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l. BULK SALES LAW
Act 3952 (1932), as amended by RA
111 (1947)
1.1. Topics
A. Purpose
To prevent the defraudng of credtors by the
secret sae or dsposa or mortgage n buk of a
or substantay a of merchants stock of goods
n buk
B. Types of Saes n Buk
Sec. Z
1) Any sae, transfer, mortgage or assgnment
of a stock of goods, wares, merchandse,
provsons, or materas otherwise than in the
ordinary course of trade and the reguar
prosecuton of the busness of the vendor,
mortgagor, transferor, or assgnor; or
2) sae, transfer, mortgage or assgnment of all,
or substantially all, of the business or
trade theretofore conducted by the vendor,
mortgagor, transferor, or assgnor, or
3) of a, or substantay a, of the fixtures
and equipment used n and about the
busness of the vendor, mortgagor, transferor,
or assgnor, sha be deemed to be a sae and
transfer n buk, n contempaton of ths Act:
C. Dutes of Person Seng n Buk
Sec 3, 4, 5 and 9
1) Dever a sworn wrtten statement of the
names and addresses of a credtors to whom
the vendor or mortgagor may be ndebted,
ndcatng the amount of ndebtedness due or
owng, or to become due or owng (Sec. 3);
2) To appy the proceeds of the sae or
mortgage pro-rata to credtors (Sec. 4);
3) At east 10 days before
sae/transfer/executon of mortgage, make
detaed nventory and to preserve the same
showng the quantty and, to the extent
possbe, the cost prce to the vendor, etc. of
each artce to be ncuded n the sae, etc. (Sec.
5);
4) Gve notce to every credtor at east 10 days
before the sae or transfer (Sec. 5);
5) Regstraton of the documents n Bureau of
Trade Reguaton and Consumer Protecton
(Sec. 9).
D. When Law not Appcabe
1) A credtors gve wrtten waver (Sec. 2);
2) |udca saes (Sec. 8)
E. Consequences of non-compance wth dutes
From San Beda reviewer
1. Between the partes Vad contract
2. Between persons
other than the credtor
Vad contract
3. As to effected
credtors of the
seer/mortgagor
Vod contract
F. Interpretaton of Statute
The aw s pena n nature and n derogaton of
the rght to aenate property wthout
restrcton. Thus, ts provsons must be strcty
construed aganst the State and beray n
favor of the accused.
1.2 Case
Sae Of Foundry Shop Not Covered By BLS
PEOPLE V WONG SZU TUNG (1954)
The ob|ect of the sae - a foundry shop - s not
covered by the provsons of the Buk saes aw.
What was sod was the shop tsef, together wth
the goodw and credts, equpment, toos and
machnery thereof (ncudng a Dodge truck),
whch are not the stock of merchandse, goods,
wares, provsons or materas n buk referred
to n the aw. A foundry shop manufactures ron
works or processes or casts metas. It does not
se merchandse.
ll. GENERAL BONDED WAREHOUSE
ACT
Act 3893 (1931), as amended by RA
237 (1948)
2.1 Topics
A. Purpose
1) reguate the busness of recevng
commodtes for storage;
2) to protect persons who may want to ava of
the servces;
3) to encourage the estabshment of more
warehouses.
B. Busness of recevng commodty for storage
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Sec. Z
1) the warehouseman s obgated to return the
very same commodty devered to hm or to
pay ts vaue;
2) the commodty devered s to be med for
the owner thereof;
3) the commodty devered s commnged wth
the commodty beongng to other persons, and
the warehouseman s obgate to return
commodty of the same knd or to pay ts vaue.
C. Requrement of Lcense
Sec. 3
To acheve the purposes mentoned above, any
person who wants to engage n the busness of
recevng commodtes for storage s requred
by the Act to frst secure a cense therefore
from the DTI
D. Dutes of Bonded Warehouseman
1) nsure the commodty receved for storage
aganst fre (Sec. 6);
2) receve for storage any commodty of the
knd customary stored by hm n the
warehouse, so far as hs cense and the
capacty of hs warehouse w permt, wthout
makng any dscrmnaton between the persons
desrng to ava themseves of warehouse
factes (Sec. 8);
3) keep a compete record of a commodtes
receved by hm, of the recepts ssued
therefore, of the wthdrawas, of the qudaton,
and of a the recepts returned to and canceed
by hm (Sec. 9)
2.2 Cases
Recept of Paay for Mng
LlM]OCO V DlRECTOR OF COMMERCE
(1965)
FACTS: Pettoner and husband are owners of a
rce m. The ssue was whether of not the
Genera Bonded Warehouse Act s appcabe to
her busness. Pettoner argues that snce her
busness s the mng of paay, the devery
thereof to her s merey ncdenta to such
busness and does not consttute storage wthn
the meanng of the statute.
HELD: The Genera Bonded Warehouse Act s
appcabe. SEC 2 s too cear to permt of any
exercse n constructon or semantcs. It does
not stop at the bare use of the word "storage,"
but expressy provdes that any contract or
transacton wheren the paay devered s to be
med for and on account of the owner sha be
deemed ncuded n the busness of recevng
rce for storage for the purpose of the Act. In
other words, t s enough that the paay s
devered, even f ony to have t med. The
man ntenton of the awmaker s to gve
protecton to the owner of the commodty
aganst possbe abuses (and we mght add
neggence) of the person to whom the physca
contro of hs propertes s devered.
GOZALES V GO TlONG (1958)
FACTS: Pror to the ssuance of the cense to Go
Tong to operate as bonded warehouseman, he
had on severa occasons receved paay for
depost from pantff Gonzaes, totang 368
sacks, for whch he ssued .After he was
censed as bonded warehouseman, Go Tong
agan receved varous deveres of paay from
pantff, totang 492 sacks, for whch he ssued
the correspondng recepts, a the grand tota
of 860 sacks, vaued at P8,600 at the rate of
P10 per sack.
On or about March 15, 1953, pantff demanded
from Go Tong the vaue of hs deposts n the
amount of P8,600, but he was tod to return
after two days, whch he dd, but Go Tong
agan tod hm to come back. A few days ater,
the warehouse burned to the ground. When
pantff fed sut co cam hs osses, Go Tong
argued that the formers cam s governed by
the Cv Code and not by the Bonded
Warehouse Act (Act No. 3893, as amended by
Repubc Act No. 247), for the reason that, as
aready stated, what Go Tong ssued to pantff
were ordnary recepts, not the warehouse
recepts contempated by the Warehouse
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Recepts Law, and because the deposts of
paay of pantff were gratutous.
HELD: Bonded Warehouse Act appcabe. Act
No. 3893 as amended s a speca aw reguatng
the busness of recevng commodtes for
storage and defnng the rghts and obgatons
of a bonded warehouseman and those
transactng busness wth hm. Consequenty,
any depost made wth hm as a bonded
warehouseman must necessary be governed
by the provsons of Act No. 3893. The knd or
nature of the recepts ssued by hm for the
deposts s not very matera much ess
decsve. Though t s desrabe that recepts
ssued by a bonded warehouseman shoud
conform to the provsons of the Warehouse
Recepts Law, sad provsons n our opnon are
not mandatory and ndspensabe n the sense
that f they fe short of the requrements of the
Warehouse Recepts Act, then the commodtes
devered for storage become ordnary deposts
and w not be governed by the provsons of
the Bonded Warehouse Act. Under SEC 1 of the
Warehouse Recepts Act, one woud gather the
mpresson that the ssuance of a warehouse
recept n the form provded by t s merey
permssve and drectory and not obgatory.
lll. WAREHOUSE RECElPTS ACT
Act 2137 (1912)
3.1 Topics
A. Purpose
To prescrbe the rghts and dutes of a
warehouseman and to reguate the reatonshp
between a warehouseman and:
1) the depostor of goods;
2) hoder of a warehouse recept for the goods;
3) person awfuy entted to the possesson of
the goods; or
4) other persons.
B. Obgaton to ssue recept
Sec. Z
A warehouseman s requred to ssue a recept
for the commodty he receves for storage. No
form s prescrbed, but t shoud at east contan
the foowng nformaton:
1. Locaton of the warehouse
2. Date of Issue
3. Recept number
4. Language to ndcate f the recept were
negotabe or non-negotabe
5. Rate of storage charges
6. Descrpton of goods or packages contanng
them
7. Sgnature of the warehouseman or hs
agentLanguage ndcatng f the warehouseman
s an owner soey or |onty wth others, of the
goods deposted and
8. Statement of advances made by the
warehouseman for whch he cams a en
C. Degree of Care
Sec. 3
That degree of care whch a reasonaby carefu
man woud exercse n regard to smar goods
of hs own.
D. Knds or Recepts (Sec. 4-7)
1) Non-negotabe recept
a. one whch states that the goods receved by
the warehouseman w be devered to the
depostor or to any other specfed person
b. the word "non-negotabe" shoud be paced
pany upon ts face
2) Negotabe recept
a. One whch states that the goods receved by
the warehouseman w be devered to the
bearer or to the order of any person named n
such recept.
b. Can not be converted to non-negotabe
E. Obgaton to Dever Goods (Sec. 8-9)
1) Dever to whom - upon demand
a. Hoder of the recept for the goods
b. Depostor
2) The demand shoud be accompaned by:
a. An offer to satsfy the warehousemans en
b. An offer to surrender the recept f t s
negotabe
c. A readness and wngness to sgn an
acknowedgement, when the goods are
devered, that they have been devered f such
s requested by the warehouseman.
F. Labty for Msdevery or Converson (Sec.
10, 17-18)
1) Where a warehouseman devers the goods
to one who s not n fact awfuy entted to the
possesson of them
2) He woud aso be abe for msdevery even
f he devers to a person hodng a non-
negotabe recept or a negotabe recept, as
provded n SEC 9(b) or (c) of the Act, f pror to
such devery he had ether:
a. Been requested, by or on behaf of the
person awfuy entted to a rght of property or
possesson n the goods, not to make such
dever; or
b. Had nformaton that the devery about to be
made was to one not awfuy entted to the
possesson of the goods.
G. Rghts of Hoder of Recept Coverng Goods
vs. Owner of Goods
Not beng a negotabe nstrument (but a
Document of Tte), the hoder of the recept can
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ony acqure such rghts /tte to the goods as
the person negotatng the recept had. Thus, as
between the owner of the good, and a hoder of
the recept of the good whch was apparenty
stoen, the former has a better rght.
H. When negotabe recept not requred to be
surrendered (Sec. 9, 14 and 16)
1) Warehouseman s |ustfed n deverng
goods to the foowng persons (Sec. 9):
a. the person awfuy entted to the possesson
of the goods, or hs agent;
b. A person who s ether hmsef entted to
devery by the terms of a non-negotabe
recept ssued for the goods, or who has wrtten
authorty from the person so entted ether
ndorsed upon the recept or wrtten upon
another paper; or
c. A person n possesson of a negotabe recept
by the terms of whch the goods are deverabe
to hm or order, or to bearer, or whch has been
ndorsed to hm or n bank by the person to
whom devery was promsed by the terms of
the recept or by hs medate or mmedate
ndorser.
2) Where a negotabe recept has been ost or
destroyed (Sec. 14)
a. A court of competent |ursdcton may order
the devery of the goods upon:
. satsfactory proof of such oss or destructon
and
. upon the gvng of a bond wth suffcent
suretes to be approved by the court to protect
the warehouseman from any abty or expense
b. The court may aso n ts dscreton order the
payment of the warehouseman's reasonabe
costs and counse fees.
c. The devery of the goods under an order of
the court as provded n ths SEC, sha not
reeve the warehouseman from abty to a
person to whom the negotabe recept has
been or sha be negotated for vaue wthout
notce of the proceedngs or of the devery of
the goods.
3) Warehouseman cannot set up tte n hmsef
(Sec. 16)
a. No tte or rght to the possesson of the
goods, on the part of the warehouseman sha
excuse the warehouseman from abty for
refusng to dever the goods accordng to the
terms of the recept.
b. EXECEPT: such tte or rght s derved drecty
or ndrecty from a transfer made by the
depostor at the tme of or subsequent to the
depost for storage, or from the
warehouseman's en,
I. Commngng of Goods (Sec. 22-23)
1) A warehouseman must keep the goods of a
depostor separate from the goods of other
depostors, or from the goods of the same
depostor for whch a separate recept has been
ssued.
2) Ratonae: permt the nspecton and
redevery of the goods deposted at a tmes
3) EXCEPT:
a. The goods are fungbe, AND
b. The commngng s authorzed by agreement
or by custom.
|. Other Labtes of Warehouseman
1) Faure to mark a recept ntended to be non-
negotabe as "non-negotabe" (Sec. 7)
a. Because the hoder of the recept may treat
the same as negotabe.
2) Faure to take up and cance a negotabe
recept when goods are devered (Sec. 11)
a. The warehouseman sha be abe for faure
to dever the goods to any one who purchases
for vaue n good fath
. WON such purchaser acqured tte to the
recept before or after the devery of the goods
by the warehouseman.
. Sha be guty of a crme punshabe by fne
or mprsonment.
b. EXCEPT:
. Goods have been awfuy sod to satsfy a
warehousemans en.
. Goods have been awfuy sod or dsposed of
because of ther pershabe or hazardous
nature.
3) Faure to take up and cance a negotabe
recept or to pace upon t a statement of what
goods have been devered, when goods are
party devered (Sec. 12)
a. Same as #2.
4) For atered recepts
Knd of Ateraton Warehousemans
Labty
Immatera Labe accordng to the
terms of the recepts as
orgnay ssued
Authorzed Labe accordng to the
terms of the recepts as
authorzed
Unauthorzed but
wthout frauduent
ntent
Labe accordng to the
terms of the recepts as
they were before the
ateraton
Unauthorzed but
wth frauduent ntent
Labe accordng to the
terms of the recepts as
orgnay ssued, even
aganst: ) a purchaser
of the recept for vaue
wth notce of the
ateraton; 2) to the
person who made the
ateraton and to any
person who took t wth
notce of the ateraton.
However, n the atter
case, such matera and
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frauduent ateraton
sha excuse the
warehouseman from
any other abty to the
sad persons.
5) For non-exstence or msdescrpton of goods
(Sec. 20)
a. Labe for damages to hoder of a recept f at
tme of ts ssue, goods not yet exsted or by
faure of the goods to match descpton
b. EXCEPT:
. Statement of the marks or abes upon them
or upon the packages contanng them;
. Statement that the goods are of a certan
knd at that the packages contanng the goods
contan goods of a certan knds or by words of
smar mport
Eg: "receved box said to contain..." and not
"box contanng."
6) For commngng goods (Sec. 24)
a. Sha be abe severay to each depostor for
the care and redevery of the depostors share
of the mass of commnged goods to the same
extent and under the same crcumstances as f
the goods had been kept separate
7) For ssung recepts for goods not receved
(Sec. 50)
a. Sha be guty of a crme f he ssues a
recept for goods that have not actuay been
receved by hm or are not under hs actua
contro at the tme of the ssuance of the recept
8) For ssung recepts contanng fase
statements (Sec. 51)
a. Sha be guty of a crme f he frauduenty
ssues a recept for goods knowng that t
contans any fase statement
9) For ssung dupcate recepts not so marked
(Sec. 52)
a. Guty of crme f ssues a dupcate or
addtona negotabe recept for goods knowng
that a former negotabe recept for the same
goods or any part of them s outstandng and
uncanceed, wthout pany pacng upon the
face of the recept the word "dupcate"
b. EXCEPT: n the case of a ost or destroyed
recept after proceedngs as provded for n Sec.
14
10) For ssung recepts for the warehousemans
goods whch do not state that fact (Sec. 53)
a. Guty of a crme f he ssues a negotabe
recept for oods deposted wth or hed by hm
of whch he knows that he s the owner, soey
or |onty or n common wth others, f he fas to
state such ownershp n the recept
11) For devery of goods wthout obtanng
negotabe recept (sec. 54)
a. Guty of a crme f he devers gods our of hs
possesson knowng that a negotabe recept s
oustandng and canceed
b. EXCEPT:
. Goods have been awfuy sod to satsfy a
warehousemans en.
. Goods have been awfuy sod or dsposed of
because of ther pershabe or hazardous
nature.
. In the case of ost or destroyed recept after
proceedngs (Sec. 14)
K. Warehousemans Len (Sec. 27, 28, 29, and
31)
1) Defnton
a. A warehouseman has a en on the goods
deposted wth hm or on the proceeds thereof
n the hs hands for a awfu charges for
storage and preservaton of the goods, money
advanced by hm n reaton to such goods such
as the expenses of transportaton or abor, etc.
2) Aganst what property
a. A goods beongng to the person abe for
the charges
b. A goods beongng to others deposted by
the person abe for the charges who has been
entrusted wth the possesson of the goods and
coud have vady pedged the same
3) Lose Len
a. Warehouseman may ose en by:
. surrenderng the possesson of the goods
because t s possessory n nature
. refusng to dever the goods when a demand
s made wth whch he s bound to compy
4) Effect of sae to satsfy en
a. The warehouseman sha not, after the sae,
be abe for faure to dever the goods to the
depostor or owner of the goods or to the hoder
of the recept
3.2 Case
PNB V ]UDGE BENlTO C. SE, ]R. (1996)
FACTS: PNB fed for attachment of severa
quedans of sugar n the possesson of Noahs
Ark Sugar refnery. The sugar was securty for
oans of PNBs cents whch they faed to pay.
Noahs Ark camed that they were the owners
of the sugar.
HELD: Whe the PNB s entted to the stocks of
sugar as the endorsee of the quedans, devery
to t sha be effected ony upon payment of the
storage fees. Imperatve s the rght of the
warehouseman to demand payment of hs en
at ths |uncture, because, n accordance wth
SEC 29 of the Warehouse Recepts Law, the
warehouseman oses hs en upon goods by
surrenderng possesson thereof. In other words,
the en may be ost where the warehouseman
surrenders the possesson of the goods wthout
requrng payment of hs en, because a
warehousemans en s possessory n nature.
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SEC 14. Lost or destroyed recepts. - Where
a negotabe recept has been ost or destroyed,
a court of competent |ursdcton may order the
devery of the goods upon satsfactory proof of
such oss or destructon and upon the gvng of
a bond wth suffcent suretes to be approved
by the court to protect the warehouseman from
any abty or expense, whch he or any person
n|ured by such devery may ncur by reason of
the orgna recept remanng outstandng. The
court may aso n ts dscreton order the
payment of the warehouseman's reasonabe
costs and counse fees.
The devery of the goods under an order of the
court as provded n ths SEC, sha not reeve
the warehouseman from abty to a person to
whom the negotabe recept has been or sha
be negotated for vaue wthout notce of the
proceedngs or of the devery of the goods.
SEC 36. Effect of sae. - After goods have
been awfuy sod to satsfy a warehouseman's
en, or have been awfuy sod or dsposed of
because of ther pershabe or hazardous
nature, the warehouseman sha not thereafter
be abe for faure to dever the goods to the
depostor or owner of the goods or to a hoder
of the recept gven for the goods when they
were deposted, even f such recept be
negotabe.
lV. CHATTEL MORTGAGE LAW
Act 1508 (1906), n reaton to Artces
1484, 1485, 2140 and 2140 Cv Code
Act J508
Sec. 3 Chatte mortgage defned. - A chatte
mortgage s a condtona sae of persona
property as securty for the payment of a debt,
or the performance of some other obgaton
specfed theren, the condton beng that the
sae sha be vod upon the seer payng to the
purchaser a sum of money or dong some other
act named. If the condton s performed
accordng to ts terms the mortgage and sae
mmedatey become vod, and the mortgagee
s thereby dvested of hs tte.
Sec 4 Vadty. - A chatte mortgage sha not
be vad aganst any person except the
mortgagor, hs executors or admnstrators,
uness the possesson of the property s
devered to and retaned by the mortgagee or
uness the mortgage s recorded n the offce of
the regster of deeds of the provnce n whch
the mortgagor resdes at the tme of makng the
same, or, f he resdes wthout the Phppne
Isands, n the provnce n whch the property s
stuated: Provded, however, That f the
property s stuated n a dfferent provnce from
that n whch the mortgagor resdes, the
mortgage sha be recorded n the offce of the
regster of deeds of both the provnce n whch
the mortgagor resdes and that n whch the
property s stuated, and for the purposes of ths
Act the cty of Mana sha be deemed to be a
provnce.
Sec 5 Form. - A chatte mortgage sha be
deemed to be suffcent when made
substantay n accordance wth the foowng
form, and sha be sgned by the person or
persons executng the same, n the presence of
two wtnesses, who sha sgn the mortgage as
wtnesses to the executon thereof, and each
mortgagor and mortgagee, or, n the absence of
the mortgagee, hs agent or attorney, sha
make and subscrbe an affdavt n substance as
herenafter set forth, whch affdavt, sgned by
the partes to the mortgage as above stated,
and the certfcate of the oath sgned by the
authorty admnsterng the same, sha be
appended to such mortgage and recorded
therewth.
FORM OF CHATTEL MORTGAGE AND AFFIDAVIT.
"Ths mortgage made ths ____ day of
______19____ by _______________, a resdent of
the muncpaty of ______________, Provnce of
____________, Phppne Isands mortgagor, to
____________, a resdent of the muncpaty of
___________, Provnce of ______________,
Phppne Isands, mortgagee, wtnesseth:
"That the sad mortgagor hereby conveys and
mortgages to the sad mortgagee a of the
foowng-descrbed persona property stuated
n the muncpaty of ______________, Provnce of
____________ and now n the possesson of sad
mortgagor, to wt:
(Here nsert specfc descrpton of the property
mortgaged.)
"Ths mortgage s gven as securty for the
payment to the sad ______, mortgagee, of
promssory notes for the sum of ____________
pesos, wth (or wthout, as the case may be)
nterest thereon at the rate of ___________ per
centum per annum, accordng to the terms of
__________, certan promssory notes, dated
_________, and n the words and fgures foowng
(here nsert copy of the note or notes secured).
"(If the mortgage s gven for the performance
of some other obgaton asde from the
payment of promssory notes, descrbe correcty
but concsey the obgaton to be performed.)
"The condtons of ths obgaton are such that
f the mortgagor, hs hers, executors, or
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admnstrators sha we and truy perform the
fu obgaton (or obgatons) above stated
accordng to the terms thereof, then ths
obgaton sha be nu and vod.
"Executed at the muncpaty of _________, n
the Provnce of ________, ths _____ day of
19_____
____________________
(Sgnature of mortgagor.)
"In the presence of
"_________________
"_________________
(Two wtnesses sgn here.)
FORM OF OATH.
"We severay swear that the foregong
mortgage s made for the purpose of securng
the obgaton specfed n the condtons
thereof, and for no other purpose, and that the
same s a |ust and vad obgaton, and one not
entered nto for the purpose of fraud."
FORM OF CERTIFICATE OF OATH.
"At ___________, n the Provnce of _________,
personay appeared ____________, the partes
who sgned the foregong affdavt and made
oath to the truth thereof before me.
"_____________________________"
(Notary pubc, |ustce of the peace, 1 or other
offcer, as the case may be.)
Sec 6 Corporatons. - When a corporaton s a
party to such mortgage the affdavt requred
may be made and subscrbed by a drector,
trustee, casher, treasurer, or manager thereof,
or by a person authorzed on the part of such
corporaton to make or to receve such
mortgage. When a partnershp s a party to the
mortgage the affdavt may be made and
subscrbed by one member thereof.
Sec 7 Descrptons of property. - The
descrpton of the mortgaged property sha be
such as to enabe the partes to the mortgage,
or any other person, after reasonabe nqury
and nvestgaton, to dentfy the same.
If the property mortgaged be arge catte," as
defned by SEC one of Act Numbered Eeven
and forty-seven, 2 and the amendments
thereof, the descrpton of sad property n the
mortgage sha contan the brands, cass, sex,
age, knots of radated har commony known as
remonos, or cowcks, and other marks of
ownershp as descrbed and set forth n the
certfcate of ownershp of sad anma or
anmas, together wth the number and pace of
ssue of such certfcates of ownershp.
If growng crops be mortgaged the mortgage
may contan an agreement stpuatng that the
mortgagor bnds hmsef propery to tend, care
for and protect the crop whe growng, and
fathfuy and wthout deay to harvest the
same, and that n defaut of the performance of
such dutes the mortgage may enter upon the
premses, take a the necessary measures for
the protecton of sad crop, and retan
possesson thereof and se the same, and from
the proceeds of such sae pay a expenses
ncurred n carng for, harvestng, and seng
the crop and the amount of the ndebtedness or
obgaton secured by the mortgage, and the
surpus thereof, f any sha be pad to the
mortgagor or those entted to the same.
A chatte mortgage sha be deemed to cover
ony the property descrbed theren and not ke
or substtuted property thereafter acqured by
the mortgagor and paced n the same
depostory as the property orgnay
mortgaged, anythng n the mortgage to the
contrary notwthstandng.
Sec. 8 Faure of mortgagee to dscharge the
mortgage. - If the mortgagee, assgn,
admnstrator, executor, or ether of them, after
performance of the condton before or after the
breach thereof, or after tender of the
performance of the condton, at or after the
tme fxed for the performance, does not wthn
ten days after beng requested thereto by any
person entted to redeem, dscharge the
mortgage n the manner provded by aw, the
person entted to redeem may recover of the
person whose duty t s to dscharge the same
twenty pesos for hs negect and a damages
occasoned thereby n an acton n any court
havng |ursdcton of the sub|ect-matter
thereof.
Sec. J3 When the condton of a chatte
mortgage s broken, a mortgagor or person
hodng a subsequent mortgage, or a
subsequent attachng credtor may redeem the
same by payng or deverng to the mortgagee
the amount due on such mortgage and the
reasonabe costs and expenses ncurred by
such breach of condton before the sae
thereof. An attachng credtor who so redeems
sha be subrogated to the rghts of the
mortgagee and entted to forecose the
mortgage n the same manner that the
mortgagee coud forecose t by the terms of
ths Act.
Sec. J4 Sae of property at pubc aucton;
Offcer's return; Fees; Dsposton of proceeds.
- The mortgagee, hs executor, admnstrator,
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or assgn, may, after thrty days from the tme
of condton broken, cause the mortgaged
property, or any part thereof, to be sod at
pubc aucton by a pubc offcer at a pubc
pace n the muncpaty where the mortgagor
resdes, or where the property s stuated,
provded at east ten days' notce of the tme,
pace, and purpose of such sae has been
posted at two or more pubc paces n such
muncpaty, and the mortgagee, hs executor,
admnstrator, or assgn, sha notfy the
mortgagor or person hodng under hm and the
persons hodng subsequent mortgages of the
tme and pace of sae, ether by notce n
wrtng drected to hm or eft at hs abode, f
wthn the muncpaty, or sent by ma f he
does not resde n such muncpaty, at east
ten days prevous to the sae.
The offcer makng the sae sha, wthn thrty
days thereafter, make n wrtng a return of hs
dongs and fe the same n the offce of the
regster of deeds where the mortgage s
recorded, and the regster of deeds sha record
the same. The fees of the offcer for seng the
property sha be the same as n the case of
sae on executon as provded n Act Numbered
One hundred and nnety, 4 and the
amendments thereto, and the fees of the
regster of deeds for regsterng the offcer's
return sha be taxed as a part of the costs of
sae, whch the offcer sha pay to the regster
of deeds. The return sha partcuary descrbe
the artces sod, and state the amount receved
for each artce, and sha operate as a
dscharge of the en thereon created by the
mortgage. The proceeds of such sae sha be
apped to the payment, frst, of the costs and
expenses of keepng and sae, and then to the
payment of the demand or obgaton secured
by such mortgage, and the resdue sha be pad
to persons hodng subsequent mortgages n
ther order, and the baance, after payng the
mortgages, sha be pad to the mortgagor or
person hodng under hm on demand.
If the sae ncudes any "arge catte," a
certfcate of transfer as requred by SEC
sxteen of Act Numbered Eeven hundred and
forty-seven 5 sha be ssued by the treasurer of
the muncpaty where the sae was hed to the
purchaser thereof.
Art. J484. In a contract of sae of persona
property the prce of whch s payabe n
nstaments, the vendor may exercse any of
the foowng remedes:
(1) Exact fufment of the obgaton, shoud the
vendee fa to pay;
(2) Cance the sae, shoud the vendee's faure
to pay cover two or more nstaments;
(3) Forecose the chatte mortgage on the thng
sod, f one has been consttuted, shoud the
vendee's faure to pay cover two or more
nstaments. In ths case, he sha have no
further acton aganst the purchaser to recover
any unpad baance of the prce. Any agreement
to the contrary sha be vod. (1454-A-a)
Art. J485. The precedng artce sha be
apped to contracts purportng to be eases of
persona property wth opton to buy, when the
essor has deprved the essee of the possesson
or en|oyment of the thng. (1454-A-a)
Art. ZJ40. By a chatte mortgage, persona
property s recorded n the Chatte Mortgage
Regster as a securty for the performance of an
obgaton. If the movabe, nstead of beng
recorded, s devered to the credtor or a thrd
person, the contract s a pedge and not a
chatte mortgage. (n)
Art. ZJ4J. The provsons of ths Code on
pedge, nsofar as they are not n confct wth
the Chatte Mortgage Law sha be appcabe to
chatte mortgages. (n)
4.1 Topics
Essenta Requstes
1) That t be consttuted to secure the fufment
of a prncpa obgaton;
2) That the mortgagor be the absoute owner of
the thng mortgaged;
3) That the persons consttutng the mortgage
have the free dsposa of ther property or, n
the absence thereof, that they be egay
authorzed for the purpose; and
4) That the ob|ect be persona and movabe
property.
Forma Requrements
1) Sgned by the person executng the same n
the presence of two wtnesses;
2) Accompaned by an affdavt of good fath
and a certfcate of oath;
3) Mortgaged property must be descrbed n
such a manner as to enabe anybody readng
the document, after reasonabe nqury and
nvestgaton, to be abe to dentfy the same.
Regstraton: When And Where
When
No specfc tme s provded under the aw.
However, such regstraton must be made:
1) before the mortgagor has comped wth hs
prncpa obgaton; and
2) no rght of an nnocent thrd person s
pre|udced.
Where
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1) Where the mortgagor resdes n the
Phppnes, n hs pace of resdence;
2) Where the mortgagor resdes abroad, n the
pace where the property s stuated;
3) Where the mortgagor resdes n a pace
dfferent from where the property s stuated, n
the pace where the mortgagor resdes and
where the property s stuated, except where
the amount of the mortgage s more than
Php50,000 n whch case the regstraton of the
mortgage n the provnce where the property s
stuated sha be suffcent regstraton.
For motor vehces, the chatte mortgage must
aso be regstered wth the Land Transportaton
Offce to bnd thrd persons.
After-Acqured, Future Or Substtuted Property
Future or after-acqured property can be
sub|ect of a chatte mortgage f:
1) The propertes mortgaged are:
a. Pershabe; or
b. Sub|ect to nevtabe wear and tear; or
c. Intended to be sod or used but wth the
understandng that they woud be repaced wth
smar propertes to be thereafter acqured by
the mortgagor
2) In the case of other propertes, f the
ncuson of such future or after-acqured
propertes s expressy stpuated and a
suppement to the mortgage specfcay stng
and descrbng such property s executed and
regstered n the chatte mortgage regster.
Lke or substtuted property cannot be deemed
covered by a chatte mortgage, uness the
property s descrbed n a suppement to the
mortgage.
After-Incurred Obgaton
Whe a pedge, rea estate mortgage, or
antchress may exceptonay secure after-
ncurred obgatons so ong as these future
debts are accuratey descrbed, a chatte
mortgage, however, can ony cover obgatons
exstng at the tme the mortgage s
consttuted. Athough a promise expressed n a
chatte mortgage to ncude debts that are yet
to be contracted can be a bndng that can be
compeed upon, the securty tsef, however,
does not come nto exstence or arse unt after
a chatte amendng the od contract
conformaby wth the form prescrbed by the
Chatte Mortgage Law. Refusa on the part of
the borrower to execute the agreement so as to
cover the after-ncurred obgaton can
consttute an act of defaut on the part of the
borrower of the fnancng agreement whereon
the promse s wrtten but, of course, the
remedy of forecosure can ony cover the debts
extant at the tme of consttuton and durng the
fe of the chatte mortgage sought to be
forecosed.
One of the requstes of a chatte mortgage s
the executon of an affdavt of good fath,
whch requres an oath that the mortgage s for
the purpose of securng the obgaton specfed
n the condtons thereof, and for no other
purpose, and that the same s a |ust and vad
obgaton, and one not entered nto for the
purpose of fraud.
Ths requrement makes t obvous that the debt
referred to n the aw s a current, not an
obgaton that s yet merey contempated.
(Acme Shoe v CA)
Rght Of |unor Mortgagee
Art. J3
After a frst mortgage s executed, there
remans n the mortgagor a mere rght of
redempton and ony ths rght passes to the
second mortgagee by vrtue of the second
mortgage.
Forecosure Procedure
Art 14; SC Crcuar No. 7-2002, Dated |anuary
22, 2002
1) 30 days after the condton of a chatte
mortgage s broken, the mortgagee may cause
the mortgaged property or any part thereof to
be sod at pubc aucton by a pubc offcer at a
pubc pace n the muncpaty where the
mortgagor resdes or where the property s
stuated.
2) The appcaton for the forecosure of the
mortgage shoud be fed wth the Executve
|udge through the Cerk of Court.
3) After recept of the appcaton, the Cerk of
Court sha, among other dutes:
a. Raffe the appcaton among the Sherffs; and
b. Cause the postng of the notce of sae.
4) Notce of the tme, pace and purpose of such
sae must be posted, at east 10 days before the
date of sae, at 2 or more pubc paces n the
muncpaty where the mortgagor resdes or
where the property s stuated.
5) The mortgagee sha notfy the mortgagor
and the persons hodng subsequent mortgages
of the tme and pace of sae, at east 10 days
before the sae, ether by notce n wrtng
drected to hm or eft at hs abode, f wthn the
muncpaty, or sent by ma f he does not
resde n such muncpaty.
6) The offcer makng the sae sha, wthn 30
days thereafter, make n wrtng a return of hs
dongs and fe the same n the offce of the
regstry of deeds where the mortgage s
recorded, and the regstry of deeds sha record
the same. The return sha partcuary descrbe
the artces sod and state the amount receved
for each artce.
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Redempton
There s no rght of redempton n Chatte
Mortgage. There s ony an EOUITY of
REDEMPTION.
1) Perod wthn whch equty of redempton
may be exercsed.
From the date the condton of the Chatte
Mortgage s broken but BEFORE the forecosure
sae of the coatera thereof.
> The 30-day perod to forecose a Chatte
Mortgage s the mnmum perod after voaton
of the mortgage condton for the mortgage
credtor to cause the sae at pubc aucton of
the mortgaged chatte AND s a perod of grace
for the mortgagor to dscharge the mortgage
obgaton.
2) Amount to be pad.
a. The amount due on such mortgage; and
b. The costs and expenses ncurred by such
breach of condton before the sae thereof.
3) Persons entted to redeem.
a. Mortgagor;
b. A person hodng a subsequent mortgage;
c. A subsequent attachng credtor.
Cam For Defcency; Rue And Excepton
Rule: A chatte mortgagee may sue for a
defcency foowng forecosure.
Exception: n the case of persona property sod
n nstaments where the chatte
mortgagor/vendees faure to pay covers 2 or
more nstaments.
4.2 Cases
Chatte Mortgage On House Not Bndng On
Thrd Persons Not Partes To Contract
PlANSAY V DAVlD (1964)
FACTS: Conrado Davd receved a oan from
Cauda Vda. De Uy Km. In order to secure the
oan, he executed a chatte mortgage on a
house. The chatte mortgage was regstered
wth the Regster of Deeds. The mortgaged
house was sod to Cauda at a pubc aucton,
whch Cauda, n turn, sod to Savador Pansay.
Meanwhe, Marcos Mangubat fed a compant
aganst Conrado for coecton of a oan. Marcos
eved upon the house that was n possesson of
Savador, and at the same tme, demanded
payment of rentas from Savador.
ISSUE: WON the chatte mortgage consttuted n
favour of Cauda s vad
HELD: NO. Cauda had no rght to forecose the
chatte mortgage consttuted n her favor,
because t was n reaty a mere contract of an
unsecured oan. Therefore, the contract of sae
between Cauda and Savador was of no effect.
Regardess of the vadty of a contract
consttutng a chatte mortgage on a house, as
between the partes to sad contract, the same
cannot and does not bnd thrd persons, who
are not partes to the aforementoned contract
or ther prves. As a consequence, the sae of
the house s nu and vod nsofar s Marcos
Mangubat s concerned.
Chatte Mortgage Over House But On Another
Persons Land
TUMALAD V VlVENClO (1971)
FACTS: Pettoners executed a chatte
mortgage n favor of respondents over ther
house, whch s ocated n a and that s beng
rented by pettoners from Madrga & Company,
Inc. The mortgage was regstered n the
Regstry of Deeds and was executed to
guarantee a oan.
Snce the pettoners defauted on ther oan,
the mortgage was extra|udcay forecosed and
the house was sod to respondents at a pubc
aucton.
Respondents commenced a cv case n the
muncpa court, whch decded aganst the
pettoners and ordered the atter to vacate the
premses and to pay rent unt the premses s
competey vacated.
Pettoners argue that the chatte mortgage s
vod ab nto reyng on the foowng grounds:
1) That ther sgnatures on the chatte mortgage
was obtaned through fraud, decet or trckery;
and
2) That the sub|ect matter of the chatte
mortgage s a house, and beng an mmovabe,
t can ony be sub|ect of a rea estate mortgage
and not a chatte mortgage.
ISSUE: WON the chatte mortgage s vad
HELD: YES. That partes to a deed of chatte
mortgage may agree to consder a house as
persona property for the purposes of sad
contract s good ony nsofar as the contractng
partes are concerned. Ths s based party upon
the prncpe of estoppe.
In a case, the SC hed that a mortgaged house
but on a rented and was hed to be a persona
property, not ony because the deed of
mortgage consdered t as such, but aso
because t dd not form part of the and, for t
now setted that an ob|ect paced on and by
one who had ony a temporary rght to the
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same, does not become mmobzed by
attachment. Hence, f a house beongng to a
person stands on a rented and beongng to
another person, t may be mortgaged as a
persona property as so stpuated n the
document of mortgage. It shoud be noted,
however that the prncpe s predcated on
statements by the owner decarng hs house to
be a chatte, a conduct that may concevaby
estop hm from subsequenty camng
otherwse.
In the case at bar, the house on rented and s
expressy desgnated as chatte mortgage.
Athough there s no specfc statement
referrng to the sub|ect house as persona
property, yet by cedng, seng or transferrng a
property by way of chatte mortgage,
pettoners coud ony have meant to convey
the house as chatte, or at east, ntended to
treat the same as such, so that they shoud not
now be aowed to make an nconsstent stand
by camng otherwse.
Moreover, the sub|ect house stood on a rented
ot to whch pettoners merey ad a temporary
rght as essee, and athough ths cannot n
tsef determne the status of the property, t
does so when combned wth other factors to
sustan the nterpretaton that the partes,
partcuary the mortgagors, ntended to treat
the house as personaty.
Fnay, t s the pettoners themseves, as
debtor-mortgagors, who are attackng the
vadty of the chatte mortgage. The doctrne of
estoppes apped to pettoners.
Chatte Mortgage Over Machnery
MAKATl LEASlNG V WEAREVER TEXTlLE
MlLLS (1983)
FACTS: In order to obtan fnanca
accommodatons from pettoner Makat Leasng
and Fnance Corp., prvate respondent
Wearever Texte Ms, dscounted and assgned
severa recevabes wth the former. To secure
the coecton of the recevabes assgned,
prvate respondent executed a Chatte
Mortgage over certan raw materas nventory
as we as a machnery.
Upon prvate respondents defaut, pettoner
fed a compant to effect the sezure of the
machnery. The ower court ssued a wrt of
sezure and n order to enforce the sad wrt, the
sherff went to the premses and removed the
man drve motor of the sub|ect machnery.
Prvate respondent questons the act of the
sherff argung that the drve motor the
machnery n sut cannot be sub|ect of a chatte
mortgage because t s rea property pursuant
to Art. 415 of the New of Cv Code, the same
beng attached to the ground by means of bots
and the ony way to remove t woud be to dr
out or destroy the concrete foor.
ISSUE: WON the machnery n sut s rea or
persona property
HELD: It s persona property. As the partes to
the contract so agree and no nnocent thrd
party w be pre|udced thereby, there s
absoutey no reason why a machnery, whch s
movabe n ts nature and becomes mmobzed
ony by destnaton or purpose, may not be
kewse treated as such. Ths s because one
who has so agreed s stopped from denyng the
exstence of the chatte mortgage.
The characterzaton of the sub|ect machnery
as chatte by the prvate respondent s
ndcatve of ntenton and mpresses upon the
property the character as determned by the
partes. In other words, the partes to a contract
may by agreement treat as persona property
that whch by nature woud be rea property, as
ong as no nterest of thrd partes woud be
pre|udced thereby.
In addton, records show that no steps were
taken to nufy the mortgage and that the
prvate respondent has benefted from the
contract. Equty dctates that one shoud not
beneft at the expense of another. Prvate
respondent coud not now therefore, be aowed
to mpugn the effcacy of the chatte mortgage
after t has benefted therefrom.
After-Acqured Property
TORRES V LlM]AP
FACTS: |ose B. Henson executed n favor of the
respondents a chatte mortgage on hs drug
store n order to secure a oan. In the
nstrument of the chatte mortgage, t was
stpuated that the mortgagor was authorzed to
se the goods covered thereby and to repace
them wth other goods thereafter acqured.
Pettoner attacks the vadty of the stpuaton
and nssts that a stpuaton authorzng the
dsposa and substtuton of the chattes
mortgaged does not operate to extend the
mortgage to after-acqured property, and that
such stpuaton s n contraventon of the
express provson of the ast paragraph of SEC 7
Act No. 1508.
ISSUE: WON the chatte mortgage on the after-
acqured property s vad
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HELD: YES. In the nterpretaton and
constructon of a statute, the ntent of the aw-
maker shoud aways be ascertaned and gven
effect. In enactng Act No. 1508, the prmary
am of the aw-makng body was undoubtedy to
promote busness and trade and to gve
mpetus to the economc deveopment of the
country. Bearng ths n mnd, t coud not have
been the ntenton of the Phppne Commsson
to appy the provson of SEC 7 to stores open to
the pubc for reta busness, where the goods
are constanty sod and substtuted wth new
stock.
A stpuaton n the mortgage, extendng ts
scope and effect to after-acqured property, s
vad and bndng where the after-acqured
property s n renewa of, or n substtuton for,
goods on hand when the mortgage was
executed, or s purchased wth the proceeds of
the sae of such goods.
In other words, a mortgage may be made to
ncude future acqustons of goods to be added
to the orgna stock mortgaged, but the
mortgage must expressy provde that such
future acqustons sha be hed as ncuded n
the mortgage.
In sum, the court hed:
1) That the provson of the ast paragraph of
SEC 7 of Act No. 1508 s not appcabe to drug
stores, bazaars and a other stores n the
nature of a revovng and foatng busness; and
2) That the stpuaton n the chatte mortgages
n queston, extendng ther effect to after-
acqured property, s vad and bndng.
After-Incurred Obgaton
ACME SHOE V CA (1996)
FACTS: Pettoner Chua Pac, the presdent and
genera manager of co-pettoner "Acme Shoe,
Rubber & Pastc Corporaton," executed for and
n behaf of the company, a chatte mortgage n
favor of prvate respondent Producers Bank.
The mortgage stands as a securty for
pettoners corporate oan of Php3M. However,
a provson n the chatte mortgage agreement
states that the mortgage sha aso stand as a
securty for the payment of subsequent
promssory note or notes, ether as a renewa or
a new oan.
In due tme, the pettoner pad the Php3M oan.
Subsequenty, however, t obtaned addtona
fnanca accommodatons from respondent and
faed to sette ths addtona oan.
Respondent then apped for an extra|udca
forecosure of the chatte mortgage. The
pettoner seeks to en|on the forecosure.
ISSUE: WON a cause n a chatte mortgage,
whch extend ts coverage to obgatons yet to
be contracted or ncurred, s vad and effectve
HELD: NO. Whe a pedge, rea estate
mortgage, or antchress may exceptonay
secure after-ncurred obgatons so ong as
these future debts are accuratey descrbed, a
chatte mortgage, however, can ony cover
obgatons exstng at the tme the mortgage s
consttuted. Athough a promise expressed n a
chatte mortgage to ncude debts that are yet
to be contracted can be a bndng that can be
compeed upon, the securty tsef, however,
does not come nto exstence or arse unt after
a chatte amendng the od contract
conformaby wth the form prescrbed by the
Chatte Mortgage Law. Refusa on the part of
the borrower to execute the agreement so as to
cover the after-ncurred obgaton can
consttute an act of defaut on the part of the
borrower of the fnancng agreement whereon
the promse s wrtten but, of course, the
remedy of forecosure can ony cover the debts
extant at the tme of consttuton and durng the
fe of the chatte mortgage sought to be
forecosed.
