may file an objection thereto.
Section 66.Filing of Objections to Rehabilitation Plan. – A creditor may file an
objection to the Rehabilitation Plan within twenty (20) days from receipt of notice
from the court that the Rehabilitation Plan has been submitted for confirmation.
Objections to a Rehabilitation Plan shall be limited to the following:
(a) The creditors' support was induced by fraud;
(b)The documents or data relied upon in the Rehabilitation Plan are
materially false or misleading; or
(c)The Rehabilitation Plan is in fact not supported by the voting creditors.
Section 67.Hearing on the Objections. - If objections have been submitted during the
relevant period, the court shall issue an order setting the time and date for the
hearing or hearings on the objections.
If the court finds merit in the objection, it shall order the rehabilitation receiver or
other party to cure the defect, whenever feasible. If the court determines that the
debtor acted in bad faith, or that it is not feasible to cure the defect, the court shall
Nigel Carmelo Q. Reago 393

convert the proceedings into one for the liquidation of the debtor under Chapter V
of this Act.
Section 68.Confirmation of the Rehabilitation Plan. – If no objections are filed within
the relevant period or, if objections are filed, the court finds them lacking in merit,
or determines that the basis for the objection has been cured, or determines that
the debtor has complied with an order to cure the objection, the court shall issue an
order confirming the Rehabilitation Plan.
The court may confirm the Rehabilitation Plan notwithstanding unresolved disputes
over claims if the Rehabilitation Plan has made adequate provisions for paying such
claims.
For the avoidance of doubt, the provisions of other laws to the contrary
notwithstanding, the court shall have the power to approve or implement the
Rehabilitation Plan despite the lack of approval, or objection from the owners,
partners or stockholders of the insolvent debtor: Provided, That the terms thereof
are necessary to restore the financial well-being and viability of the insolvent
debtor.
Section 69.Effect of Confirmation of the Rehabilitation Plan, - The confirmation of
the Rehabilitation Plan by the court shall result in the following:
(a) The Rehabilitation Plan and its provisions shall be binding upon the
debtor and all persons who may be affected by . it, including the creditors,
whether or not such persons have participated in the proceedings or
opposed the Rehabilitation Plan or whether or not their claims have been
scheduled;
(b) The debtor shall comply with the provisions of the Rehabilitation 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 Rehabilitation Plan;
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(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 Rehabilitation Plan;
(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 implement; and
(f) Claims arising after approval of the Plan that are otherwise not treated by
the Plan are not subject to any Suspension Order.
The Order confirming the Plan shall comply with Rules 36 of the Rules of
Court: Provided, however, That the court may maintain jurisdiction over the case in
order to resolve claims against the debtor that remain contested and allegations
that the debtor has breached the Plan.
Section 70. Liability of General Partners of a Partnership for Unpaid Balances Under
an Approved Plan. - The approval of the Plan shall not affect the rights of creditors
to pursue actions against the general partners of a partnership to the extent they
are liable under relevant legislation for the debts thereof.
Section 71. Treatment of Amounts of Indebtedness or Obligations Forgiven or
Reduced. - Amounts of any indebtedness or obligations reduced or forgiven in
connection with a Plan's approval shall not be subject to any tax in furtherance of
the purposes of this Act.
Section 72. Period for Confirmation of the Rehabilitation Plan. - The court shall have
a maximum period of one (1) year from the date of the filing of the petition to
confirm a Rehabilitation Plan.
If no Rehabilitation Plan is confirmed within the said period, the proceedings may
upon motion or motu propio, be converted into one for the liquidation of the
debtor .
Nigel Carmelo Q. Reago 394

Section 73. Accounting Discharge of Rehabilitation Receiver. - Upon the
confirmation of the Rehabilitation Plan, the rehabilitation receiver shall provide a
final report and accounting to the court. Unless the Rehabilitation Plan specifically
requires and describes the role of the rehabilitation receiver after the approval of
the Rehabilitation Plan, the court shall discharge the rehabilitation receiver of his
duties.
(j) Termination of Proceedings
Section 74. Termination of Proceedings. - The rehabilitation proceedings under
Chapter II shall, upon motion by any stakeholder or the rehabilitation receiver be
terminated by order of the court either declaring a successful implementation of the
Rehabilitation Plan or a failure of rehabilitation.
There is failure of rehabilitation in the following cases:
(a) Dismissal of the petition by the court;
(b) The debtor fails to submit a Rehabilitation Plan;
(c) Under the Rehabilitation Plan submitted by the debtor, there is no
substantial likelihood that the debtor can be rehabilitated within a
reasonable period;
(d) The Rehabilitation Plan or its amendment is approved by the court but in
the implementation thereof, the debtor fails to perform its obligations
thereunder or there is a failure to realize the objectives, targets or goals set
forth therein, including the timelines and conditions for the settlement of
the obligations due to the creditors and other claimants;
(e) The commission of fraud in securing the approval of the Rehabilitation
Plan or its amendment; and
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(f) Other analogous circumstances as may be defined by the rules of
procedure.
Upon a breach of, or upon a failure of the Rehabilitation Plan the court, upon
motion by an affected party may:
(1) Issue an order directing that the breach be cured within a specified
period of time, falling which the proceedings may be converted to a
liquidation;
(2) Issue an order converting the proceedings to a liquidation;
(3) Allow the debtor or rehabilitation receiver to submit amendments to the
Rehabilitation Plan, the approval of which shall be governed by the same
requirements for the approval of a Rehabilitation Plan under this
subchapter;
(4) Issue any other order to remedy the breach consistent with the present
regulation, other applicable law and the best interests of the creditors; or
(5) Enforce the applicable provisions of the Rehabilitation Plan through a
writ of execution.
Section 75. Effects of Termination. - Termination of the proceedings shall result in
the following:
(a) The discharge of the rehabilitation receiver subject to his submission of a
final accounting; and
(b) The lifting of the Stay Order and any other court order holding in
abeyance any action for the enforcement of a claim against the debtor.
Provided, however, That if the termination of proceedings is due to failure of
rehabilitation or dismissal of the petition for reasons other than technical grounds,
Nigel Carmelo Q. Reago 395

the proceedings shall be immediately converted to liquidation as provided in Section
92 of this Act.