One of the requstes of a chatte mortgage s
the executon of an affdavt of good fath,
whch requres an oath that the mortgage s for
the purpose of securng the obgaton specfed
n the condtons thereof, and for no other
purpose, and that the same s a |ust and vad
obgaton, and one not entered nto for the
purpose of fraud.
Ths requrement makes t obvous that the debt
referred to n the aw s a current, not an
obgaton that s yet merey contempated. In
the chatte mortgage here nvoved, the ony
obgaton specfed n the chatte mortgage
contract was the Php3M oan whch pettoner
corporaton ater fuy pad. By vrtue of SEC 3 of
the Chatte Mortgage Law, the payment of the
obgaton automatcay rendered the chatte
mortgage vod or termnated.
Wth the fu payment of the Php3M oan, there
was no onger any chatte mortgage that coud
cover the new oans that were concuded
thereafter.
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Specfc Performance
SOUTHERN MOTORS V MOSCOSO (1961)
FACTS: Prvate respondent Southern Motors,
Inc. sod to pettoner Ange Moscoso a
Chevroet truck. Upon makng a down payment,
Ange executed a promssory note and a chatte
mortgage on the truck.
Upon the faure of Ange to pay the
nstaments, Southern Motors fed a compant
aganst Ange, to recover the unpad baance of
the purchase prce. A wrt of attachment was
ssued by the ower court and the Chevroet
truck and a house and ot beongng to Ange
were attached by the sherff. The sherff then
sod the truck at a pubc aucton n whch
Southern Motors was the ony bdder.
The tra court then condemned Ange to pay
Southern Motors the defcency.
Ange questons ths order of the court and
aeged that the attachment caused to be eved
on the truck and ts mmedate sae at pubc
aucton, was tantamount to the forecosure of
the chatte mortgage on sad truck.
Southern Motors counters and cams that n
fng the compant, t chose to exact fufment
of the obgaton (specfc performance) and s
thus entted to sue for the unpad baance of
the purchase prce.
ISSUE: WON the defcency of the purchase
prce can st be recovered
HELD: YES. The case s governed by Art. 1484
of the New Cv Code. (SEE Art. 1484, NCC)
Southern Motors had chosen the frst remedy.
The compant s an ordnary cv acton for
recovery of the remanng unpad baance de
on the promssory note. Ths s shown by the
foowng crcumstances:
1) Southern Motors had not adopted the
procedure or methods outned by Sec. 14 of
the Chatte Mortgage Law but those prescrbed
for ordnary cv actons
2) Southern Motors not ony attached the truck
but aso the house and ot of Ange.
Nothng unawfu or rreguar n Southern
Motors act of attachng the mortgaged truck
tsef. As Southern Motors has chosen to exact
the fufment of Anges obgaton, the former
may enforce executon of the |udgment
rendered n ts favor on the persona and rea
property of the atter not exempt from
executon suffcent to satsfy the |udgment.
Attachment s merey an ncdent to an ordnary
cv acton. Therefore, the mortgage credtor
may recover |udgment on the mortgage debt
and cause an executon on the mortgaged
property and may cause an attachment to be
ssued and eved on such property, upon
begnnng hs cv acton.
No Recourse Aganst Addtona Mortgaged
Property
1) Residential house and lot
LEVY HERMANOS V PAClFlC COMMERClAL
(1941)
FACTS: In addton to a chatte mortgage on the
motor vehces that they bought, the Hermanos
aso executed a mortgage on a resdenta ot
and house of strong materas.
HELD: The SC hed that the mortgage s vod
nsofar as t ncuded the house and ot of
vendees. It sad that the vendor cannot be
aowed to nsst on the sae of the house and ot
of the vendees for to do so woud be equvaent
to obtanng a wrt of executon aganst them
concernng other propertes whch are separate
and dstnct from those whch are sod on
nstament. Ths woud be contrary to pubc
pocy mtng the vendors rght to forecose
the chatte mortgage ony on the thng sod.
2) Parcel of land mortgaged by third party
CRUZ V FlLlPlNAS lNVESTMENT (1968)
FACTS: Pantff Ruperto G. Cruz purchased on
nstaments, from Far East Motor Corporaton,
an Isuzu Dese Bus, for whch Ruperto executed
a promssory note and a chatte mortgage on
the same vehce.
As an addtona securty, Fecdad Vda. De
Reyes, n the form of a SECOND MORTGAGE, a
parce of and and a budng.
Far East Motor Corp. then assgned a ts rghts
and nterest n the Deeds of Chatte Mortgage
and n the Deed of Rea Estate Mortgage to
Fpnas Investment and Fnance Corp.
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Ruperto defauted. Fpnas took steps to
forecose the chatte mortgage, however, the
vehce had been damaged n an accdent. Ths
s the reason why after the forecosure sae of
the chatte, the proceeds were not suffcent to
dscharge fuy ndebtedness of Ruperto.
Therefore, Fpnas prepared to forecose the
rea estate mortgage on Mrs. Reyes and by
payng the mortgage ndebtedness of Mrs.
Reyes to DBP, requestng the sherff to take
possesson, and by postng notces of sae.
Athough Fpnas admts that the remedes n
Art. 1484 of the New Cv Code s aternatve, t
cams that what s beng wthhed from the
vendor theren s ony the rght to recover
"aganst the purchaser", and not a recourse to
the addtona securty put up, not by the
purchaser hmsef, but by a thrd person.
ISSUE: WON Fpnas, whch has aready
extra|udcay forecosed the chatte mortgage
executed by the buyer, Ruperto, may aso
extra|udcay forecose the rea estate
mortgage consttuted by Mrs. Reyes on her own
and, as addtona securty, for the payment of
the baance of Rupertos obgaton, st
remanng unpad
HELD: The remedes n Art. 1484 of the NCC
are aternatve, not cumuatve, that the
exercse of one woud bar the exercse of the
others. The reason for ths doctrne was to
remedy the abuses commtted n connecton
wth the forecosure of chatte mortgages.
To sustan Fpnas argument s to overook the
fact that f the guarantor shoud be compeed
to pay the baance of the purchase prce, the
guarantor w n turn be entted to recover
what she has pad from the debtor vendee; so
utmatey, t w be the vendee who w be
made to bear the payment of the baance of the
prce, despte the earer forecosure of the
chatte mortgage gven by hm. Thus, the
protecton gven by Art. 1484 woud be
ndrecty subverted, and pubc pocy
overturned.
Nether s there vadty to Fpnas aegaton
that, snce the aw speaks of "acton", the
restrcton shoud be confned ony to the
brngng of |udca suts or proceedngs n court.
The word "acton" s wthout a defnte or
excusve meanng. Consderng the purpose for
whch the prohbton contaned n Art. 1484 was
ntended, the word "acton" used theren may
be construed as referrng to any |udca or
extra|udca proceedng by vrtue of whch the
vendor may awfuy be enabed to exact
recovery of the supposed unsatsfed baance of
the purchase prce from the purchaser or hs
prvy. Certany, an extra|udca forecosure of
rea estate mortgage s one such proceedng.
Rght Of Recourse Aganst Seer/Assgnor
FlLlPlNAS lNVESTMENT V VlTUG (1969)
FACTS: |uan R. Vtug executed and devered
to Supreme Saes & Deveopment Corp. a
promssory note, accompaned by a chatte
mortgage to secure hs purchase of a 4-door
consu sedan. Then, Supreme Saes negotated
and assgned a ts rghts, tte, and nterests to
the same to Fpnas Investment & Fnance
Corp., the assgnment ndcatng that t s with
recourse aganst Supreme Saes.
|uan defauted n the payment of 4
nstaments due whch resuted n the entre
obgaton becomng due and demandabe.
Pursuant to ths, Fpnas obtaned a wrt of
repevn but ths became unnecessary as |uan
vountary surrendered possesson of the car.
The car was sod at a pubc aucton but snce
the proceeds st eft a defcency, Fpnas
wants to hod Supreme Saes abe.
Supreme Saes cams that the wth-recourse
provson n the assgnment s voatve of the
Recto Law, whch decares nu and vod any
agreement n contraventon thereof.
ISSUE: WON the Recto Law s appcabe n the
case at bar, makng the wth recourse provson
contaned n the agreement nu and vod
HELD: NO. The remedy presenty beng sought
s not aganst the buyer of the car but aganst
the seer. Under the Recto Law, what Congress
seeks to protect are ony the buyers on
nstament who more often than not have been
vctmzed by seers who, before the enactment
of ths aw, succeeded n un|usty enrchng
themseves at the expense of the buyers
because asde from recoverng the goods sod,
upon defaut of the buyer n the payment of two
nstaments, st retaned for themseves a
amounts aready pad, n addton, furthermore,
to other damages, such as attorneys fees, and
costs. Surey, Congress coud not have ntended
to mpar and much ess do away wth the rght
of the seer to make commerca use of hs
credt aganst the buyer, provded sad buyer s
not burdened beyond what ths aw aows.
In the case at bar, the assgnment made by
Supreme Saes to Fpnas of the promssory
note and mortgage of |uan Vtug precsey
stpuated that Fpnas had a rght of recourse
aganst the seer shoud the buyer fa to pay.
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Snce the Recto Law s not appcabe n ths
case, the sad provson remans vad.
The case s remanded for further proceedngs.
Rght Of Unpad Seer Under Art. 1484, Cv
Code, Aternatve Not Cumuatve
SPOUSES ROSARlO V PCl LEASlNG AND
FlNANCE, lNC. (2005)
FACTS: Spouses Rosaro purchased an Isuzu Ef
pck up utty vehce from Car Merchants, Inc.
covered by a Purchase Agreement. In order to
pay the baance of the purchase prce, the
spouses contracted a oan wth PCI Leasng
wheren they executed a promssory note n
favor of PCI Leasng agreeng that n case of
defaut, the sum and nterest sha mmedatey
become due and demandabe. In addton, the
spouses aso executed a chatte mortgage n
favor of PCI Leasng over the vehce.
Snce the spouses faed to pay ther oan, PCI
Leasng nsttuted a compant that ed to the
ssuance of the tra court of a wrt of repevn,
n pursuance of whch the sherff sezed the
vehce and turned over the possesson to PCI
Leasng.
The spouses Car Merchants had assgned to PCI
Leasng ts rght to coect the baance; hence, t
was subrogated to the rghts of Car Merchants
sub|ect to the mtatons of Art. 1484NCC.
Furthermore, they aege that snce PCI Leasng
opted to forecose the chatte mortgage, t was
estopped from coectng the unpad baance of
the purchase prce.
ISSUE: WON PCI Leasng s the assgnee of Car
Merchant; WON Art. 1484 of the NCC s
appcabe
HELD: NO. There s no factua bass on the
cam that Car Merchants had assgned ts rghts
to coect the baance of the purchase prce to
PCI Leasng. In fact, what the evdence shows s
that the spouses secured a oan from PCI
Leasng and even executed a promssory note
and a chatte mortgage n ts favor.
Under Art. 1625 of the NCC, an assgnment of
credt, rght or acton must appear n a pubc
document to bnd thrd persons. Snce there s
no evdence that Car Merchants executed such
a deed, Art 1484 of the NCC does not appy n
ths case.
Even assumng that Art 1484 s appcabe, PCI
Leasng s not proscrbed from sung the
spouses for ther unpad baance. The fact s
that PCI Leasng dd not forecose the chatte
mortgage, but opted to sue the spouses for the
baance of ther account under the promssory
note, wth a pea for wrt of repevn. By
securng a wrt of repevn, the respondent dd
not thereby forecose the chatte mortgage. If
there has been no forecosure of the chatte
mortgage or a forecosure sae, then the
prohbton aganst further coecton of the
baance prce does not appy.
A credtor s not obged to forecose a chatte
mortgage even f there s one; precsey the aw
says that any of the remedes may be exercsed
by the seer.
Ony Actua Sae Of Mortgaged Chatte Bars
Forecosng Credtor From Recoverng Unpad
Baance
MAGNA FlNANClAL SERVlCES GROUP, lNC.
V COLARlNA (2005)
FACTS: Eas Coarna bought on nstament a
Suzuk Mutcab from Magna Fnanca Servces
Group, Inc. whereby he executed an ntegrated
promssory note and deed of chatte mortgage
over the vehce.
Snce Coarna faed to pay the monthy
amortzaton, Magna fed a Compant for
Forecosure of Chatte Mortgage wth Repevn.
From the compant, t w show that Magna
avaed tsef of the frst and thrd remedes
under Art. 1484 of the NCC.
A wrt of repevn was ssued by the court and
upon servce of the same to Coarna, he
vountary surrendered possesson of the
vehce to the sherff, who n turn, surrendered
possesson to Magna.
Coarna ponts to the nconsstency of the
remedes or reefs sought by the Magna n ts
Compant where t prayed for the custody of
the chatte mortgage and at the same tme
asked for the payment of the unpad baance on
the motor vehce.
ISSUE: WON Magna opted to forecose the
chatte mortgage
HELD: YES. A contract of chatte mortgage s n
the nature of a condtona sae of persona
property gven as a securty for the payment of
a debt, or the performance of some other
obgaton specfed theren, the condton beng
that the sae sha be vod upon the seer
payng to the purchaser a sum of money or
dong some other act named. If the condton s
performed accordng to ts terms, the mortgage
and sae mmedatey become vod, and the
mortgagee s thereby dvested of hs tte. On
the other hand, n case of non payment,
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forecosure s one of the remedes avaabe to a
mortgagee by whch he sub|ects the mortgaged
property to the satsfacton of the obgaton to
secure that for whch the mortgage was gven.
Forecosure may be effected ether |udcay or
extra|udcay, that s, by ordnary acton or by
forecosure under power of sae contaned n
the mortgage. Extra|udca forecosure, as
chosen by the pettoner, s attaned by causng
the mortgaged property to be sezed by the
sherff, as agent of the mortgagee, and have t
sod at pubc aucton n the manner prescrbed
by SEC 14 of Act No. 1508, or the Chatte
Mortgage Law. Ths rue governs extra|udca
forecosure of chatte mortgage.

In sum, snce the pettoner has undenaby
eected a remedy of forecosure under Artce
1484(3) of the Cv Code, t s bound by ts
eecton and thus may not be aowed to change
what t has opted for.
ISSUE: WON there has been an actua
forecosure of the sub|ect vehce
HELD: NO. Where the mortgagee eects a
remedy of forecosure, the aw requres the
actua forecosure of the mortgaged chatte.
It s actua sae of the mortgaged chatte n
accordance wth Sec. 14 of Act No. 1508 that
woud bar the credtor (who chooses to
forecose) from recoverng any unpad baance.
And t s deemed that there has been
forecosure of the mortgage when a the
proceedngs of the forecosure, ncudng the
sae of the property at pubc aucton, have
been accompshed.
Be that as t may, athough no actua
forecosure as contempated under the aw has
taken pace n ths case, snce the vehce s
aready n the possesson of Magna and t has
persstenty and consstenty eected the
remedy of forecosure, the Court of Appeas,
thus, rued correcty n drectng the forecosure
of the sad vehce wthout more.
PD J4J7
Further Amending SEC J98 Of The Revised
Administrative Code As Amended By
Republic Act Nos. JJ6 And Z7JJ, By
lncreasing The Fees Collectible ln
Connection With Registration Of Chattel
Mortgages
WHEREAS, there has been an unprecedented
ncrease n the cost of equpment, materas
and suppes used by the Land Regstraton
Commsson;
WHEREAS, t s n consonance wth sound fsca
pocy that the regstraton fees coectbe by
the Land Regstraton Commsson through ts
regstres of deeds be ad|usted accordngy.
NOW, THEREFORE, I, FERDINAND E. MARCOS,
Presdent of the Phppnes, by vrtue of the
powers n me vested by the Consttuton, do
hereby decree and order:
SEC 1. SEC 198 of the Revsed Admnstratve
Code, as amended by Repubc Act Nos. 116
and 2711, s hereby further amended to read as
foows:
"Sec. 198. Regstraton of chatte mortgages
and fees coectbe n connecton therewth.
Every regster of deeds sha keep a prmary
entry book and a regstraton book for chatte
mortgages; sha certfy on each mortgage fed
for record, as we as on ts dupcate, the date,
hour, and mnute when the same was by hm
receved; and sha record n such books any
chatte mortgage, assgnment, or dscharge
thereof, and any other nstruments reatng to a
recorded mortgage, and a such nstruments
sha be presented to hm n dupcate the
orgna to be fed and the dupcate to be
returned to the person concerned.
The recordng of a mortgage sha be effected
by makng an entry, whch sha be gven a
correatve number, settng forth the names of
the mortgages and the mortgagor, the sum or
obgaton guaranteed, date of the nstrument,
name of the notary before whom t was sworn
to or acknowedged, and a note that the
property mortgaged, as we as the terms and
condtons of the mortgage, s mentoned n
deta n the nstrument fed, gvng the proper
fe number thereof. The recordng of other
nstruments reatng to a recorded mortgage
sha be effected by way of annotatons on the
space provded therefor n the regstraton
book, after the same sha have been entered n
the prmary entry book.
The regster of deeds sha aso certfy the
offcer's return of sae upon any mortgage,
makng reference upon the record of such
offcer's return to the voume and page of the
record of the mortgage, and a reference of such
return on the record of the mortgage tsef, and
gve a certfed copy thereof, when requested,
upon payment of the awfu fees for such copy;
and certfy upon each mortgage offcer's return
of sae or dscharge of mortgage, and upon any
other nstrument reatng to such a recorded
mortgage, both on the orgna and on the
dupcate, the date, hour and mnute when the
same s receved for record and record such
certfcate wth the return tsef and keep an
aphabetca ndex or mortgagors and
mortgagees, whch record and ndex sha be
open to pubc nspecton.
Duy certfed copes of such records and of fed
nstruments sha be recevabe as evdence n
any court.
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The regster of deeds sha coect the foowng
fees for servces rendered by hm under ths
SEC:
(a) For entry or presentaton of any document n
the prmary entry book, fve pesos. Supportng
papers presented together wth the prncpa
document need not be charged any entry or
presentaton fee uness the party n nterest
desres that they be kewse entered.
(b) For fng and recordng each chatte
mortgage, ncudng the necessary certfcates
and affdavts, the fees estabshed n the
foowng schedue sha be coected:
"1. When the amount of the mortgage does not
exceed sx thousand pesos, seven pesos for the
frst fve hundred pesos or fractona part
thereof, and three pesos for each addtona fve
hundred pesos or fractona part thereof.
"2. When the amount of the mortgage s more
than sx thousand pesos but does not exceed
thrty thousand pesos, forty-eght pesos for the
nta amount not exceedng eght thousand
pesos, and eght pesos for each addtona two
thousand pesos or fractona part thereof.
"3. When the amount of the mortgage s more
than thrty thousand pesos but does not exceed
one hundred thousand pesos, one hundred ffty
pesos for nta amount not exceedng thrty-
fve thousand pesos, and fourteen pesos for
each addtona fve thousand pesos or
fractona part thereof.
"4. When the amount of the mortgage s more
than one hundred thousand pesos but does not
exceed fve hundred thousand pesos, three
hundred ffty-two pesos for the nta amount
not exceedng one hundred ten thousand pesos
and twenty pesos for each addtona ten
thousand pesos or fractona part thereof.
"5. When the amount of the mortgage s more
than fve hundred thousand pesos, one
thousand one hundred sxty-two pesos for the
nta amount not exceedng fve hundred
twenty thousand pesos, and thrty pesos for
each addtona twenty thousand pesos or
fractona part thereof: Provded, however, That
regstraton of the mortgage n the provnce
where the property s stuated sha be suffcent
regstraton: And provded, further, That f the
mortgage s to be regstered n more than one
cty or provnce, the regster of deeds of the cty
or provnce where the nstrument s frst
presented for regstraton sha coect the fu
amount of the fees due n accordance wth the
schedue prescrbed above, and the regster of
deeds of the other cty or provnce where the
same nstrument s aso to be regstered sha
coect ony a sum equvaent to twenty per
centum of the amount of fees due and pad n
the frst cty or provnce, but n no case sha the
fees payabe n any regstry be ess than the
mnmum fxed n ths schedue.
"(c) For recordng each nstrument of sae,
conveyance, or transfer of the property whch s
sub|ect of a recorded mortgage, or of the
assgnment of mortgage credt, the fees
estabshed n the precedng schedue sha be
coected on the bass of ten per centum of the
amount of the mortgage or unpad baance
thereof: Provded, That the atter s stated n the
nstrument.
"(d) For recordng each notce of attachment,
ncudng the necessary ndex and annotatons,
eght pesos.
"(e) For recordng each reease of mortgage,
ncudng the necessary ndex and reference,
the fees estabshed n the schedue under
paragraph (b) above sha be coected on the
bass of fve per centum of the amount of the
mortgage.
"(f) For recordng each reease of attachment,
ncudng the proper annotatons, fve pesos.
"(g) For recordng each sherff's return of sae,
ncudng the ndex and reference, seven pesos.
"(h) For recordng a power of attorney,
appontment of |udca guardan, admnstrator,
or trustee, or any other nstrument n whch a
person s gven power to act n behaf of
another n connecton wth a mortgage, ten
pesos.
"() For recordng each nstrument or order
reatng to a recorded mortgage, ncudng the
necessary ndex and reference, for whch no
specfc fee s provded above fve pesos.
"(|) For certfed copes of records, such fees as
are aowed by aw for copes kept by the
regster of deeds.
"(k) For ssung a certfcate reatve to, or
showng the exstence or non-exstence of, and
entry n the regstraton book, or a document on
fe, for each such certfcate contanng not
more than two hundred words, fve pesos; f t
exceeds that number, an addtona fee of one
peso sha coected for every one hundred
words or fractona part thereof, n excess of the
frst two hundred words.
"() For servces rendered n attendng to
requests for references to, or researches on any
document on fe n the regstry, there sha be
coected a fee of two pesos per document."
SEC 2. Ths decree sha take effect upon ts
approva.
Done n the Cty of Mana, ths 9th day of |une,
n the year of Our Lord, nneteen hundred and
seventy-eght
Circular No. 7-Z00Z
To: All Executive judges, Clerks Of Court,
Sheriffs ln The Office Of The Clerk Of
Court And Branch Sheriffs ln The Regional
Trial Courts
Subject: Guidelines For The
Enforcement Of Supreme Court Resolution
COMLAW REVlEWER 2009 james-deng-carol-mario-des-ria-marvin-reizel-chris-ricky-owen-
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Of December J4, J999 ln Administrative
Matter No. 99-J0-05-0 (Re: Procedure ln
Extra-judicial Foreclosure Of
Mortgage), As Amended By The
Resolutions Dated january 30, Z00J And
August 7, Z00J
These gudenes are ssued pursuant to the
Supreme Court En Banc Resouton of December
14, 1999 n Admnstratve Matter No. 99-10-05-
0, as amended by the resoutons of |anuary 30,
2001 and August 7, 2001, drectng the Offce of
the Court Admnstrator to prepare the
gudenes for the enforcement of A.M. No. 99-
10-05-0 on the extra-|udca forecosure of
mortgages.
Sec. 1. A appcatons for extra-|udca
forecosure of mortgage, whether under the
drecton of the Sherff or a notary pubc
pursuant to Art. No. 3135, as amended, and Act
1508, as amended, sha be fed wth the
Executve |udge, through the Cerk of Court,
who s aso the Ex-Offco Sherff (A.M. No. 99-
10-05-0, as amended, March 1, 2001).
Sec. 2. Upon recept of the appcaton, the
Cerk of Court sha:
a. Examne the same to ensure that the
speca power of attorney authorzng the extra-
|udca forecosure of the rea property s ether
nserted nto or attached to the deed of rea
estate mortgage (Act No. 3135, Sec. 1, as
amended);
b. Gve a fe number to the appcaton and
endorse the date and tme of ts fng and
thereafter docket the same, keepng, n ths
connecton, separate docket books for extra-
|udca forecosure saes conducted by the
Sherff and those conducted by notares pubc;
c. For the conduct of extra-|udca
forecosure of rea estate or chatte mortgage
under the drecton of the sherff, coect the
approprate fng fees and ssues the
correspondng offca recept pursuant to the
foowng schedue:
If the amount of the ndebtedness or the
mortgagees cam s:
(1) Less than P50,000.00
......... P275.00
(2) P50,000.00 or more but ess
than
P100,000.00 ................ 400.00
(3) P100,000.00 or more but ess
than
P150,000.00 ............. 500.00
(4) P150,000.00 or more but ess
than
P200,000.00 ............. 650.00
(5) P200,000.00 or more but ess
than
P250,000.00 ............. 1,000.00
(6) P250,000.00 or more but ess
than
P300,000.00 ............. 1,250.00
(7) P300,000.00 or more but ess
than
P400,000.00 ............. 1,500.00
(8) P400,000 or more but ess than
P500,000.00 ............. 1,750.00
(9) P500,000.00 or more but not
more than
P100,000,000.00 ............ 2,000.00
(10) For each P1,000.00 n excess of
P1,000,000.00.............. 10.00
(SEC 7 (c), Rue 141, Rues of Court, as
amended by A.M. No. 00-2-01-SC, February 1,
2000).
Cooperatves, thrft banks, and rura banks are
not exempt from the payment of fng fees and
other fees under these gudenes (A.M. No. 98-
9-280-RTC, September 29, 1998; A.M. No. 99-3-
93-RTC, Apr 20, 1999; and A.M. No. 92-9-408-
0).
d. In case the appcaton s for the extra-|udca
forecosure of mortgages of rea estates and/or
chattes n dfferent ocatons coverng one
ndebtedness, ssue, apart from the offca
recept for the fees, a certfcate of payment
ndcatng the amount of ndebtedness, the
fng fees coected, the mortgages sought to
be forecosed, the rea estates and/or chattes
mortgaged and ther respectve ocatons, for
purposes of havng the appcaton docketed
wth the Cerks of Court n the paces where the
other propertes are ocated and of aowng the
extra-|udca forecosure to proceed thereat.
(A.M. No. 99-10-05-0, par. 2(e)).
Sec. 3. The appcaton for extra-|udca
forecosure sha be raffed under the
supervson of the Executve |udge, wth the
assstance of the Cerk of Court and Ex-Ofco
Sherff, among a Sherffs ncudng those
assgned to the Offce of the Cerk of court and
Sherffs assgned n the branches of the court. A
Sherff to whom the case has been raffed sha
be excuded n the succeedng raffes and sha
partcpate agan ony after a other Sherffs
sha have been assgned a case by raffe
(Admnstratve Crcuar No. 3-98, Feb. 5, 1998).
Sec. 4. The Sherff to whom the appcaton for
extra-|udca forecosure of mortgage was
raffed sha do the foowng:
a. Prepare a Notce of Extra-|udca Sae
usng the foowng form:
"NOTICE OF EXTRA-|UDICIAL SALE"
"Upon extra-|udca petton for sae under Act
3135 / 1508 fed __________________ aganst
(name and address of Mortgator/s) to satsfy the
mortgage ndebtedness whch as of ___________
amounts to P _________________, excudng
penates, charges, attorneys fees and
expenses of forecosure, the undersgned or hs
duy authorzed deputy w se at pubc aucton
on (date of sae) _______________ at 10:00 A.M.
or soon thereafter at the man entrance of the
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___________ (pace of sae) to the hghest bdder,
for cash or managers check and n Phppne
Currency, the foowng property wth a ts
mprovements, to wt:
"(Descrpton of Property)"
"A seaed bds must be submtted to the
undersgned on the above stated tme and
date."
"ln the event the public auction should
not take place on the said date, it shall be
held on _______________, _______________
without further notice."
________________ (date)
"SHERIFF"
b. (1) In case of forecosure of rea estate
mortgage, cause the pubcaton of the notce of
sae by postng t for not ess than twenty (20)
days n at east three (3) pubc paces n the
muncpaty or cty where the property s
stuated and f such property s worth more than
four hundred (P400.00) pesos, by havng such
notce pubshed once a week for at east three
(3) consecutve weeks n a newspaper of
genera crcuaton n the muncpaty or cty
(Sec. 3, Act No. 3135, as amended). The
Executve |udge sha desgnate a reguar
workng day and defnte tme each week durng
whch sad notce sha be dstrbuted personay
by hm for pubcaton to quafed newspapers
or perodcas as defned n Sec. 1 of P.D. No.
1079, whch dstrbuton sha be effected by
raffe (A.M. No. 01-1-07-SC, Oct. 16, 2001).
Uness otherwse stpuated by the partes to
the mortgage contract, the debtor-mortgagor
need not be personay served a copy of the
notce of the extra-|udca forecosure.
For rea estate mortgages coverng oans not
exceedng P100,000.00, excusve of nterests
due and unpad, granted by rura banks (RA No.
7353, Sec. 6) or thrft banks (RA No. 7906, Sec.
18),pubcaton n a newspaper sha be
dspensed wth, t beng suffcent that the
notces of forecosure are posted for a perod of
sxty (60) days mmedatey precedng the
pubc aucton n the most conspcuous areas of
the muncpa budng, the muncpa pubc
market, the rura bank, the barangay ha, and
the barangay pubc market, f any, where the
and mortgaged s stuated. Proof of pubcaton
sha be accompshed by an affdavt of the
Sherff and sha be attached to the records of
the case.
(2) In case of forecosure of a chatte mortgage,
post the notce for at east ten (10) days n two
(2) or more pubc paces n the muncpaty
where the mortgagor resdes or where the
property s stuated (Sec. 14, Act No. 1508, as
amended).
Sec. 5. Conduct of the extra-|udca forecosure
sae -
a. The bddng sha be made through
seaed bds whch must be submtted to the
Sherff who sha conduct the sae between the
hours of 9 a.m. and 4 p.m. of the date of the
aucton (Act 3135, Sec. 4). The property
mortgaged sha be awarded to the party
submttng the hghest bd and, n case of a te,
an open bddng sha be conducted between
the hghest bdders. Payments of the wnnng
bd sha be made ether n cash or n managers
check, n Phppne currency, wthn fve (5)
days from notce.
b. The sae must be made n the provnce
n whch the rea property s stuated and, n
case the pace wthn the sad provnce n whch
the sae s to be made s the sub|ect of
stpuaton, such sae sha be made n sad
pace n the muncpa budng of the
muncpaty n whch the property or part
thereof s stuated (Act No. 3135, as amended,
Sec. 2);
n case of a chatte mortgage, the sae sha be
made at a pace n the muncpaty where the
mortgagor resdes or where the property s
stuated (Sec. 14, Act No. 1508, as amended).
Sec. 6. After the sae, the Cerk of Courts sha
coect the approprate fees pursuant to Sec.
9(1), Rue 141, as amended by A.M No. 00-2-01-
SC, computed on the bass of the amount
actuay coected by hm, whch fee sha not
exceed P100,000.00 (A.M. No. 99-10-05-0,
March 1, 2001, 2|d|). The amount pad sha not
be sub|ect to a refund even f the forecosed
property s subsequenty redeemed.
Sec. 7. In case of forecosure under Act No.
1508, the Sherff sha, wthn thrty (30) days
from the sae, prepare a return and fe the
same n the Offce of the Regstry of Deeds
where the mortgage s recorded.
Sec. 8. The Sherff or the notary pubc who
conducted the sae sha report the name/s of
the bdder/s to the Cerk of Court.
Sec. 9. Upon presentaton of the approprate
recepts, the Cerk of Court sha ssue and sgn
the Certfcate of Sae, sub|ect to the approva
of the Executve |udge or, n the atters
absence, the Vce-Executve |udge. Pror to the
ssuance of the certfcate of Sae, the Cerk of
court sha, n extra-|udca forecosure
conducted under the drecton of the sherff,
coect P300.00 as provded n SEC 20(d), Rue
141, as amended, and n extra-|udca
forecosure saes conducted under the drecton
of a notary pubc, coect the approprate fees
pursuant to Rue 141, 20(e), whch amount
sha not exceed P100,000.00 (Mnute Res., A.M.
No. 99-10-05-0, August 7, 2001).
Sec. 10. After the Certfcate of Sae has been
ssued, the Cerk of Court sha keep the
compete records for a perod of one (1) year
from the date of regstraton of the certfcate of
sae wth the Regster of Deeds, after whch the
records sha be archved. Notwthstandng the
foregong, |urdca persons whose property s
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sod pursuant to an extra-|udca forecosure
sha have the rght to redeem the property
unt, but not ater than, the regstraton of the
certfcate of forecosure sae whch n no case
sha be more than three (3) months after
forecosure, whchever s earer (R.A. 8791, SEC
47). In case the property s redeemed, the Cerk
of Court sha assess the redemptoners fee as
provded n SEC 7 (k), Rue 141, as amended. If
the property s not redeemed, the Cerk of Court
sha, as a requste for the ssuance of the fna
Deed of Sae, assess the hghest bdder the
amount of P300.00 as provded n SEC 20(d),
Rue 141, as amended.
Sec. 11. These gudenes sha take effect on
Apr 22, 2002.
Issued ths 22
nd
day of |anuary 2002
V. AN ACT TO REGULATE THE SALE
OF PROPERTY UNDER SPEClAL
POWERS lNSERTED lN OR ANNEXED
TO REAL ESTATE MORTGAGES
Act 3135, as amended by Act 4118
(1933), Sec 6 RA 7353 (1992), Sec 18
RA 7906 (1995), Sec 47 RA 8791 (2000)
5.1 Topics
Remedes Avaabe To Mortgagee Upon Defaut
Of Mortgagor
Forecosure: A remedy avaabe to the
mortgagee where he sub|ects the mortgaged
property to the satsfacton of the obgaton to
secure for whch the mortgage was gven. It
may be effected ether |udcay or
extra|udcay.
Authorty To Forecose Mortgage Extra|udcay
1) The ony nstance when an extra|udca
forecosure may be effected s when a sae s
made and a Speca Power of Attorney to
extra|udcay forecose s nserted or attached
to the Rea Estate Mortgage (REM).
2) If the REM s sent as to the manner of
forecosng the mortgage, extra|udca
forecosure may not be effected and Rue 68 of
the Rues of Court n |udca Forecosure sha
appy.
Procedure
Where to file
> Appcaton shoud be fed wth the Executve
|udge through the Cerk of Court.
> After the recept of the appcaton, the Cerk
of Court sha:
1) examne the same to ensure that the speca
power f attorney authorzng the E|F of the rea
property s ether nserted or attached to the
deed of rea estate mortgage.
2) raffe the appcaton among the Sherffs
3) cause the postng and /or pubcaton of the
notce of sae
Where to sell
> pace where each of the mortgaged property
s ocated.
> The sae must be made n the provnce where
the property to be sod s stuated. Sae outsde
the provnce s ega.
> If the mortgage deed specified a place n
the muncpaty n the provnce where the sae
woud be made, such sae sha be made n such
pace.
> If the pace of sae n the muncpaty was not
stpuated, the sae sha be made n the
municipal building of the muncpaty n
whch the property or part thereof s stuated.
Posting Requirement/ Publication
Requirement
1) Notces of the sae sha be posted for not
less than 20 days in at least 3 public
places n the cty or muncpaty where the
property s stuated.
2) If property s worth more than P400, the
notce of the sae sha aso be published once
a week for 3 consecutive weeks in a
newspaper of general circulation n the cty
or muncpaty.
EXCEPTlON to the requirement of
newspaper publication
even f mortgaged property s worth more than
P400:
> For rea estate mortgages coverng oans not
exceedng P100,000, excusve of nterests due
and unpad, granted by rura or thrft banks,
pubcaton n a newspaper sha be dspensed
wth, t beng suffcent that notces of
forecosure are posted for a perod of 60 days
mmedatey precedng the pubc aucton n the
most conspcuous areas at the premses of the
rura bank or thrft bank, as the case may be,
and at the muncpa budng, muncpa pubc
market, barangay ha and barangay pubc
market f any or where the and s stuated
Unless otherwise stipulated by the parties
in the mortgage contract, the
debtor/mortgagor need not be personay
served a copy of the notce of extra|udca
forecosure.
No persona notce s requred because an E|F s
an acton in rem requrng ony the pubcaton
of the notce of the sae to bnd the partes
nterested.
> Faure to post notce s NOT per se a ground
for nvadatng the sae provded that the notce
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thereof s duy pubshed n a newspaper of
genera crcuaton. (DBP vs. Agurre)
> The ob|ect of the notce s to nform the
pubc of the sae and to secure as many
bdders as possbe to get the best prce for the
property.
> Republication: Repubcaton n the manner
prescrbed by Act 3135 s necessary for the
vadty of a postponed E|F sae. The absence of
such repubcaton nvadates the forecosure
sae.
Conduct Of Sale
1) Sae sha be by pubc aucton or bddng
made through seaed bds.
2) Seaed bds are submtted to the Sherff who
sha conduct the sae between the hours of
9:00 A.M. to 4:00 P.M. of the date of aucton.
The sae sha be under the drecton of:
a. Sherff of the provnce; or
b. Muncpaty or auxary muncpa |udge of
the muncpaty n whch the sae s to be
made; or
c. Notary pubc of the sad muncpaty
3) Property sha be awarded to the hghest
bdder, n case of a te, an open bddng sha be
conducted between the hghest bdders.
> No aucton sae sha be hed uness there are
at east 2 partcpatng bdders (n case of
second sae, f there s ony one bdder, the sae
sha proceed)
4) Payment of the wnnng bd sha be made
ether n cash or n managers check, n
Phppne currency, wthn 5 days from notce.
> Inadequacy of the prce woud not nufy the
sae uness the prce s so nadequate as to
shock the conscence of the court. In fact the
property may be sod for ess than ts FMV
because the esser the prce the easer for the
owner to effect redempton. (Vamonte v CA)
> If the proceeds of the sae are n excess of
the amount camed by the mortgagee, the
excess sha be turned over to the mortgagor.
5) Credtor may be barred from partcpatng n
the bddng, ony IF so provded n the mortgage
deed. Hence, credtor or any of hs
representatves may partcpate absent any
express provson n the mortgage or trust deed
barrng hm.
6) Certfcate of sae ssued by the cerk of court
must be approved by the executve |udge or n
hs absence the vce-executve |udge. No
certfcate of sae sha be ssued n favor of the
hghest bdder unt a fees have been pad
Possesson By Purchaser Of Forecosed Property
J. During redemption period
The purchaser of the forecosed property s not
automatcay entted to possesson of the
property. He must fe an ex parte appcaton
and gve a bond n the amount equvaent to the
use of the property for a perod of 12 months.
Upon approva of the bond, the court sha order
the ssuance of a wrt of possesson.
However, a wrt of possesson may be ssued n
an E|F of REM, ony f the debtor s n possesson
and no thrd party has ntervened. (PNB vs. CA)
Z. After the lapse of the redemption
period
Consodaton of the tte becomes a matter of
rght on the part of the purchaser and the
ssuance of a certfcate of sae n hs favor
becomes mnstera upon the Regstry of
Deeds.
To obtan possesson, the purchaser may ether
ask for a wrt of possesson or brng an
ndependent acton such as a sut of e|ectment.
Remedy Of Debtor If Forecosure Not Proper
The debtor, n the proceedngs n whch
possesson was requested, but not ater than 30
days after the purchaser was gven possesson,
petton the sae to be set asde and the wrt of
possesson canceed, specfyng the damages
suffered by hm, because the mortgage was not
voated or the sae was not made n
accordance wth the provsons hereof, and the
court sha take cognzance of ths petton n
accordance wth the summary procedure
provded n SEC 112 of Act 496 (now SEC 108 of
PD 1529) and f t fnds the compant of the
debtor |ustfed, t sha dspose n hs favor of a
or part of the bond whch the partes may have
furnshed by the person who obtaned the
possesson. Ether of the partes may appea
from the order of the |udge n accordance wth
SEC 14 of Act 496 (no SEC 33 of PD 1529), but
the order of possesson sha contnue n effect
durng the pendency of the appea.
Redempton
Who may redeem
1) the debtor
2) hs successor n nterest
3) any |udca credtor havng an nterest
4) any person havng a en on the property
subsequent to the mortgage under whch the
property s sod.
Period of Redemption
One year from the date of the regstraton of
certfcate of sae.
SEC 6. In a cases n whch an extra|udca sae
s made under the speca power herenbefore
referred to, the debtor, hs successors n
nterest or any |udca credtor or |udgment
credtor of sad debtor, or any person havng a
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en on the property subsequent to the
mortgage or deed of trust under whch the
property s sod, may redeem the same at any
time within the term of one year from and
after the date of the sale, and such
redempton sha be governed by the provsons
of SECs 29-31 and 35 of the Rues of Court.
Date of Sale: has been construed by the
Supreme Court as the date of regstraton of the
sherffs certfcate of forecosure sae n the
offce of the Regster of Deeds concerned.
Where the mortgaged property sod to thrd
party by the mortgagor: transfers ony the rght
to redeem the property and the rght to
possess, use and en|oy the same durng the
redempton perod.
Where the mortgaged property sod to thrd
party by mortgagee after the forecosure: the
mortgagor may st redeem t at the amount of
the prncpa obgaton pus nterest unt the
tme of actua redempton and not of the
purchase prce.
Requisites For A Valid Exercise Of Right Of
Redemption
1) The redempton must have been made wthn
a year from the date of regstraton of the
certfcate of sae.
2) Payment of the Purchase prce of the
property pus 1% nterest per month wth the
taxes, f pad by the purchaser and the amount
of hs pror en, f any computed from the date
of the regstraton of the sae up to the tme of
redempton.
3) Wrtten notce of the redempton must be
served on the offcer who made the sae and a
dupcate fed wth the proper Regstry of
Deeds.
4) The redempton must be made before the
sae s confrmed by the court.
5. Tender of payment must be made for the fu
amount of the purchase prce, otherwse, to
aow payment by nstaments woud be to aow
the extenson of the redempton perod.
Z Kinds of Redemption
1) Equty of Redempton - rght of the
mortgagor n case of a judicial foreclosure to
recover the mortgaged property after hs
defaut n the performance the condtons of the
mortgage but before the confrmaton of sae of
the mortgaged property.
2) Rght of redempton - rght of the mortgagor
n case of extrajudicial foreclosure to
redeem the mortgaged property wthn a
certan perod after t was sod for the
satsfacton of the mortgage debt. Ths s the
knd of redempton contempated n ACT 3135.
Equity of
Redemption
Right of Redemption
Governing Law
Governed by Rue 68
of the Rues of Court
Governed by SEC 29-
31 of Rue 39
Applicability
1. n |udca
forecosure of REM;
2. n E|F of REM
nvovng a bank as a
mortgagee and a
|urdca person as a
mortgagor
1. n |udca
forecosure of REM
nvovng a bank as a
mortgagee, whether
the mortgagor s a
natura or a |urdca
person;
2. n E|F of REM
However, no rght of
redempton exsts f t
nvoves a bank as a
mortgagee and a
|urdca person as a
mortgagor.
To whom conferred
Conferred by aw ony
to the mortgagor but
acqured by second
mortgagee snce hs
rght s subordnate to
the frst mortgagee.
Conferred by aw to
the mortgagor, hs
successors-n-nterest
or any |udgment
credtor of the
mortgagor.
Period
Can be exercsed
wthn a perod of not
ess than 90 days nor
more than 120 days
from entry of
|udgment or even after
forecosure of sae but
pror to confrmaton.
Can be exercsed
wthn 1 year from
date of regstraton of
certfcate of sae.
When Exercised
Can be exercsed after
entry of |udgment but
before forecosure sae
and after forecosure
sae but pror to
confrmaton of sae.
Can be exercsed ONLY
after the forecosure
sae.
Redemption Price
Redempton prce
depends on the
|udgment of the court
as to the amount due
to pantff upon
mortgage debt wth
nterest and charges
approved by the court
and costs.
Redempton prce
depends on the
purchase prce as fxed
n Sec 26 Rue 39 ROC
except n cases under
SEC 78 of the Genera
Bankng Law, the
amount and the
nterest to be pad by
the mortgagor w be
the amount due and
the rate stpuated n
the mortgage oan not
the purchase prce and
ega nterest under
the ROC.
5.2 Cases
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Acton For Forecosure Of Mortgage Prescrbes
After 10 Years From The Tme The Rght Of
Acton Accrued, I.E. When The Mortgagor
Defauts In The Payment Of Hs Obgaton
CANDO V SPOUSES OLAZO (2007)
Even from a cursory readng of the appea, t s
ndeby cear that the tra court commtted an
appang bunder when t rued that an acton
for forecosure of mortgage prescrbes after ten
(10) years from the date of the mortgage
contract. Under Artce 1142 of the Cv Code, a
mortgage acton prescrbes after ten (10) years.
|ursprudence, however, has carfed ths rue
by hodng that a mortgage acton prescrbes
after ten (10) years from the tme the rght of
acton accrued, whch s obvousy not the same
as the date of the mortgage contract. Stated
dfferenty, an acton to enforce a rght arsng
from a mortgage shoud be enforced wthn ten
(10) years from the tme the rght of acton
accrues; otherwse, t w be barred by
prescrpton and the mortgage credtor w ose
hs rghts under the mortgage. The rght of
acton accrues when the mortgagor defauts n
the payment of hs obgaton to the mortgagee.
Remedes Avaabe To Mortgagee Aternatve,
Not Successve Or Cumuatve
CALTEX PHlLS v lAC (1989)
Where a debt s secured by a mortgage and
there s a defaut n payment on the part of the
mortgagor, the mortgagee has a choce of one
(1) of two (2) remedes, but he cannot have
both. The mortgagee may: 1) forecosure the
mortgage; or 2) fe an ordnary acton to coect
the debt.
When the mortgagee chooses the forecosure of
the mortgage as a remedy, he enforces hs en
by the sae on forecosure of the mortgaged
property. The proceeds of the sae w be
apped to the satsfacton of the debt. Wth ths
remedy, he has a pror en on the property. In
case of a defcency, the mortgagee has the
rght to cam for the defcency resutng from
the prce obtaned n the sae of the rea
property at pubc aucton and the outstandng
obgaton at the tme of the forecosure
proceedngs
On the other hand, f the mortgagee resorts to
an acton to coect the debt, he thereby waves
hs mortgage en. He w have no more prorty
over the mortgaged property. If the |udgment n
the acton to coect s favorabe to hm, and t
becomes fna and executory, he can enforce
sad |udgment by executon. He can even evy
executon on the same mortgaged property, but
he w not have prorty over the atter and
there may be other credtors who have better
en on the propertes of the mortgagor.
CALTEX submts that the prncpes enuncated
n the 8achrach case are not appcabe nor
determnatve of the case at bar for the reason
that the factua crcumstances obtaned n the
sad case are totay dfferent from the nstant
case. In the 8achrach case, the pantff
nsttuted an acton to forecose the mortgage
after the money |udgment n ts favor remaned
unsatsfed whereas n the present case,
CALTEX ntay fed a compant for coecton
of the debt and durng the pendency thereof
forecosed extra|udcay the mortgage.
We dsagree. Athough the facts n the Bachrach
case and n the present case are not dentca,
there s smarty n the fact that the pantffs n
these two cases avaed of both remedes
athough they are entted to a choce of ony
one.
BANK OF AMERlCA NT & SA V AMERlCAN
REALTY CORP (1999)
Anent rea propertes n partcuar, the Court
has ad down the rue that a mortgage credtor
may nsttute aganst the mortgage debtor
ether a persona acton for debt or a rea acton
to forecose the mortgage.
In our |ursdcton, the remedes avaabe to the
mortgage credtor are deemed aternatve and
not cumuatve. Notaby, an eecton of one
remedy operates as a waver of the other. For
ths purpose, a remedy s deemed chosen upon
the fng of the sut for coecton or upon the
fng of the compant n an acton for
forecosure of mortgage, pursuant to the
provson of Rue 68 of the of the 1997 Rues of
Cv Procedure. As to extra|udca forecosure,
such remedy s deemed eected by the
mortgage credtor upon fng of the petton not
wth any court of |ustce but wth the Offce of
the Sherff of the provnce where the sae s to
be made, n accordance wth the provsons of
Act No. 3135, as amended by Act No. 4118.
In the case at bench, prvate respondent ARC
consttuted rea estate mortgages over ts
propertes as securty for the debt of the
prncpa debtors. By dong so, prvate
respondent sub|ected tsef to the abtes of a
thrd party mortgagor. Under the aw, thrd
persons who are not partes to a oan may
secure the atter by pedgng or mortgagng
ther own property. Notwthstandng, there s no
ega provson nor |ursprudence n our
|ursdcton whch makes a thrd person who
secures the fufment of another's obgaton by
mortgagng hs own property, to be sodary
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bound wth the prncpa obgor. The sgnatory
to the prncpa contract - oan - remans to be
prmary bound. It s ony upon defaut of the
atter that the credtor may have recourse on
the mortgagors by forecosng the mortgaged
propertes n eu of an acton for the recovery
of the amount of the oan.
SUlCO RATTAN & BURl lNTERlORS V CA
(2006)
The remedy of extra|udca forecosure s
deemed chosen not on the day of the sae but
on the day of the fng of a petton for
forecosure wth the offce of the Provnca
Chef. Snce the fng of petton for forecosure
was earer than the fng of acton for sum of
money, the remedy of forecosure was chosen
frst, even f the actua forecosure sae was
conducted after the fng of acton for sum of
money.
The rue s that the remedes of acton for sum
of money and forecosure are aternatve and
not cumuatve. Hence, the acton for sum of
money by Metrobank was vady dsmssed
because t aready fed a petton for
forecosure before t fed the acton. If t had
fed an acton for recovery of defcency nstead
of coecton of sum of money, t woud not have
been dsmssed. (Because recovery of
defcency s aowed for Rea Estate Mortgage
wthn 10 years after forecosure)
Mortgage nvad f mortgagor not the property
owner; doctrne of mortgagee n good fath not
appcabe
ERENA V UERRER-KAUFFMAN (2006)
One of the essenta requstes of a mortgage
contract s that the mortgagor must be the
absoute owner of the thng mortgaged. A
mortgage s thus nvad f the mortgagor s not
the property owner. In ths case, the tra court
and the CA are one n fndng that based on the
evdence on record, the owner of the property s
Kauffman who was not the one who mortgaged
the same to Erena.
The doctrne of mortgagee n good fath cannot
appy n ths case. Ths doctrne s based on the
rue that persons deang wth propertes
covered by a TCT are not requred to go beyond
what appears on the face of the tte. But ths s
ony n a stuaton where the mortgagor has a
frauduent or defectve tte, but not when the
mortgagor s an mpostor and a forger.
In a forged mortgage, as n ths case, the
doctrne of mortgagee n good fath cannot be
apped and w not beneft a mortgagee no
matter how arge s hs or her reservor of good
fath and dgence. Such mortgage s vod and
cannot pre|udce the regstered owner whose
sgnature to the deed s fasfed. When the
nstrument presented s forged, even f
accompaned by the owners dupcate
certfcate of tte, the regstered owner does
not ose hs tte, and nether does the assgnee
n the forged deed acqure any rght or tte to
the property. An nnocent purchaser for vaue s
one who purchases a tted and bay vrtue of a
deed executed by the regstered owner hmsef
not a forged deed.
Newspaper of Genera Crcuaton
PEREZ V PEREZ (2005)
To be newspaper of genera crcuaton, t s
enough that t s pubshed for the
dssemnaton of oca news and genera
nformaton; that t has a bona fde subscrpton
st of payng subscrbers and that t s pubshed
at reguar ntervas.
The newspaper must not aso be devoted to the
nterests or pubshed for the entertanment of a
partcuar cass, professon, trade, cang, race,
or regous denomnaton. The newspaper need
not have the argest crcuaton as ong as t s
of genera crcuaton.
In ths case, the Oongapo News was the ony
newspaper n genera crcuaton n Bataan at
the tme the notce of aucton was pubshed
Waver By Partes Of Postng And Pubcaton
Requrements Vod
PNB V NEPOMUCENO PRODUCTlONS, lNC.
(2002)
FACTS: Pettoner PNB granted respondents a 4
Mon Pesos credt ne to fnance the fmng of
the move "Pacfc Connecton." The oan was
secured by mortgages on respondents rea and
persona propertes, to wt: (1) the Maugay
property; (2) the Forbes property; and (3)
severa moton pcture equpments. The credt
ne was ater ncreased to 6 Mon Pesos and
fnay to 7.5 Mon Pesos. Respondents
defauted n ther obgaton. Pettoner sought
forecosure of the mortgaged propertes. The
aucton sae was re-schedued severa tmes
wthout need of repubcaton of the notce of
sae, as stpuated n the Agreement to
Postpone Sae, unt fnay, the aucton sae
proceeded, wth pettoner as the hghest bdder
n the amount of P10,432,776.97. Aggreved,
respondents fed a Cv Case wth the RTC, an
acton for annument of forecosure sae and
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damages wth n|uncton. Respondents
contended that the forecosure sae s nu and
vod because: (1) the obgaton s yet to mature
as there were negotatons for an addtona
oan amount; (2) lack of publication; (3) the
purchase prce was grossy nadequate and
unconsconabe; and (4) the forecosure
proceedngs were ntated by pettoner n bad
fath.
RTC ordered the annument and settng asde of
the forecosure proceedngs and aucton sae on
the ground that there was lack of
publication of the notice of sale. Pettoner
appeaed to the CA. CA dsmssed pettoners
appea wth regard to the Forbes Park property
as the same was aready the sub|ect of a Deed
of Reconveyance executed by pettoner n
favor of respondents as we as a Compromse
Agreement dated between the same partes.
As to the Maugay property, CA affrmed the
RTC decson.
ISSUE: WON the partes to the mortgage can
vady wave the postng and pubcaton
requrements mandated by Act No. 3135.
HELD NO. Act. No. 3135, as amended,
governng extra|udca forecosure of
mortgages on rea property s specfc wth
regard to the postng and pubcaton
requrements of the notce of sae, to wt:
"Sec. 3. Notce sha be gven by postng notces
of the sae for not ess than twenty days n at
east three pubc paces of the muncpaty or
cty where the property s stuated, and f such
property s worth more than four hundred
pesos, such notce sha aso be pubshed once
a week for at east three consecutve weeks n a
newspaper of genera crcuaton n the
muncpaty or cty."
On ths score, t s we setted that what Act No.
3135 requres s: (1) the postng of notces of
sae n three pubc paces; and, (2) the
pubcaton of the same n a newspaper of
genera crcuaton. Faure to pubsh the notce
of sae consttutes a |ursdctona defect, whch
nvadates the sae. Pettoner and
respondents have absoutey no rght to wave
the postng and pubcaton requrements of Act
No. 3135. Whe t s estabshed that rghts
may be waved, Artce 6 of the Cv Code
expcty provdes that such waver s sub|ect to
the condton that t s not contrary to aw,
pubc order, pubc pocy, moras, or good
customs, or pre|udca to a thrd person wth a
rght recognzed by aw.
The prncpa ob|ect of a notce of sae n a
forecosure of mortgage s not so much to notfy
the mortgagor as to nform the pubc generay
of the nature and condton of the property to
be sod, and of the tme, pace, and terms of the
sae. Notces are gven to secure bdders and
prevent a sacrfce of the property. Ceary, the
statutory requrements of postng and
pubcaton are mandated, not for the
mortgagors beneft, but for the pubc or thrd
persons. In fact, persona notce to the
mortgagor n extra|udca forecosure
proceedngs s not even necessary, uness
stpuated. As such, t s mbued wth pubc
pocy consderatons and any waver thereon
woud be nconsstent wth the ntent and etter
of Act No. 3135. Moreover, statutory provsons
governng pubcaton of notce of mortgage
forecosure saes must be strcty comped wth
and sght devatons therefrom w nvadate
the notce and render the sae at the very east
vodabe.
Thus, n the recent case of Deveopment Bank
of the Phppnes v. Agurre, the forecosure
sae hed more than two (2) months after the
pubshed date of sae was consdered vod for
ack of repubcaton. Smary, n the nstant
case, the ack of repubcaton of the notce of
the sub|ect forecosure sae renders t vod.
OUANO V CA (2003)
FACTS: |ueta M. Ouano obtaned a oan from
the PNB n the amount of P104,280.00. As
securty for sad oan, she executed a rea
estate mortgage over two parces of and. She
defauted on her obgaton. PNB fed a petton
for extra|udca forecosure wth the Cty Sherff
of Mandaue Cty. The sherff prepared a notce
of sae settng the date of pubc aucton of the
two parces of and on December 5, 1980 at
9:00 a.m. to 4:00 p.m. He caused the notce to
be pubshed n the Cebu Day Tmes, a
newspaper of genera crcuaton n Mandaue
Cty, n ts ssues of November 13, 20 and 27,
1980. He kewse posted copes thereof n
pubc paces n Mandaue Cty and n the pace
where the propertes are ocated. However, the
sae as schedued and pubshed dd not take
pace as the partes, on four separate dates,
executed Agreements to Postpone Sae
(Agreements). These Agreements were
addressed to the sherff, requestng the atter to
defer the aucton sae to another date at the
same tme and pace, "wthout any further
repubcaton of the Notce." In a the
postponements, no new notce of sae was
ssued, nor was there any repubcaton or
repostng of notce for the reschedued dates.
Fnay, on May 29, 1981, the sherff conducted
the aucton sae, awardng the two parces of
and to PNB, the ony bdder. He executed a
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Certfcate of Sae certfyng the sae for and n
consderaton of P195, 510.50.
As |ueta faed to redeem the propertes wthn
the one year perod from regstraton of sae,
PNB consodated ts tte on February 12, 1983.
On February 23 of the same year, t conveyed
the propertes to Afredo Ouano, the brother of
|ueta, under a Deed of Promse to Se payabe
n fve years. On March 28, 1983, |ueta sent
demand etters to PNB and Ouano, pontng out
rreguartes n the forecosure sae. On Apr
18, 1983, |ueta fed a compant wth the RTC
of Cebu for the nufcaton of the May 29, 1981
forecosure sae. Ouano fed a moton for
eave to ntervene, and fed hs Answer n
Interventon to protect hs rghts over the
propertes.
Whe the case was pendng, on February 25,
1986, PNB executed a Deed of Sae n favor of
Ouano. The Regster of Deeds of Mandaue Cty
accordngy canceed the TCTs n PNBs name
and ssued n eu thereof TCTs n the name of
pettoner over the two parces of and. On
|anuary 29, 1990, the Regona Tra Court of
Cebu rendered a decson n favor of |ueta,
hodng that the ack of repubcaton rendered
the forecosure sae vod. Not satsfed, PNB
and Ouano brought the case to the CA. In ts
decson, sad court affrmed the tra courts
rung on the same ground that there was no
compance wth the mandatory requrements of
postng and pubcaton of notce of sae. Ouano
fed a moton for reconsderaton, whch was
dened for ack of mert by the same court on
Apr 15, 1997.
ISSUE: WON requrements of Act No. 3135 were
comped wth n the May 29, 1981 forecosure
sae
HELD: NO. Act No. 3135 (as amended by Act
No. 4118) SEC 3, whch provdes:
SEC. 3. Notce sha be gven by postng notces
of the sae for not ess than twenty (20) days n
at east three pubc paces of the muncpaty
or cty where the property s stuated, and f
such property s worth more than four hundred
pesos, such notce sha aso be pubshed once
a week for at east three consecutve weeks n a
newspaper of genera crcuaton n the
muncpaty of cty.
It s a we-setted rue that statutory provsons
governng pubcaton of notce of mortgage
forecosure saes must be strictly complied
with, and that even sght devatons therefrom
w nvadate the notce and render the sae at
east vodabe. Faure to advertse a mortgage
forecosure sae n compance wth statutory
requrements consttutes a |ursdctona defect
nvadatng the sae. Consequenty, such defect
renders the sae absoutey vod and no tte
passes.
Ouano, however, nssts that there was
substanta compance wth the pubcaton
requrement, consderng that pror pubcaton
and postng of the notce of the frst date were
made.
In Tambunting v. Court of Appeals, we hed that
repubcaton n the manner prescrbed by Act
No. 3135 s necessary for the vadty of a
postponed extra|udca forecosure sae. Thus
we stated:
Where requred by the statute or by the terms
of the forecosure decree, pubc notce of the
pace and tme of the mortgage forecosure sae
must be gven, a statute requrng t beng hed
appcabe to subsequent saes as we as to the
frst advertsed sae of the property
Ouano further contends that repubcaton may
be waved vountary by the partes.
Ths argument has no bass n aw.
See PNB vs. Nepomuceno
The prncpa ob|ect of a notce of sae n a
forecosure of mortgage s not so much to notfy
the mortgagor as to nform the pubc generay
of the nature and condton of the property to
be sod, and of the tme, pace, and terms of the
sae. Notces are gven to secure bdders and
prevent a sacrfce of the property. Ceary, the
statutory requrements of postng and
pubcaton are mandated, not for the
mortgagors beneft, but for the pubc or thrd
persons. In fact, persona notce to the
mortgagor n extra|udca forecosure
proceedngs s not even necessary, uness
stpuated. As such, t s mbued wth pubc
pocy consderatons and any waver thereon
woud be nconsstent wth the ntent and etter
of Act No. 3135. Pubcaton, therefore, s
requred to gve the forecosure sae a
reasonaby wde pubcty such that those
nterested mght attend the pubc sae. To aow
the partes to wave ths |ursdctona
requrement woud resut n convertng nto a
prvate sae what ought to be a public aucton.
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Moreover, assumng arguendo that the wrtten
wavers are vad, we fnd notceabe faws that
woud nevertheess nvadate the forecosure
proceedngs. First, the Agreements, as worded,
ony waved "further repubcaton of the notce
of sae." Nothng n the Agreements ndcates
that the partes kewse dspensed wth the
repostng of the notces of sae. As there was no
repostng of notce of the May 29, 1981 sae,
the forecosure fe short of the requrements of
Act No. 3135. 5econd, we observe that the
Agreements were executed and fed wth the
sherff severa days after each reschedued
date. The frst agreement was tmey fed, two
days pror to the orgnay schedued sae on
December 5, 1980. The subsequent
agreements, however, was executed and fed
severa days after the reschedued saes. On the
reschedued dates, therefore, no pubc sae
occurred, nor was there any request to
postpone fed wth the sherff, except for the
frst one. In short, the Agreements are ceary
defectve for havng been beatedy executed
and fed wth the sherff. PNB s at faut. It s the
mortgagee who causes the mortgaged property
to be sod, and the date of sae s fxed upon hs
nstructon. PNBs nacton on the schedued
date of sae and beated fng of requests to
postpone may be deemed as an abandonment
of the petton to forecose t fed wth the
sherff. Consequenty, ts rght to forecose the
mortgage based on sad petton apsed.
Ouano asserts that Rue 39, SEC 24 of the Rues
of Court, whch aows ad|ournment of executon
saes by agreement of the partes shoud be
apped.
The sad provson provdes:
Sec. 24. Adjournment of 5ale - By wrtten
consent of debtor and credtor, the offcer may
ad|ourn any sae upon executon to any date
agreed upon n wrtng by the partes. Wthout
such agreement, he may ad|ourn the sae from
day to day, f t becomes necessary to do so for
ack of tme to compete the sae on the day
fxed n the notce.
Dstncton shoud be made of the three
dfferent knds of saes under the aw, namey:
an ordnary executon sae (ROC Rue 39)
a |udca forecosure sae (ROC Rue 68)
an extra|udca forecosure sae (Act 3135)
A dfferent set of aw appes to each cass of
sae mentoned. The cted provson n the
Rues of Court hence does not appy to an
extra|udca forecosure sae. Moreover, even
assumng that the aforected provson appes,
a t authorzes s the ad|ournment of the
executon sae by agreement of the partes.
Nowhere does t state that repubcaton and
repostng of notce for the postponed sae may
be waved. Thus, t cannot, by any means,
sancton the waver n the case at bar.
Pubcaton Of Notce Of Forecosure Sae More
Than Suffcent Compance Wth The Postng
Notce Requrement Of The Law
OLlZON V CA(1994)
We take |udca notce of the fact that
newspaper pubcatons have more far-reachng
effects than postng on buetn boards n pubc
paces. There s a greater probabty that an
announcement or notce pubshed n a
newspaper of genera crcuaton, whch s
dstrbuted natonwde, sha have a readershp
of more peope than that posted n a pubc
buetn board, no matter how strategc ts
ocaton may be, whch caters ony to a mted
few. Hence, the pubcaton of the notce of sae
n the newspaper of genera crcuaton aone s
more than suffcent compance wth the notce-
postng requrement of the aw. By such
pubcaton, a reasonaby wde pubcty had
been effected such that those nterested mght
attend the pubc sae, and the purpose of the
aw had been thereby subserved.
The ob|ect of a notce of sae s to nform the
pubc of the nature and condton of the
property to be sod, and of the tme, pace and
terms of the sae. Notces are gven for the
purpose of securng bdders and to prevent a
sacrfce of the property. If these ob|ects are
attaned, mmatera errors and mstakes w
not affect the suffcency of the notce; but f
mstakes or omssons occur n the notces of
sae, whch are cacuated to deter or msead
bdders, to deprecate the vaue of the property,
or to prevent t from brngng a far prce, such
mstakes or omssons w be fata to the
vadty of the notce, and aso to the sae made
pursuant thereto.
In the nstant case, the aforesad ob|ectve was
attaned snce there was suffcent pubcty of
the sae through the newspaper pubcaton.
There s competey no showng that the
property was sod for a prce far beow ts vaue
as to nsnuate any bad fath, nor was there any
showng or even an ntmaton of couson
between the sherff who conducted the sae and
respondent bank. Ths beng so, the aeged
non-compance wth the postng requrement,
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even f true, w not |ustfy the settng asde of
the sae.
Forecosure Vod If Sae Does Not Take Pace On
The Date Specfed In Pubshed Notce
DBP V AGUlRRE (2001)
Faure to post notce s not per se a ground for
nvadatng the sae, provded notce s duy
pubshed n a newspaper of genera crcuaton.
In Ozon vs. CA, the Court hed that newspaper
have more-far-reachng effects than postng on
buetn boards n pubc paces. Because of the
greater probabty of readershp of more peope
and that newspapers are dstrbuted
natonwde, there s a reasonaby wde pubcty.
Those nterested mght attend the pubc sae.
Pubcaton n the newspaper of genera
crcuaton aone s more than suffcent
compance wth the notce-postng requrement
of the aw.
Here, the sae was hed more than two months
after the pubshed date of the sae, renderng
the sae vod. In Masantol Rural 8ank, lnc. v.
CA the Court stated that faure to pubsh the
notce of aucton sae as requred by the statute
consttutes a |ursdctona defect whch
nvadates the sae. Masanto squarey appes.
Athough ack of repubcaton of notce of sae
has not been rased, SC may rue on the
reevant ssue of DBPs ack of |ursdcton to
hod the forecosure sae.
Repubcaton Of Notce Of Sae
DBP V CA (2003)
Postng requrement was comped wth n ths
case but not the pubcaton requrement. DBP
pubshed the notce of aucton sae schedued
on 12 August 1986. However, no aucton sae
took pace on 12 August 1986 because DBP, at
the nstance of ERHC, agreed to postpone the
same to 11 September 1986.
The Court hed recenty n Ouano v. Court of
Appeas that repubcaton n the manner
prescrbed by Act No. 3135 s necessary for the
vadty of a postponed extra|udca forecosure
sae. Another pubcaton s requred n case the
aucton sae s reschedued, and the absence of
such repubcaton nvadates the forecosure
sae.
The Court aso rued n Ouano that the partes
have no rght to wave the pubcaton
requrement n Act No. 3135.
Pubcaton, therefore, s requred to gve the
forecosure sae a reasonaby wde pubcty
such that those nterested mght attend the
pubc sae. To aow the partes to wave ths
|ursdctona requrement woud resut n
convertng nto a prvate sae what ought to be
a pubc aucton.
Forecosure Of Mortgage Arsng Out Of A
Settement Of Estate Not Covered By Act 3135
PNB V CA (2001)
WON Act 3135 s appcabe n the case? NO.
WON PNB may st recover defcency from the
estate? NO. Snce t eected to extra-|udcay
forecose the mortgage.
The case at bar nvoves a forecosure of
mortgage arsng out of a settement of estate,
wheren the admnstrator mortgaged a
property beongng to the estate of the
decedent, pursuant to an authorty gven by the
probate court. The Rues of Court on Speca
Proceedngs comes nto pay decsvey. SEC 7,
Rue 86 of the Rues of Court s appropratey
appcabe to the case at hand and not Act
3135.
Case aw now hods that ths rue grants to the
mortgagee three dstnct, ndependent and
mutuay excusve remedes that can be
aternatvey pursued by the mortgagee credtor
for the satsfacton of hs credt n case the
mortgagor des, among them:
1. To wave the mortgage and cam the entre
debt from the estate of the mortgagor as an
ordnary cam;
2. To forecose the mortgage |udcay and
prove any defcency as an ordnary cam; and
3. To rey on the mortgage excusvey,
forecosng the same at any tme before t s
barred by prescrpton wthout rght to fe a
cam for defcency.
The pan resut of adoptng the ast mode of
forecosure, whch PNB dd n ths case, s that
the credtor waves hs rght to recover any
defcency from the estate.
Inadequacy of Bd Prce
VALMONTE V CA (1999)
It s we-setted that when there s rght to
redeem, nadequacy of prce s of no moment
for the reason that the |udgment debtor has
aways had the chance to redeem and reacqure
the property. In fact, the property may be sod
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for ess of ts far market vaue precsey
because the esser the prce, the easer for the
owner to effect redempton.
Issuance Of A Wrt Of Possesson
SAMSON V RlVERA (2004)
Ths Court has consstenty hed that the duty of
the tra court to grant a wrt of possesson s
mnstera. Such wrt ssues as a matter of
course upon the fng of the proper moton and
the approva of the correspondng bond. No
dscreton s eft to the tra court. Any queston
regardng the reguarty and vadty of the sae,
as we as the consequent canceaton of the
wrt, s to be determned n a subsequent
proceedng as outned n SEC 8 of Act 3135.
Such queston cannot be rased to oppose the
ssuance of the wrt, snce the proceedng s ex
parte. The recourse s avaabe even before the
expraton of the redempton perod provded by
aw and the Rues of Court.
The purchaser, who has a rght to possesson
that extends after the expraton of the
redempton perod, becomes the absoute
owner of the property when no redempton s
made. Hence, at any tme foowng the
consodaton of ownershp and the ssuance of
a new transfer certfcate of tte n the name of
the purchaser, he or she s even more entted
to possesson of the property. In such a case,
the bond requred under SEC 7 of Act 3135 s no
onger necessary, snce possesson becomes an
absoute rght of the purchaser as the confrmed
owner.
Ths Court has ong setted that a pendng
acton for annument of mortgage or forecosure
does not stay the ssuance of a wrt of
possesson. Therefore, the contenton of
pettoners that the RTC shoud have
consodated Cv Case No. 01-6219 wth LR
Case No. 01-2698 and resoved the annument
case pror to the ssuance of the Wrt of
Possesson s unavang.
DBP V SPOUSES GATAL (2005)
WON the RTC vady dsmssed the petton for
wrt of possesson on the ground of Lts
Pendenta gven that a compant for n|uncton
wth TRO was pendng, n whch acton sought
to decare the sae to Torrefranca as vod and to
uphod the spouses rght to pre-empton. NO.
The rghts asserted and the reefs sought by
the partes n both cases are not dentca. Thus,
Lts Pendenta s unavang.
Sec 33, Rue 39 of the ROC: f no redempton be
made wthn a year from the date of the
regstraton of the certfcate of sae, the
purchaser s entted to a conveyance and
possesson of the property,
Here, no redempton was made wthn a year
from |anuary 1996. So n August, 1997, more
than a year after, DBP fed a petton for wrt of
possesson. Ths s n order.
Where, as here, the tte s consodated n the
name of the mortgagee, the wrt of possesson
becomes a matter of rght on the part of the
mortgagee, and a mnstera duty on the part of
the court to ssue the same.
The pendency of a separate cv sut
questonng the vadty of the sae of the
mortgaged property cannot bar the ssuance of
the wrt of possesson.
Postng Of Bond Not Necessary If Wrt Of
Possesson Apped For After Ownershp Has
Vested On The Credtor-Mortgagee
METROPOLlTAN BANK AND TRUST
COMPANY V SPOUSES BANCE (2008)
The wrt of possesson was not rreguar despte
the fact that pettoner dd not post a bond. The
postng of a bond as a condton for the
ssuance of the wrt of possesson becomes
necessary ony f t s apped for wthn one year
from the regstraton of the sae wth the
regster of deeds, i.e., durng the redempton
perod nasmuch as ownershp has not yet
vested on the credtor-mortgagee. After the
one-year perod, and no redempton was made,
the mortgagor oses a nterest over t. In ths
case, respondents were aready strpped of
ther rghts over the propertes when they faed
to redeem the same wthn one year from May
3, 1999, the date of regstraton of the sae.
Hence, when pettoner apped for the wrt after
the expraton of the redempton perod there
was even more reason to ssue the wrt.
Excepton To The Rue That Issuance Of Wrt Of
Possesson Mnstera And May Be Done Ex
Parte
CHlNA BANKlNG CORP V SPOUSES LOZADA
(2008)
The excepton provded under SEC 33 of Rue
39 of the Revsed Rues of Court (to the genera
rue that ssuance of a wrt of possesson s
mnstera and may be done ex parte)
contempates a stuaton n whch a thrd party
hods the property by adverse tte or rght,
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such as that of a co-owner, tenant or
usufructuary. The co-owner, agrcutura
tenant, and usufructuary possess the property
n ther own rght, and they are not merey the
successor or transferee of the rght of
possesson of another co-owner or the owner of
the property. The spouses Lozada cannot cam
that ther rght of possesson over Unt No. 402
s anaogous to any of these.
It s true that n the case presenty before ths
Court, PPGI executed n favor of the spouses
Lozada the Contract to Se coverng Unt No.
402 before t consttuted n favor of CBC the
rea estate mortgages on 51 Pro|ect unts
ncudng Unt No. 402. Nonetheess, t must be
emphaszed that what PPGI executed n favor of
the spouses Lozada was a Contract to Se, a
mere promse to se, whch, at the moment of
ts executon, dd not yet transfer possesson,
much ess, tte to Unt No. 402 from PPGI to the
spouses Lozada. When PPGI consttuted the
rea estate mortgage on Unt No. 402 n favor of
CBC sx months ater, possesson of and tte to
the property st resded n PPGI. And when
PPGI subsequenty ceded possesson of Unt No.
402, upon ts competon, to the spouses
Lozada, such rght was aready burdened by the
terms and condtons of the mortgage
consttuted thereon. By merey steppng nto
the shoes of PPGI, the spouses Lozadas rght of
possesson to Unt No. 402 cannot be ess or
more than PPGIs.
The spouses Lozada, havng succeeded PPGI n
the possesson of Unt No. 402, cannot be
consdered a thrd party hodng the sad
property adversey to PPGI, the defautng
debtor/mortgagor. Resutanty, the genera
rue, and not the excepton, appes to the
nstant Petton. It was the mandatory and
mnstera duty of the Makat Cty RTC to grant
the ex parte petton of CBC and order the
ssuance of a wrt of possesson n the atters
favor over Unt No. 402. It was kewse
mandatory and mnstera for the Cerk of Court
to compy wth the Makat Cty RTC order by
ssung the wrt of possesson, and for the
Sherff to mpement the wrt by frst ssung a
notce to vacate to the occupants of Unt No.
402.
Nature Of Redempton Perod
SPOUSES LANDRlTO V CA (2005)
In Lazo v. Repubc Surety & Insurance Co., Inc.,
ths Court has made t cear that t s ony
where, by vountary agreement of the partes,
consstng of extensons of the redempton
perod, foowed by commtment by the debtor
to pay the redempton prce at a fxed date, w
the concept of ega redempton be converted
nto one of conventona redempton.
Here, there s no showng whatsoever that
pettoners agreed to pay the redempton prce.
On the contrary, ther act of fng ther
compant to decare the nuty of the
forecosure sae s ndcatve of ther refusa to
pay the redempton prce on the aeged
deadne set by the husband. At the very east,
f they so beeved that ther oan obgaton was
ony for P1,000,000.00, pettoners shoud have
made an offer to redeem wthn one (1) year
from the regstraton of the sherffs certfcate
of sae, together wth a tender of the same
amount. Ths, they never dd.
It must be remembered that the perod of
redempton s not a prescrptve perod but a
condton precedent provded by aw to restrct
the rght of the person exercsng redempton.
Correspondngy, f a person exercsng the rght
of redempton has offered to redeem the
property wthn the perod fxed, he s
consdered to have comped wth the condton
precedent prescrbed by aw and may
thereafter brng an acton to enforce
redempton. If, on the other hand, the perod s
aowed to apse before the rght of redempton
s exercsed, then the acton to enforce
redempton w not prosper, even f the acton
s brought wthn the ordnary prescrptve
perod. Moreover, the perod wthn whch to
redeem the property sod at a sherffs sae s
not suspended by the nsttuton of an acton to
annu the forecosure sae. It s cear, then, that
pettoners have ost any rght or nterest over
the sub|ect property prmary because of ther
faure to redeem the same n the manner and
wthn the perod prescrbed by aw. Ther
beated attempts to queston the egaty and
vadty of the forecosure proceedngs and
pubc aucton must accordngy fa.
One Year Of Perod Of Redempton Computed
From Date Of Regstraton Of Certfcate Of
Forecosure Sae
REYES V NOBLE]AS (1967)
Redempton s not the concern merey of the
aucton-vendee and the mortgagor, but aso of
the atters successors n nterest or any |udca
credtor or |udgment credtor of sad mortgagor,
or any person havng a en on the property
subsequent to the mortgage under whch the
property has been sod. It s precsey for ths
reason that the certfcate of sae shoud be
regstered, for ony upon such regstraton may
t egay be sad that proper notce, though
constructve, has been served unto possbe
redemptoners contempated n the aw. It s for
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ths reason that the date of sae mentoned n
SEC 6 of Act 3135 shoud be construed to mean
the date of regstraton of the certfcate of sae
n the offce of the regster of deeds concerned.
The Land Regstraton Commssoner was rght
n orderng the Regster of Deeds of Rza to
deny the regstraton of the Deed of Sae and
the Affdavt of Consodaton of Ownershp, the
smutaneous regstraton of whch documents
was sought by heren pettoner even before the
certfcate of sae ssued by the sherff was
regstered.
Extenson Of 1-Year Redempton Perod
LAZO V REPUBLlC SURETY (1970)
The partes had abandoned entrey the concept
of ega redempton n ths case and converted
t nto one of conventona redempton, n whch
the ony governng factor was the agreement
between them.
The pantffs' repeated requests for tme wthn
whch to redeem, each wth a defnte date of
expraton, generated bndng contracts when
approved by the defendant company. A
contract, needess to say, has the force of aw
between the partes. In any event, the prncpe
of estoppe woud step n to prevent the
pantffs from gong back upon ther own acts
and representatons to the pre|udce of the
other party who reed upon them. Ths s a
prncpe of equty and natura |ustce, expressy
adopted n our Cv Code (Arts. 1431 et seq.)
and artcuated as one of the concusve
presumptons n Rue 31, Sec. 3(a), of our Rues
of Court as foows:
Whenever a party has, by hs own decaraton,
act, or omsson, ntentonay and deberatey
ed another to beeve a partcuar thng true,
and to act upon such beef, he cannot, n any
tgaton arsng out of such decaraton, act, or
omsson, be permtted to fasfy t.
lBAAN RURAL BANK V CA (1999)
When pettoner receved a copy of the
Certfcate of Sae regstered n the Offce of the
Regster of Deeds of Lpa Cty, t had actua and
constructve knowedge of the certfcate and ts
contents. For two years, t dd not ob|ect to the
two-year redempton perod provded n the
certfcate. Thus, t coud be sad that pettoner
consented to the two-year redempton perod
especay snce t had tme to ob|ect and dd
not. When crcumstances mpy a duty to speak
on the part of the person for whom an
obgaton s proposed, hs sence can be
construed as consent. By ts sence and
nacton, pettoner msed prvate respondents
to beeve that they had two years wthn whch
to redeem the mortgage. After the apse of two
years, pettoner s estopped from assertng that
the perod for redempton was ony one year
and that the perod had aready apsed.
The doctrne n Lazo vs. Repubc Surety and
Insurance Co., Inc. does not appy n ths case.
In that case the court hed that the one year
perod of redempton provded n Act No. 3135
s ony drectory and can be extended by
agreement of the partes. But t bears notng
that n Lazo the partes vountary agreed to
extend the redempton perod. Thus, the
concept of ega redempton was converted by
the partes n Lazo nto conventona
redempton. Ths s not so n the nstant case.
There was no vountary agreement. In fact, the
sherff unateray and arbtrary extended the
perod of redempton to two (2) years n the
Certfcate of Sae. The partes were not even
prvy to the extenson made by the sherff.
Nonetheess, as above dscussed, the bank
cannot after the apse of two years nsst that
the redempton perod was one year ony.
Addtonay, the rue on redempton s beray
nterpreted n favor of the orgna owner of a
property. The fact aone that he s aowed the
rght to redeem ceary demonstrates the
soctousness of the aw n gvng hm another
opportunty, shoud hs fortune mprove, to
recover hs ost property.
Rght Of Redempton Dstngushed From Equty
Of Redempton
HUERTA ALBA RESORT V CA (2000)
From the varous decsons, resoutons and
orders a quo t can be geaned that what
pettoner has been ad|udged to have was ony
the equty of redempton over sub|ect
propertes. On the dstncton between the
equty of redempton and rght of redempton,
the case of Gregoro Y. Lmpn vs. Intermedate
Appeate Court,7 |166 SCRA 87.| comes to the
fore:
The equty of redempton s, to be sure,
dfferent from and shoud not be confused wth
the rght of redempton.
The rght of redempton n reaton to a
mortgage - understood n the sense of a
prerogatve to re-acqure mortgaged property
after regstraton of the forecosure sae - exsts
ony n the case of the extra|udca forecosure
of the mortgage. No such rght s recognzed n
a |udca forecosure except ony where the
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mortgagee s the Phppne Natona Bank or a
bank or bankng nsttuton.
Where a mortgage s forecosed extra|udcay,
Act 3135 grants to the mortgagor the rght of
redempton wthn one (1) year from the
regstraton of the sherffs certfcate of
forecosure sae.
Where the forecosure s |udcay effected,
however, no equvaent rght of redempton
exsts. The aw decares that a |udca
forecosure sae, when confrmed by an order
of the court, x x sha operate to dvest the
rghts of a the partes to the acton and to vest
ther rghts n the purchaser, sub|ect to such
rghts of redempton as may be aowed by aw.
Such rghts exceptonay aowed by aw (.e.,
even after confrmaton by an order of the
court) are those granted by the charter of the
Phppne Natona Bank (Acts No. 2747 and
2938), and the Genera Bankng Act (R.A. 337).
These aws confer on the mortgagor, hs
successors n nterest or any |udgment credtor
of the mortgagor, the rght to redeem the
property sod on forecosure - after confrmaton
by the court of the forecosure sae - whch rght
may be exercsed wthn a perod of one (1)
year, counted from the date of regstraton of
the certfcate of sae n the Regstry of
Property.
But, to repeat, no such rght of redempton
exsts n case of |udca forecosure of a
mortgage f the mortgagee s not the PNB or a
bank or bankng nsttuton. In such a case, the
forecosure sae, when confrmed by an order
of the court. x x sha operate to dvest the
rghts of a the partes to the acton and to vest
ther rghts n the purchaser. There then exsts
ony what s known as the equty of redempton.
Ths s smpy the rght of the defendant
mortgagor to extngush the mortgage and
retan ownershp of the property by payng the
secured debt wthn the 90-day perod after the
|udgment becomes fna, n accordance wth
Rue 68, or even after the forecosure sae but
pror to ts confrmaton.
Ths s the mortgagors equty (not rght) of
redempton whch, as above stated, may be
exercsed by hm even beyond the 90-day
perod from the date of servce of the order,
and even after the forecosure sae tsef,
provded t be before the order of confrmaton
of the sae. After such order of confrmaton, no
redempton can be effected any onger.
Redempton Prce To Be Pad By
Accommodaton Mortgagors
BELO V PNB (2001)
Eduardo Beo, assgnor of the pettoners, s an
accommodaton mortgagor. Accommodaton
mortgagors as such are not n any way abe for
the payment of the oan or prncpa obgaton
of the debtor/borrower. The abty of the
accommodaton mortgagor extends ony up to
the oan vaue of ther mortgaged property and
not to the entre oan tsef. Hence, t s ony |ust
that they be aowed to redeem ther mortgaged
property by payng ony the winning bid price
plus interest at the pubc aucton sae wth
respect ony to the property beongng to the
accommodaton mortgagor.
The prncpe of ndvsbty of mortgage
contracts does not appy to the rght of
redempton of an accommodaton mortgagor
and her assgnees. Indvsbty arses ony
where there s a debt, that s, there s a debtor-
credtor reatonshp. But, ths reatonshp s
wantng n the case at bar n the sense that
pettoners are assgnees of an accommodaton
mortgagor and not of a debtor-mortgagor.
Hence, t s far and ogca to aow the
pettoners to redeem ony the property
beongng to ther assgnor, Eduardo Beo.
Wth respect to the 4 parces of and beongng
to Esabon Spouses, pettoners beng tota
strangers to sad ots ack ega personaty to
redeem the same. Far pay and |ustce demand
that respondent PNBs nterest of recoverng ts
entre bank cam shoud not be at the expense
of pettoners, as assgnees of Beo, who s not
ndebted to t.
Preservng The Rght Of Redempton Beyond
Redempton Perod
Hl-YlELD REALTY V CA (2002)
What s the redemptoners opton therefore
when the redempton perod s about to expre
and the redempton cannot take pace on
account of dsagreement over the redempton
prce?
Accordng to |ursprudence, the redemptoner
faced wth such a probem may preserve hs
rght of redempton through |udca acton
whch n every case must be fed wthn the
one-year perod of redempton. The fng of the
court acton to enforce redempton, beng
equvaent to a forma offer to redeem, woud
have the effect of preservng hs redemptve
rghts and "freezng" the expraton of the one-
year perod. Ths s a far nterpretaton
provded the acton s fed on tme and n good
fath, the redempton prce s fnay determned
and pad wthn a reasonabe tme, and the
rghts of the partes are respected.
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Stated otherwse, the foregong nterpretaton,
as apped to the case at bar, has three crtca
dmensons: (1) tmey redempton or
redempton by expraton date (or, as what
happened n ths case, the redemptoner was
forced to resort to |udca acton to "freeze" the
expraton of the redempton perod); (2) good
fath as aways, meanng, the fng of the
prvate respondents acton on August 13, 1993
must have been for the soe purpose of
determnng the redempton prce and not to
stretch the redemptve perod ndefntey; and
(3) once the redempton prce s determned
wthn a reasonabe tme, the redemptoner
must make prompt payment n fu.
In the nstant case, the respondents dd not
tender payment wthn the perod set by the
tra court. Instead, they asked for a 45-day
extenson to tender payment. Such 45-day
extenson for payment must be dened.
The pendency of the rght of redempton
depresses the market vaue of the and unt the
perod expres. Permttng prvate respondent to
fe a sut for redempton, wth ether party
unabe to foresee when fna |udgment w
come, renders meanngess the perod fxed by
the statute for effectng the redempton. It
makes the redemptve perod ndefnte and
crppes any effort of the andowner to reaze
the vaue of hs and. In the same way, the
buyer cannot mmedatey recover hs
nvestment. Thus, uness and unt the
redempton s resoved wth fnaty, both the
andowners and buyers needs cannot be met.
Pettoner and prvate respondent heren were
thus bascay posed on smar footng before
redempton. But whoever of them stands to be
rreparaby n|ured n the ong run deserves the
Courts equtabe protecton.
In the nstant case, the fact that prvate
respondent made a forma offer to redeem
before the expraton of the perod to redeem
was not squarey at ssue. The foca ssue here
s whether or not the extenson of the
redemptve perod by the tra court was we
wthn prvate respondents preserved rght to
redeem. The crcumstances ceary show t was
not.
The opportunty to redeem the sub|ect property
was never dened to prvate respondent. Hs
tmey forma offer through |udca acton to
redeem was kewse recognzed. But that s
where t ends. We cannot sancton and grant
every succeedng moton or petton - specay
f frvoous or unreasonabe - fed by hm
because ths woud manfesty and
unreasonaby deay the fna resouton of
ownershp of the sub|ect property.
In ths case, no defnte tender of payment was
made snce there s no consgnaton.
Consgnaton shoud have been made to show
good fath and fnanca capabty to redeem.
Faure to consgn was downrght refectve of
Francscos ncapabty to pay from the very
start
Case For |udca Redempton Not Fed In Good
Fath But For The Purpose Of Stretchng The
Perod Of Redempton Indefntey
TOLENTlNO V CA (2007)
The genera rue n redempton s that t s not
suffcent that a person offerng to redeem
smpy manfests hs/her desre to do so. The
statement of ntenton must be accompaned by
an actua and smutaneous tender of payment.