CHAPTER III
PRE-NEGOTIATED REHABILITATION
Section 76. Petition by Debtor. - An insolvent debtor, by itself or jointly with any of
its creditors, may file a verified petition with the court for the approval of a pre-
negotiated Rehabilitation Plan which has been endorsed or approved by 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. The petition shall include as a minimum:
(a) a schedule of the debtor's debts and liabilities;
(b) an inventory of the debtor's assets;
(c) the pre-negotiated Rehabilitation Plan, including the names of at least
three (3) qualified nominees for rehabilitation receiver; and
(d) a summary of disputed claims against the debtor and a report on the
provisioning of funds to account for appropriate payments should any such
claims be ruled valid or their amounts adjusted.
Section 77. Issuance of Order. - Within five (5) working days, and after
determination that the petition is sufficient in form and substance, the court shall
issue an Order which shall;
(a) identify the debtor, its principal business of activity/ies and its principal
place of business;
(b) declare that the debtor is under rehabilitation;
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(c) summarize the ground./s for the filling of the petition;
(d) direct the publication of the Order in a newspaper of general circulation
in the Philippines 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;
(e) direct the service by personal delivery of a copy of the petition on each
creditor who is not a petitioner holding at least ten percent (10%) of the
total liabilities of the debtor, as determined in the schedule attached to the
petition, within three (3) days;
(f) state that copies of the petition and the Rehabilitation Plan are available
for examination and copying by any interested party;
(g) state that creditors and other interested parties opposing the petition or
Rehabilitation Plan may file their objections or comments thereto within a
period of not later than twenty (20) days from the second publication of the
Order;
(h) appoint a rehabilitation receiver, if provided for in the Plan; and
(i) include a Suspension or Stay Order as described in this Act.
Section 78. Approval of the Plan. - Within ten (10) days from the date of the second
publication of the Order, the court shall approve the Rehabilitation Plan unless a
creditor or other interested party submits an objection to it in accordance with the
next succeeding section.
Section 79. Objection to the 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 not later than eight (8) days from the date of the second
publication of the Order mentioned in Section 77 hereof. The objections shall be
limited to the following:
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(a) The allegations in the petition or the Rehabilitation Plan or the
attachments thereto are materially false or misleading;
(b) The majority of any class of creditors do not in fact support the
Rehabilitation Plan;
(c) The Rehabilitation Plan fails to accurately account for a claim against the
debtor and the claim in not categorically declared as a contested claim; or
(d) The support of the creditors, or any of them was induced by fraud.
Copies of any objection to the petition of the Rehabilitation Plan shall be served on
the debtor, the rehabilitation receiver (if applicable), the secured creditor with the
largest claim and who supports the Rehabilitation Plan, and the unsecured creditor
with the largest claim and who supports the Rehabilitation Plan.
Section 80. Hearing on the Objections. - After receipt of an objection, the court shall
set the same for hearing. The date of the hearing shall be no earlier than twenty
(20) days and no later than thirty (30) days from the date of the second publication
of the Order mentioned in Section 77 hereof. If the court finds merit in the
objection, it shall direct the debtor, when feasible to cure the detect within a
reasonable period. If the court determines that the debtor or creditors supporting
the Rehabilitation Plan acted in bad faith, or that the objection is non-curable, the
court may order the conversion of the proceedings into liquidation. A finding by the
court that the objection has no substantial merit, or that the same has been cured
shall be deemed an approval of the Rehabilitation Plan.
Section 81. Period for Approval of Rehabilitation Plan. - The court shall have a
maximum period of one hundred twenty (120) days from the date of the filing of the
petition to approve the Rehabilitation Plan. If the court fails to act within the said
period, the Rehabilitation Plan shall be deemed approved.
Section 82. Effect of Approval. - Approval of a Plan under this chapter shall have the
same legal effect as confirmation of a Plan under Chapter II of this Act.
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CHAPTER IV
OUT-OF-COURT OR INFORMAL RESTRUCTURING AGREEMENTS OR
REHABILITATION PLANS
Section 83. Out-of-Court or Informal Restructuring Agreements and Rehabilitation
Plans. - An out-of-curt or informal restructuring agreement or Rehabilitation Plan
that meets the minimum requirements prescribed in this chapter is hereby
recognized as consistent with the objectives of this Act.
Section 84. Minimum Requirements of Out-of-Court or Informal Restructuring
Agreements and Rehabilitation Plans.- For an out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan to qualify under this
chapter, it must meet the following minimum requirements:
(a) The debtor must agree to the out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan;
(b) It must be approved by creditors representing at least sixty-seven (67%)
of the secured obligations of the debtor;
(c) It must be approved by creditors representing at least seventy-five
percent (75%) of the unsecured obligations of the debtor; and
(d) It must be approved by creditors holding at least eighty-five percent
(85%) of the total liabilities, secured and unsecured, of the debtor.
Section 85. Standstill Period. - A standstill period that may be agreed upon by the
parties pending negotiation and finalization of the out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan contemplated herein shall
be effective and enforceable not only against the contracting parties but also
against the other creditors: Provided, That (a) such agreement is approved by
creditors representing more than fifty percent (50%) of the total liabilities of the
debtor; (b) notice thereof is publishing in a newspaper of general circulation in the
Philippines once a week for two (2) consecutive weeks; and (c) the standstill period
Nigel Carmelo Q. Reago 397

does not exceed one hundred twenty (120) days from the date of effectivity. The
notice must invite creditors to participate in the negotiation for out-of-court
rehabilitation or restructuring agreement and notify them that said agreement will
be binding on all creditors if the required majority votes prescribed in Section 84 of
this Act are met.
Section 86. Cram Down Effect. - A restructuring/workout agreement or
Rehabilitation Plan that is approved pursuant to an informal workout framework
referred to in this chapter shall have the same legal effect as confirmation of a Plan
under Section 69 hereof. The notice of the Rehabilitation Plan or restructuring
agreement or Plan shall be published once a week for at least three (3) consecutive
weeks in a newspaper of general circulation in the Philippines. The Rehabilitation
Plan or restructuring agreement shall take effect upon the lapse of fifteen (15) days
from the date of the last publication of the notice thereof.
Section 87. Amendment or Modification. - Any amendment of an out-of-court
restructuring/workout agreement or Rehabilitation Plan must be made in
accordance with the terms of the agreement and with due notice on all creditors.
Section 88. Effect of Court Action or Other Proceedings. - Any court action or other
proceedings arising from, or relating to, the out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan shall not stay its
implementation, unless the relevant party is able to secure a temporary restraining
order or injunctive relief from the Court of Appeals.
Section 89. Court Assistance. - The insolvent debtor and/or creditor may seek court
assistance for the execution or implementation of a Rehabilitation Plan under this
Chapter, under such rules of procedure as may be promulgated by the Supreme
Court.
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CHAPTER V
LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS
Section 90. Voluntary Liquidation. - An insolvent debtor may apply for liquidation by
filing a petition for liquidation with the court. The petition shall be verified, shall
establish the insolvency of the debtor and shall contain, whether as an attachment
or as part of the body of the petition;
(a) a schedule of the debtor's debts and liabilities including a list of creditors
with their addresses, amounts of claims and collaterals, or securities, if any;
(b) an inventory of all its assets including receivables and claims against
third parties; and
(c) the names of at least three (3) nominees to the position of liquidator.
At any time during the pendency of court-supervised or pre-negotiated
rehabilitation proceedings, the debtor may also initiate liquidation proceedings by
filing a motion in the same court where the rehabilitation proceedings are pending
to convert the rehabilitation proceedings into liquidation proceedings. The motion
shall be verified, shall contain or set forth the same matters required in the
preceding paragraph, and state that the debtor is seeking immediate dissolution and
termination of its corporate existence.
If the petition or the motion, as the case may be, is sufficient in form and substance,
the court shall issue a Liquidation Order mentioned in Section 112 hereof.
Section 91. Involuntary Liquidation. - Three (3) or more creditors the aggregate of
whose claims is at least either One million pesos (Php1,000,000,00) or at least
twenty-five percent (25%0 of the subscribed capital stock or partner's contributions
of the debtor, whichever is higher, may apply for and seek the liquidation of an
insolvent debtor by filing a petition for liquidation of the debtor with the court. The
petition shall show that:
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(a) there is no genuine issue of fact or law on the claims/s of the
petitioner/s, and that the due and demandable payments thereon have not
been made for at least one hundred eighty (180) days or that the debtor has
failed generally to meet its liabilities as they fall due; and
(b) there is no substantial likelihood that the debtor may be rehabilitated.
At any time during the pendency of or after a rehabilitation court-supervised or pre-
negotiated rehabilitation proceedings, three (3) or more creditors whose claims is at
least either One million pesos (Php1,000,000.00) or at least twenty-five percent
(25%) of the subscribed capital or partner's contributions of the debtor, whichever is
higher, may also initiate liquidation proceedings by filing a motion in the same court
where the rehabilitation proceedings are pending to convert the rehabilitation
proceedings into liquidation proceedings. The motion shall be verified, shall contain
or set forth the same matters required in the preceding paragraph, and state that
the movants are seeking the immediate liquidation of the debtor.
If the petition or motion is sufficient in form and substance, the court shall issue an
Order:
(1) directing the publication of the petition or motion in a newspaper of
general circulation once a week for two (2) consecutive weeks; and
(2) directing the debtor and all creditors who are not the petitioners to file
their comment on the petition or motion within fifteen (15) days from the
date of last publication.
If, after considering the comments filed, the court determines that the petition or
motion is meritorious, it shall issue the Liquidation Order mentioned in Section 112
hereof.
Section 92. Conversion by the Court into Liquidation Proceedings. - During the
pendency of court-supervised or pre-negotiated rehabilitation proceedings, the
court may order the conversion of rehabilitation proceedings to liquidation
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proceedings pursuant to (a) Section 25(c) of this Act; or (b) Section 72 of this Act; or
(c) Section 75 of this Act; or (d) Section 90 of this Act; or at any other time upon the
recommendation of the rehabilitation receiver that the rehabilitation of the debtor
is not feasible. Thereupon, the court shall issue the Liquidation Order mentioned in
Section 112 hereof.
Section 93. Powers of the Securities and Exchange Commission (SEC). - The
provisions of this chapter shall not affect the regulatory powers of the SEC under
Section 6 of Presidential Decree No. 902-A, as amended, with respect to any
dissolution and liquidation proceeding initiated and heard before it.
CHAPTER VI
INSOLVENCY OF INDIVIDUAL DEBTORS
(A) Suspension of Payments.
Section 94. Petition. - An individual debtor who, possessing sufficient property to
cover all his debts but foreseeing the impossibility of meeting them when they
respectively fall due, may file a verified petition that he be declared in the state of
suspension of payments by the court of the province or city in which he has resides
for six (6) months prior to the filing of his petition. He shall attach to his petition, as
a minimum: (a) a schedule of debts and liabilities; (b) an inventory of assess; and (c)
a proposed agreement with his creditors.
Section 95. Action on the Petition. - If the court finds the petition sufficient in form
and substance, it shall, within five (5) working days from the filing of the petition,
issue an Order:
(a) calling a meeting of all the creditors named in the schedule of debts and
liabilities at such time not less than fifteen (15) days nor more than forty
(40) days from the date of such Order and designating the date, time and
place of the meeting;
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(b) directing such creditors to prepare and present written evidence of their
claims before the scheduled creditors' meeting;
(c) directing the publication of the said order in a newspaper of general
circulation published in the province or city in which the petition is filed
once a week for two (2) consecutive weeks, with the first publication to be
made within seven (7) days from the time of the issuance of the Order;
(d) directing the clerk of court to cause the sending of a copy of the Order
by registered mail, postage prepaid, to all creditors named in the schedule
of debts and liabilities;
(e) forbidding the individual debtor from selling, transferring, encumbering
or disposing in any manner of his property, except those used in the
ordinary operations of commerce or of industry in which the petitioning
individual debtor is engaged so long as the proceedings relative to the
suspension of payments are pending;
(f) prohibiting the individual debtor from making any payment outside of
the necessary or legitimate expenses of his business or industry, so long as
the proceedings relative to the suspension of payments are pending; and
(g) appointing a commissioner to preside over the creditors' meeting.
Section 96. Actions Suspended. - Upon motion filed by the individual debtor, the
court may issue an order suspending any pending execution against the individual
debtor. Provide, That properties held as security by secured creditors shall not be
the subject of such suspension order. The suspension order shall lapse when three
(3) months shall have passed without the proposed agreement being accepted by
the creditors or as soon as such agreement is denied.