Ths consttutes the exercse of the rght to
repurchase. Bona fde redempton necessary
mpes a reasonabe and vad tender of the
entre purchase prce, otherwse the rue on the
redempton perod fxed by aw can easy be
crcumvented.
The records show that the correct redempton
prce had been determned pror to the fng of
the compant for |udca redempton. Pettoner
had been furnshed updated Statements of
Account specfyng the redempton prce even
pror to the consodaton of the tte of the
forecosed property n the bank's name. The
ncuson of ate payment charges, forecosure
expense, attorney's fees, qudated damages,
forecosure fee, and nterests theren was
pursuant to the Loan Agreement. Consderng
that the Loan Agreement was read and freey
adhered to by pettoner, the stpuatons
theren are bndng on her. Based on the
foregong, t s cear that pettoner dd not fe
the nstant case for |udca redempton n good
fath. It was not fed for the purpose of
determnng the correct redempton prce but to
stretch the redempton perod ndefntey,
whch s not aowed by aw.

Vl. BANGKO SENTRAL NG


PlLlPlNAS LAW
RA 7653
6.1 Topics
State Poces
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SEC 1 Declaration of Policy. - The State
sha mantan a centra monetary authorty that
sha functon and operate as an ndependent
and accountabe body corporate n the
dscharge of ts mandated responsbtes
concernng money, bankng and credt. In ne
wth ths pocy, and consderng ts unque
functons and responsbtes, the centra
monetary authorty estabshed under ths Act,
whe beng a government-owned corporaton,
sha en|oy fsca and admnstratve autonomy.
How State Poces Are To Be Acheved
SEC 2 Creation of the Bangko Sentral. -
There s hereby estabshed an ndependent
centra monetary authorty, whch sha be a
body corporate known as the Bangko Sentra ng
Ppnas, hereafter referred to as the Bangko
Sentra. The capta of the Bangko Sentra sha
be Ffty bon pesos (P50,000,000,000), to be
fuy subscrbed by the Government of the
Repubc, hereafter referred to as the
Government, Ten bon pesos
(P10,000,000,000) of whch sha be fuy pad
for by the Government upon the effectvty of
ths Act and the baance to be pad for wthn a
perod of two (2) years from the effectvty of
ths Act n such manner and form as the
Government, through the Secretary of Fnance
and the Secretary of Budget and Management,
may thereafter determne.
SEC 6. Composition of the Monetary
Board. - The powers and functons of the
Bangko Sentra sha be exercsed by the
Bangko Sentra Monetary Board, hereafter
referred to as the Monetary Board, composed of
seven (7) members apponted by the Presdent
of the Phppnes for a term of sx (6) years.
The seven (7) members are:
(a) the Governor of the Bangko Sentra, who
sha be the Charman of the Monetary Board.
The Governor of the Bangko Sentra sha be
head of a department and hs appontment sha
be sub|ect to confrmaton by the Commsson
on Appontments. Whenever the Governor s
unabe to attend a meetng of the Board, he
sha desgnate a Deputy Governor to act as hs
aternate: Provded, That n such event, the
Monetary Board sha desgnate one of ts
members as actng Charman;
(b) a member of the Cabnet to be desgnated
by the Presdent of the Phppnes. Whenever
the desgnated Cabnet Member s unabe to
attend a meetng of the Board, he sha
desgnate an Undersecretary n hs Department
to attend as hs aternate; and
(c) fve (5) members who sha come from the
prvate sector, a of whom sha serve fu-tme:
Provded, however, That of the members frst
apponted under the provsons of ths subSEC,
three (3) sha have a term of sx (6) years, and
the other two (2), three (3) years. No member
of the Monetary Board may be reapponted
more than once.
SEC 9. Disqualifications. - In addton to the
dsquafcatons mposed by Repubc Act No.
6713, a member of the Monetary Board s
dsquafed from beng a drector, offcer,
empoyee, consutant, awyer, agent or
stockhoder of any bank, quas-bank or any
other nsttuton whch s sub|ect to supervson
or examnaton by the Bangko Sentra, n whch
case such member sha resgn from, and dvest
hmsef of any and a nterests n such
nsttuton before assumpton of offce as
member of the Monetary Board.
The members of the Monetary Board comng
from the prvate sector sha not hod any other
pubc offce or pubc empoyment durng ther
tenure. No person sha be a member of the
Monetary Board f he has been connected
drecty wth any mutatera bankng or
fnanca nsttuton or has a substanta nterest
n any prvate bank n the Phppnes, wthn
one (1) year pror to hs appontment; kewse,
no member of the Monetary Board sha be
empoyed n any such nsttuton wthn two (2)
years after the expraton of hs term except
when he serves as an offca representatve of
the Phppne Government to such nsttuton.
SEC 11. Meetings. - The Monetary Board
sha meet at east once a week. The Board may
be caed to a meetng by the Governor of the
Bangko Sentra or by two (2) other members of
the Board.
The presence of four (4) members sha
consttute a quorum: Provded, That n a cases
the Governor or hs duy desgnated aternate
sha be among the four (4).
Uness otherwse provded n ths Act, a
decsons of the Monetary Board sha requre
the concurrence of at east four (4) members.
The Bangko Sentra sha mantan and preserve
a compete record of the proceedngs and
deberatons of the Monetary Board, ncudng
the tapes and transcrpts of the stenographc
notes, ether n ther orgna form or n
mcrofm.
SEC 15. Exercise of Authority. - In the
exercse of ts authorty, the Monetary Board
sha:
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(a) ssue rues and reguatons t consders
necessary for the effectve dscharge of the
responsbtes and exercse of the powers
vested upon the Monetary Board and the
Bangko Sentra. The rues and reguatons
ssued sha be reported to the Presdent and
the Congress wthn ffteen (15) days from the
date of ther ssuance;
(b) drect the management, operatons, and
admnstraton of the Bangko Sentra,
reorganze ts personne, and ssue such rues
and reguatons as t may deem necessary or
convenent for ths purpose. The ega unts of
the Bangko Sentra sha be under the excusve
supervson and contro of the Monetary Board;
(c) estabsh a human resource management
system whch sha govern the seecton, hrng,
appontment, transfer, promoton, or dsmssa
of a personne. Such system sha am to
estabsh professonasm and exceence at a
eves of the Bangko Sentra n accordance wth
sound prncpes of management.
A compensaton structure, based on |ob
evauaton studes and wage surveys an sub|ect
to the Board's approva, sha be nsttuted as
an ntegra component of the Bangko Sentra's
human resource deveopment program:
Provded, That the Monetary Board sha make
ts own system conform as cosey as possbe
wth the prncpes provded for under Repubc
Act No. 6758: Provded, however, That
compensaton and wage structure of empoyees
whose postons fa under saary grade 19 and
beow sha be n accordance wth the rates
prescrbed under Repubc Act No. 6758.
On the recommendaton of the Governor,
appont, fx the remuneratons and other
emouments, and remove personne of the
Bangko Sentra, sub|ect to pertnent cv servce
aws: Provded, That the Monetary Board sha
have excusve and fna authorty to promote,
transfer, assgn, or reassgn personne of the
Bangko Sentra and these personne actons are
deemed made n the nterest of the servce and
not dscpnary: Provded, further, That the
Monetary Board may deegate such authorty to
the Governor under such gudenes as t may
determne.
(d) adopt an annua budget for and authorze
such expendtures by the Bangko Sentra as are
n the nterest of the effectve admnstraton
and operatons of
(e) the Bangko Sentra n accordance wth
appcabe aws and reguatons; and
(f) ndemnfy ts members and other offcas of
the Bangko Sentra, ncudng personne of the
departments performng supervson and
examnaton functons aganst a costs and
expenses reasonaby ncurred by such persons
n connecton wth any cv or crmna acton,
sut or proceedngs to whch he may be, or s,
made a party by reason of the performance of
hs functons or dutes, uness he s fnay
ad|udged n such acton or proceedng to be
abe for neggence or msconduct.
In the event of a settement or compromse,
ndemnfcaton sha be provded ony n
connecton wth such matters covered by the
settement as to whch the Bangko Sentra s
advsed by externa counse that the person to
be ndemnfed dd not commt any neggence
or msconduct.
The costs and expenses ncurred n defendng
the aforementoned acton, sut or proceedng
may be pad by the Bangko Sentra n advance
of the fna dsposton of such acton, sut or
proceedng upon recept of an undertakng by
or on behaf of the member, offcer, or
empoyee to repay the amount advanced
shoud t utmatey be determned by the
Monetary Board that he s not entted to be
ndemnfed as provded n ths subSEC.
SEC 16. Responsibility. - Members of the
Monetary Board, offcas, examners, and
empoyees of the Bangko Sentra who wfuy
voate ths Act or who are guty of neggence,
abuses or acts of mafeasance or msfeasance
or fa to exercse extraordnary dgence n the
performance of h dutes sha be hed abe for
any oss or n|ury suffered by the Bangko
Sentra or other bankng nsttutons as a resut
of such voaton, neggence, abuse,
mafeasance, msfeasance or faure to exercse
extraordnary dgence.
Smar responsbty sha appy to members,
offcers, and empoyees of the Bangko Sentra
for:
(1) the dscosure of any nformaton of a
confdenta nature, or any nformaton on the
dscussons or resoutons of the Monetary
Board, or about the confdenta operatons of
the Bangko Sentra, uness the dscosure s n
connecton wth the performance of offca
functons wth the Bangko Sentra, or s wth
pror authorzaton of the Monetary Board or the
Governor; or
(2) the use of such nformaton for persona gan
or to the detrment of the Government, the
Bangko Sentra or thrd partes: Provded,
however, That any data or nformaton requred
to be submtted to the Presdent and/or the
Congress, or to be pubshed under the
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provsons of ths Act sha not be consdered
confdenta.
SEC 18. Representation of the Monetary
Board and the Bangko Sentral. - The
Governor of the Bangko Sentra sha be the
prncpa representatve of the Monetary Board
and of the Bangko Sentra and, n such capacty
and n accordance wth the nstructons of the
Monetary Board, he sha be empowered to:
(a) represent the Monetary Board and the
Bangko Sentra n a deangs wth other offces,
agences and nstrumentates of the
Government and a other persons or enttes,
pubc or prvate, whether domestc, foregn or
nternatona;
(b) sgn contracts entered nto by the Bangko
Sentra, notes and securtes ssued by the
Bangko Sentra, a reports, baance sheets,
proft and oss statements, correspondence and
other documents of the Bangko Sentra.
The sgnature of the Governor may be n
facsme whenever approprate;
(c) represent the Bangko Sentra, ether
personay or through counse, ncudng prvate
counse, as may be authorzed by the Monetary
Board, n any ega proceedngs, acton or
specazed ega studes; and
(d) deegate hs power to represent the Bangko
Sentra, as provded n subSECs (a), (b) and (c)
of ths SEC, to other offcers upon hs own
responsbty: Provded, however, That n order
to preserve the ntegrty and the prestge of hs
offce, the Governor of the Bangko Sentra may
choose not to partcpate n premnary
dscussons wth any mutatera bankng or
fnanca nsttuton on any negotatons for the
Government wthn or outsde the Phppnes.
Durng the negotatons, he may nstead be
represented by a permanent negotator.
SEC 47. Appointment and Personnel. - The
Charman of the Commsson on Audt sha act
as the ex offco audtor of the Bangko Sentra
and, as such, he s empowered and authorzed
to appont a representatve who sha be the
audtor of the Bangko Sentra and, n
accordance wth aw, fx hs saary, and to
appont and fx saares and number of
personne to assst sad representatve n hs
work. The saares and other emouments sha
be pad by the Commsson. The audtor of the
Bangko Sentra and personne under hm may
be removed ony by the Charman of the
Commsson.
The representatve of the Charman of the
Commsson must be a certfed pubc
accountant wth at east ten (10) years
experence as such. No reatve of any member
of the Monetary Board or the Charman of the
Commsson wthn the sxth degree of
consangunty or affnty sha be apponted
such representatve.
How The BSP Handes In Dstress?
Conservatorship (RA 7653 SEC Z9 and RA
897J SEC 67)
SEC 29. Appointment of Conservator. -
Whenever, on the bass of a report submtted
by the approprate supervsng or examnng
department, the Monetary Board fnds that a
bank or a quas-bank s n a state of contnung
nabty or unwngness to mantan a condton
of qudty deemed adequate to protect the
nterest of depostors and credtors, the
Monetary Board may appont a conservator wth
such powers as the Monetary Board sha deem
necessary to take charge of the assets,
abtes, and the management thereof,
reorganze the management, coect a mones
and debts due sad nsttuton, and exercse a
powers necessary to restore ts vabty. The
conservator sha report and be responsbe to
the Monetary Board and sha have the power to
overrue or revoke the actons of the prevous
management and board of drectors of the bank
or quas-bank. The conservator shoud be
competent and knowedgeabe n bank
operatons and management.
The conservatorshp sha not exceed one (1)
year.
The conservator sha receve remuneraton to
be fxed by the Monetary Board n an amount
not to exceed two-thrds (2/3) of the saary of
the presdent of the nsttuton n one (1) year,
payabe n tweve (12) equa monthy
payments: Provded, That, f at any tme wthn
one-year perod, the conservatorshp s
termnated on the ground that the nsttuton
can operate on ts own, the conservator sha
receve the baance of the remuneraton whch
he woud have receved up to the end of the
year; but f the conservatorshp s termnated
on other grounds, the conservator sha not be
entted to such remanng baance. The
Monetary Board may appont a conservator
connected wth the Bangko Sentra, n whch
case he sha not be entted to receve any
remuneraton or emoument from the Bangko
Sentra durng the conservatorshp. The
expenses attendant to the conservatorshp sha
be borne by the bank or quas-bank concerned.
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The Monetary Board sha termnate the
conservatorshp when t s satsfed that the
nsttuton can contnue to operate on ts own
and the conservatorshp s no onger necessary.
The conservatorshp sha kewse be
termnated shoud the Monetary Board, on the
bass of the report of the conservator or of ts
own fndngs, determne that the contnuance n
busness of the nsttuton woud nvove
probabe oss to ts depostors or credtors, n
whch case the provsons of SEC 30 sha appy.
SEC 67. Conservatorship. - The grounds
and procedures for pacng a bank under
conservatorshp, as we as, the powers and
dutes of the conservator apponted for the
bank sha be governed by the provsons of SEC
29 and the ast two paragraphs of SEC 30 of the
New Centra
Bank Act: Provded, That ths SEC sha aso
appy to conservatorshp proceedngs of quas-
banks. (n)
Closure (SEC 30 and R.A. 879J SECs 53 &
56.4)
SEC 30. Proceedings in Receivership and
Liquidation. - Whenever, upon report of the
head of the supervsng or examnng
department, the Monetary Board fnds that a
bank or quasbank:
(a) s unabe to pay ts abtes as they
become due n the ordnary course of
busness: Provded, That ths sha
not ncude nabty to pay caused by
extraordnary demands nduced by
fnanca panc n the bankng
communty;
(b) by the Bangko Sentra, to meet ts
abtes; or
(c) cannot contnue n busness wthout
nvovng probabe osses to ts
depostors or credtors; or
(d)has wfuy voated a cease and
desst order under SEC 37 that has
become fna, nvovng acts or
transactons whch amount to fraud
or a dsspaton of the assets of the
nsttuton; n whch cases, the
Monetary Board may summary and
wthout need for pror hearng forbd
the nsttuton from dong busness n
the Phppnes and desgnate the
Phppne Depost Insurance
Corporaton as recever of the
bankng nsttuton.
For a quas-bank, any person of recognzed
competence n bankng or fnance may be
desgned as recever.
The recever sha mmedatey gather and take
charge of a the assets and abtes of the
nsttuton, admnster the same for the beneft
of ts credtors, and exercse the genera powers
of a recever under the Revsed Rues of Court
but sha not, wth the excepton of
admnstratve expendtures, pay or commt any
act that w nvove the transfer or dsposton of
any asset of the nsttuton: Provded, That the
recever may depost or pace the funds of the
nsttuton n nonspecuatve nvestments. The
recever sha determne as soon as possbe,
but not ater than nnety (90) days from take
over, whether the nsttuton may be
rehabtated or otherwse paced n such a
condton so that t may be permtted to resume
busness wth safety to ts depostors and
credtors and the genera pubc: Provded, That
any determnaton for the resumpton of
busness of the nsttuton sha be sub|ect to
pror approva of the Monetary Board.
If the recever determnes that the nsttuton
cannot be rehabtated or permtted to resume
busness n accordance wth the next precedng
paragraph, the Monetary Board sha notfy n
wrtng the board of drectors of ts fndngs and
drect the recever to proceed wth the
qudaton of the
nsttuton. The recever sha:
1. fe ex parte wth the proper regona
tra court, and wthout requrement
of pror notce or any other acton, a
petton for assstance n the
qudaton of the nsttuton pursuant
to a qudaton pan adopted by the
Phppne Depost Insurance
Corporaton for genera appcaton to
a cosed banks. In case of quas-
banks, the qudaton pan sha be
adopted by the Monetary Board.
Upon acqurng |ursdcton, the court
sha, upon moton by the recever
after due notce, ad|udcate dsputed
cams aganst the nsttuton, assst
the enforcement of ndvdua
abtes of the stockhoders,
drectors and offcers, and decde on
other ssues as may be matera to
mpement the qudaton pan
adopted. The recever sha pay the
cost of the proceedngs from the
assets of the nsttuton.
2. convert the assets of the nsttutons
to money, dspose of the same to
credtors and other partes, for the
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purpose of payng the debts of such
nsttuton n accordance wth the
rues on concurrence and preference
of credt under the Cv Code of the
Phppnes and he may, n the name
of the nsttuton, and wth the
assstance of counse as he may
retan, nsttute such actons as may
be necessary to coect and recover
accounts and assets of, or defend
any acton aganst, the nsttuton.
The assets of an nsttuton under
recevershp or qudaton sha be
deemed n custodia legis n the
hands of the recever and sha, from
the moment the nsttuton was
paced under such recevershp or
qudaton, be exempt from any
order of garnshment, evy,
attachment, or executon.
The actons of the Monetary Board taken under
ths SEC or under SEC 29 of ths Act sha be
fna and executory, and may not be restraned
or set asde by the court except on petton for
certiorari on the ground that the acton taken
was n excess of |ursdcton or wth such grave
abuse of dscreton as to amount to ack or
excess of |ursdcton. The petton for certiorari
may ony be fed by the stockhoders of record
representng the ma|orty of the capta stock
wthn ten (10) days from recept by the board
of drectors of the nsttuton of the order
drectng recevershp, qudaton or
conservatorshp. The desgnaton of a
conservator under SEC 29 of ths Act or the
appontment of a recever under ths SEC sha
be vested excusvey wth the Monetary Board.
Furthermore, the desgnaton of a conservator s
not a precondton to the desgnaton of a
recever.
SEC 53. Other Banking Services. - In
addton to the operatons specfcay
authorzed n ths Act, a bank may perform the
foowng servces:
53.1. Receve n custody funds, documents and
vauabe ob|ects;
53.2. Act as fnanca agent and buy and se, by
order of and for the account of ther customers,
shares, evdences of ndebtedness and a types
of securtes;
53.3. Make coectons and payments for the
account of others and perform such other
servces for ther customers as are not
ncompatbe wth bankng busness;
53.4. Upon pror approva of the Monetary
Board, act as managng agent, advser,
consutant or admnstrator of nvestment
management/advsory/consutancy accounts;
and
53.5. Rent out safety depost boxes.
The bank sha perform the servces permtted
under SubSECs 53.1, 53.2, 53.3 and 53.4 as
depostary or as an agent. Accordngy, t sha
keep the funds, securtes and other effects
whch t receves duy separate from the bank's
own assets and abtes.
The Monetary Board may reguate the
operatons authorzed by ths SEC n order to
ensure that such operatons do not endanger
the nterests of the depostors and other
credtors of the bank.
In case a bank or quas-bank notfes the
Bangko Sentra or pubcy announces a bank
hoday, or n any manner suspends the
payment of ts depost abtes contnuousy
for more than thrty (30) days, the Monetary
Board may summary and wthout need for
pror hearng cose such bankng nsttuton and
pace t under recevershp of the Phppne
Depost Insurance Corporaton. (72a)
SEC 56. Conducting Business in an Unsafe
or Unsound Manner. - In determnng
whether a partcuar act or omsson, whch s
not otherwse prohbted by any aw, rue or
reguaton affectng banks, quas-banks or trust
enttes, may be deemed as conductng
busness n an unsafe or unsound manner for
purposes of ths SEC, the Monetary Board sha
consder any of the foowng crcumstances:
56.4. The act or omsson nvoves enterng nto
any contract or transacton manfesty and
grossy dsadvantageous to the bank, quas-
bank or trust entty, whether or not the drector
or offcer profted or w proft thereby.
Whenever a bank, quas-bank or trust entty
perssts n conductng ts busness n an unsafe
or unsound manner, the Monetary Board may,
wthout pre|udce to the admnstratve
sanctons provded n SEC 37 of the New Centra
Bank Act, take acton under SEC 30 of the same
Act and/or mmedatey excude the errng bank
from cearng, the provsons of aw to the
contrary notwthstandng. (n)
Receivership ( SEC 30; and R.A. 879J SECs
69-70)
SEC 30. Proceedings in Receivership and
Liquidation. - Whenever, upon report of the
head of the supervsng or examnng
department, the Monetary Board fnds that a
bank or quasbank:
(a) s unabe to pay ts abtes as they
become due n the ordnary course of
busness: Provded, That ths sha
not ncude nabty to pay caused by
extraordnary demands nduced by
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fnanca panc n the bankng
communty;
(b) by the Bangko Sentra, to meet ts
abtes; or
(c) cannot contnue n busness wthout
nvovng probabe osses to ts
depostors or credtors; or
(d)has wfuy voated a cease and
desst order under SEC 37 that has
become fna, nvovng acts or
transactons whch amount to fraud
or a dsspaton of the assets of the
nsttuton; n whch cases, the
Monetary Board may summary and
wthout need for pror hearng forbd
the nsttuton from dong busness n
the Phppnes and desgnate the
Phppne Depost Insurance
Corporaton as recever of the
bankng nsttuton.
For a quas-bank, any person of recognzed
competence n bankng or fnance may be
desgned as recever.
The recever sha mmedatey gather and take
charge of a the assets and abtes of the
nsttuton, admnster the same for the beneft
of ts credtors, and exercse the genera powers
of a recever under the Revsed Rues of Court
but sha not, wth the excepton of
admnstratve expendtures, pay or commt any
act that w nvove the transfer or dsposton of
any asset of the nsttuton: Provded, That the
recever may depost or pace the funds of the
nsttuton n nonspecuatve nvestments. The
recever sha determne as soon as possbe,
but not ater than nnety (90) days from take
over, whether the nsttuton may be
rehabtated or otherwse paced n such a
condton so that t may be permtted to resume
busness wth safety to ts depostors and
credtors and the genera pubc: Provded, That
any determnaton for the resumpton of
busness of the nsttuton sha be sub|ect to
pror approva of the Monetary Board.
If the recever determnes that the nsttuton
cannot be rehabtated or permtted to resume
busness n accordance wth the next precedng
paragraph, the Monetary Board sha notfy n
wrtng
the board of drectors of ts fndngs and drect
the recever to proceed wth the qudaton of
the
nsttuton. The recever sha:
1. fe ex parte wth the proper regona tra
court, and wthout requrement of pror notce
or any other acton, a petton for assstance n
the qudaton of the nsttuton pursuant to a
qudaton pan adopted by the Phppne
Depost Insurance Corporaton for genera
appcaton to a cosed banks. In case of quas-
banks, the qudaton pan sha be adopted by
the Monetary Board. Upon acqurng |ursdcton,
the court sha, upon moton by the recever
after due notce, ad|udcate dsputed cams
aganst the nsttuton, assst the enforcement
of ndvdua abtes of the stockhoders,
drectors and offcers, and decde on other
ssues as may be matera to mpement the
qudaton pan adopted. The recever sha pay
the cost of the proceedngs from the assets of
the nsttuton.
2. convert the assets of the nsttutons to
money, dspose of the same to credtors and
other partes, for the purpose of payng the
debts of such nsttuton n accordance wth the
rues on concurrence and preference of credt
under the Cv Code of the Phppnes and he
may, n the name of the nsttuton, and wth
the assstance of counse as he may retan,
nsttute such actons as may be necessary to
coect and recover accounts and assets of, or
defend any acton aganst, the nsttuton. The
assets of an nsttuton under recevershp or
qudaton sha be deemed n custodia legis n
the hands of the recever and sha, from the
moment the nsttuton was paced under such
recevershp or qudaton, be exempt from any
order of garnshment, evy, attachment, or
executon.
The actons of the Monetary Board taken under
ths SEC or under SEC 29 of ths Act sha be
fna and executory, and may not be restraned
or set asde by the court except on petton for
certiorari on the ground that the acton taken
was n excess of |ursdcton or wth such grave
abuse of dscreton as to amount to ack or
excess of |ursdcton. The petton for certiorari
may ony be fed by the stockhoders of record
representng the ma|orty of the capta stock
wthn ten (10) days from recept by the board
of drectors of the nsttuton of the order
drectng recevershp, qudaton or
conservatorshp. The desgnaton of a
conservator under SEC 29 of ths Act or the
appontment of a recever under ths SEC sha
be vested excusvey wth the Monetary Board.
Furthermore, the desgnaton of a conservator s
not a precondton to the desgnaton of a
recever.
SEC 69. Receivership and lnvoluntary
Liquidation. - The grounds and procedures
for pacng a bank under recevershp or
qudaton, as we as the powers and dutes of
the recever or qudator apponted for the bank
sha be governed by the provsons of SECs 30,
31, 32, and 33 of the New Centra Bank Act:
Provded, That the pettoner or pantff fes
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wth the cerk or |udge of the court n whch the
acton s pendng a bond, executed n favor of
the Bangko Sentra, n an amount to be fxed by
the court. Ths SEC sha aso appy to the
extent possbe to the recevershp and
qudaton proceedngs of quas-banks. (n)
SEC 70. Penalty for Transactions After a
Bank Becomes lnsolvent. - Any drector or
offcer of any bank decared nsovent or paced
under recevershp by the Monetary Board who
refuses to turn over the bank's records and
assets to the desgnated recevers, or who
tampers wth banks records, or who
approprates for hmsef or another party or
destroys or causes the msappropraton and
destructon of the bank's assets, or who
receves or permts or causes to be receved n
sad bank any depost, coecton of oans and/or
recevabes, or who pays out or permts or
causes to be pad out any funds of sad bank, or
who transfers or permts or causes to be
transferred any securtes or property of sad
bank sha be sub|ect to the pena provsons of
the New Centra Bank Act. (85a)
Liquidation (SEC 30; and R.A. 879J SEC
69)
SEC 30. Proceedings in Receivership and
Liquidation. - Whenever, upon report of the
head of the supervsng or examnng
department, the Monetary Board fnds that a
bank or quasbank:
(a) s unabe to pay ts abtes as they become
due n the ordnary course of busness:
Provded,
That ths sha not ncude nabty to pay
caused by extraordnary demands nduced by
fnanca panc n the bankng communty;
(b) by the Bangko Sentra, to meet ts abtes;
or
(c) cannot contnue n busness wthout
nvovng probabe osses to ts depostors or
credtors; or
(d) has wfuy voated a cease and desst
order under SEC 37 that has become fna,
nvovng
acts or transactons whch amount to fraud or a
dsspaton of the assets of the nsttuton; n
whch cases, the Monetary Board may
summary and wthout need for pror hearng
forbd the
nsttuton from dong busness n the
Phppnes and desgnate the Phppne Depost
Insurance Corporaton as recever of the
bankng nsttuton.
For a quas-bank, any person of recognzed
competence n bankng or fnance may be
desgned
as recever.
The recever sha mmedatey gather and take
charge of a the assets and abtes of the
nsttuton, admnster the same for the beneft
of ts credtors, and exercse the genera powers
of a
recever under the Revsed Rues of Court but
sha not, wth the excepton of admnstratve
expendtures, pay or commt any act that w
nvove the transfer or dsposton of any asset
of the nsttuton: Provded, That the recever
may depost or pace the funds of the nsttuton
n nonspecuatve nvestments. The recever
sha determne as soon as possbe, but not
ater than nnety (90) days from take over,
whether the nsttuton may be rehabtated or
otherwse paced n such a condton so that t
may be permtted to resume busness wth
safety to ts depostors and credtors and
the genera pubc: Provded, That any
determnaton for the resumpton of busness of
the nsttuton sha be sub|ect to pror approva
of the Monetary Board.
If the recever determnes that the nsttuton
cannot be rehabtated or permtted to resume
busness n accordance wth the next precedng
paragraph, the Monetary Board sha notfy n
wrtng the board of drectors of ts fndngs and
drect the recever to proceed wth the
qudaton of the nsttuton. The recever sha:
1. fe ex parte wth the proper regona tra
court, and wthout requrement of pror notce
or any other acton, a petton for assstance n
the qudaton of the nsttuton pursuant to a
qudaton pan adopted by the Phppne
Depost Insurance Corporaton for genera
appcaton to a cosed banks. In case of quas-
banks, the qudaton pan sha be adopted by
the Monetary Board. Upon acqurng |ursdcton,
the court sha, upon moton by the recever
after due notce, ad|udcate dsputed cams
aganst the nsttuton, assst the enforcement
of ndvdua abtes of the stockhoders,
drectors and offcers, and decde on other
ssues as may be matera to mpement the
qudaton pan adopted. The recever sha pay
the cost of the proceedngs from the assets of
the nsttuton.
2. convert the assets of the nsttutons to
money, dspose of the same to credtors and
other partes, for the purpose of payng the
debts of such nsttuton n accordance wth the
rues on concurrence and preference of credt
under the Cv Code of the Phppnes and he
may, n the name of the nsttuton, and wth
the assstance of counse as he may retan,
nsttute such actons as may be necessary to
coect and recover accounts and assets of, or
defend any acton aganst, the nsttuton. The
assets of an nsttuton under recevershp or
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qudaton sha be deemed n custodia legis n
the hands of the recever and sha, from the
moment the nsttuton was paced under such
recevershp or qudaton, be exempt from any
order of garnshment, evy, attachment, or
executon.
The actons of the Monetary Board taken under
ths SEC or under SEC 29 of ths Act sha be
fna and executory, and may not be restraned
or set asde by the court except on petton for
certiorari on the ground that the acton taken
was n excess of |ursdcton or wth such grave
abuse of dscreton as to amount to ack or
excess of |ursdcton. The petton for certiorari
may ony be fed by the stockhoders of record
representng the ma|orty of the capta stock
wthn ten (10) days from recept by the board
of drectors of the nsttuton of the order
drectng recevershp, qudaton or
conservatorshp. The desgnaton of a
conservator under SEC 29 of ths Act or the
appontment of a recever under ths SEC sha
be vested excusvey wth the Monetary Board.
Furthermore, the desgnaton of a conservator s
not a precondton to the desgnaton of a
recever.
SEC 69. Receivership and lnvoluntary
Liquidation. - The grounds and procedures
for pacng a bank under recevershp or
qudaton, as we as the powers and dutes of
the recever or qudator apponted for the bank
sha be governed by the provsons of SECs 30,
31, 32, and 33 of the New Centra Bank Act:
Provded, That the pettoner or pantff fes
wth the cerk or |udge of the court n whch the
acton s pendng a bond, executed n favor of
the Bangko Sentra, n an amount to be fxed by
the court. Ths SEC sha aso appy to the
extent possbe to the recevershp and
qudaton proceedngs of quas-banks. (n)
How The BSP Handes Exchange Crses?
SEC 72. Emergency Restrictions on
Exchange Operations. - In order to acheve
the
prmary ob|ectve of the Bangko Sentra as set
forth n SEC 3 of ths Act, or protect the
nternatona
reserves of the Bangko Sentra n the
mmnence of, or durng an exchange crss, or
n tme of natona
emergency and to gve the Monetary Board and
the Government tme n whch to take
constructve
measures to foresta, combat, or overcome
such a crss or emergency, the Monetary
Board, wth the
concurrence of at east fve (5) of ts members
and wth the approva of the Presdent of the
Phppnes,
may temporary suspend or restrct saes of
exchange by the Bangko Sentra, and may
sub|ect a
transactons n god and foregn exchange to
cense by the Bangko Sentra, and may requre
that any
foregn exchange thereafter obtaned by any
person resdng or entty operatng n the
Phppnes be
devered to the Bangko Sentra or to any bank
or agent desgnated by the Bangko Sentra for
the
purpose, at the effectve exchange rate or
rates: Provded, however, That foregn currency
deposts
made under Repubc Act No. 6426 sha be
exempt from these requrements.
Functons of the BSP
SEC 50. Exclusive lssue Power. - The
Bangko Sentra sha have the soe power and
authorty to ssue currency, wthn the terrtory
of the Phppnes. No other person or entty,
pubc or prvate, may put nto crcuaton notes,
cons or any other ob|ect or document whch, n
the opnon of the Monetary Board, mght
crcuate as currency, nor reproduce or mtate
the facsmes of Bangko Sentra notes wthout
pror authorty from the Bangko Sentra.
The Monetary Board may ssue such reguatons
as t may deem advsabe n order to prevent
the crcuaton of foregn currency or of
currency substtutes as we as to prevent the
reproducton of facsmes of Bangko Sentra
notes.
The Bangko Sentra sha have the authorty to
nvestgate, make arrests, conduct searches
and sezures n accordance wth aw, for the
purpose of mantanng the ntegrty of the
currency.
Voaton of ths provson or any reguaton
ssued by the Bangko Sentra pursuant thereto
sha consttute an offense punshabe by
mprsonment of not ess than fve (5) years but
not more than ten(10) years. In case the
Revsed Pena Code provdes for a greater
penaty, then that penaty sha be mposed.
SEC 51. Liability for Notes and Coins. -
Notes and cons ssued by the Bangko Sentra
sha be abtes of the Bangko Sentra and
may be ssued ony aganst, and n amounts not
exceedng,
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the assets of the Bangko Sentra. Sad notes
and cons sha be a frst and paramount en on
a assets
of the Bangko Sentra.
The Bangko Sentra's hodngs of ts own notes
and cons sha not be consdered as part of ts
currency ssue and, accordngy, sha not form
part of the assets or abtes of the Bangko
Sentra.
SEC 52. Legal Tender Power. - A notes
and cons ssued by the Bangko Sentra sha
be fuy guaranteed by the Government of the
Repubc of the Phppnes and sha be ega
tender n the
Phppnes for a debts, both pubc and prvate:
Provded, however, That, uness otherwse fxed
by the
Monetary Board, cons sha be ega tender n
amounts not exceedng Ffty pesos (P50.00) for
denomnatons of Twenty-fve centavos and
above, and n amounts not exceedng Twenty
pesos
(P20.00) for denomnatons of Ten centavos or
ess.
SEC 53. Characteristics of the Currency. -
The Monetary Board, wth the approva of
the Presdent of the Phppnes, sha prescrbe
the denomnatons, dmensons, desgns,
nscrptons
and other characterstcs of notes ssued by the
Bangko Sentra: Provded, however, That sad
notes
sha state that they are abtes of the Bangko
Sentra and are fuy guaranteed by the
Government of
the Repubc of the Phppnes. Sad notes sha
bear the sgnatures, n facsme, of the
Presdent of the
Phppnes and of the Governor of the Bangko
Sentra.
Smary, the Monetary Board, wth the
approva of the Presdent of the Phppnes,
sha
prescrbe the weght, fneness, desgns,
denomnatons and other characterstcs of the
cons ssued by
the Bangko Sentra. In the mntng of cons, the
Monetary Board sha gve fu consderaton to
the
avaabty of sutabe metas and to ther
reatve prces and cost of mntng.
SEC 54. Printing of Notes and Mining of
Coins. - The Monetary Board sha prescrbe
the amounts of notes and cons to be prnted
and mnted, respectvey, and the condtons to
whch the
prntng of notes and the mntng of cons sha
be sub|ect. The Monetary Board sha have the
authorty
to contract nsttutons, mnts or frms for such
operatons.
A expenses ncurred n the prntng of notes
and the mntng of cons sha be for the account
of
the Bangko Sentra.
SEC 55. lnterconvertibility of Currency. -
The Bangko Sentra sha exchange, on
demand and wthout charge, Phppne
currency of any denomnaton for Phppne
notes and cons of
any other denomnaton requested. If for any
reason the Bangko Sentra s temporary unabe
to
provde notes or cons of the denomnatons
requested, t sha meet ts obgatons by
deverng notes
and cons of the denomnatons whch most
neary approxmate those requested.
SEC 56. Replacement of Currency Unfit for
Circulation. - The Bangko Sentra sha
wthdraw from crcuaton and sha demonetze
a notes and cons whch for any reason
whatsoever are
unft for crcuaton and sha repace them by
adequate notes and cons: Provded, however,
That the
Bangko Sentra sha not repace notes and
cons the dentfcaton of whch s mpossbe,
cons whch
show sgns of fng, cppng or perforaton, and
notes whch have ost more than two-ffths (2/5)
of ther
surface or a of the sgnatures nscrbed
thereon. Notes and cons n such mutated
condtons sha be
wthdrawn from crcuaton and demonetzed
wthout compensaton to the bearer.
SEC 57. Retirement of Old Notes and
Coins. - The Bangko Sentra may ca n for
repacement notes of any seres or
denomnaton whch are more than fve (5)
years od and cons whch
are more than (10) years od.
Notes and cons caed n for repacement n
accordance wth ths provson sha reman
ega
tender for a perod of one (1) year from the
date of ca. After ths perod, they sha cease
to be ega
tender but durng the foowng year, or for such
onger perod as the Monetary Board may
determne,
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they may be exchanged at par and wthout
charge n the Bangko Sentra and by agents
duy authorzed
by the Bangko Sentra for ths purpose. After
the expraton of ths atter perod, the notes
and cons
whch have not been exchanged sha cease to
be a abty of the Bangko Sentra and sha be
demonetzed. The Bangko Sentra sha aso
demonetze a notes and cons whch have
been caed n
and repaced.
B. DEMAND DEPOSlTS
SEC 58. Definition. - For purposes of ths
Act, the term "demand deposts" means a
those abtes of the Bangko Sentra and of
other banks whch are denomnated n
Phppne currency
and are sub|ect to payment n ega tender upon
demand by the presentaton of checks.
SEC 59. lssue of Demand Deposits. - Ony
banks duy authorzed to do so may accept
funds or create abtes payabe n pesos upon
demand by the presentaton of checks, and
such
operatons sha be sub|ect to the contro of the
Monetary Board n accordance wth the powers
granted
t wth respect thereto under ths Act.
SEC 60. Legal Character. - Checks
representng demand deposts do not have
ega
tender power and ther acceptance n the
payment of debts, both pubc and prvate, s at
the opton of
the credtor: Provded, however, That a check
whch has been ceared and credted to the
account of the
credtor sha be equvaent to a devery to the
credtor of cash n an amount equa to the
amount
credted to hs account.
SEC 61. Guiding Principle. - The Monetary
Board sha endeavor to contro any
expanson or contracton n monetary
aggregates whch s pre|udca to the
attanment or mantenance
of prce stabty.
SEC 62. Power to Define Terms. - For
purposes of ths artce and of ths Act, the
Monetary Board sha formuate defntons of
monetary aggregates, credt and prces and
sha make
pubc such defntons and any changes
thereof.
SEC 63. Action When Abnormal
Movements Occur in the Monetary
Aggregates, Credit, or Price Level. -
Whenever abnorma movements n the
monetary aggregates, n credt, or n
prces endanger the stabty of the Phppne
economy or mportant sectors thereof, the
Monetary Board
sha:
(a) take such remeda measures as are
approprate and wthn the powers granted to
the
Monetary Board and the Bangko Sentra under
the provsons of ths Act; and
(b) submt to the Presdent of the Phppnes
and the Congress, and make pubc, a detaed
report whch sha ncude, as a mnmum, a
descrpton and anayss of:
(1) the causes of the rse or fa of the monetary
aggregates, of credt or of prces;
(2) the extent to whch the changes n the
monetary aggregates, n credt, or n prces
have been refected n changes n the eve of
domestc output, empoyment, wages
and economc actvty n genera, and the
nature and sgnfcance of any such
changes; and
(3) the measures whch the Monetary Board has
taken and the other monetary, fsca or
admnstratve measures whch t recommends
to be adopted.
Whenever the monetary aggregates, or the
eve of credt, ncreases or decreases by more
thanffteen percent (15%), or the cost of vng
ndex ncreases by more than ten percent
(10%), n reaton to the eve exstng at the
end of the correspondng month of the
precedng year, or even though any of these
quanttatve gudenes have not been reached
when n ts |udgment the crcumstances so
warrant, the Monetary Board sha submt the
reports mentoned n ths SEC, and sha state
theren whether, n the opnon of the Board,
sad changes n the monetary aggregates,
credt or cost of vng represent a threat to the
stabty of the Phppne economy or of
mportant sectors thereof.
The Monetary Board sha contnue to submt
perodc reports to the Presdent of the
Phppnes and to Congress unt t consders
that the monetary, credt or prce dsturbances
have dsappeared or have been adequatey
controed.
SEC 64. lnternational Monetary
Stabilization. - The Bangko Sentra sha
exercse ts powers under ths Act to preserve
the nternatona vaue of the peso and to
mantan ts convertbty nto other freey
convertbe currences prmary for, athough
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not necessary mted to, current payments for
foregn trade and nvsbes.
SEC 65. lnternational Reserves. - In order
to mantan the nternatona stabty and
convertbty of the Phppne peso, the Bangko
Sentra sha mantan nternatona reserves
adequate to meet any foreseeabe net demands
on the Bangko Sentra for foregn currences.
In |udgng the adequacy of the nternatona
reserves, the Monetary Board sha be guded
by the prospectve recepts and payments of
foregn exchange by the Phppnes. The Board
sha gve speca attenton to the voume and
maturty of the Bangko Sentra's own abtes
n foregn currences, to the voume and
maturty of the foregn exchange assets and
abtes of other banks operatng n the
Phppnes and, nsofar as they are known or
can be estmated, the voume and maturty of
the foregn exchange assets and abtes of a
other persons and enttes n the Phppnes.
SEC 66. Composition of the lnternational
Reserves. - The nternatona reserves of
the Bangko Sentra may ncude but sha not be
mted to the foowng assets:
(a) god; and
(b) assets n foregn currences n the form of:
documents and nstruments customary
empoyed
for the nternatona transfer of funds; demand
and tme deposts n centra banks, treasures
and commerca banks abroad; foregn
government securtes; and foregn notes and
cons.
The Monetary Board sha endeavor to hod the
foregn exchange resources of the Bangko
Sentra n freey convertbe currences;
moreover, the Board sha gve partcuar
consderaton to the
prospects of contnued strength and
convertbty of the currences n whch the
reserve s mantaned,
as we as to the antcpated demands for such
currences. The Monetary Board sha ssue
reguatons
determnng the other quafcatons whch
foregn exchange assets must meet n order to
be ncuded n
the nternatona reserves of the Bangko
Sentra.
The Bangko Sentra sha be free to convert any
of the assets n ts nternatona reserves nto
other assets as descrbed n subSECs (a) and (b)
of ths SEC.
SEC 81. Guiding Principles. - The
redscounts, dscounts, oans and advances
whch
the Bangko Sentra s authorzed to extend to
bankng nsttutons under the provsons of the
present
artce of ths Act sha be used to nfuence the
voume of credt consstent wth the ob|ectve of
prce
stabty.
SEC 82. Authorized Types of Operations. -
Sub|ect to the prncpe stated n the
precedng SEC of ths Act, the Bangko Sentra
may normay and reguary carry on the
foowng
credt operatons wth bankng nsttutons
operatng n the Phppnes:
(a) Commerca credts. - The Bangko Sentra
may redscount, dscount, buy and se bs,
acceptances, promssory notes and other credt
nstruments wth maturtes of not more than
one hundred eghty (180) days from the date of
ther redscount, dscount or acquston by
the Bangko Sentra and resutng from
transactons reated to:
(1) the mportaton, exportaton, purchase or
sae of ready saeabe goods and products,
or ther transportaton wthn the Phppnes; or
(2) the storng of non-pershabe goods and
products whch are duy nsured and
deposted, under condtons assurng ther
preservaton, n authorzed bonded
warehouses or n other paces approved by the
Monetary Board.