No creditor shall sue or institute proceedings to collect his claim from the debtor
from the time of the filing of the petition for suspension of payments and for as long
as proceedings remain pending except:
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(a) those creditors having claims for personal labor, maintenance, expense
of last illness and funeral of the wife or children of the debtor incurred in
the sixty (60) days immediately prior to the filing of the petition; and
(b) secured creditors.
Section 97. Creditors' Meeting. - The presence of creditors holding claims amounting
to at least three-fifths (3/5) of the liabilities shall be necessary for holding a meeting.
The commissioner appointed by the court shall preside over the meeting and the
clerk of court shall act as the secretary thereof, subject to the following rules:
(a) The clerk shall record the creditors present and amount of their
respective claims;
(b) The commissioner shall examine the written evidence of the claims. If
the creditors present hold at least three-fifths (3/5) of the liabilities of the
individual debtor, the commissioner shall declare the meeting open for
business;
(c) The creditors and individual debtor shall discuss the propositions in the
proposed agreement and put them to a vote;
(d) To form a majority, it is necessary:
(1) that two-thirds (2/3) of the creditors voting unite upon the same
proposition; and
(2) that the claims represented by said majority vote amount to at
least three-fifths (3/5) of the total liabilities of the debtor
mentioned in the petition; and
(e) After the result of the voting has been announced, all protests made
against the majority vote shall be drawn up, and the commissioner and the
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individual debtor together with all creditors taking part in the voting shall
sign the affirmed propositions.
No creditor who incurred his credit within ninety (90) days prior to the filing of the
petition shall be entitled to vote.
Section 98. Persons Who May Refrain From Voting. - Creditors who are unaffected
by the Suspension Order may refrain from attending the meeting and from voting
therein. Such persons shall not be bound by any agreement determined upon at
such meeting, but if they should join in the voting they shall be bound in the same
manner as are the other creditors.
Section 99. Rejection of the Proposed Agreement. - The proposed agreement shall
be deemed rejected if the number of creditors required for holding a meeting do
not attend thereat, or if the two (2) majorities mentioned in Section 97 hereof are
not in favor thereof. In such instances, the proceeding shall be terminated without
recourse and the parties concerned shall be at liberty to enforce the rights which
may correspond to them.
Section 100. Objections. - If the proposal of the individual debtor, or any
amendment thereof made during the creditors' meeting, is approved by the
majority of creditors in accordance with Section 97 hereof, any creditor who
attended the meeting and who dissented from and protested against the vote of the
majority may file an objection with the court within ten (10) days from the date of
the last creditors' meeting. The causes for which objection may be made to the
decision made by the majority during the meeting shall be: (a) defects in the call for
the meeting, in the holding thereof and in the deliberations had thereat which
prejudice the rights of the creditors; (b) fraudulent connivance between one or
more creditors and the individual debtor to vote in favor of the proposed
agreement; or (c) fraudulent conveyance of claims for the purpose of obtaining a
majority. The court shall hear and pass upon such objection as soon as possible and
in a summary manner.
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In case the decision of the majority of creditors to approve the individual debtor's
proposal or any amendment thereof made during the creditors' meeting is annulled
by the court, the court shall declare the proceedings terminated and the creditors
shall be at liberty to exercise the rights which may correspond to them.
Section 101. Effects of Approval of Proposed Agreement. - If the decision of the
majority of the creditors to approve the proposed agreement or any amendment
thereof made during the creditors' meeting is uphold by the court, or when no
opposition or objection to said decision has been presented, the court shall order
that the agreement be carried out and all parties bound thereby to comply with its
terms.
The court may also issue all orders which may be necessary or proper to enforce the
agreement on motion of any affected party. The Order confirming the approval of
the proposed agreement or any amendment thereof made during the creditors'
meeting shall be binding upon all creditors whose claims are included in the
schedule of debts and liabilities submitted by the individual debtor and who were
properly summoned, but not upon: (a) those creditors having claims for personal
labor, maintenance, expenses of last illness and funeral of the wife or children of the
debtor incurred in the sixty (60) days immediately prior to the filing of the petition;
and (b) secured creditors who failed to attend the meeting or refrained from voting
therein.
Section 102. Failure of Individual Debtor to Perform Agreement. - If the individual
debtor fails, wholly or in part, to perform the agreement decided upon at the
meeting of the creditors, all the rights which the creditors had against the individual
debtor before the agreement shall revest in them. In such case the individual debtor
may be made subject to the insolvency proceedings in the manner established by
this Act.
(B) Voluntary Liquidation.
Section 103. Application. - An individual debtor whose properties are not sufficient
to cover his liabilities, and owing debts exceeding Five hundred thousand pesos
Nigel Carmelo Q. Reago 401

(Php500,000.00), may apply to be discharged from his debts and liabilities by filing a
verified petition with the court of the province or city in which he has resided for six
(6) months prior to the filing of such petition. He shall attach to his petition a
schedule of debts and liabilities and an inventory of assets. The filing of such
petition shall be an act of insolvency.
Section 104. Liquidation Order. - If the court finds the petition sufficient in form and
substance it shall, within five (5) working days issue the Liquidation Order
mentioned in Section 112 hereof.
(C) In voluntary Liquidation.
Section 105. Petition; Acts of Insolvency. - Any creditor or group of creditors with a
claim of, or with claims aggregating at least Five hundred thousand pesos (Php500,
000.00) may file a verified petition for liquidation with the court of the province or
city in which the individual debtor resides.
The following shall be considered acts of insolvency, and the petition for liquidation
shall set forth or allege at least one of such acts:
(a) That such person is about to depart or has departed from the Republic of
the Philippines, with intent to defraud his creditors;
(b) That being absent from the Republic of the Philippines, with intent to
defraud his creditors, he remains absent;
(c) That he conceals himself to avoid the service of legal process for the
purpose of hindering or delaying the liquidation or of defrauding his
creditors;
(d) That he conceals, or is removing, any of his property to avoid its being
attached or taken on legal process;
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(e) That he has suffered his property to remain under attachment or legal
process for three (3) days for the purpose of hindering or delaying the
liquidation or of defrauding his creditors;
(f) That he has confessed or offered to allow judgment in favor of any
creditor or claimant for the purpose of hindering or delaying the liquidation
or of defrauding any creditors or claimant;
(g) That he has willfully suffered judgment to be taken against him by
default for the purpose of hindering or delaying the liquidation or of
defrauding his creditors;
(h) That he has suffered or procured his property to be taken on legal
process with intent to give a preference to one or more of his creditors and
thereby hinder or delay the liquidation or defraud any one of his creditors;
(i) That he has made any assignment, gift, sale, conveyance or transfer of his
estate, property, rights or credits with intent to hinder or delay the
liquidation or defraud his creditors;
(j) That he has, in contemplation of insolvency, made any payment, gift,
grant, sale, conveyance or transfer of his estate, property, rights or credits;
(k) That being a merchant or tradesman, he has generally defaulted in the
payment of his current obligations for a period of thirty (30) days;
(l) That for a period of thirty (30) days, he has failed, after demand, to pay
any moneys deposited with him or received by him in a fiduciary; and
(m) That an execution having been issued against him on final judgment for
money, he shall have been found to be without sufficient property subject
to execution to satisfy the judgment.
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The petitioning creditor/s shall post a bond in such as the court shall direct,
conditioned that if the petition for liquidation is dismissed by the court, or
withdrawn by the petitioner, or if the debtor shall not be declared an insolvent the
petitioners will pay to the debtor all costs, expenses, damages occasioned by the
proceedings and attorney's fees.
Section 106. Order to Individual Debtor to Show Cause. - Upon the filing of such
creditors' petition, the court shall issue an Order requiring the individual debtor to
show cause, at a time and place to be fixed by the said court, why he should not be
adjudged an insolvent. Upon good cause shown, the court may issue an Order
forbidding the individual debtor from making payments of any of his debts, and
transferring any property belonging to him. However, nothing contained herein shall
affect or impair the rights of a secured creditor to enforce his lien in accordance
with its terms.
Section 107. Default. - If the individual debtor shall default or if, after trial, the
issues are found in favor of the petitioning creditors the court shall issue the
Liquidation Order mentioned in Section 112 hereof.
Section 108. Absent Individual Debtor. - In all cases where the individual debtor
resides out of the Republic of the Philippines; or has departed therefrom; or cannot,
after due diligence, be found therein; or conceals himself to avoid service of the
Order to show cause, or any other preliminary process or orders in the matter, then
the petitioning creditors, upon submitting the affidavits requisite to procedure an
Order of publication, and presenting a bond in double the amount of the aggregate
sum of their claims against the individual debtor, shall be entitled to an Order of the
court directing the sheriff of the province or city in which the matter is pending to
take into his custody a sufficient amount of property of the individual debtor to
satisfy the demands of the petitioning creditors and the costs of the proceedings.
Upon receiving such Order of the court to take into custody of the property of the
individual debtor, it shall be the duty of the sheriff to take possession of the
property and effects of the individual debtor, not exempt from execution, to an
extent sufficient to cover the amount provided for and to prepare within three (3)
days from the time of taking such possession, a complete inventory of all the
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property so taken, and to return it to the court as soon as completed. The time for
taking the inventory and making return thereof may be extended for good cause
shown to the court. The sheriff shall also prepare a schedule of the names and
residences of the creditors, and the amount due each, from the books of the debtor,
or from such other papers or data of the individual debtor available as may come to
his possession, and shall file such schedule or list of creditors and inventory with the
clerk of court.
Section 109. All Property Taken to be Held for All Creditors; Appeal Bonds;
Exemptions to Sureties. - In all cases where property is taken into custody by the
sheriff, if it does not embrace all the property and effects of the debtor not exempt
from execution, any other creditor or creditors of the individual debtor, upon giving
bond to be approved by the court in double the amount of their claims, singly or
jointly, shall be entitled to similar orders and to like action, by the sheriff; until all
claims be provided for, if there be sufficient property or effects. All property taken
into custody by the sheriff by virtue of the giving of any such bonds shall be held by
him for the benefit of all creditors of the individual debtor whose claims shall be
duly proved as provided in this Act. The bonds provided for in this section and the
preceding section to procure the order for custody of the property and effects of the
individual debtor shall be conditioned that if, upon final hearing of the petition in
insolvency, the court shall find in favor of the petitioners, such bonds and all of
them shall be void; if the decision be in favor of the individual debtor, the
proceedings shall be dismissed, and the individual debtor, his heirs, administrators,
executors or assigns shall be entitled to recover such sum of money as shall be
sufficient to cover the damages sustained by him, not to exceed the amount of the
respective bonds. Such damages shall be fixed and allowed by the court. If either the
petitioners or the debtor shall appeal from the decision of the court, upon final
hearing of the petition, the appellant shall be required to give bond to the successful
party in a sum double the amount of the value of the property in controversy, and
for the costs of the proceedings.
Any person interested in the estate may take exception to the sufficiency of the
sureties on such bond or bonds. When excepted to the petitioner's sureties, upon
notice to the person excepting of not less than two (2) nor more than five (5) days,
Nigel Carmelo Q. Reago 403

must justify as to their sufficiency; and upon failure to justify, or of others in their
place fail to justify at the time and place appointed the judge shall issue an Order
vacating the order to take the property of the individual debtor into the custody of
the sheriff, or denying the appeal, as the case may be.
Section 110. Sale Under Execution. - If, in any case, proper affidavits and bonds are
presented to the court or a judge thereof, asking for and obtaining an Order of
publication and an Order for the custody of the property of the individual debtor
and thereafter the petitioners shall make it appear satisfactorily to the court or a
judge thereof that the interest of the parties to the proceedings will be subserved by
a sale thereof, the court may order such property to be sold in the same manner as
property is sold under execution, the proceeds to de deposited in the court to abide
by the result of the proceedings.
CHAPTER VII
PROVISIONS COMMON TO LIQUIDATION IN INSOLVENCY OF INDIVIDUAL AND
JURIDICAL DEBTORS
Section 111. Use of Term Debtor. - For purposes of this chapter, the term debtor
shall include both individual debtor as defined in Section 4(o) and debtor as defined
in Section 4(k) of this Act.
(A) The Liquidation Order.