(b) Producton credts. - The Bangko Sentra
may redscount, dscount, buy and se bs,
acceptances, promssory notes and other credt
nstruments havng maturtes of not more
than three hundred sxty (360) days from the
date of ther redscount, dscount or acquston
by the Bangko Sentra and resutng from
transactons reated to the producton or
processng
of agrcutura, anma, mnera, or ndustra
products. Documents or nstruments acqured n
accordance wth ths subSEC sha be secured
by a pedge of the respectve crops or
products: Provded, however, That the crops or
products need not be pedged to secure the
documents f the orgna oan granted by the
Bangko Sentra s secured by a en or mortgage
on rea estate property seventy percent (70%)
of the apprased vaue of whch equas or
exceeds the amount of the oan granted.
(c) Other credts. - Speca credt nstruments
not otherwse redscountabe under the
mmedatey precedng subSECs (a) and (b) may
be egbe for redscountng n
accordance wth rues and reguatons whch the
Bangko Sentra sha prescrbe. Whenever
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necessary, the Bangko Sentra sha provde
funds from non-nfatonary sources: Provded,
however, That the Monetary Board sha
prescrbe addtona safeguards for dsbursng
these
funds.
(d) Advances. - The Bangko Sentra may grant
advances aganst the foowng knds of
coateras for fxed perods whch, wth the
excepton of advances aganst coatera named
n
cause (4) of the present subSEC, sha not
exceed one hundred eghty (180) days:
(1) god cons or buon;
(2) securtes representng obgatons of the
Bangko Sentra or of other domestc
nsttutons of recognzed sovency;
(3) the credt nstruments to whch reference s
made n subSEC (a) of ths SEC;
(4) the credt nstruments to whch reference s
made n subSEC (b) of ths SEC, for
perods whch sha not exceed three hundred
sxty (360) days;
(5) utzed portons of advances n current
amount covered by reguar overdraft
agreements reated to operatons ncuded
under subSECs (a) and (b) of ths
SEC, and certfed as to amount and qudty by
the nsttuton soctng the
advance;
(6) negotabe treasury bs, certfcates of
ndebtedness, notes and other negotabe
obgatons of the Government maturng wthn
three (3) years from the date of the
advance; and
(7) negotabe bonds ssued by the Government
of the Phppnes, by Phppne
provnca, cty or muncpa governments, or by
any Phppne Government
nstrumentaty, and havng maturtes of not
more than ten (10) years from the date of
advance.
The redscounts, dscounts, oans and advances
made n accordance wth the provsons of ths
SEC may not be renewed or extended uness
extraordnary crcumstances fuy |ustfy such
renewa
or extenson.
Advances made aganst the coatera named n
causes (6) and (7) of subSEC (d) of ths
SEC may not exceed eghty percent (80%) of
the current market vaue of the coatera.
C. SPEClAL CREDlT OPERATlON
SEC 83. Loans for Liquidity Purposes. -
The Bangko Sentra may extend oans and
advances
to bankng nsttutons for a perod of not more
than seven (7) days wthout any coatera for
the purpose
of provdng qudty to the bankng system n
tmes of need.
D. EMERGENCY CREDlT OPERATlON
SEC 84. Emergency Loans and Advances.
- In perods of natona and/or oca
emergency or of mmnent fnanca panc whch
drecty threaten monetary and bankng
stabty, the
Monetary Board may, by a vote of at east fve
(5) of ts members, authorze the Bangko
Sentra to grant
extraordnary oans or advances to bankng
nsttutons secured by assets as defned
hereunder:
Provded, That whe such oans or advances are
outstandng, the debtor nsttuton sha not,
except
upon pror authorzaton by the Monetary Board,
expand the tota voume of ts oans or
nvestments.
The Monetary Board may, at ts dscreton,
kewse authorze the Bangko Sentra to grant
emergency oans or advances to bankng
nsttutons, even durng norma perods, for the
purpose of
assstng a bank n a precarous fnanca
condton or under serous fnanca pressures
brought by
unforeseen events, or events whch, though
foreseeabe, coud not be prevented by the
bank
concerned: Provded, however, That the
Monetary Board has ascertaned that the bank
s not nsovent
and has the assets defned hereunder to secure
the advances: Provded, further, That a
concurrent vote
of at east fve (5) members of the Monetary
Board s obtaned.
The amount of any emergency oan or advance
sha not exceed the sum of ffty percent (50%)
of tota deposts and depost substtutes of the
bankng nsttuton and sha be dsbursed n two
(2) or
more tranches. The amount of the frst tranche
sha be mted to twenty-fve percent (25%) of
the tota
depost and depost substtutes of the nsttuton
and sha be secured by government securtes
to the
extent of ther appcabe oan vaues and other
unencumbered frst cass coateras whch the
Monetary
Board may approve: Provded, That f as
determned by the Monetary Board, the
crcumstances
surroundng the emergency warrant a oan or
advance greater than the amount provded
herenabove,
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the amount of the frst tranche may exceed
twenty-fve percent (25%) of the bank's tota
depost and
depost substtutes f the same s adequatey
secured by appcabe oan vaues of
government
securtes and unencumbered frst cass
coateras approved by the Monetary Board,
and the prncpa
stockhoders of the nsttuton furnsh an
acceptabe undertakng to ndemnfy and hod
harmess from
sut a conservator whose appontment the
Monetary Board may fnd necessary at any
tme.
Pror to the reease of the frst tranche, the
bankng nsttuton sha submt to the Bangko
Sentra
a resouton of ts board of drectors authorzng
the Bangko Sentra to evauate other assets of
the
bankng nsttuton certfed by ts externa
audtor to be good and avaabe for coatera
purposes
shoud the reease of the subsequent tranche
be thereafter apped for.
The Monetary Board may, by a vote of at east
fve (5) of ts members, authorze the reease of
a subsequent tranche on condton that the
prncpa stockhoders of the nsttuton:
(a) furnsh an acceptabe undertakng to
ndemnfy and hod harmess from sut a
conservator
whose appontment the Monetary Board may
fnd necessary at any tme; and
(b) provde acceptabe securty whch, n the
|udgment of the Monetary Board, woud be
adequate to suppement, where necessary, the
assets tendered by the bankng nsttuton to
coateraze the subsequent tranche.
In connecton wth the exercse of these powers,
the prohbtons n SEC 128 of ths Act sha
not appy nsofar as t refers to acceptance as
coatera of shares and ther acquston as a
resut of
forecosure proceedngs, ncudng the exercse
of votng rghts pertanng to sad shares:
Provded,
however, That shoud the Bangko Sentra
acqure any of the shares t has accepted as
coatera as a
resut of forecosure proceedngs, the Bangko
Sentra sha dspose of sad shares by pubc
bddng
wthn one (1) year from the date of
consodaton of tte by the Bangko Sentra.
Whenever a fnanca nsttuton ncurs an
overdraft n ts account wth the Bangko
Sentra, the
same sha be emnated wthn the perod
prescrbed n SEC 102 of ths Act.
E. CREDlT TERMS
SEC 85. lnterest and Rediscount. - The
Bangko Sentra sha coect nterest and other
approprate charges on a oans and advances
t extends, the cosure, recevershp or
qudatons of the
debtor-nsttuton notwthstandng. Ths
provson sha appy prospectvey.
The Monetary Board sha fx the nterest and
redscount rates to be charged by the Bangko
Sentra on ts credt operatons n accordance
wth the character and term of the operaton,
but after due
consderaton has been gven to the credt
needs of the market, the composton of the
Bangko Sentra's
portfoo, and the genera requrements of the
natona monetary pocy. Interest and
redscount rates
sha be apped to a banks of the same
category unformy and wthout dscrmnaton.
SEC 86. Endorsement. - The documents
redscounted, dscounted, bought or accepted
as coatera by the Bangko Sentra n the
course of the credt operatons authorzed n
ths artce sha
bear the endorsement of the nsttuton from
whch they are receved.
SEC 87. Repayment of Credits. -
Documents redscounted, dscounted or
accepted as
coatera by the Bangko Sentra must be
wthdrawn by the borrowng nsttuton on the
dates of ther
maturtes, or upon qudaton of the obgatons
whch they represent or to whch they reate
whenever
sad obgatons have been qudated pror to
ther dates of maturty.
Banks sha have the rght at any tme to
wthdraw any documents whch they have
presented to
the Bangko Sentra as coatera, upon payment
n fu of the correspondng debt to the Bangko
Sentra,
ncudng nterest charges.
SEC 88. Other requirements. - The
Monetary Board may prescrbe, wthn the
genera
powers granted to t under ths Act, addtona
condtons whch borrowng nsttutons must
satsfy n
order to have access to the credt of the Bangko
Sentra. These condtons may refer to the rates
of
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nterest charged by the banks, to the purposes
for whch ther oans n genera are destned,
and to any
other ceary defnabe aspect of the credt
pocy of the bank.
SEC 89. Provisional Advances to the
National Government. - The Bangko Sentra
may make drect provsona advances wth or
wthout nterest to the Natona Government to
fnance
expendtures authorzed n ts annua
appropraton: Provded, That sad advances
sha be repad before
the end of three (3) months extendbe by
another three (3) months as the Monetary
Board may aow
foowng the date the Natona Government
receved such provsona advances and sha
not, n ther
aggregate, exceed twenty percent (20%) of the
average annua ncome of the borrower for the
ast three
(3) precedng fsca years.
SEC 94. Reserve Requirements. - In order
to contro the voume of money created by
the credt operatons of the bankng system, a
banks operatng n the Phppnes sha be
requred to
mantan reserves aganst ther depost
abtes: Provded, That the Monetary Board
may, at ts
dscreton, aso requre a banks and/or quas-
banks to mantan reserves aganst funds hed
n trust and
abtes for depost substtutes as defned n
ths Act. The requred reserves of each bank
sha be
proportona to the voume of ts depost
abtes and sha ordnary take the form of a
depost n the
Bangko Sentra. Reserve requrements sha be
apped to a banks of the same category
unformy and
wthout dscrmnaton.
Reserves aganst depost substtutes, f
mposed, sha be determned n the same
manner as
provded for reserve requrements aganst
reguar bank deposts, wth respect to the
mposton,
ncrease, and computaton of reserves.
The Monetary Board may exempt from reserve
requrements deposts and depost substtutes
wth remanng maturtes of two (2) years or
more, as we as nterbank borrowngs.
Snce the requrement to mantan bank
reserves s mposed prmary to contro the
voume of
money, the Bangko Sentra sha not pay
nterest on the reserves mantaned wth t
uness the Monetary
Board decdes otherwse as warranted by
crcumstances.
SEC 102. lnterbank Settlement. - The
Bangko Sentra sha estabsh factes for
nterbank cearng under such rues and
reguatons as the Monetary Board may
prescrbe: Provded,
That the Bangko Sentra may charge
admnstratve and other fees for the
mantenance of such
factes.
The depost reserves mantaned by the banks
n the Bangko Sentra n accordance wth the
provsons of SEC 94 of ths Act sha serve as
bass for the cearng of checks and the
settement of
nterbank baances, sub|ect to such rues and
reguatons as the Monetary Board may ssue
wth respect
to such operatons: Provded, That any bank
whch ncurs on overdrawng n ts depost
account wth the
Bangko Sentra sha fuy cover sad overdraft,
ncudng nterest thereon at a rate equvaent
to onetenth
of one percent (1/10 of 1%) per day or the
prevang nnety-one-day treasury b rate pus
three
percentage ponts, whchever s hgher, not
ater than the next cearng day: Provded,
further, That
settement of cearng baances sha not be
effected for any account whch contnues to be
overdrawn
for fve (5) consecutve bankng days unt such
tme as the overdrawng s fuy covered or
otherwse
converted nto an emergency oan or advance
pursuant to the provsons of SEC 84 of ths Act:
Provded, fnay, That the approprate cearng
offce sha be offcay notfed of banks wth
overdrawn
baances. Banks wth exstng overdrafts wth
the Bangko Sentra as of the effectvty of ths
Act sha,
wthn such perod as may be prescrbed by the
Monetary Board, ether convert the overdraft
nto an
emergency oan or advance wth a pan of
payment, or sette such overdrafts, and that,
upon faure to
so compy herewth, the Bangko Sentra sha
take such acton aganst the bank as may be
warranted
under ths Act.
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SEC 103. Exemption from Attachment and
Other Purposes. - Deposts mantaned
by banks wth the Bangko Sentra as part of
ther reserve requrements sha be exempt
from
attachment, garnshments, or any other order
or process of any court, government agency or
any other
admnstratve body ssued to satsfy the cam
of a party other than the Government, or ts
potca
subdvsons or nstrumentates.
SEC 110. Designation of Bangko Sentral as
Banker of the Government. - The
Bangko Sentra sha act as a banker of the
Government, ts potca subdvsons and
nstrumentates.
SEC 111. Representation with the
lnternational Monetary Fund. - The Bangko
Sentra sha represent the Government n a
deangs, negotatons and transactons wth the
Internatona Monetary Fund and sha carry
such accounts as may resut from Phppne
membershp
n, or operatons wth, sad Fund.
SEC 112. Representation with Other
Financial lnstitutions. - The Bangko Sentra
may be authorzed by the Government to
represent t n deangs, negotatons or
transactons wth the
Internatona Bank for Reconstructon and
Deveopment and wth other foregn or
nternatona fnanca
nsttutons or agences. The Presdent may,
however, desgnate any of hs other fnanca
advsors to
|onty represent the Government n such
deangs, negotatons or transactons.
SEC 113. Official Deposits. - The Bangko
Sentra sha be the offca depostory of the
Government, ts potca subdvsons and
nstrumentates as we as of government-
owned or
controed corporatons and, as a genera pocy,
ther cash baances shoud be deposted wth
the
Bangko Sentra, wth ony mnmum workng
baances to be hed by government-owned
banks and such
other banks ncorporated n the Phppnes as
the Monetary Board may desgnate, sub|ect to
such rues
and reguatons as the Board may prescrbe:
Provded, That such banks may hod deposts of
the
potca subdvsons and nstrumentates of
the Government beyond ther mnmum workng
baances
whenever such subdvsons or nstrumentates
have outstandng oans wth sad banks.
The Bangko Sentra may pay nterest on
deposts of the Government or of ts potca
subdvsons and nstrumentates, as we as on
deposts of banks wth the Bangko Sentra.
SEC 114. Fiscal Operations. - The Bangko
Sentra sha open a genera cash account
for the Treasurer of the Phppnes, n whch the
qud funds of the Government sha be
deposted.
Transfers of funds from ths account to other
accounts sha be made ony upon order of the
Treasurer of the Phppnes.
SEC 115. Other Banks as Agents of the
Bangko Sentral. - In the performance of ts
functons as fsca agent, the Bangko Sentra
may engage the servces of other government-
owned and
controed banks and of other domestc banks
for operatons n ocates at home or abroad n
whch the
Bangko Sentra does not have offces or
agences adequatey equpped to perform sad
operatons:
Provded, however, That for fsca operatons n
foregn countres, the Bangko Sentra may
engage the
servces of foregn bankng and fnanca
nsttutons.
SEC 116. Remuneration for Services. - The
Bangko Sentra may charge equtabe
rates, commssons or fees for servces whch t
renders to the Government, ts potca
subdvsons and
nstrumentates.
ARTlCLE ll. THE MARKETlNG AND
STABlLlZATlON OF SECURlTlES FOR THE
ACCOUNT OF THE GOVERNMENT
A. THE lSSUE AND PLAClNG OF
GOVERNMENT SECURlTlES
SEC 117. lssue of Government Obligations.
- The ssue of securtes representng
obgatons of the Government, ts potca
subdvsons or nstrumentates, may be made
through the
Bangko Sentra, whch may act as agent of, and
for the account of, the Government or ts
respectve
subdvsons or nstrumentaty, as the case may
be: Provded, however, That the Bangko Sentra
sha
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not guarantee the pacement of sad securtes,
and sha not subscrbe to ther ssue except to
repace
ts maturng hodngs of securtes wth the
same type as the maturng securtes.
SEC 118. Methods of Placing Government
Securities. - The Bangko Sentra may
pace the securtes to whch the precedng SEC
refers through drect sae to fnanca
nsttutons and
the pubc.
The Bangko Sentra sha not be a member of
any stock exchange or syndcate, but may
ntervene theren for the soe purpose of
reguatng ther operatons n the pacng of
government
securtes.
The Government, or ts potca subdvsons or
nstrumentates, sha remburse the Bangko
Sentra for the expenses ncurred n the pacng
of the aforesad securtes.
SEC 119. Servicing and Redemption of the
Public Debt. - The servcng and
redempton of the pubc debt sha aso be
effected through the Bangko Sentra.
B. BANGKO SENTRAL SUPPORT OF THE
GOVERNMENT SECURlTlES MARKET
SEC 120. The Securities Stabilization Fund.
- There sha be estabshed a
"Securtes Stabzaton Fund" whch sha be
admnstered by the Bangko Sentra for the
account of the
Government.
The operatons of the Securtes Stabzaton
Fund sha consst of purchases and saes, n the
open market, of bonds and other evdences of
ndebtedness ssued or fuy guaranteed by the
Government. The purpose of these operatons
sha be to ncrease the qudty and stabze
the vaue
of sad securtes n order thereby to promote
nvestment n government obgatons.
The Monetary Board sha use the resources of
the Fund to prevent, or moderate, sharp
fuctuatons n the quotatons of sad
government obgatons, but sha not endeavor
to ater movements
of the market resutng from basc changes n
the pattern or eve of nterest rates.
The Monetary Board sha ssue such reguatons
as may be necessary to mpement the
provsons of ths SEC.
SEC 121. Resources of the Securities
Stabilization Fund. - Sub|ect to SEC 132
of ths Act, the resources of the Securtes
Stabzaton Fund sha come from the baance
of the fund as
hed by the Centra Bank under Repubc Act No.
265 as of the effectve date of ths Act.
SEC 122. Profits and Losses of the Fund. -
The Securtes Stabzaton Fund sha
retan net profts whch t may make on ts
operatons, regardess of whether sad profts
arse from
capta gans or from nterest earnngs. The
Fund sha correspondngy bear any net osses
whch t
may ncur.
ARTlCLE lll. FUNCTlONS AS FlNANClAL
ADVlSOR OF THE GOVERNMENT
SEC 123. Financial Advice on Official
Credit Operations. - Before undertakng any
credt operaton abroad, the Government,
through the Secretary of Fnance, sha request
the opnon, n
wrtng, of the Monetary Board on the monetary
mpcatons of the contempated acton. Such
opnons
must smary be requested by a potca
subdvsons and nstrumentates of the
Government before
any credt operaton abroad s undertaken by
them.
The opnon of the Monetary Board sha be
based on the god and foregn exchange
resources
and obgatons of the naton and on the effects
of the proposed operaton on the baance of
payments
and on monetary aggregates.
Whenever the Government, or any of ts
potca subdvsons or nstrumentates,
contempates
borrowng wthn the Phppnes, the pror
opnon of the Monetary Board sha kewse be
requested n
order that the Board may render an opnon on
the probabe effects of the proposed operaton
on
monetary aggregates, the prce eve, and the
baance of payments.
SEC 124. Representation on the National
Economic and Development Authority. -
In order to assure effectve coordnaton
between the economc, fnanca and fsca
poces of the
Government and the monetary, credt and
exchange poces of the Bangko Sentra, the
Deputy
Governor desgnated by the Governor of the
Bangko Sentra sha be an ex offco member of
the
Natona Economc and Deveopment Authorty
Board.
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Exclusive issue power
SEC 50. Exclusive lssue Power. - The
Bangko Sentra sha have the soe power and
authorty to ssue currency, wthn the terrtory
of the Phppnes. No other person or entty,
pubc or
prvate, may put nto crcuaton notes, cons or
any other ob|ect or document whch, n the
opnon of the
Monetary Board, mght crcuate as currency,
nor reproduce or mtate the facsmes of
Bangko Sentra
notes wthout pror authorty from the Bangko
Sentra.
The Monetary Board may ssue such reguatons
as t may deem advsabe n order to prevent
the crcuaton of foregn currency or of
currency substtutes as we as to prevent the
reproducton of
facsmes of Bangko Sentra notes.
The Bangko Sentra sha have the authorty to
nvestgate, make arrests, conduct searches
and
sezures n accordance wth aw, for the purpose
of mantanng the ntegrty of the currency.
Voaton of ths provson or any reguaton
ssued by the Bangko Sentra pursuant thereto
sha
consttute an offense punshabe by
mprsonment of not ess than fve (5) years but
not more than ten
(10) years. In case the Revsed Pena Code
provdes for a greater penaty, then that penaty
sha be
mposed.
Liability for notes and coins
SEC 51. Liability for Notes and Coins. -
Notes and cons ssued by the Bangko Sentra
sha be abtes of the Bangko Sentra and
may be ssued ony aganst, and n amounts not
exceedng,
the assets of the Bangko Sentra. Sad notes
and cons sha be a frst and paramount en on
a assets
of the Bangko Sentra.
The Bangko Sentra's hodngs of ts own notes
and cons sha not be consdered as part of ts
currency ssue and, accordngy, sha not form
part of the assets or abtes of the Bangko
Sentra.
Legal Tender Power
SEC 53. Characteristics of the Currency. -
The Monetary Board, wth the approva of
the Presdent of the Phppnes, sha prescrbe
the denomnatons, dmensons, desgns,
nscrptons
and other characterstcs of notes ssued by the
Bangko Sentra: Provded, however, That sad
notes
sha state that they are abtes of the Bangko
Sentra and are fuy guaranteed by the
Government of
the Repubc of the Phppnes. Sad notes sha
bear the sgnatures, n facsme, of the
Presdent of the
Phppnes and of the Governor of the Bangko
Sentra.
Smary, the Monetary Board, wth the
approva of the Presdent of the Phppnes,
sha
prescrbe the weght, fneness, desgns,
denomnatons and other characterstcs of the
cons ssued by
the Bangko Sentra. In the mntng of cons, the
Monetary Board sha gve fu consderaton to
the
avaabty of sutabe metas and to ther
reatve prces and cost of mntng.
lnstruments of action
5etting of bank reserve requirements
SEC 94. Reserve Requirements. - In order
to contro the voume of money created by
the credt operatons of the bankng system, a
banks operatng n the Phppnes sha be
requred to
mantan reserves aganst ther depost
abtes: Provded, That the Monetary Board
may, at ts
dscreton, aso requre a banks and/or quas-
banks to mantan reserves aganst funds hed
n trust and
abtes for depost substtutes as defned n
ths Act. The requred reserves of each bank
sha be
proportona to the voume of ts depost
abtes and sha ordnary take the form of a
depost n the
Bangko Sentra. Reserve requrements sha be
apped to a banks of the same category
unformy and
wthout dscrmnaton.
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Reserves aganst depost substtutes, f
mposed, sha be determned n the same
manner as
provded for reserve requrements aganst
reguar bank deposts, wth respect to the
mposton,
ncrease, and computaton of reserves.
The Monetary Board may exempt from reserve
requrements deposts and depost substtutes
wth remanng maturtes of two (2) years or
more, as we as nterbank borrowngs.
Snce the requrement to mantan bank
reserves s mposed prmary to contro the
voume of
money, the Bangko Sentra sha not pay
nterest on the reserves mantaned wth t
uness the Monetary
Board decdes otherwse as warranted by
crcumstances.
SEC 95. Definition of Deposit Substitutes.
- The term "depost substtutes" s defned
as an aternatve form of obtanng funds from
the pubc, other than deposts, through the
ssuance,
endorsement, or acceptance of debt
nstruments for the borrower's own account, for
the purpose of
reendng or purchasng of recevabes and
other obgatons. These nstruments may
ncude, but need
not be mted to, bankers acceptances,
promssory notes, partcpatons, certfcates of
assgnment and
smar nstruments wth recourse, and
repurchase agreements. The Monetary Board
sha determne
what specfc nstruments sha be consdered
as depost substtutes for the purposes of SEC
94 of
ths Act: Provded, however, That depost
substtutes of commerca, ndustra and other
non-fnanca
companes for the mted purpose of fnancng
ther own needs or the needs of ther agents or
deaers
sha not be covered by the provsons of SEC 94
of ths Act.
SEC 96. Required Reserves Against Peso
Deposits. - The Monetary Board may fx
and, when t deems necessary, ater the
mnmum reserve ratos to peso deposts, as
we as to depost
substtutes, whch each bank and/or quas-bank
may mantan, and such rato sha be apped
unformy
to a banks of the same category as we as to
quas-banks.
SEC 97. Required Reserves Against
Foreign Currency Deposits. - The Monetary
Board s smary authorzed to prescrbe and
modfy the mnmum reserve ratos appcabe
to deposts
denomnated n foregn currences.
SEC 98. Reserves Against Unused Balances
of Overdraft Lines. - In order to
factate Bangko Sentra contro over the
voume of bank credt, the Monetary Board may
estabsh
mnmum reserve requrements for unused
baances of overdraft nes.
The powers of the Monetary Board to prescrbe
and modfy reserve requrements aganst
unused baances of overdraft nes sha be the
same as ts powers wth respect to reserve
requrements
aganst demand deposts.
SEC 99. lncrease in Reserve Requirements.
- Whenever n the opnon of the
Monetary Board t becomes necessary to
ncrease reserve requrements aganst exstng
abtes, the
ncrease sha be made n a gradua manner and
sha not exceed four percentage ponts n any
thrtyday
perod. Banks and other affected fnanca
nsttutons sha be notfed reasonaby n
advance of the
date on whch such ncrease s to become
effectve.
SEC 100. Computation on Reserves. - The
reserve poston of each bank or quasbank
sha be cacuated day on the bass of the
amount, at the cose of busness for the day, of
the
nsttuton's reserves and the amount of ts
abty accounts aganst whch reserves are
requred to be
mantaned: Provded, That wth reference to
hodays or non-bankng days, the reserve
poston as
cacuated at the cose of the busness day
mmedatey precedng such hodays and non-
bankng days
sha appy on such days.
For the purpose of computng the reserve
poston of each bank or quas-bank, ts
prncpa
offce n the Phppnes and a ts branches and
agences ocated theren sha be consdered as
a
snge unt.
SEC 101. Reserve Deficiencies. - Whenever
the reserve poston of any bank or quasbank,
computed n the manner specfed n the
precedng SEC of ths Act, s beow the requred
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mnmum, the bank or quas-bank sha pay the
Bangko Sentra one-tenth of one percent (1/10
of 1%)
per day on the amount of the defcency or the
prevang nnety-one-day treasury b rate pus
three
percentage ponts, whchever s hgher:
Provded, however, That banks and quas-banks
sha ordnary
be permtted to offset any reserve defcency
occurrng on one or more days of the week wth
any
excess reserves whch they may hod on other
days of the same week and sha be requred to
pay the
penaty ony on the average day defcency
durng the week. In cases of abuse, the
Monetary Board
may deny any bank or quas-bank the prvege
of offsettng reserve defcences n the
aforesad
manner.
If a bank or quas-bank chroncay has a
reserve defcency, the Monetary Board may
mt or
prohbt the makng of new oans or nvestments
by the nsttuton and may requre that part or
a of the
net profts of the nsttuton be assgned to
surpus.
The Monetary Board may modfy or set asde
the reserve defcency penates provded n ths
SEC, for part or the entre perod of a strke or
ockout affectng a bank or a quas-bank as
defned n
the Labor Code, or of a natona emergency
affectng operatons of banks or quas-banks.
The
Monetary Board may aso modfy or set asde
reserved defcency penates for rehabtaton
program of
a bank.
SEC 102. lnterbank Settlement. - The
Bangko Sentra sha estabsh factes for
nterbank cearng under such rues and
reguatons as the Monetary Board may
prescrbe: Provded,
That the Bangko Sentra may charge
admnstratve and other fees for the
mantenance of such
factes.
The depost reserves mantaned by the banks
n the Bangko Sentra n accordance wth the
provsons of SEC 94 of ths Act sha serve as
bass for the cearng of checks and the
settement of
nterbank baances, sub|ect to such rues and
reguatons as the Monetary Board may ssue
wth respect
to such operatons: Provded, That any bank
whch ncurs on overdrawng n ts depost
account wth the
Bangko Sentra sha fuy cover sad overdraft,
ncudng nterest thereon at a rate equvaent
to onetenth
of one percent (1/10 of 1%) per day or the
prevang nnety-one-day treasury b rate pus
three
percentage ponts, whchever s hgher, not
ater than the next cearng day: Provded,
further, That
settement of cearng baances sha not be
effected for any account whch contnues to be
overdrawn
for fve (5) consecutve bankng days unt such
tme as the overdrawng s fuy covered or
otherwse
converted nto an emergency oan or advance
pursuant to the provsons of SEC 84 of ths Act:
Provded, fnay, That the approprate cearng
offce sha be offcay notfed of banks wth
overdrawn
baances. Banks wth exstng overdrafts wth
the Bangko Sentra as of the effectvty of ths
Act sha,
wthn such perod as may be prescrbed by the
Monetary Board, ether convert the overdraft
nto an
emergency oan or advance wth a pan of
payment, or sette such overdrafts, and that,
upon faure to
so compy herewth, the Bangko Sentra sha
take such acton aganst the bank as may be
warranted
under ths Act.
SEC 103. Exemption from Attachment and
Other Purposes. - Deposts mantaned
by banks wth the Bangko Sentra as part of
ther reserve requrements sha be exempt
from
attachment, garnshments, or any other order
or process of any court, government agency or
any other
admnstratve body ssued to satsfy the cam
of a party other than the Government, or ts
potca
subdvsons or nstrumentates.
Contro of bank credt
SEC 104. Guiding Principle. - The Monetary
Board sha use the powers granted to t
under ths Act to ensure that the suppy,
avaabty and cost of money are n accord
wth the needs of
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the Phppne economy and that bank credt s
not granted for specuatve purposes pre|udca
to the
natona nterests. Reguatons on bank
operatons sha be apped to a banks of the
same category
unformy and wthout dscrmnaton.
SEC 105. Margin Requirements Against
Letters of Credit. - The Monetary Board
may at any tme prescrbe mnmum cash
margns for the openng of etters of credt, and
may reate the
sze of the requred margn to the nature of the
transacton to be fnanced.
SEC 106. Required Security Against Bank
Loans. - In order to promote qudty and
sovency of the bankng system, the Monetary
Board may ssue such reguatons as t may
deem
necessary wth respect to the maxmum
permssbe maturtes of the oans and
nvestments whch the
banks may make, and the knd and amount of
securty to be requred aganst the varous
types of credt
operatons of the banks.
SEC 107. Portfolio Ceilings. - Whenever the
Monetary Board consders t advsabe to
prevent or check an expanson of bank credt,
the Board may pace an upper mt on the
amount of
oans and nvestments whch the banks may
hod, or may pace a mt on the rate of
ncrease of such
assets wthn specfed perods of tme. The
Monetary Board may appy such mts to the
oans and
nvestments of each bank or to specfc
categores thereof.
In no case sha the Monetary Board estabsh
mts whch are beow the vaue of the oans or
nvestments of the banks on the date on whch
they are notfed of such restrctons. The
restrctons
sha be apped to a banks unformy and
wthout dscrmnaton.
SEC 108. Minimum Capital Ratios. - The
Monetary Board may prescrbe mnmum
ratos whch the capta and surpus of the
banks must bear to the voume of ther assets,
or to specfc
categores thereof, and may ater sad ratos
whenever t deems necessary.
SEC 37. Loans and Other Credit
Accommodations Against Real Estate. -
Except as
the Monetary Board may otherwse prescrbe,
oans and other credt accommodatons aganst
rea estate
sha not exceed seventy-fve percent (75%) of
the apprased vaue of the respectve rea
estate securty,
pus sxty percent (60%) of the apprased vaue
of the nsured mprovements, and such oans
may be
made to the owner of the rea estate or to hs
assgnees. (78a)
SEC 38. Loans and Other Credit
Accommodations on Security of Chattels
and
lntangible Properties. - Except as the
Monetary Board may otherwse prescrbe, oans
and other credt
accommodatons on securty of chattes and
ntangbe propertes, such as, but not mted
to, patents,
trademarks, trade names, and copyrghts sha
not exceed seventy-fve percent (75%) of the
apprased
vaue of the securty, and such oans and other
credt accommodatons may be made to the
tte-hoder of
the chattes and ntangbe propertes or hs
assgnees. (78a)
SEC 43. Authority to Prescribe Terms and
Conditions of Loans and Other Credit
Accommodations. - The Monetary Board
may, smary, n accordance wth the authorty
granted to t
n SEC 106 of the New Centra Bank Act, and
takng nto account the requrements of the
economy for
the effectve utzaton of ong-term funds,
prescrbe the maturtes, as we as reated
terms and
condtons for varous types of bank oans and
other credt accommodatons. Any change by
the Board n
the maxmum maturtes sha appy ony to
oans and other credt accommodatons made
after the date of
such acton.
The Monetary Board sha reguate the nterest
mposed on mcrofnance borrowers by endng
nvestors and smar enders, such as, but not
mted to, the unconsconabe rates of nterest
coected on
saary oans and smar credt accommodatons.
(78a)
Moral lnfluence
SEC 68. Means of Action. - In order to
acheve the prmary ob|ectve of prce stabty,
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the Monetary Board sha rey on ts mora
nfuence and the powers granted to t under
ths Act for the
management of monetary aggregates.
CASES:
No Need For Prior Hearing
RURAL BANK OF BUHl vs. CA
G.R. No. L-61689
20 |une 1988
Facts:
Buh s a rura bank that started ts operatons
ony on 26 Dec 1975
In 1980, an examnaton of the books and
affars of Buh was ordered conducted by the
Rura Banks and Savngs and Loan Assocaton
(DRBSLA), Centra Bank of the Phppnes
whch by aw, has charge of the supervson and
examnaton of rura banks and savngs and
oan assocatons n the Phppnes
Buh refused
Fnanca assstance was suspended
DRBSLA (through Odra) conducted a genera
examnaton of Buhs affars and operatons
It found , among others, massve rreguartes
n ts operatons consstng of oans to unknown
and fcttous borrowers
The money due n favor of Centra Bank
amounted to amost P3M
Promssory notes evdencng these oans were
redscounted by CB for cash
Buh became nsovent and pre|udced ts
depostors and credtors
Odra recommended the pacng of Buh under
recevershp
The Monetary Board paced Buh under under
recevershp wth Odra as the recever
Odra authorzed deputed to take contro,
possesson and charge of Buh
Rosaro, manager of Buh, fed a petton for
n|uncton aganst Odra and the deputes
She s assang the acton of Odra n
recommendng recevershp as aganst the
Rura Banks Act and done wth gadae|
CB Monetary Board ordered the qudaton of
Buh
OSG fed a petton for Assstance n the
Lqudaton of Buh
CB fed MTD on the compant submtted by
Rosaro
Recevershp s now moot and academc snce
the bank s aready n qudaton
|udge dened MTD and ssued a TRO en|onng
CB from further managng and admnsterng
Buh and to dever the possesson and contro
thereof to Buh under the same condtons and
wth the same fnanca status as when the
same was taken over, upon fng of bond
Bond was fed, |udge ssued wrt of executon
was made drectng the sherff to mpement
courts order
Sherff went to the premses of Buh but the
vaut was ocked and no nventory was made
Buh fed pettons to:
Force open bank vaut
(ater) order manager of Cty Trust to aow Buh
to wthdraw rura bank deposts
Order manager of Metrobank to reease
deposts of Buh
A granted by court (wow accommodatng
court.)
CB, Odra et a fed a petton for certorar and
prohbton wth CA
CA ssued a resouton restranng |udge from
enforcng hs order
Buh dd not compy wth order of CA and fe
MR. MR dened
CB et a fed a moton wth CA to cte Buh n
contempt
CA gave show cause order to Buh and drected
Mnstry of Natona Defense to cause the return
of the possesson and management of Buh to
CB and Odra
Buh fed ob|ecton to both
Aegng that the propertes were aready n the
possesson of Buh who s the awfu owner and
the return coud no onger be done
CA rendered ts decson settng asde the order
of ower court and dsmssng the petton of
Buh. MR dened
Buh agreed and promsed n open court to
restore and return to CB the possesson and
contro of the bank wthn 3 days
After 3 days, manager of the bank adamanty
refused to surrender the premses
Manager paced under arrest snce she st
refused to obey the CA
Buh fed petton for revew on certorar wth
premnary n|unctonanager aso fed a
petton for the ssuance of wrt of habeas
corpus
Manager reeased
lssue: WON Monetary Board may pace Buh
under recevershp wthout pror notce
Held: Yes
Ratio:
Reevant provson: SEC 29, Repubc Act No.
265
SEC. 29. Proceedings upon insolvency. Whenever, upon examnaton
by the head of the approprate supervsng and examnng
department or hs examners or agents nto the condton of any
bankng nsttuton, t sha be dscosed that the condton of the
same s one of nsovency, or that ts contnuance n busness woud
nvove probabe oss to ts depostors or credtors, t sha be the
duty of the department head concerned forthwth, n wrtng, to
nform the Monetary Board of the facts, and the Board may, upon
fndng the statements of the department head to be true, forbd the
nsttuton to do busness n the Phppnes and sha desgnate an
offca of the Centra Bank, or a person of recognzed competence n
bankng, as recever to mmedatey take charge of ts assets and
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abtes, as expedtousy as possbe coect and gather a the
assets and admnster the same for the beneft of ts credtors,
exercsng a the powers necessary for these purposes ncudng, but
not mted to, brngng suts and forecosng mortgages n the name
of the bankng nsttuton.
The Monetary Board sha thereupon determne wthn sxty days
whether the nsttuton may be recognzed or otherwse paced n
such a condton so that t may be permtted to resume busness
wth safety to ts depostors and credtors and the genera pubc and
sha prescrbe the condtons under whch such redempton of
busness sha take pace as the tme for fufment of such
condtons. In such case, the expenses and fees n the coecton and
admnstraton of the assets of the nsttuton sha be determned by
the Board and sha be pad to the Centra Bank out of the assets of
such bankng nsttuton.
If the Monetary Board sha determne and confrm wthn the sad
perod that the bankng nsttuton s nsovent or cannot resume
busness wth safety to ts depostors, credtors and the genera
pubc, t sha, f the pubc nterest requres, order ts qudaton,
ndcate the manner of ts qudaton and approve a qudaton pan.
The Centra Bank sha, by the Soctor Genera, fe a petton n the
Court of Frst Instance rectng the proceedngs whch have been
taken and prayng the assstance of the court n the qudaton of
the bankng nsttuton. The Court sha have |ursdcton n the same
proceedngs to ad|udcate dsputed cams aganst the bank and
enforce ndvdua abtes of the stockhoders and do a that s
necessary to preserve the assets of the bankng nsttuton and to
mpement the qudaton pan approved by the Monetary Board.
The Monetary Board sha desgnate an offca of the Centra Bank or
a person of recognzed competence n bankng, as qudator who
sha take over the functons of the recever prevousy apponted by
the Monetary Board under ths SEC. The qudator sha, wth a
convenent speed, convert the assets of the bankng nsttuton to
money or se, assgn or otherwse dspose of the same to credtors
and other partes for the purpose of payng the debts of such bank
and he may, n the name of the bankng nsttuton, nsttute such
actons as may be necessary n the approprate court to coect and
recover accounts and assets of the bankng nsttuton.
The provsons of any aw to the contrary notwthstandng the
actons of the Monetary Board under ths SEC and the second
paragraph of SEC 34 of ths Act sha be fna and executory, and can
be set asde by the court ony f there s convncng proof that the
acton s pany arbtrary and made n bad fath. No restranng order
or n|uncton sha be ssued by the court en|onng the Centra Bank
from mpementng ts actons under ths SEC and the second
paragraph of SEC 34 of ths Act, uness there s convncng proof that
the acton of the Monetary Board s pany arbtrary and made n
bad fath and the pettoner or pantff fes wth the cerk or |udge of
the court n whch the acton s pendng a bond executed n favor of
the Centra Bank, n an amount to be fxed by the court. The
restranng order or n|uncton sha be refused or, f granted, sha be
dssoved upon fng by the Centra Bank of a bond, whch sha be n
the form of cash or Centra Bank casher's check, n an amount twce
the amount of the bond of the pettoner, or pantff condtoned that
t w pay the damages whch the pettoner or pantff may suffer by
the refusa or the dssouton of the n|uncton. The provsons of Rue
58 of the New Rues of Court nsofar as they are appcabe and not
nconsstent wth the provsons of ths SEC sha govern the ssuance
and dssouton of the restranng order or n|uncton contempated n
ths SEC.
Insovency, under ths Act, sha be understood to mean the nabty
of a bankng nsttuton to pay ts abtes as they fa due n the
usua and ordnary course of busness: Provded, however, that ths
sha not ncude the nabty to pay of an otherwse non-nsovent
bank caused by extraordnary demands nduced by fnanca panc
commony evdenced by a run on the banks n the bankng
communty.
The appontment of a conservator under SEC 28-A of ths Act or the
appontment of recever under ths SEC sha be vested excusvey
wth the Monetary Board, the provson of any aw, genera or
speca, to the contrary notwthstandng.
There s no requrement whether express
or mped, that a hearng be frst conducted
before a bankng nsttuton may be paced
under recevershp.
! Condtons prerequste to the acton of
the Monetary Board to forbd the nsttuton to
do busness n the Phppnes and to appont a
recever to mmedatey take charge of the
bank's assets and abtes.
An examnaton made by the examnng
department of the Centra Bank;
Report by sad department to the Monetary
Board; and
Prima facie showng that the bank s n a
condton of nsovency or so stuated that ts
contnuance n busness woud nvove probabe
oss to ts depostors or credtors.
Whenever t sha appear prma face that a
bankng nsttuton s n "a condton of
nsovency" or so stuated "that ts contnuance
n busness woud nvoved probabe oss to ts
depostors or credtors," the Monetary Board
has authorty:
To forbd the nsttuton to do busness and
appont a recever therefor; and
To determne, wthn 60 days, whether or not:
The nsttuton may be reorganzed and
rehabtated to such an extent as to be
permtted to resume busness wth safety to
depostors, credtors and the genera pubc; or
It s ndeed nsovent or cannot resume busness
wth safety to depostors, credtors and the
genera pubc, and pubc nterest requres that
t be qudated.
If the bank can no onger resume busness wth
safety to depostors, credtors and the pubc,
etc., ts qudaton w be ordered and a
qudator apponted by the Monetary Board.
The Centra Bank sha thereafter fe a petton
n the Regona Tra Court prayng for the
Court's assstance n the qudaton of the bank.
Buh argues that there s aso that consttutona
guarantee that no property sha be taken
wthout due process of aw
The contenton s wthout mert.
It has ong been estabshed and recognzed n
ths |ursdcton that the cosure and qudaton
of a bank may be consdered as an exercse of
poce power.
Exercse may, however, be sub|ect to |udca
nqury and coud be set asde f found to be
caprcous, dscrmnatory, whmsca, arbtrary,
un|ust or a dena of the due process and equa
protecton causes of the Consttuton
Courts may nterfere wth the Centra Bank's
exercse of dscreton n determnng whether or
not a dstressed bank sha be supported or
qudated.
A hearng or an opportunty to be heard may be
subsequent to the cosure.
One can |ust magne the dre consequences of
a pror hearng: bank runs woud be the order of
the day, resutng n panc and hystera. In the
process, fortunes may be wped out, and
dsusonment w run the gamut of the entre
bankng communty.
Courts may appont recevers wthout pror
presentaton of evdence and soey on the bass
of the averments of the peadngs. Rue 59 of
the Revsed Rues of Court aows the
appontment of a recever upon an ex parte
appcaton.
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Decsons of CB regardng recevershp, etc are
fna and executory
Ony one ground to set asde: convncng proof
that the acton s pany arbtrary and done wth
bad fath
Nature Of Liquidation Proceedings
PAClFlC BANKlNG CORPORATlON
EMPLOYEES ORGANlZATlON, et al vs. CA
G.R. No. 109373
20 March 1995
Held:
Dstncton Between an Ordnary Acton and a
Speca Proceedng:
It was necessary n ths case to cassfy what
was fed-- whether t was an ordnary acton or
a speca proceedng-because the two have
dfferent perods for appea.
Acton s the act by whch one sues another n a
court of |ustce for the enforcement or
protecton of a rght, or the preventon or
redress of the wrong; whe speca proceedng
s the act by whch one seeks to estabsh the
status or rght of a party, or a partcuar fact.
A petton for qudaton of an nsovent
corporaton s a speca proceedng.
It does not seek the enforcement or protecton
of a rght nor the preventon or redress of a
wrong aganst a party.
It does not pray for affrmatve reef for an
n|ury arsng from a partys wrongfu act or
omsson nor state a cause of acton that can be
enforced aganst any person.
The petton ony seeks a decaraton of the
corporatons state of nsovency and the
concomtant rght of credtors and the order of
payment of ther cams n the dsposton of the
corpos assets.