Section 112. Liquidation Order. - The Liquidation Order shall:
(a) declare the debtor insolvent;
(b) order the liquidation of the debtor and, in the case of a juridical debtor,
declare it as dissolved;
(c) order the sheriff to take possession and control of all the property of the
debtor, except those that may be exempt from execution;
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(d) order the publication of the petition or motion in a newspaper of general
circulation once a week for two (2) consecutive weeks;
(e) direct payments of any claims and conveyance of any property due the
debtor to the liquidator;
(f) prohibit payments by the debtor and the transfer of any property by the
debtor;
(g) direct all creditors to file their claims with the liquidator within the
period set by the rules of procedure;
(h) authorize the payment of administrative expenses as they become due;
(i) state that the debtor and creditors who are not petitioner/s may submit
the names of other nominees to the position of liquidator; and
(j) set the case for hearing for the election and appointment of the
liquidator, which date shall not be less than thirty (30) days nor more than
forty-five (45) days from the date of the last publication.
Section 113. Effects of the Liquidation Order. - Upon the issuance of the Liquidation
Order:
(a) the juridical debtor shall be deemed dissolved and its corporate or
juridical existence terminated;
(b) legal title to and control of all the assets of the debtor, except those that
may be exempt from execution, shall be deemed vested in the liquidator or,
pending his election or appointment, with the court;
(c) all contracts of the debtor shall be deemed terminated and/or breached,
unless the liquidator, within ninety (90) days from the date of his
assumption of office, declares otherwise and the contracting party agrees;
Nigel Carmelo Q. Reago 404

(d) no separate action for the collection of an unsecured claim shall be
allowed. Such actions already pending will be transferred to the Liquidator
for him to accept and settle or contest. If the liquidator contests or disputes
the claim, the court shall allow, hear and resolve such contest except when
the case is already on appeal. In such a case, the suit may proceed to
judgment, and any final and executor judgment therein for a claim against
the debtor shall be filed and allowed in court; and
(e) no foreclosure proceeding shall be allowed for a period of one hundred
eighty (180) days.
Section 114. Rights of Secured Creditors. - The Liquidation Order shall not affect the
right of a secured creditor to enforce his lien in accordance with the applicable
contract or law. A secured creditor may:
(a) waive his right under the security or lien, prove his claim in the
liquidation proceedings and share in the distribution of the assets of the
debtor; or
(b) maintain his rights under the security or lien:
If the secured creditor maintains his rights under the security or lien:
(1) the value of the property may be fixed in a manner agreed upon by the
creditor and the liquidator. When the value of the property is less than the
claim it secures, the liquidator may convey the property to the secured
creditor and the latter will be admitted in the liquidation proceedings as a
creditor for the balance. If its value exceeds the claim secured, the
liquidator may convey the property to the creditor and waive the debtor's
right of redemption upon receiving the excess from the creditor;
(2) the liquidator may sell the property and satisfy the secured creditor's
entire claim from the proceeds of the sale; or
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(3) the secure creditor may enforce the lien or foreclose on the property
pursuant to applicable laws.
(B) The Liquidator.
Section 115. Election of Liquidator. - Only creditors who have filed their claims
within the period set by the court, and whose claims are not barred by the statute
of limitations, will be allowed to vote in the election of the liquidator. A secured
creditor will not be allowed to vote, unless: (a) he waives his security or lien; or (b)
has the value of the property subject of his security or lien fixed by agreement with
the liquidator, and is admitted for the balance of his claim.
The creditors entitled to vote will elect the liquidator in open court. The nominee
receiving the highest number of votes cast in terms of amount of claims, ad who is
qualified pursuant to Section 118 hereof, shall be appointed as the liquidator.
Section 116. Court-Appointed Liquidator. - The court may appoint the liquidator if:
(a) on the date set for the election of the liquidator, the creditors do not
attend;
(b) the creditors who attend, fail or refuse to elect a liquidator;
(c) after being elected, the liquidator fails to qualify; or
(d) a vacancy occurs for any reason whatsoever, In any of the cases provided
herein, the court may instead set another hearing of the election of the
liquidator.
Provided further, That nothing in this section shall be construed to prevent a
rehabilitation receiver, who was administering the debtor prior to the
commencement of the liquidation, from being appointed as a liquidator.
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Section 117. Oath and Bond of the Liquidator. -Prior to entering upon his powers,
duties and responsibilities, the liquidator shall take an oath and file a bond, In such
amount to be fixed by the court, conditioned upon the proper and faithful discharge
of his powers, duties and responsibilities.
Section 118. Qualifications of the Liquidator. - The liquidator shall have the
qualifications enumerated in Section 29 hereof. He may be removed at any time by
the court for cause, either motu propio or upon motion of any creditor entitled to
vote for the election of the liquidator.
Section 119. Powers, Duties and Responsibilities of the Liquidator. - The liquidator
shall be deemed an officer of the court with the principal duly of preserving and
maximizing the value and recovering the assets of the debtor, with the end of
liquidating them and discharging to the extent possible all the claims against the
debtor. The powers, duties and responsibilities of the liquidator shall include, but
not limited to:
(a) to sue and recover all the assets, debts and claims, belonging or due to
the debtor;
(b) to take possession of all the property of the debtor except property
exempt by law from execution;
(c) to sell, with the approval of the court, any property of the debtor which
has come into his possession or control;
(d) to redeem all mortgages and pledges, and so satisfy any judgement
which may be an encumbrance on any property sold by him;
(e) to settle all accounts between the debtor and his creditors, subject to
the approval of the court;
(f) to recover any property or its value, fraudulently conveyed by the debtor;
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(g) to recommend to the court the creation of a creditors' committee which
will assist him in the discharge of the functions and which shall have powers
as the court deems just, reasonable and necessary; and
(h) upon approval of the court, to engage such professional as may be
necessary and reasonable to assist him in the discharge of his duties.
In addition to the rights and duties of a rehabilitation receiver, the liquidator, shall
have the right and duty to take all reasonable steps to manage and dispose of the
debtor's assets with a view towards maximizing the proceedings therefrom, to pay
creditors and stockholders, and to terminate the debtor's legal existence. Other
duties of the liquidator in accordance with this section may be established by
procedural rules.
A liquidator shall be subject to removal pursuant to procedures for removing a
rehabilitation receiver.
Section 120. Compensation of the Liquidator. - The liquidator and the persons and
entities engaged or employed by him to assist in the discharge of his powers and
duties shall be entitled to such reasonable compensation as may determined by the
liquidation court, which shall not exceed the maximum amount as may be
prescribed by the Supreme Court.