Dfferent from an Interpeader
An Interpeader nvoves cams on a sub|ect
matter aganst a person who has no nterest
theren.
Not the case n qudaton proceedngs where
the Lqudator, as representatve of the
corporaton, takes charge of ts assets and
abtes for the beneft of the credtors.
Appea
As n settement of the estate of the deceased,
mutpe appeas are aowed. The severa
cams of the credtors are separate ones and a
decson or fna order wth respect to any cam
can be appeaed.
In speca proceedngs, unke n ordnary
actons, a record on appea must be fed n
order for the appea to be perfected. Ths s
because the orgna record of the case must
reman n the tra court where other cams may
st be pendng
In ths case of corporate qudaton, there was
faure to fe record on appea. Hence, t beng a
speca proceedng, the appea was not
perfected.
AUTHORlTY OF CONSERVATOR TO REVOKE CONTRACTS
FlRST PHlLlPPlNE lNTERNATlONAL BANK
vs. CA
G.R. No. 115849
24 |anuary 1996
Facts:
The defendant Producer Bank of the Phppnes
acqured sx parces of and wth a tota area of
101 hectares ocated at Don |ose, Sta. Rose,
Laguna. The orgna pantffs, Demetro
Demetra and |ose O. |anoo, wanted to
purchase the property and thus ntated
negotatons for that purpose.
In the eary part of August 1987 sad pantffs,
upon the suggeston of BYME (prevous owner of
ands who mortgaged t to Producer Bank)
nvestment's ega counse, |ose Fa|ardo, met
wth defendant Mercuro Rvera, Manager of the
Property Management Department of the
defendant bank. After the meetng, pantff
|anoo, foowng the advce of defendant Rvera,
made a forma purchase offer to the bank
through a etter.
Rvera reped and made a counter offer of P 5.5
M. |anoo amended hs offer to 4.250 M. There
was no repy to |anoo's ast offer. What took
pace was a meetng on September 28, 1987
between the pantffs and Lus Co, the Senor
Vce-Presdent of defendant bank. Rvera as we
as Fa|ardo, the BYME awyer, attended the
meetng.
|anoo wrote agan sayng that they are
acceptng the 5.5 offer.
On October 12, 1987, the conservator of the
bank (whch has been paced under
conservatorshp by the Centra Bank snce
1984) was repaced by an Actng Conservator n
the person of defendant Leonda T.
Encarnacon. Rvera wrote back to say the
proposa s under consderaton.
What thereafter transpred was a seres of
demands by the pantffs for compance by the
bank wth what pantff consdered as a
perfected contract of sae, whch demands were
n one form or another refused by the bank. As
detaed by the tra court n ts decson, on
November 17, 1987, pantffs through a etter
to defendant Rvera (Exhbt "G") tendered
payment of the amount of P5.5 mon
"pursuant to (our) perfected sae agreement."
Defendants refused to receve both the
payment and the etter. Pantffs demanded the
executon by the bank of the documents on
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what was consdered as a "perfected
agreement."
However, no response came from the Actng
Conservator. On December 14, 1987, |anoo and
Demetra made a second tender of payment
ths tme through the Actng Conservator,
defendant Encarnacon. The etter contaned
checks and an acknowedgment of the recept
of payment.
The foregong etter drew no response for more
than four months. Then, on May 3, 1988,
pantff, through counse, made a fna demand
for compance by the bank wth ts obgatons
under the consdered perfected contract of sae.
Defendants through Actng Conservator
Encarnacon repudated the authorty of
defendant Rvera and camed that hs deangs
wth the pantffs, partcuary hs counter-offer
of P5.5 Mon are unauthorzed or ega.
Pantffs fed a sut for specfc performance
wth damages aganst the bank, ts Manager
Rvers and Actng Conservator Encarnacon.
In the course of the proceedngs n the
respondent Court, Caros E|ercto was
substtuted n pace of Demetra and |anoo, n
vew of the assgnment of the atters' rghts.
lssue1: WON the Contract Perfected
Held: Yes
Ratio:
There s no dspute that the ob|ect of the
transacton s that property owned by the
defendant bank as acqured assets consstng of
sx (6) parces of and. It s kewse beyond
cav that the bank ntended to se the
property. The procedure n the sae of acqured
assets as we as the nature and scope of the
authorty of Rvera on the matter s ceary
deneated n the testmony of Rvera hmsef.
The pantffs, therefore, at that meetng of
August 1987 regardng ther purpose of buyng
the property, deat wth and taked to the rght
person. Necessary, t beng nherent n hs
authorty, Rvera s the offcer from whom
offca nformaton regardng the prce, as
determned by the Commttee and approved by
the Conservator, can be had. And Rvera
confrmed hs authorty when he taked wth the
pantff n August 1987.
What transpred after the meetng of eary
August 1987 are consstent wth the authorty
and the dutes of Rvera and the bank's nterna
procedure n the matter of the sae of bank's
assets. Consderng an aspect of the offca
duty of Rvera as some sort of ntermedary
between the pantffs-buyers wth ther
proposed buyng prce on one hand, and the
bank Commttee, the Conservator and
utmatey the bank tsef wth the set prce on
the other, and consderng further the
dscusson of prce at the meetng of August
resutng n a forma offer of P3.5 Mon n cash,
there can be no other ogca concuson than
that when, on September 1, 1987, Rvera
nformed pantffs by etter that "the bank's
counter-offer s at P5.5 Mon for more than
101 hectares on ot bass," such counter-offer
prce had been determned by the Past Due
Commttee and approved by the Conservator
after Rvera had duy presented pantffs' offer
for dscusson by the Commttee of such
matters as orgna oan of borrower, bd prce
durng forecosure, tota cam of the bank, and
market vaue.
Artce 1318 of the Cv Code enumerates the
requstes of a vad and perfected contract as
foows: "(1) Consent of the contractng partes;
(2) Ob|ect certan whch s the sub|ect matter of
the contract; (3) Cause of the obgaton whch
s estabshed."
There s no dspute on requste no. 2. There s,
however, a dspute on the frst and thrd
requstes.
Pettoners aege that "there s no counter-offer
made by the Bank, and any supposed counter-
offer whch Rvera (or Co) may have made s
unauthorzed. Snce there was no counter-offer
by the Bank, there was nothng for E|ercto (n
substtuton of Demetra and |anoo) to accept."
From the evdence found by respondent Court,
t s obvous that pettoner Rvera has apparent
or mped authorty to act for the Bank n the
matter of seng ts acqured assets. (evdence:
etters, meetngs, etc)
In the very recent case of Lmketka Sons
Mng, Inc. vs. Court of Appeas, et. a. 32, the
Court, through |ustce |ose A. R. Meo, affrmed
the doctrne of apparent authorty as t hed
that the apparent authorty of the offcer of the
Bank of P.I. n charge of acqured assets s
borne out by smar crcumstances surroundng
hs deangs wth buyers.
To be sure, pettoners attempted to repudate
Rvera's apparent authorty through documents
and testmony whch seek to estabsh Rvera's
actua authorty. These peces of evdence,
however, are nherenty weak as they consst of
Rvera's sef-servng testmony and varous
nter-offce memoranda that purport to show hs
mted actua authorty, of whch prvate
respondent cannot be charged wth knowedge.
In any event, snce the ssue s apparent
authorty, the exstence of whch s borne out by
the respondent Court's fndngs, the evdence of
actua authorty s mmatera nsofar as the
abty of a corporaton s concerned
Pettoners aso aeged that Demetra's and
|anoo's P4.25 mon counter-offer n the etter
dated September 17, 1987 extngushed the
Bank's offer of P5.5 mon 34 .They dsputed
the respondent Court's fndng that "there was a
meetng of mnds when on 30 September 1987
Demetra and |anoo through Annex "L" (etter
dated September 30, 1987) "accepted" Rvera's
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counter offer of P5.5 mon under Annex "|"
(etter dated September 17, 1987)."
However, the above-cted authortes and
precedents cannot appy n the nstant case
because, as found by the respondent Court
whch revewed the testmones on ths pont,
what was "accepted" by |anoo n hs etter
dated September 30, 1987 was the Bank's offer
of P5.5 mon as confrmed and reterated to
Demetra and Atty. |ose Fa|ardo by Rvera and
Co durng ther meetng on September 28,
1987. Note that the sad etter of September 30,
1987 begns wth"(p)ursuant to our dscusson
ast 28 September 1987 . . .
We note that the Bank's repudaton, through
Conservator Encarnacon, of Rvera's authorty
and acton, partcuary the atter's counter-offer
of P5.5 mon, as beng "unauthorzed and
ega" came ony on May 12, 1988 or more
than seven (7) months after |anoo' acceptance.
Such deay, and the absence of any
crcumstance whch mght have |ustfaby
prevented the Bank from actng earer, ceary
characterzes the repudaton as nothng more
than a ast-mnute attempt on the Bank's part
to get out of a bndng contractua obgaton.
lssue2: Is the Contract Enforceabe?
Held: Yes
Ratio:
The bank's etter of September 1, 1987
(together wth the other etters ncudng
|anoos frst offer) on the offca prce and the
pantffs' acceptance of the prce on September
30, 1987, are not, n themseves, forma
contracts of sae. They are however cear
embodments of the fact that a contract of sae
was perfected between the partes, such
contract beng bndng n whatever form t may
have been entered nto (case ctatons omtted).
But et t be assumed arguendo that the
counter-offer durng the meetng on September
28, 1987 dd consttute a "new" offer whch was
accepted by |anoo on September 30, 1987.
St, the statute of frauds w not appy by
reason of the faure of pettoners to ob|ect to
ora testmony provng pettoner Bank's
counter-offer of P5.5 mon. Hence, pettoners
by such utter faure to ob|ect are deemed to
have waved any defects of the contract under
the statute of frauds, pursuant to Artce 1405
of the Cv Code.
lssue3: May the Conservator Revoke the
Perfected and Enforceabe Contract?
Held: No
Ratio:
It s not dsputed that the pettoner Bank was
under a conservator paced by the Centra Bank
of the Phppnes durng the tme that the
negotaton and perfecton of the contract of
sae took pace. Pettoners energetcay
contended that the conservator has the power
to revoke or overrue actons of the
management or the board of drectors of a
bank, under SEC 28-A of Repubc Act No. 265
(otherwse known as the Centra Bank Act) as
foows:
Whenever, on the bass of a report submtted
by the approprate supervsng or examnng
department, the Monetary Board fnds that a
bank or a non-bank fnanca ntermedary
performng quas-bankng functons s n a state
of contnung nabty or unwngness to
mantan a state of qudty deemed adequate
to protect the nterest of depostors and
credtors, the Monetary Board may appont a
conservator to take charge of the assets,
abtes, and the management of that
nsttuton, coect a mones and debts due sad
nsttuton and exercse a powers necessary to
preserve the assets of the nsttuton,
reorganze the management thereof, and
restore ts vabty. He sha have the power to
overrue or revoke the actons of the prevous
management and board of drectors of the bank
or non-bank fnanca ntermedary performng
quas-bankng functons, any provson of aw to
the contrary notwthstandng, and such other
powers as the Monetary Board sha deem
necessary.
In the frst pace, ths ssue of the Conservator's
aeged authorty to revoke or repudate the
perfected contract of sae was rased for the
frst tme n ths Petton as ths was not tgated
n the tra court or CA. It cannot be rased for
the frst tme on appea
In the second pace, there s absoutey no
evdence that the Conservator, at the tme of
the contract was perfected, actuay repudated
or overrued sad contract of sae. The Bank's
actng conservator at the tme, Rodofo Romey,
never ob|ected to the sae of the property to
Demetra and |anoo. What pettoners are reay
referrng to s the etter of Conservator
Encarnacon, who took over from Romey after
the sae was perfected on September 30, 1987
(Annex V, petton) whch unateray
repudated not the contract but the authorty of
Rvera to make a bndng offer and whch
unarguaby came months after the perfecton of
the contract. It dened the counter offer. It sad
that ony ony the Board of
Drectors/Conservator may authorze the sae of
any property of the corporton/bank..
In the thrd pace, whe admttedy, the Centra
Bank aw gves vast and far-reachng powers to
the conservator of a bank, t must be ponted
out that such powers must be reated to the
"(preservaton of) the assets of the bank, (the
reorganzaton of) the management thereof and
(the restoraton of) ts vabty." Such powers,
enormous and extensve as they are, cannot
extend to the post-facto repudaton of
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perfected transactons, otherwse they woud
nfrnge aganst the non-mparment cause of
the Consttuton. If the egsature tsef cannot
revoke an exstng vad contract, how can t
deegate such non-exstent powers to the
conservator under SEC 28-A of sad aw?
Obvousy, therefore, SEC 28-A merey gves the
conservator power to revoke contracts that are,
under exstng aw, deemed to be defectve .e.,
vod, vodabe, unenforceabe or rescssbe.
Hence, the conservator merey takes the pace
of a bank's board of drectors. What the sad
board cannot do such as repudatng a contract
vady entered nto under the doctrne of
mped authorty the conservator cannot do
ether. Ineuctaby, hs power s not unatera
and he cannot smpy repudate vad
obgatons of the Bank. Hs authorty woud be
ony to brng court actons to assa such
contracts as he has aready done so n the
nstant case. A contrary understandng of the
aw woud smpy not be permtted by the
Consttuton. Nether by common sense. To rue
otherwse woud be to enabe a fang bank to
become sovent, at the expense of thrd partes,
by smpy gettng the conservator to unateray
revoke a prevous deangs whch had one way
or another or come to be consdered
unfavorabe to the Bank, yedng nothng to
perfected contractua rghts nor vested
nterests of the thrd partes who had deat wth
the Bank.
ADDlTlONAL MATERlAL:
ClRCULAR NO. 537
Series of 2006
Pursuant to SEC 52 of Repubc Act No. 7653
and Monetary Board Resouton No. 862 dated 6
|uy 2006, the maxmum amount of cons to be
consdered as ega tender s ad|usted as
foows:
1. One thousand pesos (P1,000.00) for
denomnatons of 1-Pso, 5-Pso and 10-
Pso cons; and
2. One hundred pesos (P100.00) for
denomnatons of 1-sentmo, 5-sentmo,
10-sentmo, and 25-sentmo cons.
Ths Crcuar sha take effect after ffteen (15)
days foowng ts pubcaton n the Offca
Gazette or n a newspaper of genera
crcuaton.
Vll. THE GENERAL BANKlNG LAW
OF 2000
7.1 Topics
State Policy
Concept of lntermediation
Distinction between banks and quasibanks
SEC 2. Declaration of Policy. - The State
recognzes the vta roe of banks n provdng
an envronment conducve to the sustaned
deveopment of the natona economy and the
fducary nature
of bankng that requres hgh standards of
ntegrty and performance. In furtherance
thereof, the State
sha promote and mantan a stabe and
effcent bankng and fnanca system that s
gobay
compettve, dynamc and responsve to the
demands of a deveopng economy. (n)
SEC 4. Supervisory Powers. - The
operatons and actvtes of banks sha be
sub|ect to
supervson of the Bangko Sentra. "Supervson"
sha ncude the foowng:
4.1. The ssuance of rues of conduct or the
estabshment of standards of operaton for
unform
appcaton to a nsttutons or functons
covered, takng nto consderaton the
dstnctve
character of the operatons of nsttutons and
the substantve smartes of specfc functons
to whch such rues, modes or standards are to
be apped;
4.2. The conduct of examnaton to determne
compance wth aws and reguatons f the
crcumstances so warrant as determned by the
Monetary Board;
4.3. Overseeng to ascertan that aws and
reguatons are comped wth;
4.4. Reguar nvestgaton whch sha not be
oftener than once a year from the ast date of
examnaton to determne whether an
nsttuton s conductng ts busness on a safe
or
sound bass: Provded, That the
defcences/rreguartes found by or
dscovered by an audt
sha be mmedatey addressed;
4.5. Inqurng nto the sovency and qudty of
the nsttuton (2-D); or
4.6. Enforcng prompt correctve acton. (n)
The Bangko Sentra sha aso have supervson
over the operatons of and exercse reguatory
powers over quas-banks, trust enttes and
other fnanca nsttutons whch under speca
aws are
sub|ect to Bangko Sentra supervson. (2-Ca)
For the purposes of ths Act, "quas-banks" sha
refer to enttes engaged n the borrowng of
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funds through the ssuance, endorsement or
assgnment wth recourse or acceptance of
depost
substtutes as defned n SEC 95 of Repubc Act
No. 7653 (hereafter the "New Centra Bank
Act") for
purposes of reendng or purchasng of
recevabes and other obgatons. (2-Da)
Classification of banks
3.2. Banks sha be cassfed nto:
(a) Unversa banks;
(b) Commerca banks;
(c) Thrft banks, composed of: () Savngs and
mortgage banks, () Stock savngs and oan
assocatons, and () Prvate deveopment
banks, as defned n Repubc Act No. 7906
(hereafter the "Thrft Banks Act");
(d) Rura banks, as defned n Repubc Act No.
7353 (hereafter the "Rura Banks Act");
(e) Cooperatve banks, as defned n Repubc
Act No. 6938 (hereafter the "Cooperatve
Code");
(f) Isamc banks as defned n Repubc Act No.
6848, otherwse known as the "Charter of A
Amanah Isamc Investment Bank of the
Phppnes"; and
(g) Other cassfcatons of banks as determned
by the Monetary Board of the Bangko Sentra
ng Ppnas. (6-Aa)
SEC 71. Other Banking Laws. - The
organzaton, ownershp and capta
requrements,
powers, supervson and genera conduct of
busness of thrft banks, rura banks and
cooperatve banks
sha be governed by the provsons of the Thrft
Banks Act, the Rura Banks Act, and the
Cooperatve
Code, respectvey.
The organzaton, ownershp and capta
requrements, powers, supervson and genera
conduct
of busness of Isamc banks sha be governed
by speca aws.
The provsons of ths Act, however, nsofar as
they are not n confct wth the provsons of
the
Thrft Banks Act, the Rura Banks Act, and the
Cooperatve Code sha kewse appy to thrft
banks, rura
banks, and cooperatve banks, respectvey.
However, for purposes of prescrbng the
mnmum rato
whch the net worth of a thrft bank must bear
to ts tota rsk assets, the provsons of SEC 33
of ths
Act sha govern. (n)
Distinction between universal banks and
commercial banks
SEC 23. Powers of a Universal Bank. - A
unversa bank sha have the authorty to
exercse, n addton to the powers authorzed
for a commerca bank n SEC 29, the powers of
an
nvestment house as provded n exstng aws
and the power to nvest n non-aed
enterprses as
provded n ths Act. (21-B)
SEC 24. Equity lnvestments of a Universal
Bank. - A unversa bank may, sub|ect to
the condtons stated n the succeedng
paragraph, nvest n the equtes of aed and
non-aed
enterprses as may be determned by the
Monetary Board. Aed enterprses may ether
be fnanca or
non-fnanca.
Except as the Monetary Board may otherwse
prescrbe:
24.1. The tota nvestment n equtes of aed
and non-aed enterprses sha not exceed ffty
percent (50%) of the net worth of the bank; and
24.2. The equty nvestment n any one
enterprse, whether aed or non-aed, sha
not exceed
twenty-fve percent (25%) of the net worth of
the bank.
As used n ths Act, "net worth" sha mean the
tota of the unmpared pad-n capta ncudng
pad-n surpus, retaned earnngs and undvded
proft, net of vauaton reserves and other
ad|ustments as
may be requred by the Bangko Sentra.
The acquston of such equty or equtes s
sub|ect to the pror approva of the Monetary
Board
whch sha promugate approprate gudenes
to govern such nvestments. (21-Ba)
SEC 30. Equity lnvestments of a
Commercial Bank. - A commerca bank may,
sub|ect
to the condtons stated n the succeedng
paragraphs, nvest ony n the equtes of aed
enterprses as
may be determned by the Monetary Board.
Aed enterprses may ether be fnanca or
non-fnanca.
Except as the Monetary Board may otherwse
prescrbe:
30.1. The tota nvestment n equtes of aed
enterprses sha not exceed thrty-fve percent
(35%) of the net worth of the bank; and
30.2. The equty nvestment n any one
enterprse sha not exceed twenty-fve percent
(25%) of the
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net worth of the bank.
The acquston of such equty or equtes s
sub|ect to the pror approva of the Monetary
Board
whch sha promugate approprate gudenes
to govern such nvestments. (21A-a; 21-Ca)
Distinction between universal banks or
commercial banks and other banks
SEC 33. Acceptance of Demand Deposits.
- A bank other than a unversa or
commerca bank cannot accept or create
demand deposts except upon pror approva of,
and sub|ect to
such condtons and rues as may be prescrbed
by the Monetary Board. (72-Aa)
Distinction between allied and non-allied
enterprises
SEC 23. Powers of a Universal Bank. - A
unversa bank sha have the authorty to
exercse, n addton to the powers authorzed
for a commerca bank n SEC 29, the powers of
an
nvestment house as provded n exstng aws
and the power to nvest n non-aed
enterprses as
provded n ths Act. (21-B)
lnstitutions subject to 85P supervisory and
regulatory powers
SEC 4. Supervisory Powers. - The
operatons and actvtes of banks sha be
sub|ect to
supervson of the Bangko Sentra. "Supervson"
sha ncude the foowng:
4.1. The ssuance of rues of conduct or the
estabshment of standards of operaton for
unform
appcaton to a nsttutons or functons
covered, takng nto consderaton the
dstnctve
character of the operatons of nsttutons and
the substantve smartes of specfc functons
to whch such rues, modes or standards are to
be apped;
4.2. The conduct of examnaton to determne
compance wth aws and reguatons f the
crcumstances so warrant as determned by the
Monetary Board;
4.3. Overseeng to ascertan that aws and
reguatons are comped wth;
4.4. Reguar nvestgaton whch sha not be
oftener than once a year from the ast date of
examnaton to determne whether an
nsttuton s conductng ts busness on a safe
or
sound bass: Provded, That the
defcences/rreguartes found by or
dscovered by an audt
sha be mmedatey addressed;
4.5. Inqurng nto the sovency and qudty of
the nsttuton (2-D); or
4.6. Enforcng prompt correctve acton. (n)
The Bangko Sentra sha aso have supervson
over the operatons of and exercse reguatory
powers over quas-banks, trust enttes and
other fnanca nsttutons whch under speca
aws are
sub|ect to Bangko Sentra supervson. (2-Ca)
For the purposes of ths Act, "quas-banks" sha
refer to enttes engaged n the borrowng of
funds through the ssuance, endorsement or
assgnment wth recourse or acceptance of
depost
substtutes as defned n SEC 95 of Repubc Act
No. 7653 (hereafter the "New Centra Bank
Act") for
purposes of reendng or purchasng of
recevabes and other obgatons. (2-Da)
R.A.7653
SEC 25. Supervision and Examination. -
The Bangko Sentra sha have supervson
over, and conduct perodc or speca
examnatons of, bankng nsttutons and quas-
banks, ncudng
ther subsdares and affates engaged n aed
actvtes.
For purposes of ths SEC, a subsdary means a
corporaton more than ffty percent (50%) of
the votng stock of whch s owned by a bank or
quas-bank and an affate means a corporaton
the
votng stock of whch, to the extent of ffty
percent (50%) or ess, s owned by a bank or
quas-bank or
whch s reated or nked to such nsttuton or
ntermedary through common stockhoders or
such other
factors as may be determned by the Monetary
Board.
The department heads and the examners of
the supervsng and/or examnng departments
are
hereby authorzed to admnster oaths to any
drector, offcer, or empoyee of any nsttuton
under ther
respectve supervson or sub|ect to ther
examnaton and to compe the presentaton of
a books,
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documents, papers or records necessary n ther
|udgment to ascertan the facts reatve to the
true
condton of any nsttuton as we as the books
and records of persons and enttes reatve to
or n
connecton wth the operatons, actvtes or
transactons of the nsttuton under
examnaton, sub|ect to
the provson of exstng aws protectng or
safeguardng the secrecy or confdentaty of
bank deposts
as we as nvestments of prvate persons,
natura or |urdca, n debt nstruments ssued
by the
Government.
No restranng order or n|uncton sha be
ssued by the court en|onng the Bangko
Sentra from
examnng any nsttuton sub|ect to supervson
or examnaton by the Bangko Sentra, uness
there s
convncng proof that the acton of the Bangko
Sentra s pany arbtrary and made n bad
fath and the
pettoner or pantff fes wth the cerk or |udge
of the court n whch the acton s pendng a
bond
executed n favor of the Bangko Sentra, n an
amount to be fxed by the court. The provsons
of Rue
58 of the New Rues of Court nsofar as they are
appcabe and not nconsstent wth the
provsons of
ths SEC sha govern the ssuance and
dssouton of the restranng order or n|uncton
contempated
n ths SEC.
Authority to engage in banking institutions
SEC 6. Authority to Engage in Banking and
uasi-Banking Functions. - No person or
entty sha engage n bankng operatons or
quas-bankng functons wthout authorty from
the Bangko
Sentra: Provded, however, That an entty
authorzed by the Bangko Sentra to perform
unversa or
commerca bankng functons sha kewse
have the authorty to engage n quas-bankng
functons.
The determnaton of whether a person or entty
s performng bankng or quas-bankng
functons
wthout Bangko Sentra authorty sha be
decded by the Monetary Board. To resove such
ssue, the
Monetary Board may, through the approprate
supervsng and examnng department of the
Bangko
Sentra, examne, nspect or nvestgate the
books and records of such person or entty.
Upon ssuance of
ths authorty, such person or entty may
commence to engage n bankng operatons or
quas-bankng
functons and sha contnue to do so uness
such authorty s sooner surrendered, revoked,
suspended or
annued by the Bangko Sentra n accordance
wth ths Act or other speca aws.
The department head and the examners of the
approprate supervsng and examnng
department are hereby authorzed to admnster
oaths to any such person, empoyee, offcer, or
drector
of any such entty and to compe the
presentaton or producton of such books,
documents, papers or
records that are reasonaby necessary to
ascertan the facts reatve to the true functons
and operatons
of such person or entty. Faure or refusa to
compy wth the requred presentaton or
producton of such
books, documents, papers or records wthn a
reasonabe tme sha sub|ect the persons
responsbe
therefore to the pena sanctons provded under
the New Centra Bank Act.
Persons or enttes found to be performng
bankng or quas-bankng functons wthout
authorty
from the Bangko Sentra sha be sub|ect to
approprate sanctons under the New Centra
Bank Act and
other appcabe aws. (4a)
5tock corporation
SEC 8. Organization. - The Monetary Board
may authorze the organzaton of a bank or
quas-bank sub|ect to the foowng condtons:
8.1. That the entty s a stock corporaton (7);
8.2. That ts funds are obtaned from the pubc,
whch sha mean twenty (20) or more persons
(2-Da); and
8.3. That the mnmum capta requrements
prescrbed by the Monetary Board for each
category
of banks are satsfed. (n)
No new commerca bank sha be estabshed
wthn three (3) years from the effectvty of ths
Act. In the
exercse of the authorty granted heren, the
Monetary Board sha take nto consderaton
ther capabty
n terms of ther fnanca resources and
technca expertse and ntegrty. The bank
censng process sha
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ncorporate an assessment of the bank's
ownershp structure, drectors and senor
management, ts
operatng pan and nterna contros as we as
ts pro|ected fnanca condton and capta
base.
Not a close corporation
Par value stock
SEC 9. lssuance of Stocks. - The Monetary
Board may prescrbe rues and reguatons
on the types of stock a bank may ssue,
ncudng the terms thereof and rghts
appurtenant thereto to
determne compance wth aws and reguatons
governng capta and equty structure of banks:
Provded, That banks sha ssue par vaue
stocks ony.
Ownership of shares
SEC 11. Foreign Stockholdings. - Foregn
ndvduas and non-bank corporatons may
own or contro up to forty percent (40%) of the
votng stock of a domestc bank. Ths rue sha
appy to
Fpnos and domestc non-bank corporatons.
(12a; 12-Aa)
The percentage of foregn-owned votng stocks
n a bank sha be determned by the ctzenshp
of
the ndvdua stockhoders n that bank. The
ctzenshp of the corporaton whch s a
stockhoder n a
bank sha foow the ctzenshp of the
controng stockhoders of the corporaton,
rrespectve of the pace
of ncorporaton. (n)
M8 Certificate of authority
Power of a universal bank
SEC 23. Powers of a Universal Bank. - A
unversa bank sha have the authorty to
exercse, n addton to the powers authorzed
for a commerca bank n SEC 29, the powers of
an
nvestment house as provded n exstng aws
and the power to nvest n non-aed
enterprses as
provded n ths Act. (21-B)
SEC 24. Equity lnvestments of a Universal
Bank. - A unversa bank may, sub|ect to
the condtons stated n the succeedng
paragraph, nvest n the equtes of aed and
non-aed
enterprses as may be determned by the
Monetary Board. Aed enterprses may ether
be fnanca or
non-fnanca.
Except as the Monetary Board may otherwse
prescrbe:
24.1. The tota nvestment n equtes of aed
and non-aed enterprses sha not exceed ffty
percent (50%) of the net worth of the bank; and
24.2. The equty nvestment n any one
enterprse, whether aed or non-aed, sha
not exceed
twenty-fve percent (25%) of the net worth of
the bank.
As used n ths Act, "net worth" sha mean the
tota of the unmpared pad-n capta ncudng
pad-n surpus, retaned earnngs and undvded
proft, net of vauaton reserves and other
ad|ustments as
may be requred by the Bangko Sentra.
The acquston of such equty or equtes s
sub|ect to the pror approva of the Monetary
Board
whch sha promugate approprate gudenes
to govern such nvestments. (21-Ba)
SEC 25. Equity lnvestments of a Universal
Bank in Financial Allied Enterprises. - A
unversa bank can own up to one hundred
percent (100%) of the equty n a thrft bank, a
rura bank or a
fnanca aed enterprse.
A pubcy-sted unversa or commerca bank
may own up to one hundred percent (100%) of
the
votng stock of ony one other unversa or
commerca bank. (21-B; 21-Ca)
SEC 26. Equity lnvestments of a Universal
Bank in Non-Financial Allied Enterprises.
- A unversa bank may own up to one hundred
percent (100%) of the equty n a non-fnanca
aed
enterprse. (21-Ba)
SEC 27. Equity lnvestments of a Universal
Bank in Non-Allied Enterprises. - The
equty nvestment of a unversa bank, or of ts
whoy or ma|orty-owned subsdares, n a
snge nonaed
enterprse sha not exceed thrty-fve percent
(35%) of the tota equty n that enterprse nor
sha t
exceed thrty-fve percent (35%) of the votng
stock n that enterprse. (21-B)
SEC 28. Equity lnvestments in uasi-
Banks. - To promote compettve condtons n
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fnanca markets, the Monetary Board may
further mt to forty percent (40%) equty
nvestments of
unversa banks n quas-banks. Ths rue sha
aso appy n the case of commerca banks. (12-
E)
SEC 29. Powers of a Commercial Bank. - A
commerca bank sha have, n addton to
the genera powers ncdent to corporatons, a
such powers as may be necessary to carry on
the
busness of commerca bankng, such as
acceptng drafts and ssung etters of credt;
dscountng and
negotatng promssory notes, drafts, bs of
exchange, and other evdences of debt;
acceptng or creatng
demand deposts; recevng other types of
deposts and depost substtutes; buyng and
seng foregn
exchange and god or sver buon; acqurng
marketabe bonds and other debt securtes;
and extendng
credt, sub|ect to such rues as the Monetary
Board may promugate. These rues may
ncude the
determnaton of bonds and other debt
securtes egbe for nvestment, the maturtes
and aggregate
amount of such nvestment. (21a)
SEC 53. Other Banking Services. - In
addton to the operatons specfcay
authorzed n ths Act, a bank may perform the
foowng servces:
53.1. Receve n custody funds, documents and
vauabe ob|ects;
53.2. Act as fnanca agent and buy and se, by
order of and for the account of ther customers,
shares, evdences of ndebtedness and a types
of securtes;
53.3. Make coectons and payments for the
account of others and perform such other
servces for
ther customers as are not ncompatbe wth
bankng busness;
53.4. Upon pror approva of the Monetary
Board, act as managng agent, advser,
consutant or
admnstrator of nvestment
management/advsory/consutancy accounts;
and
53.5. Rent out safety depost boxes.
The bank sha perform the servces permtted
under SubSECs 53.1, 53.2, 53.3 and 53.4 as
depostary or as an agent. Accordngy, t sha
keep the funds, securtes and other effects
whch t
receves duy separate from the bank's own
assets and abtes.
The Monetary Board may reguate the
operatons authorzed by ths SEC n order to
ensure
that such operatons do not endanger the
nterests of the depostors and other credtors
of the bank.
In case a bank or quas-bank notfes the
Bangko Sentra or pubcy announces a bank
hoday, or
n any manner suspends the payment of ts
depost abtes contnuousy for more than
thrty (30) days,
the Monetary Board may summary and wthout
need for pror hearng cose such bankng
nsttuton and
pace t under recevershp of the Phppne
Depost Insurance Corporaton. (72a)
Powers of a commercial bank
SEC 29. Powers of a Commercial Bank. - A
commerca bank sha have, n addton to
the genera powers ncdent to corporatons, a
such powers as may be necessary to carry on
the
busness of commerca bankng, such as
acceptng drafts and ssung etters of credt;
dscountng and
negotatng promssory notes, drafts, bs of
exchange, and other evdences of debt;
acceptng or creatng
demand deposts; recevng other types of
deposts and depost substtutes; buyng and
seng foregn
exchange and god or sver buon; acqurng
marketabe bonds and other debt securtes;
and extendng
credt, sub|ect to such rues as the Monetary
Board may promugate. These rues may
ncude the
determnaton of bonds and other debt
securtes egbe for nvestment, the maturtes
and aggregate
amount of such nvestment. (21a)
SEC 30. Equity lnvestments of a
Commercial Bank. - A commerca bank may,
sub|ect
to the condtons stated n the succeedng
paragraphs, nvest ony n the equtes of aed
enterprses as
may be determned by the Monetary Board.
Aed enterprses may ether be fnanca or
non-fnanca.
Except as the Monetary Board may otherwse
prescrbe:
30.1. The tota nvestment n equtes of aed
enterprses sha not exceed thrty-fve percent
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(35%) of the net worth of the bank; and
30.2. The equty nvestment n any one
enterprse sha not exceed twenty-fve percent
(25%) of the
net worth of the bank.
The acquston of such equty or equtes s
sub|ect to the pror approva of the Monetary
Board
whch sha promugate approprate gudenes
to govern such nvestments. (21A-a; 21-Ca)
SEC 31. Equity lnvestments of a
Commercial Bank in Financial Allied
Enterprises. -
A commerca bank may own up to one hundred
percent (100%) of the equty of a thrft bank or
a rura
bank.
Where the equty nvestment of a commerca
bank s n other fnanca aed enterprses,
ncudng another commerca bank, such
nvestment sha reman a mnorty hodng n
that enterprse.
(21-Aa; 21-Ca)
SEC 32. Equity lnvestments of a
Commercial Bank in Non-Financial Allied
Enterprises. - A commerca bank may own
up to one hundred percent (100%) of the equty
n a nonfnanca aed enterprse. (21-Aa)
SEC 53. Other Banking Services. - In
addton to the operatons specfcay
authorzed
n ths Act, a bank may perform the foowng
servces:
53.1. Receve n custody funds, documents and
vauabe ob|ects;
53.2. Act as fnanca agent and buy and se, by
order of and for the account of ther customers,
shares, evdences of ndebtedness and a types
of securtes;
53.3. Make coectons and payments for the
account of others and perform such other
servces for
ther customers as are not ncompatbe wth
bankng busness;
53.4. Upon pror approva of the Monetary
Board, act as managng agent, advser,
consutant or
admnstrator of nvestment
management/advsory/consutancy accounts;
and
53.5. Rent out safety depost boxes.
The bank sha perform the servces permtted
under SubSECs 53.1, 53.2, 53.3 and 53.4 as
depostary or as an agent. Accordngy, t sha
keep the funds, securtes and other effects
whch t
receves duy separate from the bank's own
assets and abtes.
The Monetary Board may reguate the
operatons authorzed by ths SEC n order to
ensure
that such operatons do not endanger the
nterests of the depostors and other credtors
of the bank.
In case a bank or quas-bank notfes the
Bangko Sentra or pubcy announces a bank
hoday, or
n any manner suspends the payment of ts
depost abtes contnuousy for more than
thrty (30) days,
the Monetary Board may summary and wthout
need for pror hearng cose such bankng
nsttuton and
pace t under recevershp of the Phppne
Depost Insurance Corporaton. (72a)
Areas of supervision and regulation of banks
Examination and investigation of banks
SEC 4. Supervisory Powers. - The
operatons and actvtes of banks sha be
sub|ect to
supervson of the Bangko Sentra. "Supervson"
sha ncude the foowng:
4.1. The ssuance of rues of conduct or the
estabshment of standards of operaton for
unform
appcaton to a nsttutons or functons
covered, takng nto consderaton the
dstnctve
character of the operatons of nsttutons and
the substantve smartes of specfc functons
to whch such rues, modes or standards are to
be apped;
4.2. The conduct of examnaton to determne
compance wth aws and reguatons f the
crcumstances so warrant as determned by the
Monetary Board;
4.3. Overseeng to ascertan that aws and
reguatons are comped wth;
4.4. Reguar nvestgaton whch sha not be
oftener than once a year from the ast date of
examnaton to determne whether an
nsttuton s conductng ts busness on a safe
or
sound bass: Provded, That the
defcences/rreguartes found by or
dscovered by an audt
sha be mmedatey addressed;
4.5. Inqurng nto the sovency and qudty of
the nsttuton (2-D); or
4.6. Enforcng prompt correctve acton. (n)
The Bangko Sentra sha aso have supervson
over the operatons of and exercse reguatory
powers over quas-banks, trust enttes and
other fnanca nsttutons whch under speca
aws are
sub|ect to Bangko Sentra supervson. (2-Ca)
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For the purposes of ths Act, "quas-banks" sha
refer to enttes engaged n the borrowng of
funds through the ssuance, endorsement or
assgnment wth recourse or acceptance of
depost
substtutes as defned n SEC 95 of Repubc Act
No. 7653 (hereafter the "New Centra Bank
Act") for
purposes of reendng or purchasng of
recevabes and other obgatons. (2-Da)
R.A. 7653 SEC 28. Examination and Fees.
- The supervsng and examnng department
head,
personay or by deputy, sha examne the
books of every bankng nsttuton once n every
tweve (12)
months, and at such other tmes as the
Monetary Board by an affrmatve vote of fve
(5) members, may
deem expedent and to make a report on the
same to the Monetary Board: Provded, That
there sha be
an nterva of at east tweve (12) months
between annua examnatons.
The bank concerned sha afford to the head of
the approprate supervsng and examnng
departments and to hs authorzed deputes fu
opportunty to examne ts books, cash and
avaabe
assets and genera condton at any tme durng
bankng hours when requested to do so by the
Bangko
Sentra: Provded, however, That none of the
reports and other papers reatve to such
examnatons
sha be open to nspecton by the pubc except
nsofar as such pubcty s ncdenta to the
proceedngs
herenafter authorzed or s necessary for the
prosecuton of voatons n connecton wth the
busness
of such nsttutons.
Bankng and quas-bankng nsttutons whch
are sub|ect to examnaton by the Bangko
Sentra
sha pay to the Bangko Sentra, wthn the frst
thrty (30) days of each year, an annua fee n
an amount
equa to a percentage as may be prescrbed by
the Monetary Board of ts average tota assets
durng
the precedng year as shown on ts end-of-
month baance sheets, after deductng cash on
hand and
amounts due from banks, ncudng the Bangko
Sentra and banks abroad.
Acquisition by banks of own shares
SEC 10. Treasury Stocks. - No bank sha
purchase or acqure shares of ts own capta
stock or accept ts own shares as a securty for
a oan, except when authorzed by the Monetary
Board:
Provded, That n every case the stock so
purchased or acqured sha, wthn sx (6)
months from the tme
of ts purchase or acquston, be sod or
dsposed of at a pubc or prvate sae. (24a)
5tockholdings of family groups and related
interests
SEC 12. Stockholdings of Family Groups or
Related lnterests. - Stockhodngs of
ndvduas reated to each other wthn the
fourth degree of consangunty or affnty,
egtmate or
common-aw, sha be consdered famy groups
or reated nterests and must be fuy dscosed
n a
transactons by such an ndvdua wth the
bank. (12-Da)
SEC 13. Corporate Stockholdings. - Two or
more corporatons owned or controed by
the same famy group or same group of
persons sha be consdered reated nterests
and must be fuy
dscosed n a transactons by such
corporatons or reated groups of persons wth
the bank. (12-Ba)
lndependent directors
SEC 15. Board of Directors. - The provsons
of the Corporaton Code to the contrary
notwthstandng, there sha be at east fve (5),
and a maxmum of ffteen (15) members of the
board of
drectors of bank, two (2) of whom sha be
ndependent drectors. An "ndependent
drector" sha mean a
person other than an offcer or empoyee of the
bank, ts subsdares or affates or reated
nterests. (n)
Non-Fpno ctzens may become members of
the board of drectors of a bank to the extent of
the
foregn partcpaton n the equty of sad bank.
(Sec. 7, RA 7721)
The meetngs of the board of drectors may be
conducted through modern technooges such
as,
but not mted to, teeconferencng and vdeo-
conferencng. (n)
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Oualifications of directors and officers: the fit
and proper rule
SEC 16. Fit and Proper Rule. - To mantan
the quaty of bank management and afford
better protecton to depostors and the pubc n
genera, the Monetary Board sha prescrbe,
pass upon
and revew the quafcatons and
dsquafcatons of ndvduas eected or
apponted bank drectors or
offcers and dsquafy those found unft.
After due notce to the board of drectors of the
bank, the Monetary Board may dsquafy,
suspend or remove any bank drector or offcer
who commts or omts an act whch render hm
unft for the
poston.
In determnng whether an ndvdua s ft and
proper to hod the poston of a drector or
offcer of
a bank, regard sha be gven to hs ntegrty,
experence, educaton, tranng, and
competence. (9-Aa)
Prohibition on public officials
SEC 19. Prohibition on Public Officials. -
Except as otherwse provded n the Rura
Banks Act, no appontve or eectve pubc
offca, whether fu-tme or part-tme sha at
the same tme
serve as offcer of any prvate bank, save n
cases where such servce s ncdent to fnanca
assstance
provded by the government or a government-
owned or controed corporaton to the bank or
uness
otherwse provded under exstng aws. (13)
Compensation and other benefits of directors
and officers
SEC 18. Compensation and Other Benefits
of Directors and Officers. - To protect the
funds of depostors and credtors, the Monetary
Board may reguate the payment by the bank to
ts
drectors and offcers of compensaton,
aowance, fees, bonuses, stock optons, proft
sharng and frnge
benefts ony n exceptona cases and when the
crcumstances warrant, such as but not mted
to the
foowng:
18.1. When a bank s under comptroershp or
conservatorshp; or
18.2. When a bank s found by the Monetary
Board to be conductng busness n an unsafe or
unsound manner; or
18.3. When a bank s found by the Monetary
Board to be n an unsatsfactory fnanca
condton.
(n)
Ratio of net worth to total risk assets
SEC 34. Risk-Based Capital. - The Monetary
Board sha prescrbe the mnmum rato
whch the net worth of a bank must bear to ts
tota rsk assets whch may ncude contngent
accounts.
For purposes of ths SEC, the Monetary Board
may requre that such rato be determned on
the bass of the net worth and rsk assets of a
bank and ts subsdares, fnanca or otherwse,
as we as
prescrbe the composton and the manner of
determnng the net worth and tota rsk assets
of banks and
ther subsdares: Provded, That n the exercse
of ths authorty, the Monetary Board sha, to
the extent
feasbe, conform to nternatonay accepted
standards, ncudng those of the Bank for
Internatona
Settements (BIS), reatng to rsk-based capta
requrements: Provded, further, That t may
ater or
suspend compance wth such rato whenever
necessary for a maxmum perod of one (1)
year: Provded,
fnay, That such rato sha be apped
unformy to banks of the same category.
In case a bank does not compy wth the
prescrbed mnmum rato, the Monetary Board
may mt
or prohbt the dstrbuton of net profts by such
bank and may requre that part or a of the net
profts be
used to ncrease the capta accounts of the
bank unt the mnmum requrement has been
met. The
Monetary Board may, furthermore, restrct or
prohbt the acquston of ma|or assets and the
makng of
new nvestments by the bank, wth the
excepton of purchases of ready marketabe
evdences of
ndebtedness of the Repubc of the Phppnes
and of the Bangko Sentra and any other
evdences of
ndebtedness or obgatons the servcng and
repayment of whch are fuy guaranteed by the
Repubc of
the Phppnes, unt the mnmum requred
capta rato has been restored.
In case of a bank merger or consodaton, or
when a bank s under rehabtaton under a
program
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approved by the Bangko Sentra, the Monetary
Board may temporary reeve the survvng
bank,
consodated bank, or consttuent bank or
corporatons under rehabtaton from fu
compance wth the
requred capta rato under such condtons as t
may prescrbe.
Before the effectvty of the rues whch the
Monetary Board s authorzed to prescrbe under
ths
provson, SEC 22 of the Genera Bankng Act, as
amended, SEC 9 of the Thrft Banks Act, and a
pertnent rues ssued pursuant thereto, sha
contnue to be n force. (22a)
8A5LE ACCORD
Limits on loans, the 58L rules
SEC 35. Limit on Loans, Credit
Accommodations and Guarantees. -
35.1. Except as the Monetary Board may
otherwse prescrbe for reasons of natona
nterest, the
tota amount of oans, credt accommodatons
and guarantees as may be defned by the
Monetary Board that may be extended by a
bank to any person, partnershp, assocaton,
corporaton or other entty sha at no tme
exceed twenty percent (20%) of the net worth
of
such bank. The bass for determnng
compance wth snge-borrower mt s the
tota credt
commtment of the bank to the borrower.
35.2. Uness the Monetary Board prescrbes
otherwse, the tota amount of oans, credt
accommodatons and guarantees prescrbed n
the precedng paragraph may be ncreased
by an addtona ten percent (10%) of the net
worth of such bank provded the addtona
abtes of any borrower are adequatey
secured by trust recepts, shppng documents,
warehouse recepts or other smar documents
transferrng or securng tte coverng ready
marketabe, non-pershabe goods whch must
be fuy covered by nsurance.
35.3. The above prescrbed cengs sha
ncude: (a) the drect abty of the maker or
acceptor of
paper dscounted wth or sod to such bank and
the abty of a genera ndorser, drawer or
guarantor who obtans a oan or other credt
accommodaton from or dscounts paper wth or
ses papers to such bank; (b) n the case of an
ndvdua who owns or contros a ma|orty
nterest n a corporaton, partnershp,
assocaton or any other entty, the abtes of
sad
enttes to such bank; (c) n the case of a
corporaton, a abtes to such bank of a
subsdares n whch such corporaton owns or
contros a ma|orty nterest; and (d) n the
case of a partnershp, assocaton or other
entty, the abtes of the members thereof to
such bank.
35.4. Even f a parent corporaton, partnershp,
assocaton, entty or an ndvdua who owns or
contros a ma|orty nterest n such enttes has
no abty to the bank, the Monetary Board
may prescrbe the combnaton of the abtes
of subsdary corporatons or members of the
partnershp, assocaton, entty or such
ndvdua under certan crcumstances,
ncudng but
not mted to any of the foowng stuatons: (a)
the parent corporaton, partnershp,
assocaton, entty or ndvdua guarantees the
repayment of the abtes; (b) the abtes
were ncurred for the accommodaton of the
parent corporaton or another subsdary or of
the partnershp or assocaton or entty or such
ndvdua; or (c) the subsdares though
separate enttes operate merey as
departments or dvsons of a snge entty.
35.5. For purposes of ths SEC, oans, other
credt accommodatons and guarantees sha
excude:
(a) oans and other credt accommodatons
secured by obgatons of the Bangko Sentra or
of the Phppne Government; (b) oans and
other credt accommodatons fuy guaranteed
by the
government as to the payment of prncpa and
nterest; (c) oans and other credt
accommodatons
covered by assgnment of deposts mantaned
n the endng bank and hed n the Phppnes;
(d)
oans, credt accommodatons and acceptances
under etters of credt to the extent covered by
margn deposts; and (e) other oans or credt
accommodatons whch the Monetary Board
may from
tme to tme, specfy as non-rsk tems.
35.6. Loans and other credt accommodatons,
deposts mantaned wth, and usua guarantees
by
a bank to any other bank or non-bank entty,
whether ocay or abroad, sha be sub|ect to
the mts as heren prescrbed.
35.7. Certan types of contngent accounts of
borrowers may be ncuded among those
sub|ect to
these prescrbed mts as may be determned
by the Monetary Board. (23a)
Restrictions on bank exposure; the DO5Rl
rules
SEC 36. Restriction on Bank Exposure to
Directors, Officers, Stockholders and Their
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Related lnterests. - No drector or offcer of
any bank sha, drecty or ndrecty, for hmsef
or as the
representatve or agent of others, borrow from
such bank nor sha he become a guarantor,
ndorser or
surety for oans from such bank to others, or n
any manner be an obgor or ncur any
contractua abty
to the bank except wth the wrtten approva of
the ma|orty of a the drectors of the bank,
excudng the
drector concerned: Provded, That such wrtten
approva sha not be requred for oans, other
credt
accommodatons and advances granted to
offcers under a frnge beneft pan approved by
the Bangko
Sentra. The requred approva sha be entered
upon the records of the bank and a copy of such
entry
sha be transmtted forthwth to the
approprate supervsng and examnng
department of the Bangko
Sentra.
Deangs of a bank wth any of ts drectors,
offcers or stockhoders and ther reated
nterests
sha be upon terms not ess favorabe to the
bank than those offered to others.
After due notce to the board of drectors of the
bank, the offce of any bank drector or offcer
who
voates the provsons of ths SEC may be
decared vacant and the drector or offcer sha
be sub|ect
to the pena provsons of the New Centra Bank
Act.
The Monetary Board may reguate the amount
of oans, credt accommodatons and
guarantees
that may be extended, drecty or ndrecty, by
a bank to ts drectors, offcers, stockhoders
and ther
reated nterests, as we as nvestments of such
bank n enterprses owned or controed by sad
drectors,
offcers, stockhoders and ther reated
nterests. However, the outstandng oans,
credt accommodatons
and guarantees whch a bank may extend to
each of ts stockhoders, drectors, or offcers
and ther
reated nterests, sha be mted to an amount
equvaent to ther respectve unencumbered
deposts and
book vaue of ther pad-n capta contrbuton
n the bank: Provded, however, That oans,
credt
accommodatons and guarantees secured by
assets consdered as non-rsk by the Monetary
Board sha
be excuded from such mt: Provded, further,
That oans, credt accommodatons and
advances to
offcers n the form of frnge benefts granted n
accordance wth rues as may be prescrbed by
the
Monetary Board sha not be sub|ect to the
ndvdua mt.
The Monetary Board sha defne the term
"reated nterests."
The mt on oans, credt accommodatons and
guarantees prescrbed heren sha not appy to
oans, credt accommodatons and guarantees
extended by a cooperatve bank to ts
cooperatve
sharehoders. (83a)
Microfinancing
SEC 40. Requirement for Grant of Loans or
Other Credit Accommodations. - Before
grantng a oan or other credt accommodaton,
a bank must ascertan that the debtor s
capabe of
fufng hs commtments to the bank.
Toward ths end, a bank may demand from ts
credt appcants a statement of ther assets
and
abtes and of ther ncome and expendtures
and such nformaton as may be prescrbed by
aw or by
rues and reguatons of Monetary Board to
enabe the bank to propery evauate the credt
appcaton
whch ncudes the correspondng fnanca
statements submtted for taxaton purposes to
the Bureau of
Interna Revenue. Shoud such statements
prove to be fase or ncorrect n any matera
deta, the bank
may termnate any oan or other credt
accommodaton granted on the bass of sad
statements and sha
have the rght to demand mmedate repayment
or qudaton of the obgaton.
In formuatng rues and reguatons under ths
SEC, the Monetary Board sha recognze the
pecuar characterstcs of mcrofnancng, such
as cash fow-based endng to the basc sectors
that are
not covered by tradtona coatera. (76a)
SEC 43. Authority to Prescribe Terms and
Conditions of Loans and Other Credit
Accommodations. - The Monetary Board
may, smary, n accordance wth the authorty
granted to t
n SEC 106 of the New Centra Bank Act, and
takng nto account the requrements of the
economy for
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the effectve utzaton of ong-term funds,
prescrbe the maturtes, as we as reated
terms and
condtons for varous types of bank oans and
other credt accommodatons. Any change by
the Board n
the maxmum maturtes sha appy ony to
oans and other credt accommodatons made
after the date of
such acton.
The Monetary Board sha reguate the nterest
mposed on mcrofnance borrowers by endng
nvestors and smar enders, such as, but not
mted to, the unconsconabe rates of nterest
coected on
saary oans and smar credt accommodatons.
(78a)
SEC 44. Amortization on Loans and Other
Credit Accommodations. - The
amortzaton schedue of bank oans and other
credt accommodatons sha be adapted to the
nature of
the operatons to be fnanced.
In case of oans and other credt
accommodatons wth maturtes of more than
fve (5) years,
provsons must be made for perodc
amortzaton payments, but such payments
must be made at east
annuay: Provded, however, That when the
borrowed funds are to be used for purposes
whch do not
ntay produce revenues adequate for reguar
amortzaton payments therefrom, the bank
may permt the
nta amortzaton payment to be deferred unt
such tme as sad revenues are suffcent for
such
purpose, but n no case sha the nta
amortzaton date be ater than fve (5) years
from the date on
whch the oan or other credt accommodaton s
granted. (79a)
In case of oans and other credt
accommodatons to mcrofnance sectors, the
schedue of oan
amortzaton sha take nto consderaton the
pro|ected cash fow of the borrower and adopt
ths nto the
terms and condtons formuated by banks. (n)
Prepayment of loans
SEC 45. Prepayment of Loans and Other
Credit Accommodations. - A borrower may
at any tme pror to the agreed maturty date
prepay, n whoe or n part, the unpad baance
of any bank
oan and other credt accommodaton, sub|ect
to such reasonabe terms and condtons as
may be agreed
upon between the bank and ts borrower. (80a)
Real Estate investments and acquisitions
SEC 51. Ceiling on lnvestments in Certain
Assets. - Any bank may acqure rea estate
as sha be necessary for ts own use n the
conduct of ts busness: Provded, however, That
the tota
nvestment n such rea estate and
mprovements thereof, ncudng bank
equpment, sha not exceed ffty
percent (50%) of combned capta accounts:
Provded, further, That the equty nvestment of
a bank n
another corporaton engaged prmary n rea
estate sha be consdered as part of the bank's
tota
nvestment n rea estate, uness otherwse
provded by the Monetary Board. (25a)
SEC 52. Acquisition of Real Estate by Way
of Satisfaction of Claims. -
Notwthstandng the mtatons of the precedng
SEC, a bank may acqure, hod or convey rea
property under the foowng crcumstances:
52.1. Such as sha be mortgaged to t n good
fath by way of securty for debts;
52.2. Such as sha be conveyed to t n
satsfacton of debts prevousy contracted n
the course of
ts deangs; or
52.3. Such as t sha purchase at saes under
|udgments, decrees, mortgages, or trust deeds
hed
by t and such as t sha purchase to secure
debts due t.
Any rea property acqured or hed under the
crcumstances enumerated n the above
paragraph
sha be dsposed of by the bank wthn a perod
of fve (5) years or as may be prescrbed by the
Monetary Board: Provded, however, That the
bank may, after sad perod, contnue to hod
the property
for ts own use, sub|ect to the mtatons of the
precedng SEC. (25a)
Outsourcing of bank functions
SEC 55. Prohibited Transactions. -
55.1. No drector, offcer, empoyee, or agent of
any bank sha -
(e) Outsource nherent bankng functons.
Employment of casual and probationary
personnel
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SEC 55.4. Consstent wth the provsons of
Repubc Act No. 1405, otherwse known as the
Banks
Secrecy Law, no bank sha empoy casua or
nonreguar personne or too engthy
probatonary personne n the conduct of ts
busness nvovng bank deposts.
Declaration of dividends
SEC 57. Prohibition on Dividend
Declaration. - No bank or quas-bank sha
decare
dvdends greater than ts accumuated net
profts then on hand, deductng therefrom ts
osses and bad
debts. Nether sha the bank nor quas-bank
decare dvdends, f at the tme of decaraton:
57.1 Its cearng account wth the Bangko
Sentra s overdrawn; or
57.2 It s defcent n the requred qudty foor
for government deposts for fve (5) or more
consecutve days; or
57.3 It does not compy wth the qudty
standards/ratos prescrbed by the Bangko
Sentra for
purposes of determnng funds avaabe for
dvdend decaraton; or
57.4 It has commtted a ma|or voaton as may
be determned by the Bangko Sentra. (84a)
Authority to engage in trust business
Trust Receipt
SEC 79. Authority to Engage in Trust
Business. - Ony a stock corporaton or a
person duy authorzed by the Monetary Board
to engage n trust busness sha act as a
trustee or
admnster any trust or hod property n trust or
on depost for the use, beneft, or behoof of
others. For
purposes of ths Act, such a corporaton sha be
referred to as a trust entty. (56a; 57a)
Diligence required
SEC 80. Conduct of Trust Business. - A
trust entty sha admnster the funds or
property under ts custody wth the dgence
that a prudent man woud exercse n the
conduct of an
enterprse of a ke character and wth smar
ams.
No trust entty sha, for the account of the
trustor or the benefcary of the trust, purchase
or
acqure property from, or se, transfer, assgn
or end money or property to, or purchase debt
nstruments
of, any of the departments, drectors, offcers,
stockhoders, or empoyees of the trust entty,
reatves
wthn the frst degree of consangunty or
affnty, or the reated nterests, of such
drectors, offcers and
stockhoders, uness the transacton s
specfcay authorzed by the trustor and the
reatonshp of the
trustee and the other party nvoved n the
transacton s fuy dscosed to the trustor or
benefcary of the
trust pror to the transacton.
The Monetary Board sha promugate such
rues and reguatons as may be necessary to
prevent
crcumventon of ths prohbton or the evason
of the responsbty heren mposed on a trust
entty. (56)
Deposit required as security for faithful
performance of trust duties
SEC 84. Deposit for the Faithful
Performance of Trust Duties. - Before
transactng
trust busness, every trust entty sha depost
wth the Bangko Sentra as securty for the
fathfu
performance of ts trust dutes, cash or
securtes approved by the Monetary Board n
an amount equa to
not ess than Fve hundred thousand pesos
(P500,000.00) or such hgher amount as may be
fxed by the
Monetary Board: Provded, however, That the
Monetary Board sha requre every trust entty
to ncrease
the amount of ts cash or securtes on depost
wth the Bangko Sentra whenever n ts
|udgment such
ncrease s necessary by reason of the trust
busness of such entty: Provded, further, That
the pad-n
capta and surpus of such entty must be at
east equa to the amount requred to be
deposted wth the
Bangko Sentra n accordance wth the
provsons of ths paragraph. Shoud the capta
and surpus fa
beow sad amount, the Monetary Board sha
have the same authorty as that granted to t
under the
provsons of the ffth paragraph of SEC 34 of
ths Act.
A trust entty so ong as t sha contnue to be
sovent and compy wth aws or reguatons
sha
have the rght to coect the nterest earned on
such securtes deposted wth the Bangko
Sentra and,
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from tme to tme, wth the approva of the
Bangko Sentra, to exchange the securtes for
others. If the
trust entty fas to compy wth any aw or
reguaton, the Bangko Sentra sha retan such
nterest on the
securtes deposted wth t for the beneft of
rghtfu camants. A cams arsng out of the
trust busness
of a trust entty sha have prorty over a other
cams as regards the cash or securtes
deposted as
above provded. The Monetary Board may not
permt the cash or securtes deposted n
accordance wth
the provsons of ths SEC to be reduced beow
the prescrbed mnmum amount unt the
depostng
entty sha dscontnue ts trust busness and
sha satsfy the Monetary Board that t has
comped wth a
ts obgatons n connecton wth such busness.
(65a)
5eparation of trust business from general
business
SEC 87. Separation of Trust Business from
General Business. - The trust busness
and a funds, propertes or securtes receved
by any trust entty as executor, admnstrator,
guardan,
trustee, recever, or depostary sha be kept
separate and dstnct from the genera busness
ncudng a
other funds, propertes, and assets of such trust
entty. The accounts of a such funds,
propertes, or
securtes sha kewse be kept separate and
dstnct from the accounts of the genera
busness of the
trust entty. (61)
Exemption of trust assets from claims
SEC 92. Exemption of Trust Assets from
Claims. - No assets hed by a trust entty n
ts capacty as trustee sha be sub|ect to any
cams other than those of the partes nterested
n the
specfc trusts. (65)
Penalties for violations
Fine, imprisonment, etc.
R.A. 7653
SEC 34. Refusal to Make Reports or Permit
Examination. - Any offcer, owner, agent,
manager, drector or offcer-n-charge of any
nsttuton sub|ect to the supervson or
examnaton by the
Bangko Sentra wthn the purvew of ths Act
who, beng requred n wrtng by the Monetary
Board or by
the head of the supervsng and examnng
department wfuy refuses to fe the requred
report or
permt any awfu examnaton nto the affars of
such nsttuton sha be punshed by a fne of
not ess
than Ffty thousand pesos (P50,000) nor more
than One hundred thousand pesos (P100,000)
or by
mprsonment of not ess than one (1) year nor
more than fve (5) years, or both, n the
dscreton of the
court.
R.A. 7653
SEC 35. False Statement. - The wfu
makng of a fase or mseadng statement on a
matera fact to the Monetary Board or to the
examners of the Bangko Sentra sha be
punshed by a
fne of not ess than One hundred thousand
pesos (P100,000) nor more than Two hundred
thousand
pesos (P200,000), or by mprsonment of not
more than (5) years, or both, at the dscreton
of the court.
R.A. 7653
SEC 36. Proceedings Upon Violation of
This Act and Other Banking Laws, Rules,
Regulations, Orders or lnstructions. -
Whenever a bank or quas-bank, or whenever
any person or
entty wfuy voates ths Act or other
pertnent bankng aws beng enforced or
mpemented by the
Bangko Sentra or any order, nstructon, rue or
reguaton ssued by the Monetary Board, the
person or
persons responsbe for such voaton sha
uness otherwse provded n ths Act be
punshed by a fne
of not ess than Ffty thousand pesos (P50,000)
nor more than Two hundred thousand pesos
(P200,000) or by mprsonment of not ess than
two (2) years nor more than ten (10) years, or
both, at
the dscreton of the court.
Whenever a bank or quas-bank perssts n
carryng on ts busness n an unawfu or unsafe
manner, the Board may, wthout pre|udce to
the penates provded n the precedng
paragraph of ths
SEC and the admnstratve sanctons provded
n SEC 37 of ths Act, take acton under SEC 30
of ths Act.
R.A. 7653
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SEC 37. Administrative Sanctions on Banks
and uasi-banks. - Wthout pre|udce to
the crmna sanctons aganst the cupabe
persons provded n SECs 34, 35, and 36 of ths
Act, the
Monetary Board may, at ts dscreton, mpose
upon any bank or quas-bank, ther drectors
and/or
offcers, for any wfu voaton of ts charter or
by-aws, wfu deay n the submsson of
reports or
pubcatons thereof as requred by aw, rues
and reguatons; any refusa to permt
examnaton nto the
affars of the nsttuton; any wfu makng of a
fase or mseadng statement to the Board or
the
approprate supervsng and examnng
department or ts examners; any wfu faure
or refusa to
compy wth, or voaton of, any bankng aw or
any order, nstructon or reguaton ssued by
the
Monetary Board, or any order, nstructon or
rung by the Governor; or any commsson of
rreguartes,
and/or conductng busness n an unsafe or
unsound manner as may be determned by the
Monetary
Board, the foowng admnstratve sanctons,
whenever appcabe:
(a) fnes n amounts as may be determned by
the Monetary Board to be approprate, but n no
case to exceed Thrty thousand pesos (P30,000)
a day for each voaton, takng nto
consderaton the attendant crcumstances,
such as the nature and gravty of the voaton
or
rreguarty and the sze of the bank or quas-
bank;
(b) suspenson of redscountng prveges or
access to Bangko Sentra credt factes;
(c) suspenson of endng or foregn exchange
operatons or authorty to accept new deposts
or
make new nvestments;
(d) suspenson of nterbank cearng prveges;
and/or
(e) revocaton of quas-bankng cense.
Resgnaton or termnaton from offce sha not
exempt such drector or offcer from
admnstratve or crmna sanctons.
The Monetary Board may, whenever warranted
by crcumstances, preventvey suspend any
drector or offcer of a bank or quas-bank
pendng an nvestgaton: Provded, That shoud
the case be
not fnay decded by the Bangko Sentra wthn
a perod of one hundred twenty (120) days after
the
date of suspenson, sad drector or offcer sha
be renstated n hs poston: Provded, further,
That
when the deay n the dsposton of the case s
due to the faut, neggence or petton of the
drector or
offcer, the perod of deay sha not be counted
n computng the perod of suspenson heren
provded.
The above admnstratve sanctons need not be
apped n the order of ther severty.
Whether or not there s an admnstratve
proceedng, f the nsttuton and/or the
drectors and/or
offcers concerned contnue wth or otherwse
persst n the commsson of the ndcated
practce or
voaton, the Monetary Board may ssue an
order requrng the nsttuton and/or the
drectors and/or
offcers concerned to cease and desst from the
ndcated practce or voaton, and may further
order
that mmedate acton be taken to correct the
condtons resutng from such practce or
voaton. The
cease and desst order sha be mmedatey
effectve upon servce on the respondents.
The respondents sha be afforded an
opportunty to defend ther acton n a hearng
before the
Monetary Board or any commttee chared by
any Monetary Board member created for the
purpose,
upon request made by the respondents wthn
fve (5) days from ther recept of the order. If
no such
hearng s requested wthn sad perod, the
order sha be fna. If a hearng s conducted, a
ssues
sha be determned on the bass of records,
after whch the Monetary Board may ether
reconsder or
make fna ts order.
The Governor s hereby authorzed, at hs
dscreton, to mpose upon bankng nsttutons,
for
any faure to compy wth the requrements of
aw, Monetary Board reguatons and poces,
and/or
nstructons ssued by the Monetary Board or by
the Governor, fnes not n excess of Ten
thousand
pesos (P10,000) a day for each voaton, the
mposton of whch sha be fna and executory
unt
reversed, modfed or fted by the Monetary
Board on appea.
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5uspension or removal of director or officer
SEC 66. Penalty for Violation of this Act. -
Uness otherwse heren provded, the
voaton of any of the provsons of ths Act
sha be sub|ect to SECs 34, 35, 36 and 37 of
the New
Centra Bank Act. If the offender s a drector or
offcer of a bank, quas-bank or trust entty, the
Monetary
Board may aso suspend or remove such
drector or offcer. If the voaton s commtted
by a corporaton,
such corporaton may be dssoved by quo
warranto proceedngs nsttuted by the Soctor
Genera. (87)
Dissolution of bank
SEC 66. Penalty for Violation of this Act. -
Uness otherwse heren provded, the
voaton of any of the provsons of ths Act
sha be sub|ect to SECs 34, 35, 36 and 37 of
the New
Centra Bank Act. If the offender s a drector or
offcer of a bank, quas-bank or trust entty, the
Monetary
Board may aso suspend or remove such
drector or offcer. If the voaton s commtted
by a corporaton,
such corporaton may be dssoved by quo
warranto proceedngs nsttuted by the Soctor
Genera. (87)
ADDlTlONAL MATERlALS
BSP CIRCULARS
BSP ClRCULAR NOS. 488, 493, 543, 548,
642
Re: FUNCTlON5 THAT 8ANl5 COULD
OUT5OURCE
SEC 1. Subsec. X169.3 Outsourcng of other
bankng functons of the MORB s hereby
amended to read, as foows:
"Sub|ect to pror approva of the Monetary
Board, banks may outsource the foowng
functons, servces or actvtes:
1. data magng, storage, retreva and
other reated systems;
2. cearng and processng of checks not
ncuded n the Phppne Cearng House
System;
3. prntng of bank depost statements;
4. credt card servces;
5. credt nvestgaton and coecton;
6. processng of export, mport and other
tradng transactons;
7. property apprasa;
8. property management servces;
9. nterna audt, sub|ect to the foowng
condtons:
a) the board of drectors and senor
management of the reguated entty reman
responsbe for mantanng an effectve system
of nterna contro and for provdng actve
oversght of the outsourced nterna audt
actvtes/functons;
b) the externa servce provder sha be an
ndependent externa audtor ncuded n the st
of BSP seected externa audtors or a parent
company whch owns or contros more than
ffty percent (50%) of the subscrbed capta
stock of the outsourcng entty: provded, that
tem "b." of the genera requrements under
SEC 2 of Crcuar no.410, seres of 2003 sha
appy to the parent company whe tems "b.",
"d.", "e.", and "f." sha appy to the
ndependent externa audtor.
c) the contract/servce agreement wth the
externa servce provder sha not be entered
nto for a perod onger than fve (5) years;
d) There sha be a contngency pan to
mtgate any sgnfcant dsrupton, dscontnuty
or gap n audt coverage, partcuary for hgh-
rsk areas;
e) The wrtten engagement contract or servce
agreement wth the externa servce provder
sha, as a mnmum:
. Defne the rghts, expectatons and
responsbtes of both partes;
. Set the scope and frequency of, and the
fees to be pad for, the work to be performed by
the externa servce provder;
. State that the outsourced nterna audt
servces are sub|ect to reguatory revew and
that BSP examners sha be granted fu and
tmey access to nterna audt reports and
reated workng papers;
v. State that the externa servce provder w
not perform management functons, make
management decsons, or act or appear to act
n a capacty equvaent to that of a member of
management or an empoyee of the nsttuton,
and w compy wth professona and
reguatory ndependence gudenes;
v. Specfy that the externa servce provder
must mantan the audt reports and reated
workng papers/fes for at east fve (5) years;
v. State that nterna audt reports are the
property of the nsttuton, that the nsttuton
w be provded wth copes of reated workng
papers/fes t deems necessary, and any
nformaton pertanng to the nsttuton must be
kept confdenta; and
v. Estabsh a protoco for changng the terms
of the servce contract and stpuatons for
defaut and termnaton of the contract;
10. marketng oans, deposts and other
bank products and servces, provded t
does not nvove the actua openng of
depost accounts;
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11. genera bookkeepng and accountng
servces, provded that these actvtes
do not ncude servcng bank deposts or
other nherent bankng functons;
12. offste records storage servces;
13. front/back offce functons, .e., trade
support servces and downstream
processng actvtes, by parent to a
subsdary or vce-versa, sub|ect to the
foowng condtons:
a) The bank ntendng to outsource the
aforementoned functons sha certfy that the
front offce functons to be done by ts
parent/subsdary (servce provder) sha be
mted to trade support servces;
b) The bank sha reman a parent/subsdary
of ts subsdary/ parent (servce provder) and
such servce provder sha servce ony enttes
beongng to ts busness group;
c) The bank sha certfy that no nherent
bankng functons nvovng depost transactons
sha be outsourced to ts parent/subsdary
(servce provder);
d) The bank sha submt a Servce Leve
Agreement duy sgned by the concerned
partes and any amendments thereto, detang
the functons to be outsourced, the respectve
responsbtes of the bank and ts parent/
subsdary (servce provder), and a
confdentaty cause; and
e) Any breach n any of the above condtons
sha sub|ect the outsourcng of the
aforementoned bankng functons to a the
requrements of ths SEC; and
14. back-up and data recovery operatons; (as
amended by BSP CIR# 493) and
15. Ca center operatons for credt card and
bank servces provded that such bank servces
do not nvove nherent bankng functons; (as
amended by BSP CIR#543) and16.
16. Such other actvtes as may be determned
by the Monetary Board."
The bank concerned must submt the same
documentary requrements sted n Subsec.
X169.2b hereof, except where they excusvey
pertan to nformaton technoogy operatons.
Wthout need of pror Monetary Board approva,
banks may outsource the foowng functons,
servces or actvtes:
1. prntng of bank oan statements and other
non-depost records, bank forms and
promotona materas;
2. transfer agent servces for debt and equty
securtes;
3. messenger, courer and posta servces;
4. securty guard servces;
5. vehce servce contracts;
6. |antora servces;
7. pubc reatons servces, procurement
servces, and temporary staffng, provded that
these actvtes do not ncude servcng bank
deposts or other nherent bankng functons;
8. sortng and baggng of notes and cons;
9. mantenance of computer hardware, e.g.,
dsk drves, prnters, montors, UPS, network
cabng systems;
10. payro of bank empoyees;
11. teephone operator/receptonst servces;
12. sae/dsposa of acqured assets (ROPOA);
13. Human-resource reated servces (such as
personne tranng and deveopment,
background nvestgaton and saary
benchmarkng servce) (as amended by BSP
CIR#642);
14. budng, ground and other factes
mantenance; and
15. ega servces from oca ega counse
(amended by BSP CIR#493);
16. compance rsk assessment and testng;
(amended by BSP CIR#493)
17. tax compance servces, provded that the
servce provder s not aso the externa audtor
of the bank; (as amended by BSP CIR#548)
18. such other actvtes as may be determned
by the Monetary Board."
SEC 2. The provsons on outsourcng of SEC
X169 and Subsecs. X169.1 to X169.5 of the
Manua of Reguatons for Banks (MORB) n so
far as they are appcabe to quas-banks and
other non-bank fnanca nsttutons are hereby
ncorporated n the Manua of Reguatons for
Non-Bank Fnanca Insttutons (MORNBFI).
Ths Crcuar sha take effect ffteen (15) days
foowng ts pubcaton ether n the Offca
Gazette or n a newspaper of genera
crcuaton.
BSP ClRCULAR NO. 341
Series of 2002
RE: UN5AFE AND UN5OUND 8ANllNC
PRACTlCE5
Pursuant to Monetary Board Resouton No.
1055 dated 25 |uy 2002, the foowng
gudenes sha be observed n mpementng
SEC 56 of the Genera Bankng Law of 2000 or
Repubc Act No. 8791:
SEC 1. Whether a partcuar actvty may be
consdered as conductng busness n an unsafe
or unsound manner, a reevant facts must be
consdered. An anayss of the mpact thereof
on the banks/quas-banks/trust enttes'
operatons and fnanca condtons must be
undertaken, ncudng evauaton of capta
poston, asset condton, management,
earnngs posture and qudty poston.
In determnng whether a partcuar act or
omsson, whch s not otherwse prohbted by
any aw, rue or reguaton affectng banks,
quas-banks or trust enttes, may be deemed as
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conductng busness n an unsafe or unsound
manner, the Monetary Board, upon report of the
head of the supervsng or examnng
department based on fndngs n an
examnaton or a compant, sha consder any
of the foowng crcumstances:
a. The act or omsson has resuted or may
resut n matera oss or damage, or abnorma
rsk or danger to the safety, stabty, qudty or
sovency of the' nsttuton;
b. The act or omsson has resuted or may
resut n matera oss or damage or abnorma
rsk to the nsttuton's depostors, credtors,
nvestors, stockhoders or to the Bangko Sentra
or to the pubc n genera;
c The act or omsson has caused any undue
n|ury, or has gven unwarranted benefts,
advantage or preference to the bank or any
party n the dscharge by the drector or offcer
of hs dutes and responsbtes through
manfest partaty, evdent bad fath or gross
nexcusabe neggence; or
d. The act or omsson nvoves enterng nto
any contract or transacton manfesty and
grossy dsadvantageous to the bank, quas-
bank or trust entty, whether or not the drector
or offcer profted or w proft thereby.
Attached for gudance s a st of actvtes whch
may be consdered unsafe and unsound. (Annex
A) The Monetary Board may consder any other
acts/omssons as unsafe and unsound
practces.
SEC 2. The Monetary Board may, at ts
dscreton and based on the serousness and
materaty of the acts or omssons, mpose any
or a of the foowng sanctons provded under
SEC 37 of Repubc Act No. 7653 and SEC 56 of
Repubc Act No. 8791, whenever a bank, quas-
bank or trust entty conducts busness n an
unsafe and unsound manner:
a. Issue an order requrng the nsttuton to
cease and desst from conductng busness n
an unsafe and unsound manner and may
further order that mmedate acton be taken to
correct the condtons resutng from such
unsafe or unsound practce;
b. Fnes n amounts as may be determned by
the Monetary Board to be approprate, but n no
case to exceed Thrty Thousand pesos
(P30,000.00) a day on a per transacton bass
takng nto consderaton the attendant
crcumstances, such the gravty of the act or
omsson and the sze of the bank, quas-bank or
trust entty, to be mposed on the bank, quas-
banks or trust enttes, ther drectors and/or
responsbe offcers;
c. Suspenson of nterbank cearng
prveges/mmedate excuson from cearng;
d. Suspenson of redscountng prveges or
access to Bangko Sentra credt factes;
e. Suspenson of endng or foregn exchange
operatons or authorty to accept new deposts
or make new nvestments;
f. Suspenson of responsbe drectors and/or
offcers;
g. Revocaton of quas-bankng cense; and/or
h. Recevershp and qudaton under SEC 30 of
RA 7653.
A other provsons of SECs 30 and 37 of R.A.
7653 whenever approprate sha aso be
appcabe on the conduct of busness n an
unsafe or unsound manner.
The mposton of the above sanctons s wthout
pre|udce to the fng of approprate crmna
charges aganst cupabe persons as provded n
SECs 34, 35 and 36 of R.A. 7653.
Ths Crcuar sha take effect mmedatey.
Annex A
Lst of Actvtes Whch May Be Consdered
Unsafe and Unsound Bankng Practces
"The actvtes enumerated heren are
consdered ony as gudenes and are not
rrebutaby presumed to be unsafe or unsound.
Conversey, not a practces whch mght under
the crcumstances be termed unsafe or
unsound are mentoned here. The Monetary
Board may NOW AND THEN consder any other
acts/omssons as unsafe or unsound practces.
(openng par. As amended by BSP CIR#640)"
a. Operatng wth management whose poces
and practces are detrmenta to the bank, quas
bank or trust entty and |eopardze the safety of
ts deposts/depost substtutes/trust accounts.
b. Operatng wth tota ad|usted capta and
reserves that are nadequate n reaton to the
knd and quaty of the assets of the bank,
quas-bank or trust entty.
c. Operatng n a way that produces a
defct n net operatng ncome WITHOUT
ADEOUATE MEASURES TO ENSURE A SURPLUS
IN NET OPERATING INCOME IN THE FUTURE. (as
amended by BSP CIR#640)
d. Operatng wth a serous ack of qudty,
especay n vew of the asset and
depost/depost substtute/abty structure of
the bank, quas-bank or trust entty.
e. Engagng n specuatve and hazardous
nvestment poces.
f. Payng excessve cash dvdends n reaton to
the capta poston, earnngs capacty and asset
quaty of the bank, quas-bank or trust entty.
g. Excessve reance on arge, hgh-COST or
voate deposts/ borrowngs TO FUND
AGGRESSIVE GROWTH THAT MAY BE
UNSUSTAINABLE.
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FOR THIS PURPOSE, A BANK IS CONSIDERED
OFFERING HIGH-COST DEPOSITS/ BORROWINGS
IF THE EFFECTIVE INTEREST RATE PAID ON SAID
DEPOSITS/ BORROWINGS AND/OR NON-CASH
INCENTIVES IS 50% OVER THE PREVAILING
COMPARABLE MARKET MEDIAN RATE FOR
SIMILAR BANK CATEGORIES, MATURITIES AND
CURRENCY DENOMINATION AND ACCOMPANIED
BY OTHER CIRCUMSTANCE/S SUCH AS:
"1. UNDUE RELIANCE ON SOLICITATION AND
ACCEPTANCE OF BROKERED DEPOSITS;
"2. BANK INCURS LARGE SUM OF DEPOSIT
GENERATION EXPENSES IN THE FORM OF
COMMISSIONS, REFERRAL AND SOLICITATION
FEES AND RELATED EXPENSES AND/OR
PAYMENT OF ADVANCE INTEREST ON DEPOSITS;
"3. DEFERRAL OF THE ABOVE DEPOSIT
GENERATION EXPENSES INCURRED TO DELAY
RECORDING OF EXPENSES AND/OR
INACCURATE AMORTIZATION OF ADVANCE
INTEREST PAID ON DEPOSITS;
"4. DEPOSIT PACKAGES OFFERED INCLUDE
NON-CASH INCENTIVES DISPROPORTIONATE TO
THE AMOUNT OF DEPOSITS SOUGHT WHICH
GIVE UNDUE OR UNWARRANTED ADVANTAGE
OR PREFERENCE FOR THE BANK; AND
"5. BANK MARKETS, SOLICITS AND ACCEPTS
DEPOSITS OUTSIDE THE BANK PREMISES
INCLUDING BRANCHES, UNLESS OTHERWISE
AUTHORIZED BY THE BSP UNDER SECS X213
(SERVICING DEPOSITS OUTSIDE BANK
PREMISES) OR X621 (ELECTRONIC BANKING
SERVICES) OF THE MANUAL OF REGULATIONS
FOR BANKS." (As amended by BSP CIR#640)
h. Excessve reance on etters of credt ether
ssued by the bank or accepted as coatera to
oans advanced.
. Excessve amounts of oan partcpatons sod,
|. Payng nterest on partcpatons wthout
advsng partcpatng nsttuton that ths course
of nterest was not from the borrower,
k. Seng partcpatons wthout dscosng to the
purchasers of those partcpatons matera!,
non-pubc nformaton known to the bank
. Faure to mt, contro and document
contngent abtes,
m. Engagng n hazardous endng and ax
coecton poces and practces, as evdenced
by:
1 ) An excessve voume of oans sub|ect to
adverse cassfcaton;
2) An excessve voume of oans wthout
adequate documentaton,
ncudng credt nformaton;
3) Excessve net oan osses;
4) An excessve voume of oans n reaton to
the tota assets and deposts/depost
substtutes/trust abtes of the bank, quas-
bank or trust entty;
5) An excessve voume of weak and sef-
servng oans to persons connected wth the
bank, quas-bank or trust entty, especay f a
sgnfcant porton of these oans are adversey
cassfed;
6) excessve concentratons of credt, especay
f a substanta porton of ths credt s adversey
cassfed;
7) ndscrmnate partcpaton n weak and
undocumented oans orgnated by other
nsttutons;
8) fang to adopt wrtten oan poces;
9) an excessve voume of past due or non-
performng oans;
10) faure to dversfy the oan portfoo/asset
mx of the nsttuton
11) faure to make provson for an adequate
reserve for possbe oan osses
n. Permttng offcers to engage n endng
practces beyond the scope of ther poston,
o. Operatng the bank, quas-bank or trust
entty wth nadequate nterna contros,
p. Faure to keep accurate and updated books
and records.
q. Operatng the nsttuton wth excessve
voume of out-of-terrtory oans,
r. Excessve voume of non-earnng assets.
s. Faure to heed warnngs and admontons of
the supervsory authortes of the nsttuton.
t. Contnued and fagrant voaton of any aws,
rues, reguatons or wrtten agreements
between the nsttuton and the Bangko Sentra
ng Ppnas.
u. Any acton key to cause nsovency or
substanta dsspaton of assetsor earnngs of
the nsttuton or key to serousy weaken ts
condton or otherwse serousy pre|udce the
nterest of ts depostors/nvestors/cents.
BSP ClRCULAR NO. 650Series of 2009
RE: AUTHORlTY OF THRlFT 8ANl5 TO l55UE
FORElCN LETTER5 OF CREDlT
Sub|ect : Authorty of Thrft Banks to Issue
Foregn Letters of Credt (LCs) and
Pay/Accept/Negotate Import/Export Drafts/Bs
of Exchange
Pursuant to Monetary Board Resouton No. 283
dated 19 February 2009, the Manua of
Reguatons for Banks (MORB) s hereby
amended, as foows:
SEC 1. Subsec. 2101.7 on authorty of thrft
banks to ssue foregn etters of credt (LCs) and
pay/accept/negotate mport/export drafts/bs
of exchange s hereby added and sha read, as
foows:
"Subsec. X2101.7 Authorty of thrft
banks to ssue foregn etters of credt (LCs) and
pay/accept/negotate mport/export drafts/bs
of exchange. Wth pror Monetary Board
approva, thrft banks may be authorzed to
ssue foregn etters of credt (LCs) and
pay/accept/negotate mport/export drafts/bs
of exchange, sub|ect to compance wth the
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foowng condtons (at the tme of appcaton
uness otherwse ndcated):
a) Mnmum capta requrement of P= 1.0
bon;
b) Ten percent (10%) rsk-based capta
adequacy rato (CAR);
c) CAMELS composte ratng not ower than "3",
wth Management component score not ower
than "3" n the atest examnaton of the bank;
d) Rsk management system approprate to ts
operatons, characterzed by cear deneaton of
responsbty for rsk management, adequate
rsk measurement system, appropratey
structured rsk mts, effectve nterna contro
system and compete, tmey and effcent rsk
reportng system;
e) Artces of ncorporaton whch sha ncude
among ts powers or purposes, the ssuance of
foregn LCs and
payment/acceptance/negotaton of
mport/export drafts/bs of exchange (whch
may be submtted any tme pror to engagng n
sad actvtes);
f) Correspondent bankng reatonshp or
arrangement wth reputabe foregn banks
(whch shoud be n pace pror to engagng n
sad actvtes);
g) Appontment of the offcer wth actua
experence of at east two (2) years as n-charge
or at east as assstant n-charge of mport and
export fnancng operatons n a unversa/
commerca bank who w be n-charge of the
sad operatons (pror to engagng n sad
actvtes);
h) Appontment of bank personne wth actua
experence and/or tranng of at east sx (6)
months n mport and export fnancng
operatons n a unversa/commerca bank who
w hande the sad operatons (pror to
engagng n sad actvtes);
) No net weeky reguar and qudty reserve
defcences durng the tweve (12) week perod
mmedatey precedng the date of appcaton;
|) No defcency n asset and qud asset cover
for FCDU abtes for three (3) months
mmedatey precedng the date of appcaton;
k) No defcency n qudty foor requrement
for government funds hed durng the tweve
(12) week perod mmedatey precedng the
date of appcaton;
) No foat tems outstandng for more than sxty
(60) caendar days n the "Due From/To Head
Offce/Branches/Offces" and "Due from BSP"
accounts exceedng 1% of the tota resources
as of end of month precedng the date of
appcaton;
m) No unbooked vauaton reserves;
n) Compant wth cengs on oans, other credt
accommodatons and guarantees to drectors,
offcers, stockhoders, and ther reated
nterests (DOSRI) for the quarter mmedatey
precedng the date of appcaton;
o) Compant wth the snge borrowers oan
mt (SBL);
p) Compant wth the mt on rea estate and
mprovements, ncudng bank equpment;
q) No uncorrected fndngs of unsafe and
unsound bankng practces;
r) Generay compant wth bankng aws, rues
and reguatons, orders or nstructons of the
Monetary Board and/or BSP Management; and
s) No past due obgatons wth the BSP or wth
any fnanca nsttuton.
SEC 2. Subsec. 2101.8 on appcaton for
authorty to ssue foregn etters of credt and
pay/accept/negotate mport/export drafts/bs
of exchange s hereby added, and sha read as
foows:
"Subsec. 2101.8 Appcaton for
authorty to ssue foregn etters of credt (LCs)
and pay/accept/negotate mport/export
drafts/bs of exchange. An appcaton for
authorty to ssue foregn LCs and
pay/accept/negotate mport/export drafts/bs
of exchange sha be sgned by the presdent of
the bank or offcer of equvaent rank and sha
be accompaned by a certfed true copy of the
resouton of the banks board of drectors
authorzng the appcaton."
Ths Crcuar sha take effect ffteen (15) days
foowng ts pubcaton ether n the Offca
Gazette or n a newspaper of genera
crcuaton.
CASES
PHlLlPPlNE BANKlNG CORPORATlON vs. CA
G.R. No. 127469
15 |anuary 2004
Facts:
On 30 August 1989, Leono Marcos ("Marcos")
fed wth the tra court a Compant for Sum of
Money wth Damages|3| aganst pettoner
Phppne Bankng Corporaton ("BANK").
Marcos aeged that sometme n 1982, the
BANK through Forenco B. Pagsagan
("Pagsagan"), one of the offcas of the BANK
and a cose frend of Marcos, persuaded hm to
depost money wth the BANK. Marcos yeded
to Pagsagans persuason and camed he
made a tme depost wth the BANK on two
occasons. The frst was on 11 March 1982 for
P664,897.67. On 12 March 1982, Marcos
camed he agan made a tme depost wth the
BANK for P764,897.67. The BANK dd not ssue
an offca recept for the second depost but t
acknowedged a depost of ths amount through
a etter-certfcaton Pagsagan ssued. The tme
deposts earned nterest at 17% per annum and
had a maturty perod of 90 days.