Section 121. Reporting Requiremen5ts. - The liquidator shall make and keep a
record of all moneys received and all disbursements mad by him or under his
authority as liquidator. He shall render a quarterly report thereof to the court ,
which report shall be made available to all interested parties. The liquidator shall
also submit such reports as may be required by the court from time to time as well
as a final report at the end of the liquidation proceedings.
Section 122. Discharge of Liquidator. - In preparation for the final settlement of all
the claims against the debtor , the liquidator will notify all the creditors, either by
publication in a newspaper of general circulation or such other mode as the court
may direct or allow, that will apply with the court for the settlement of his account
Nigel Carmelo Q. Reago 406

and his discharge from liability as liquidator. The liquidator will file a final accounting
with the court, with proof of notice to all creditors. The accounting will be set for
hearing. If the court finds the same in order, the court will discharge the liquidator.
(C) Determination of Claims
Section 123. Registry of Claims. - Within twenty (20) days from his assumption into
office the liquidator shall prepare a preliminary registry of claims of secured and
unsecured creditors. Secured creditors who have waived their security or lien, or
have fixed the value of the property subject of their security or lien by agreement
with the liquidator and is admitted as a creditor for the balance , shall be considered
as unsecured creditors. The liquidator shall make the registry available for public
inspection and provide publication notice to creditors, individual debtors owner/s of
the sole proprietorship-debtor, the partners of the partnership-debtor and
shareholders or members of the corporation-debtor, on where and when they may
inspect it. All claims must be duly proven before being paid.
Section 124. Right of Set-off. - If the debtor and creditor are mutually debtor and
creditor of each other one debt shall be set off against the other, and only the
balance, if any shall be allowed in the liquidation proceedings.
Section 125. - Opposition or Challenge to Claims. - Within thirty (30 ) days from the
expiration of the period for filing of applications for recognition of claims, creditors,
individual debtors, owner/s of the sole proprietorship-debtor, partners of the
partnership-debtor and shareholders or members of the corporation -debtor and
other interested parties may submit a challenge to claim or claims to the court,
serving a certified copy on the liquidator and the creditor holding the challenged
claim. Upon the expiration of the (30) day period, the rehabilitation receiver shall
submit to the court the registry of claims containing the undisputed claims that have
not been subject to challenge. Such claims shall become final upon the filling of the
register and may be subsequently set aside only on grounds or fraud, accident,
mistake or inexcusable neglect.
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Section 126. Submission of Disputed to the Court. - The liquidator shall resolve
disputed claims and submit his findings thereon to the court for final approval. The
liquidator may disallow claims.
(D) Avoidance Proceedings.
Section 127. Rescission or Nullity of Certain Transactions. - Any transaction occurring
prior to the issuance of the Liquidation Order or, in case of the conversion of the
rehabilitation proceedings prior to the commencement date, entered into by the
debtor or involving its assets, may be rescinded or declared null and void on the
ground that the same was executed with intent to defraud a creditor or creditors or
which constitute undue preference of creditors. The presumptions set forth in
Section 58 hereof shall apply.
Section 128. Actions for Rescission or Nullity. - (a) The liquidator or, with his
conformity, a creditor may initiate and prosecute any action to rescind, or declare
null and void any transaction described in the immediately preceding paragraph. If
the liquidator does not consent to the filling or prosecution of such action, any
creditor may seek leave of the court to commence said action.
(b) if leave of court is granted under subsection (a) hereof, the liquidator
shall assign and transfer to the creditor all rights, title and interest in the
chose in action or subject matter of the proceeding, including any document
in support thereof.
(c) Any benefit derived from a proceeding taken pursuant to subsection (a)
hereof, to the extent of his claim and the costs, belongs exclusively to the
creditor instituting the proceeding, and the surplus, if any, belongs to the
estate.
(d) Where, before an orders is made under subsection (a) hereof, the
liquidator signifies to the court his readiness to the institute the proceeding
for the benefit of the creditors, the order shall fix the time within which he
Nigel Carmelo Q. Reago 407

shall do so and, in that case the benefit derived from the proceedings, if
instituted within the time limits so fixed, belongs to the estate.
(E) The Liquidation Plan.
Section 129. The Liquidation Plan. - Within three (3) months from his assumption
into office, the Liquidator shall submit a Liquidation Plan to the court. The
Liquidation Plan shall, as a minimum enumerate all the assets of the debtor and a
schedule of liquidation of the assets and payment of the claims.
Section 130. Exempt Property to be Set Apart. - It shall be the duty of the court,
upon petition and after hearing, to exempt and set apart, for the use and benefit of
the said insolvent, such real and personal property as is by law exempt from
execution, and also a homestead; but no such petition shall be heard as aforesaid
until it is first proved that notice of the hearing of the application therefor has been
duly given by the clerk, by causing such notice to be posted it at least three (3)
public places in the province or city at least ten (10) days prior to the time of such
hearing, which notice shall set forth the name of the said insolvent debtor, and the
time and place appointed for the hearing of such application, and shall briefly
indicate the homestead sought to be exempted or the property sought to be set
aside; and the decree must show that such proof was made to the satisfaction of the
court, and shall be conclusive evidence of that fact.
Section 131. Sale of Assets in Liquidation. - The liquidator may sell the
unencumbered assets of the debtor and convert the same into money. The sale shall
be made at public auction. However, a private sale may be allowed with the
approval of the court if; (a) the goods to be sold are of a perishable nature, or are
liable to quickly deteriorate in value, or are disproportionately expensive to keep or
maintain; or (b) the private sale is for the best interest of the debtor and his
creditors.
With the approval of the court, unencumbered property of the debtor may also be
conveyed to a creditor in satisfaction of his claim or part thereof.
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Section 132. manner of Implementing the Liquidation Plan. - The Liquidator shall
implement the Liquidation Plan as approved by the court. Payments shall be made
to the creditors only in accordance with the provisions of the Plan.
Section 133. Concurrence and Preference of Credits. - The Liquidation Plan and its
Implementation shall ensure that the concurrence and preference of credits as
enumerated in the Civil Code of the Philippines and other relevant laws shall be
observed, unless a preferred creditor voluntarily waives his preferred right. For
purposes of this chapter, credits for services rendered by employees or laborers to
the debtor shall enjoy first preference under Article 2244 of the Civil Code, unless
the claims constitute legal liens under Article 2241 and 2242 thereof.
Section 134. Order Removing the Debtor from the List of Registered Entitles at the
Securities and Exchange Commission. - Upon determining that the liquidation has
been completed according to this Act and applicable law, the court shall issue an
Order approving the report and ordering the SEC to remove the debtor from the
registry of legal entities.
Section 135. Termination of Proceedings. - Upon receipt of evidence showing that
the debtor has been removed from the registry of legal entities at the SEC. The court
shall issue an Order terminating the proceedings.
(F) Liquidation of a Securities Market Participant.
Section 136. Liquidation of a Securities Market Participant. - The foregoing
provisions of this chapter shall be without prejudice to the power of a regulatory
agency or self- regulatory organization to liquidate trade-related claims of clients or
customers of a securities market participant which, for purposes of investor
protection, are hereby deemed to have absolute priority over other claims of
whatever nature or kind insofar as trade-related assets are concerned.
For purposes of this section, trade -related assets include cash, securities, trading
right and other owned and used by the securities market participant in the ordinary
course of this business.
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CHAPTER VIII
PROCEEDINGS ANCILLARY TO OTHER INSOLVENCY OR REHABILITAION
PROCEEDINGS
(A) Banks and Other Financial Institutions Under Rehabilitation Receivership
Pursuant to a State-funded or State-mandated Insurance System.
Section 137. Provision of Assistance. - The court shall issue orders, adjudicate claims
and provide other relief necessary to assist in the liquidation of a financial under
rehabilitation receivership established by a state-funded or state-mandated
insurance system.
Section 138. Application of Relevant Legislation. - The liquidation of bank, financial
institutions, insurance companies and pre-need companies shall be determined by
relevant legislation. The provisions in this Act shall apply in a suppletory manner.
(B) Cross-Border Insolvency Proceedings.
Section 139. Adoption of Uncitral Model Law on Cross-Border Insolvency. - Subject
to the provision of Section 136 hereof and the rules of procedure that may be
adopted by the Supreme Court, the Model Law on Cross-Border Insolvency of the
United Nations Center for International Trade and Development is hereby adopted
as part of this Act.
Section 140. Initiation of Proceedings. - The court shall set a hearing in connection
with an insolvency or rehabilitation proceeding taking place in a foreign jurisdiction,
upon the submission of a petition by the representative of the foreign entity that is
the subject of the foreign proceeding.
Section 141. Provision of Relief. - The court may issue orders:
(a) suspending any action to enforce claims against the entity or otherwise
seize or foreclose on property of the foreign entity located in the
Philippines;
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(b) requiring the surrender property of the foreign entity to the foreign
representative; or
(c) providing other necessary relief.
Section 142. Factors in Granting Relief. - In determining whether to grant relief
under this subchapter, the court shall consider;
(a) the protection of creditors in the Philippines and the inconvenience in
pursuing their claim in a foreign proceeding;
(b) the just treatment of all creditors through resort to a unified insolvency
or rehabilitation proceedings;
(c) whether other jurisdictions have given recognition to the foreign
proceeding;
(d) the extent that the foreign proceeding recognizes the rights of creditors
and other interested parties in a manner substantially in accordance with
the manner prescribed in this Act; and
(e) the extent that the foreign proceeding has recognized and shown
deference to proceedings under this Act and previous legislation.
CHAPTER IX
FUNDS FOR REHABILITATION OF GOVERNMENT-OWNED AND CONTROLLED
CORPORATIONS
Section 143. Funds for Rehabilitation of Government -owned and Controlled
Corporations. - Public funds for the rehabilitation of government-owned and
controlled corporations shall be released only pursuant to an appropriation by
Congress and shall be supported by funds actually available as certified by the
National Treasurer.
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The Department of Finance, in collaboration with the Department of Budget and
Management, shall promulgate the rules for the use and release of said funds.
CHAPTER X
MISCELLANEOUS PROVISIOS
Section 144. Applicability of Provisions. - The provisions in Chapter II, insofar as they
are applicable, shall likewise apply to proceedings in Chapters II and IV.
Section 145. Penalties. - An owner, partner, director, officer or other employee of
the debtor who commits any one of the following acts shall, upon conviction
thereof, be punished by a fine of not more than One million pesos (Php 1,
000,000.00) and imprisonment for not less than three(3) months nor more than five
(5) years for each offense;
Section 146. Application to Pending Insolvency, Suspension of Payments and
Rehabilitation Cases. - This Act shall govern all petitions filed after it has taken
effect. All further proceedings in insolvency, suspension of payments and
rehabilitation cases then pending, except to the extent that in opinion of the court
their application would not be feasible or would work injustice, in which event the
procedures set forth in prior laws and regulations shall apply.
Section 147. Application to Pending Contracts. - This Act shall apply to all contracts
of the debtor regardless of the date of perfection.
Section 148. Repeating Clause. - The Insolvency Law (Act No. 1956). As amended is
hereby repealed. All other laws, orders, rules and regulations or parts thereof
inconsistent with any provision of this Act are hereby repealed or modified
accordingly.

(a) if he shall, having notice of the commencement of the proceedings, or Section 149. Separability Clause. - If any provision of this Act shall be held invalid,
having reason to believe that proceedings are about to be commented, or in the remainder of this Act not otherwise affected shall remain in full force effect
contemplation of the proceedings hide or conceal, or destroy or cause to be
destroyed or hidden any property belonging to the debtor or if he shall hide, Section 150. Effectivity Clause. - This Act shall take effect fifteen (15) days after its
destroy, after mutilate or falsify, or cause to be hidden, destroyed, altered, complete publication in the Official Gazette or in at least two (2) national newspaper
mutilated or falsified, any book, deed, document or writing relating thereto; of general circulation.
if he shall, with intent to defraud the creditors of the debtor, make any
payment sale, assignment, transfer or conveyance of any property
belongings to the debtor

(b) if he shall, having knowledge belief of any person having proved a false
or fictitious claim against the debtor, fail to disclose the same to the
rehabilitation receiver of liquidator within one (1) month after coming to
said knowledge or belief; or if he shall attempt to account for any of the
debtors property by fictitious losses or expense; or

(c) if he shall knowingly violate a prohibition or knowingly fail to undertake

an obligation established by this Act.

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