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Marcos aeged that Pagsagan kept the varous
tme depost certfcates on the assurance that
the BANK woud take care of the certfcates,
nterests and renewas. Marcos camed that
from the tme of the depost, he had not
receved the prncpa amount or ts nterest.
Sometme n March 1983, Marcos wanted to
wthdraw from the BANK hs tme deposts and
the accumuated nterests to buy materas for
hs constructon busness. However, the BANK
through Pagsagan convnced Marcos to keep
hs tme deposts ntact and nstead to open
severa domestc etters of credt. The BANK
requred Marcos to gve a margna depost of
30% of the tota amount of the etters of credt.
The tme deposts of Marcos woud secure 70%
of the etters of credt. Snce Marcos trusted
the BANK and Pagsagan, he sgned bank
prnted forms of the appcaton for the
domestc etters of credt, trust recept
agreements and promssory notes.
Marcos executed three Trust Recept
Agreements totang P851,250, broken down as
foows: (1) Trust Recept No. CD 83.7 dated 8
March 1983 for P300,000; (2) Trust Recept No.
CD 83.9 dated 15 March 1983 for P300,000; and
(3) Trust Recept No. CD 83.10 dated 15 March
1983 for P251,250. Marcos deposted the
requred 30% margna depost for the trust
recept agreements. Marcos camed that hs
obgaton to the BANK was therefore ony
P595,875 representng 70% of the etters of
credt.
Marcos beeved that he and the BANK became
credtors and debtors of each other. Marcos
expected the BANK to offset automatcay a
porton of hs tme deposts and the
accumuated nterest wth the amount covered
by the three trust recepts totang P851,250
ess the 30% margna depost that he had pad.
Marcos argued that f ony the BANK apped hs
tme deposts and the accumuated nterest to
hs remanng obgaton, whch s 70% of the
tota amount of the etters of credt, he woud
have pad competey hs debt. Marcos further
ponted out that snce he dd not appy for a
renewa of the trust recept agreements, the
BANK had no rght to renew the same.
Marcos accused the BANK of un|usty
demandng payment for the tota amount of the
trust recept agreements wthout deductng the
30% margna depost that he had aready
made. He decred the BANKs unawfu
chargng of accumuated nterest because he
camed there was no agreement as to the
payment of nterest. The nterest arose from
numerous aeged extensons and penates.
Marcos reterated that there was no agreement
to ths effect because hs tme deposts served
as the coatera for hs remanng obgaton.
Marcos aso dened that he obtaned another
oan from the BANK for P500,000 wth nterest
at 25% per annum supposedy covered by
Promssory Note No. 20-979-83 dated 24
October 1983. Marcos bewaed the BANKs
beated cam that hs tme deposts were
apped to ths vod promssory note on 12
March 1985.
In sum, Marcos camed that:
Hs tme depost wth the BANK "n the tota
sum of P1,428,795.34|5| has earned
accumuated nterest snce March 1982 up to
the present n the tota amount of
P1,727,305.45 at the rate of 17% per annum so
hs tota money wth defendant (the BANK) s
P3,156,100.79 ess the amount of P595,875
representng the 70% baance of the margna
depost and/or baance of the trust
agreements;" and
Hs ndebtedness was ony P851,250 ess the
30% pad as margna depost or a baance of
P595,875, whch the BANK shoud have
automatcay deducted from hs tme deposts
and accumuated nterest, eavng the BANKs
ndebtedness to hm at P2,560,025.79.
Marcos prayed the tra court to decare
Promssory Note No. 20-979-83 vod and to
order the BANK to pay the amount of hs tme
deposts wth nterest. He aso sought the
award of mora and exempary damages as we
as attorneys fees for P200,000 pus 25% of the
amount due.
On 9 October 1989, the BANK fed ts Answer
wth Countercam. The BANK dened the
aegatons n the compant. The BANK
beeved that the sut was Marcos desperate
attempt to avod abty under severa trust
recept agreements that were the sub|ect of a
crmna compant.
The BANK aeged that as of 12 March 1982, the
tota amount of the varous tme deposts of
Marcos was ony P764,897.67 and not
P1,428,795.35 as aeged n the compant. The
P764,897.67 ncuded the P664,897.67 that
Marcos deposted on 11 March 1982.
The BANK ponted out that Marcos devered to
the BANK the tme depost certfcates by vrtue
of the Deed of Assgnment dated 2 |une 1989.
Marcos executed the Deed of Assgnment to
secure hs varous oan obgatons. The BANK
camed that these oans are covered by
Promssory Note No. 20-756-82 dated 2 |une
1982 for P420,000 and Promssory Note No. 20-
979-83 dated 24 October 1983 for P500,000.
The BANK stressed that these obgatons are
separate and dstnct from the trust recept
agreements.
When Marcos defauted n the payment of
Promssory Note No. 20-979-83, the BANK
debted hs tme deposts and apped the same
to the obgaton that s now consdered fuy
pad. The BANK nssted that the Deed of
Assgnment authorzed t to appy the tme
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deposts n payment of Promssory Note No. 20-
979-83.
In March 1982, the wfe of Marcos, Consoacon
Marcos, sought the advce of Pagsagan.
Consoacon nformed Pagsagan that she and
her husband needed to fnance the purchase of
constructon materas for ther busness, L.A.
Marcos Constructon Company. Pagsagan
suggested the openng of the etters of credt
and the executon of trust recepts, whereby the
BANK woud agree to purchase the goods
needed by the cent through the etters of
credt. The BANK woud then entrust the goods
to the cent, as entrustee, who woud
undertake to dever the proceeds of the sae or
the goods themseves to the entrustor wthn a
specfed tme.
The BANK camed that Marcos freey entered
nto the trust recept agreements. When Marcos
faed to account for the goods devered or for
the proceeds of the sae, the BANK fed a
compant for voaton of Presdenta Decree
No. 115 or the Trust Recepts Law. Instead of
ntatng negotatons for the settement of the
account, Marcos fed ths sut.
The BANK dened fasfyng Promssory Note No.
20-979-83. The BANK camed that the
promssory note s supported by documentary
evdence such as Marcos appcaton for ths
oan and the mcrofm of the cashers check
ssued for the oan. The BANK nssted that
Marcos coud not deny the agreement for the
payment of nterest and penates under the
trust recept agreements. The BANK prayed for
the dsmssa of the compant, payment of
damages, attorneys fees and cost of sut.
The tra court rendered ts decson n favor of
Marcos. Aggreved, the BANK appeaed to the
Court of Appeas.
On 10 December 1996, the Court of Appeas
modfed the decson of the tra court by
reducng the amount of actua damages and
deetng the attorneys fees awarded to Marcos.
lssue: WON the bank s abe for offsettng hs
tme deposts
Held: Yes
Ratio:
The BANK s abe to Marcos for offsettng hs
tme deposts wth a fcttous promssory note.
The exstence of Promssory Note No. 20-979-83
coud have been easy proven had the BANK
presented the orgna copes of the promssory
note and ts supportng evdence. In eu of the
orgna copes, the BANK presented the
"machne copes of the dupcate" of the
documents. These substtute documents have
no evdentary vaue. The BANKs faure to
expan the absence of the orgna documents
and to mantan a record of the offsettng of ths
oan wth the tme deposts brng to fore the
BANKs dsma faure to fuf ts fducary duty
to Marcos.
SEC 2 of Repubc Act No. 8791 (Genera
Bankng Law of 2000) expressy mposes ths
fducary duty on banks when t decares that
the State recognzes the "fducary nature of
bankng that requres hgh standards of
ntegrty and performance." Ths statutory
decaraton merey echoes the earer
pronouncement of the Supreme Court n Smex
Internatona (Mana) Inc. v. Court of Appeas
requrng banks to "treat the accounts of ts
depostors wth metcuous care, aways havng
n mnd the fducary nature of ther
reatonshp." The Court reterated ths fducary
duty of banks n subsequent cases.
Athough RA No. 8791 took effect ony n the
year 2000, at the tme that the BANK
transacted wth Marcos, |ursprudence had
aready mposed on banks the same hgh
standard of dgence requred under RA No.
8791. Ths fducary reatonshp means that the
banks obgaton to observe "hgh standards of
ntegrty and performance" s deemed wrtten
nto every depost agreement between a bank
and ts depostor.
The fducary nature of bankng requres banks
to assume a degree of dgence hgher than
that of a good father of a famy. Thus, the
BANKs fducary duty mposes upon t a hgher
eve of accountabty than that expected of
Marcos, a busnessman, who neggenty sgned
bank forms and entrusted hs certfcates of
tme deposts to Pagsagan wthout retanng
copes of the certfcates.
The busness of bankng s mbued wth pubc
nterest. The stabty of banks argey depends
on the confdence of the peope n the honesty
and effcency of banks. In Smex Internatona
(Mana) Inc. v. Court of Appeas|36| we ponted
out the depostors reasonabe expectatons
from a bank and the banks correspondng duty
to ts depostor, as foows:
In every case, the depostor expects the bank to
treat hs account wth the utmost fdety,
whether such account conssts ony of a few
hundred pesos or of mons. The bank must
record every snge transacton accuratey,
down to the ast centavo, and as prompty as
possbe. Ths has to be done f the account s to
refect at any gven tme the amount of money
the depostor can dspose of as he sees ft,
confdent that the bank w dever t as and to
whomever he drects.
As the BANKs depostor, Marcos had the rght
to expect that the BANK was accuratey
recordng hs transactons wth t. Upon the
maturty of hs tme deposts, Marcos aso had
the rght to wthdraw the amount due hm after
the BANK had correcty debted hs outstandng
obgatons from hs tme deposts.
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By the very nature of ts busness, the BANK
shoud have had n ts possesson the orgna
copes of the dsputed promssory note and the
records and edgers evdencng the offsettng of
the oan wth the tme deposts of Marcos. The
BANK nexpcaby faed to produce the orgna
copes of these documents. Ceary, the BANK
faed to treat the account of Marcos wth
metcuous care.
The BANK cams that t s a reputabe bankng
nsttuton and that t has no reason to forge
Promssory Note No. 20-979-83. The tra court
and appeate court dd not rue that t was the
bank that forged the promssory note. It was
Pagsagan, the BANKs branch manager and a
cose frend of Marcos, whom the tra court
categorcay bamed for the fcttous oan
agreements. The tra court hed that
Pagsagan made up the oan agreement to
cover up hs nabty to account for the tme
deposts of Marcos.
Whether t was the BANKs neggence and
neffcency or Pagsagans msdeed that
deprved Marcos of the amount due hm w not
excuse the BANK from ts obgaton to return to
Marcos the correct amount of hs tme deposts
wth nterest. The duty to observe "hgh
standards of ntegrty and performance"
mposes on the BANK that obgaton. The BANK
cannot aso un|usty enrch tsef by keepng
Marcos money.
Assumng Pagsagan was behnd the spurous
promssory note, the BANK woud st be
accountabe to Marcos. We have hed that a
bank s abe for the wrongfu acts of ts offcers
done n the nterest of the bank or n ther
deangs as bank representatves but not for
acts outsde the scope of ther authorty. Thus,
we hed:
A bank hodng out ts offcers and agents as
worthy of confdence w not be permtted to
proft by the frauds they may thus be enabed
to perpetrate n the apparent scope of ther
empoyment; nor w t be permtted to shrk ts
responsbty for such frauds, even though no
beneft may accrue to the bank therefrom (10
Am |ur 2d, p. 114). Accordngy, a bankng
corporaton s abe to nnocent thrd persons
where the representaton s made n the course
of ts busness by an agent actng wthn the
genera scope of hs authorty even though, n
the partcuar case, the agent s secrety
abusng hs authorty and attemptng to
perpetrate a fraud upon hs prncpa or some
other person, for hs own utmate beneft.
Note: The promssory note was consdered as
forged as the bank dd not show the orgna.
Appyng the Best Evdence Rue, the orgna
shoud have been shown not the machne prnt-
out, whch was what was gven by the Bank.
Vlll. PHlLlPPlNE DEPOSlT
lNSURANCE CORPORATlON ACT
Basc Pocy (Sec.1)
To promote and safeguard the nterests of the
depostng pubc by way of provdng
permanent and contnung nsurance coverage
on a nsured deposts.
Man Functons
1. Insurance of Banks (Sec.5)
To nsure the depost abtes of any bank or
bankng nsttuton engaged n the busness of
recevng deposts or whch thereafter may
engage n the busness of recevng deposts.
2. Examnaton of Banks (Sec. 8 and 9)
To conduct examnaton of banks wth pror
approva of the Monetary Board. No
examnaton can be conducted wthn tweve
months from the ast examnaton date.
The Board of Drectors sha appont examners
who sha have power, on behaf of the PDIC to
examne any nsured bank. Such examner sha
have the power to make a thorough
examnaton of a the affars of the bank and n
dong so, he sha have the power to admnster
oaths, to examne and take and preserve the
testmony of any of the offcers and agents
thereof, and, to compe the presentaton of
books, documents, papers, or records necessary
n hs |udgment to ascertan the facts reatve to
the condton of the bank; and sha make a fu
and detaed report of the condton of the bank
to the PDIC.
The Board of Drectors sha appont cam
agents who sha have the power to nvestgate
and examne a cams for nsured deposts and
transferred deposts. Each cam agent sha
have the power to admnster oaths and to
examne under oath and take and preserve
testmony of any person reatng to such cam
3. Rehabtaton of Banks (Sec.17)
Money of the PDIC not otherwse empoyed sha
be nvested n obgatons of the Repubc of the
Phppnes or n obgatons guaranteed as to
prncpa and nterest by the Repubc of the
Phppnes.
The bankng or checkng accounts of the PDIC
sha be kept wth the Bangko Sentra ng
Ppnas, wth the Phppne Natona Bank, or
wth any other bank desgnated as depostory or
fsca agent of the Phppne government.
4. Recevershp of Cosed Banks (Sec.10)
The PDIC as recever sha contro, manage and
admnster the affars of the cosed bank.
Effectve mmedatey upon takeover as
recever of such bank, the powers, functons
and dutes, as we as a aowances,
remuneratons and perqustes of the drectors,
offcers, and stockhoders of such bank are
suspended, and the reevant provsons of the
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Artces of InPDIC and By-aws of the cosed
bank are kewse deemed suspended.
The assets of the cosed bank under
recevershp sha be deemed n custodia legis
n the hands of the recever. From the tme the
cosed bank s paced under such recevershp,
ts assets sha not be sub|ect to attachment,
garnshment, executon, evy or any other court
processes.
5. Lqudaton of Cosed Banks (Sec.30,
R.A.7653)
Whenever, upon report of the head of the
supervsng or examnng department, the
Monetary Board fnds that a bank or quas-bank:
(a) s unabe to pay ts abtes as they become
due n the ordnary course of busness:
Provded, That ths sha not ncude nabty to
pay caused by extraordnary demands nduced
by fnanca panc n the bankng communty;
(b) has nsuffcent reazabe assets, as
determned by the Bangko Sentra, to meet ts
abtes; or
(c) cannot contnue n busness wthout
nvovng probabe osses to ts depostors or
credtors; or
(d) has wfuy voated a cease and desst
order under SEC 37 that has become fna,
nvovng acts or transactons whch amount to
fraud or a dsspaton of the assets of the
nsttuton; n whch cases, the Monetary Board
may summary and wthout need for pror
hearng forbd the nsttuton from dong
busness n the Phppnes and desgnate the
Phppne Depost Insurance PDIC as recever of
the bankng nsttuton.
For a quas-bank, any person of recognzed
competence n bankng or fnance may be
desgned as recever.
The recever sha mmedatey gather and take
charge of a the assets and abtes of the
nsttuton, admnster the same for the beneft
of ts credtors, and exercse the genera powers
of a recever under the Revsed Rues of Court
but sha not, wth the excepton of
admnstratve expendtures, pay or commt any
act that w nvove the transfer or dsposton of
any asset of the nsttuton: Provded, That the
recever may depost or pace the funds of the
nsttuton n non-specuatve nvestments. The
recever sha determne as soon as possbe,
but not ater than nnety (90) days from take
over, whether the nsttuton may be
rehabtated or otherwse paced n such a
condton so that t may be permtted to resume
busness wth safety to ts depostors and
credtors and the genera pubc: Provded, That
any determnaton for the resumpton of
busness of the nsttuton sha be sub|ect to
pror approva of the Monetary Board.
If the recever determnes that the nsttuton
cannot be rehabtated or permtted to resume
busness n accordance wth the next precedng
paragraph, the Monetary Board sha notfy n
wrtng the board of drectors of ts fndngs and
drect the recever to proceed wth the
qudaton of the nsttuton. The recever sha:
(1) fe ex parte wth the proper regona tra
court, and wthout requrement of pror notce
or any other acton, a petton for assstance n
the qudaton of the nsttuton pursuant to a
qudaton pan adopted by the Phppne
Depost Insurance PDIC for genera appcaton
to a cosed banks. In case of quas-banks, the
qudaton pan sha be adopted by the
Monetary Board. Upon acqurng |ursdcton, the
court sha, upon moton by the recever after
due notce, ad|udcate dsputed cams aganst
the nsttuton, assst the enforcement of
ndvdua abtes of the stockhoders,
drectors and offcers, and decde on other
ssues as may be matera to mpement the
qudaton pan adopted. The recever sha pay
the cost of the proceedngs from the assets of
the nsttuton.
(2) convert the assets of the nsttutons to
money, dspose of the same to credtors and
other partes, for the purpose of payng the
debts of such nsttuton n accordance wth the
rues on concurrence and preference of credt
under the Cv Code of the Phppnes and he
may, n the name of the nsttuton, and wth
the assstance of counse as he may retan,
nsttute such actons as may be necessary to
coect and recover accounts and assets of, or
defend any acton aganst, the nsttuton. The
assets of an nsttuton under recevershp or
qudaton sha be deemed n custoda egs n
the hands of the recever and sha, from the
moment the nsttuton was paced under such
recevershp or qudaton, be exempt from any
order of garnshment, evy, attachment, or
executon.
The actons of the Monetary Board taken under
ths SEC or under SEC 29 of ths Act sha be
fna and executory, and may not be restraned
or set asde by the court except on petton for
certorar on the ground that the acton taken
was n excess of |ursdcton or wth such grave
abuse of dscreton as to amount to ack or
excess of |ursdcton. The petton for certorar
may ony be fed by the stockhoders of record
representng the ma|orty of the capta stock
wthn ten (10) days from recept by the board
of drectors of the nsttuton of the order
drectng recevershp, qudaton or
conservatorshp.
Insured Deposts (Sec.4(g))
The amount due to any bona fide depostor for
egtmate deposts n an nsured bank net of
any obgaton of the depostor to the nsured
bank as of date of cosure, but not to exceed
P500,000.00.
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Labty to Depostors
1. Depost Labtes Requred to be Insured
(Sec.5)
The depost abtes of any bank or bankng
nsttuton, whch s engaged n the busness of
recevng deposts or whch thereafter may
engage n the busness of recevng deposts,
sha be nsured wth the PDIC.
2. Commencement of Labty (Sec.14)
Whenever an nsured bank sha have been
cosed by the Monetary Board, payment of the
nsured deposts on such cosed bank sha be
made by the PDIC as soon as possbe ether (1)
by cash or (2) by makng avaabe to each
depostor a transferred depost n another
nsured bank n an amount equa to nsured
depost of such depostor.
The PDIC, n ts dscreton, may requre proof of
cams to be fed before payng the nsured
deposts, and that n any case where the PDIC s
not satsfed as to the vabty of a cam for an
nsured depost, t may requre fna
determnaton of a court of competent
|ursdcton before payng such cam.
Faure to sette the cam, wthn sx (6) months
from the date of fng of cam for nsured
depost, where such faure was due to grave
abuse of dscreton, gross neggence, bad fath,
or mace, sha, upon convcton, sub|ect the
drectors, offcers or empoyees of the PDIC
responsbe for the deay, to mprsonment from
sx (6) months to one (1) year. The perod sha
not appy f the vadty of the cam requres the
resouton of ssues of facts and or aw by
another offce, body or agency ncudng the
case mentoned n the frst provso or by the
PDIC together wth such other offce, body or
agency.
3. Depost Accounts Not Entted to
Payment (Sec.4(f))
Any obgaton of a bank whch s payabe at the
offce of the bank ocated outsde of the
Phppnes sha not be a depost or ncuded as
part of the tota deposts or of nsured depost.
Sub|ect to the approva of the Board of
Drectors, any nsured bank whch s
ncorporated under the aws of the Phppnes
whch mantans a branch outsde the
Phppnes may eect to ncude for nsurance ts
depost obgatons payabe ony at such branch.
4. Labty for Contents of Safety Box
Not abe - the Bank has no way of knowng
what a depostor paces n hs securty depost
box (Catndg).
5. Determnaton of Insured Deposts
(Sec.16)
The PDIC sha commence the determnaton of
nsured deposts due the depostors of a cosed
bank upon ts actua takeover of the cosed
bank.
6. Cacuaton of Labty (Sec. 4(g))
Per Depostor, Per Capacty
In determnng such amount due to any
depostor, there sha be added together a
deposts n the bank mantaned n the same
rght and capacty for hs beneft ether n hs
own name or n the name of others.
|ont Accounts
A |ont account regardess of whether the
con|uncton "and," "or," "and/or" s used, sha
be nsured separatey from any ndvduay-
owned depost account.
If the account s hed |onty by two or more
natura persons, or by two or more |urdca
persons or enttes, the maxmum nsured
depost sha be dvded nto as many equa
shares as there are ndvduas, |urdca persons
or enttes, uness a dfferent sharng s
stpuated n the document of depost.
If the account s hed by a |urdca person or
entty |onty wth one or more natura persons,
the maxmum nsured depost sha be
presumed to beong entrey to such |urdca
person or entty.
The aggregate of the nterests of each co-owner
over severa |ont accounts, whether owned by
the same or dfferent combnatons of
ndvduas, |urdca persons or enttes, sha
kewse be sub|ect to the maxmum nsured
depost of P250,000.00.
Mode of Payments (Sec.14)
Payment sha be made by cash or transferred
depost.
Transferred Depost. Depost n another nsured
bank n an amount equa to nsured depost of
such depostor.
Effect of Payment (Secc. 15, 16(b))
Payment (a) of an nsured depost to any person
by the PDIC and (b) payment of a transferred
depost to any person by the new bank or by an
nsured bank n whch a transferred depost has
been made avaabe sha dscharge the PDIC.
Payment as Preferred Credt (Art.2244, Cv
Code)
Faure to Sette Cam of an Insured Depostor
(Sec. 14)
The PDIC, n ts dscreton, may requre proof of
cams to be fed before payng the nsured
deposts, and that n any case where the PDIC s
not satsfed as to the vabty of a cam for an
nsured depost, t may requre fna
determnaton of a court of competent
|ursdcton before payng such cam.
Faure to sette the cam, wthn sx (6) months
from the date of fng of cam for nsured
depost, where such faure was due to grave
abuse of dscreton, gross neggence, bad fath,
or mace, sha, upon convcton, sub|ect the
drectors, offcers or empoyees of the PDIC
responsbe for the deay, to mprsonment from
sx (6) months to one (1) year.
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The perod sha not appy f the vadty of the
cam requres the resouton of ssues of facts
and or aw by another offce, body or agency
ncudng the case mentoned n the frst provso
or by the Corporaton together wth such other
offce, body or agency.
Faure of Depostor to Cam Insured Depost
(Sec.16(e))
If the depostor n the cosed bank sha fa to
cam hs nsured deposts wth the Corporaton
wthn two (2) years from actua takeover of the
cosed bank by the recever, or does not enforce
hs cam fed wth the corporaton wthn two
(2) years after the two-year perod to fe a
cam as mentoned herenabove, a rghts of
the depostor aganst the Corporaton wth
respect to the nsured depost sha be barred;
however, a rghts of the depostor aganst the
cosed bank and ts sharehoders or the
recevershp estate to whch the Corporaton
may have become subrogated, sha thereupon
revert to the depostor. Thereafter, the
Corporaton sha be dscharged from any
abty on the nsured depost.
Other Powers of the PDIC
1. To adopt and use a corporate sea;
2. To have successon unt dssoved by
an Act of Congress;
3. To make contracts
4. To sue and be sued, compan and
defend, n any court of aw n the
Phppnes
5. To appont ts Board of Drectors,
offcers and empoyees
6. To prescrbe ts by-aws
7. To exercse a powers granted
8. To prescrbe rues and reguatons
9. To estabsh ts own provdent fund
10. To compromse, condone, reease
any cam or setted abty
11. To underwrte or advance tgaton
costs or expenses
Prohbton aganst the Spttng of Deposts
(Sec.21(f)(5))
Spttng of deposts occurs whenever a depost
account wth an outstandng baance of more
than the statutory maxmum amount of nsured
depost mantaned under the name of natura
or |urdca persons s broken down and
transferred nto two or more accounts n the
name/s of natura or |urdca persons or enttes
who have no benefca ownershp on
transferred deposts n ther names wthn thrty
(30) days mmedatey precedng or durng a
bank-decared bank hoday, or mmedatey
precedng a cosure order ssued by the
Monetary Board of the Bangko Sentra ng
Ppnas for the purpose of avang of the
maxmum depost nsurance coverage.
Prohbton aganst Issuance of TROs (Sec.22)
No court, except the Court of Appeas, sha
ssue any temporary restranng order,
premnary n|uncton or premnary mandatory
n|uncton aganst the PDIC for any acton under
the PDIC Act.
Ths prohbton sha appy n a cases, dsputes
or controverses nsttuted by a prvate party,
the nsured bank, or any sharehoder of the
nsured bank.
The Supreme Court may ssue a restranng
order or n|uncton when the matter s of
extreme urgency nvovng a consttutona
ssue, such that uness a temporary restranng
order s ssued, grave n|ustce and rreparabe
n|ury w arse. The party appyng for the
ssuance of a restranng order or n|uncton
sha fe a bond n an amount to be fxed by the
Supreme Court, whch bond sha accrue n
favor of the Corporaton f the court shoud
fnay decde that the appcant was not entted
to the reef sought.
Any restranng order or n|uncton ssued n
voaton of ths s vod and of no force and
effect and any |udge who has ssued the same
sha suffer the penaty of suspenson of at east
sxty (60) days wthout pay.
lX. LAW ON SECRECY OF BANK
DEPOSlTS
Purpose
To encourage peope to depost ther money n
banks and thereby dscourage prvate hoardng
so that the banks may end out the money and
assst n the economc deveopment of the
country.
Prohbted Acts
1. The examnaton and nqury or ookng
nto a deposts of whatever nature wth
banks n the Phppnes (ncudng
nvestments n bonds ssued by the
Government) by any person,
government, bureau or offce.
2. The dscosure by any offca or
empoyee of any bank to any
unauthorzed person of any nformaton
concernng sad deposts.
Exceptons
1. Upon wrtten permsson of the depostor
2. In cases of mpeachment
3. Upon order of a competent court n
cases of brbery or derecton of duty of
a pubc offca
4. In cases where the money deposted or
nvested s the sub|ect matter of the
tgaton
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5. Upon court order n cases of unexpaned
weath (RA3019)
6. Upon order of the Commssoner of
Interna Revenue n respect of bank
deposts of a decedent for the purpose of
determnng gross estate
7. Upon order of the Commssoner of
Interna Revenue n respect of bank
deposts of a taxpayer who has fed an
appcaton for compromse of hs tax
abty by reason of fnanca ncapacty
8. Upon court order n cases fed by the
Ombudsman
a. In case of uncamed baances
b. Wthout court order f the Ant-
Money Launderng Counc
determnes that a partcuar
depost or nvestment s reated
to any one of the foowng
unawfu actvtes:
. Kdnappng for ransom
. Voatons of the
Comprehensve
Dangerous Drugs Act
. H|ackng, destructve
arson, murder
c. Upon court order f the Ant-
Money Launderng Counc
determnes that a partcuar
depost or nvestment s reated
to a money aunderng offense
d. Inqury nto or examnaton when
made by the Bangko Sentra
Garnshment of Depost
Chna Bankng Corporaton v. Ortega
FACTS |udgment by defaut was rendered aganst
Bautsta Loggng Co., Inc., B&B Forest
Deveopment Corporaton and Marno Bautsta
n an acton for the coecton of a sum of
money. To satsfy the |udgment, Tan Km Long
sought the garnshment of a bank depost of
B&B Forest wth Chna Bankng Corporaton.
ISSUE Whether or not a bankng nsttuton may
vady refuse to compy wth a court process
garnshng the bank depost of a |udgment
debtor, by nvokng the provsons of Repubc
Act No. 1405.
HELD No. It was not the ntenton of the
egsature to pace bank deposts beyond the
reach of executon to satsfy a fna |udgment.
There s no rea nqury n an order for
garnshment and f the exstence of the depost
were dscosed, the dscosure was purey
ncdenta to the executon process.
PCIB v. CA
FACTS An acton was fed by a group of aborers,
who obtaned a favorabe |udgment for the
payment of backwages aganst Marnduque
Mnng Corporaton (MMC). The NLRC ssued a
wrt of executon. The Sherff of Negros
Occdenta then prepared a Notce of
Garnshment addressed to sx banks drectng
the banks concerned to mmedatey ssue a
check n the name of the Deputy Provnca
Sherff of Negros Occdenta n an amount
equvaent to the amount of the garnshment
and that proper recept woud be ssued
therefor. PCIB Bank Manager |ose Henares
ssued a debt memo for the fu baance of
MMCs account and aowed ts encashment.
ISSUE Whether or not PCIB voated Repubc Act
No. 1405 when t aowed the sherff to garnsh
the depost of MMC pursuant to a wrt of
executon ssued by the NLRC.
HELD No. Garnshment s consdered as a spece
of attachment for reachng credts beongng to
the |udgment debtor and owng to hm from a
stranger to the tgaton. Under the above-cted
rue, the garnshee s obged to dever the
credts to the proper offcer ssung the wrt. The
aw exempts from abty the person havng n
hs possesson or under hs contro any credts
or other persona property beongng to the
defendant f such property be devered or
transferred to the cerk, sherff, or other offcer
of the court n whch the acton s pendng.
Snce there s no evdence that PCIB dvuged
the nformaton that the MMC had an account
wth t, and t s undsputed that the sad
account was propery the ob|ect of the notce of
garnshment and wrt of executon carred out
by the deputy sherff, a duy authorzed offcer
of the court, PCIB s not abe.
Conceament of Iegay Acqured Property
Banco Fpno v. Pursma
FACTS A compant was fed by the Bureau of
Interna Revenue aganst Manue Catura. In the
course of the premnary nvestgaton thereof,
the Tanodbayan ssued a subpoena duces
tecum to the Banco Fpno Savngs & Mortgage
Bank, commandng ts representatve to to
furnsh the Tanodbayan wth duy certfed
copes of the records n a ts branches of the
oans, savngs and tme deposts and other
bankng transactons appearng n the names of
Catura, hs wfe and ther chdren.
ISSUE Whether or not such an nqury s aowed
as regards pubc offcas under nvestgaton
for a voaton of the Ant-Graft & Corrupt
Practces Act
HELD Yes. whe Repubc Act No. 1405 provdes
that bank deposts are absoutey confdenta
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and therefore may not be examned, nqured or
ooked nto, except n those cases enumerated
theren, the Ant-Graft Law drects n mandatory
terms that bank deposts sha be taken nto
consderaton n the enforcement of ths SEC,
notwithstanding any provson of aw to the
contrary. The ony concuson possbe s that
the Ant-Graft Law s ntended to amend
Repubc Act No. 1405 by provdng an
addtona excepton to the rue aganst the
dscosure of bank desposts.
Cases of unexpaned weath are smar to
cases of brbery or derecton of duty and no
reason s seen why these two casses of cases
cannot be excepted from the rue makng bank
deposts confdenta. The pocy as to one
cannot be dfferent from the pocy as to the
other. Ths pocy expresses the noton that a
pubc offce s a pubc trust and any person
who enters upon ts dscharge does so wth the
fu knowedge that hs fe, so far as reevant to
hs duty, s open to pubc scrutny.
The nqury nto egay acqured property
extends to cases where such property s
conceaed by beng hed by or recorded n the
name of other persons. Ths proposton s made
cear by R.A. No. 3019 whch qute categorcay
states that the term, egtmatey acqured
property of a pubc offcer or empoyee sha
not ncude property unawfuy acqured by the
respondent, but ts ownershp s conceaed by
ts beng recorded n the name of, or hed by,
respondent's spouse, ascendants, descendants,
reatves or any other persons.
Meon Bank v. Magsno
FACTS Doores Ventosa requested the transfer of
$1,000 from the Frst Natona Bank of
Moundsve, West Vrgna, U.S.A. to Vctora
|aver n Mana through the Prudenta Bank.
Frst Natona Bank requested Meon Bank, to
effect the transfer. Unfortunatey the wre sent
by Meon Bank to Manufacturers Hanover Bank,
a correspondent of Prudenta Bank, ndcated
the amount transferred as US$1,000,000.00
nstead of US$1,000.00. |avers husband used
the money to purchase rea property from
Honoro Pobador, |r.
ISSUE Whether or not the accounts of thrd
partes can be ooked nto.
HELD Yes. Repubc Act No. 1405 aows the
dscosure of bank deposts n cases where the
money deposted s the sub|ect matter of the
tgaton. Inasmuch as the case s amed at
recoverng the amount converted by the |avers
for ther own beneft, necessary, an nqury
nto the whereabouts of the egay acqured
amount extends to whatever s conceaed by
beng hed or recorded n the name of persons
other than the one responsbe for the ega
acquston.
Case Pendng n Court Requred Before
Ombudsman Can Examne Bank Accounts
Marquez v. Deserto
FACTS The Ombudsman attempted to nspect
certan depost accounts mantaned at the |ua
Vargas Branch of Unon Bank nvoved n a case
pendng wth the Ombudsman.
ISSUE Whether or not the power of the
Ombudsman to examne and have access to
bak accounts and records hods notwthstandng
the provsons of Repubc Act No. 1405.
HELD No. Before an in camera nspecton may be
aowed, there must frst be a pendng case
before a court of competent |ursdcton. The
account must be ceary dentfed, the
nspecton mted to the sub|ect matter of the
pendng case, and the bank personne as we
as the account hoder must be notfed to be
present durng the nspecton.
Foreign Currency Deposit Act
Savacon v. Centra Bank
FACTS Karen Savacon was detaned and raped
by Greg Barte, an Amercan ctzen. Barte
was arrested but was abe to escape from |a.
The cv case for damages contnued, and
|udgment was rendered aganst Barte.
ISSUE Whether or not Bartes deposts wth
Chna Bankng Corporaton can be garnshed.
HELD Yes. Repubc Act No. 6426 does not
protect and woud not appy to the foregn
currency depost of a transent aen depostor
under the pecuar crcumstances of ths case.
Anti-Money Laundering Act
Common Stages of Money Launderng
Pacement, ayerng, ntegraton
Covered Insttutons
!" Banks, non-banks, quas-banks, trust
enttes, and a other nsttutons and
ther subsdares and affates
supervsed or reguated by the Bangko
Sentra ng Ppnas (BSP)
#" Insurance companes and a other
nsttutons supervsed or reguated by
the Insurance Commsson
$" () Securtes deaers, brokers, saesmen,
nvestment houses and other smar
enttes managng securtes or renderng
servces as nvestment agent, advsor, or
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consutant, () mutua funds, cose and
nvestment companes, common trust
funds, pre-need companes and other
smar enttes, () foregn exchange
corporatons, money changers, money
payment, remttance, and transfer
companes and other smar enttes,
and (v) other enttes admnsterng or
otherwse deang n currency,
commodtes or fnanca dervatves
based thereon, vauabe ob|ects, cash
substtutes and other smar monetary
nstruments or property supervsed or
reguated by Securtes and Exchange
Commsson
Covered Transactons
'Covered transacton' s a transacton n cash or
other equvaent monetary nstrument nvovng
a tota amount n excess of P500,000.00 wthn
one bankng day.
Suspcous Transactons
Transactons wth covered nsttutons,
regardess of the amounts nvoved, where any
of the foowng crcumstances exst:
!" There s no underyng ega or trade
obgaton, purpose or economc
|ustfcaton
#" The cent s not propery dentfed
$" The amount nvoved s not
commensurate wth the busness or
fnanca capacty of the cent
%" Takng nto account a known
crcumstances, t may be perceved that
the cent's transacton s structured n
order to avod beng the sub|ect of
reportng requrements under the Act
&" Any crcumstances reatng to the
transacton whch s observed to devate
from the profe of the cent and/or the
cent's past transactons wth the
covered nsttuton
'" The transactons s n a way reated to an
unawfu actvty or offense under ths
Act that s about to be, s beng or has
been commtted
(" Any transactons that s smar or
anaogous to any of the foregong
Unawfu Actvtes or Predcate Crmes
'Unawfu actvty' refers to any act or omsson
or seres or combnaton thereof nvovng or
havng drect reaton to foowng:
!" Kdnappng for ransom
#" Voatons of the Comprehensve Drugs
Act of 2002
$" Voatons of the Ant-Graft and Corrupt
Practces Act
%" Punder under Repubc Act No. 7080
&" Robbery and extorton
'" |ueteng and Masao
(" Pracy on the hgh seas
)" Ouafed theft
*" Swndng
!+" Smuggng
!!" Voatons of the Eectronc Commerce
Act
!#" H|ackng, destructve arson and murder
!$" Frauduent Practces under the Securtes
Reguaton Code
!%" Feones or offenses of a smar nature
that are punshabe under the pena aws
of other countres
Money Launderng Offenses
Money aunderng s a crme whereby the
proceeds of an unawfu actvty as heren
defned are transacted, thereby makng them
appear to have orgnated from egtmate
sources. It s commtted by the foowng:
1. Any person knowng that any monetary
nstrument or property represents,
nvoves, or reates to, the proceeds of
any unawfu actvty, transacts or
attempts to transacts sad monetary
nstrument or property.
2. Any person knowng that any monetary
nstrument or property nvoves the
proceeds of any unawfu actvty,
performs or fas to perform any act as a
resut of whch he factates the offense
of money aunderng referred to n
paragraph (a) above.
3. Any person knowng that any monetary
nstrument or property s requred under
ths Act to be dscosed and fed wth the
Ant-Money Launderng Counc (AMLC),
fas to do so.
Ant-Money Launderng Counc
The Ant-Money Launderng Counc s hereby
created and sha be composed of the Governor
of the Bangko Sentra ng Ppnas as charman,
the Commssoner of the Insurance Commsson
and the Charman of the Securtes and
Exchange Commsson as member. The AMLC
sha sha act unanmousy n the dscharge of
ts functons as defned hereunder:
!" To requre and receve covered or
suspcous transacton reports from
covered nsttutons
#" To ssue orders addressed to the
approprate Supervsng Authorty or the
covered nsttutons to determne the
true dentty of the owner of any
monetary nstrument or preperty sub|ect
of a covered transacton or suspcous
transacton report or request for
assstance from a foregn State, or
beeved by the Counc, on the bass fo
substanta evdence, to be, n whoe or
n part, wherever ocated, representng,
nvovng, or reated to drecty or
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ndrecty, n any manner or by any
means, the proceeds of an unawfu
actvtty
$" To nsttute cv forfeture proceedngs
and a other remeda proceedngs
through the Offce of th Soctor Genera
%" To cause the fng of compants wth the
Department of |ustce or the
Ombudsman for the prosecuton of
money aunderng offenses
&" To nvestgate suspcous transactons
and covered transactons deemed
suspcous after an nvestgaton by
AMLC, money aunderng actvtes and
other voatons of ths Act
'" To appy before the Court of Appeas, ex
parte, for the freezng of any monetary
nstrument or property aeged to be the
proceeds of any unawfu actvty
(" To mpement such measures as may be
necessary and |ustfed under ths Act to
counteract money aunderng
)" To receve and take acton n respect of,
any request from foregn states for
assstance n ther own ant-money
aunderng operatons
*" To deveop educatona programs on the
perncous effects of money aunderng,
the methods and technques used n the
money aunderng, the vabe means of
preventng money aunderng and the
effectve ways of prosecutng and
punshng offenders
!+" To mpose admnstratve sanctons for
the voaton of aws, rues, reguatons,
and orders and resoutons ssued
pursuant thereto
Basc Actvtes Requred of Covered Insttutons
to Prevent Money Launderng
Covered nsttutons sha report to the AMLC a
covered transactons and suspcous
transactons wthn fve(5) workng days from
occurrences thereof, uness the Supervsng
Authorty prescrbes a onger perod not
exceedng ten workng days. Shoud a
transacton be determned to be both a covered
transacton and a suspcous transacton, the
covered nsttuton sha be requred to report
the same as a suspcous transacton.
Freezng of Monetary Instrument or Property
The Court of Appeas, upon appcaton ex parte
by the AMLC and after determnaton that
probabe cause exsts that any monetary
nstrument or property s n any way reated to
an unawfu actvty, may ssue a freeze order
whch sha be effectve mmedatey. The freeze
order sha be for a perod of twenty days uness
extended by the court.
Authorty to Inqure Into Bank Deposts
The AMLC may nqure nto or examne any
partcuar depost or nvestment wth any
bankng nsttuton or non-bank fnanca
nsttuton upon order of any competent court n
cases of voaton of the Ant-Money Launderng
Act, when t has been estabshed that there s
probabe cause that the deposts or nvestments
are reated to an unawfu actvty or a money
aunderng except that no court order sha be
requred n cases nvovng kdnappng for
ransom, voatons of the Comprehensve
Dangerous Drugs act, h|ackng, destructve
arson, and murder.
Pena Provsons
!" Macous Reportng . Any person who,
wth mace, or n bad fath, reports or
fes a competey unwarranted or fase
nformaton reatve to money aunderng
transacton aganst any person sha be
sub|ect to a penaty to sx (6) months to
four (4) years mprsonment and a fne of
not ess than P100,000.00 but not more
than P500,000.00, at the dscreton of
the court: Provided, That the offender s
not entted to ava the benefts of the
Probaton Law.
#" Breach of Confdentaty . The
punshment of mprsonment rangng
from three (3) to eght (8) years and a
fne of not ess than P500,000.00 but not
more than P1,000,000.00 sha be
mposed. In the case of a breach of
confdentaty that s pubshed or
reported by meda, the responsbe
reporter, wrter, presdent, pubsher,
manager and edtor-n-chef sha be
abe.
Prohbtons Aganst Potca Harrassment
Act sha not be used for potca prosecuton or
harassment or as an nstrument to hamper
competton n trade and commerce.No case for
money aunderng may be fed aganst and no
assets sha be frozen, attached or forfeted to
the pre|udce of a canddate for an eectora
offce durng an eecton perod.
Human Security Act
|udca Authorzaton to Examne Bank
Deposts, Accounts and Records
The provsons of Repubc Act No. 1405 as
amended, to the contrary notwthstandng, the
|ustces of the Court of Appeas desgnated as a
speca court to hande ant-terrorsm cases
after satsfyng themseves of the exstence of
probabe cause n a hearng caed for that
purpose that: (1) a person charged wth or
suspected of the crme of terrorsm or,
conspracy to commt terrorsm, (2) of a
|udcay decared and outawed terrorst
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organzaton, assocaton, or group of persons;
and (3) of a member of such |udcay decared
and outawed organzaton, assocaton, or
group of persons, may authorze n wrtng any
poce or aw enforcement offcer and the
members of hs/her team duy authorzed n
wrtng by the ant-terrorsm counc to: (a)
examne, or cause the examnaton of, the
deposts, pacements, trust accounts, assets
and records n a bank or fnanca nsttuton;
and (b) gather or cause the gatherng of any
reevant nformaton about such deposts,
pacements, trust accounts, assets, and records
from a bank or fnanca nsttuton. The bank or
fnanca nsttuton concerned, sha not refuse
to aow such examnaton or to provde the
desred nformaton, when so, ordered by and
served wth the wrtten order of the Court of
Appeas.
Appcaton to Examne Bank Deposts, Accounts
and Records
The wrtten order of the Court of Appeas
authorzng the examnaton of bank deposts,
pacements, trust accounts, assets, and
records: (1) of a person charged wth or
suspected of the crme of terrorsm or
conspracy to commt terrorsm; (2) of any
|udcay decared and outawed terrorst
organzaton, assocaton, or group of persons,
or (3) of any member of such organzaton,
assocaton, or group of persons n a bank or
fnanca nsttuton, and the gatherng of any
reevant nformaton about the same from sad
bank or fnanca nsttuton, sha ony be
granted by the authorzng dvson of the Court
of Appeas upon an ex parte appcaton to that
effect of a poce or of a aw enforcement offca
who has been duy authorzed n wrtng to fe
such ex parte appcaton by the Ant-Terrorsm
Counc created n SEC 53 of ths Act to fe such
ex parte appcaton, and upon examnaton
under oath or affrmaton of the appcant and,
the wtnesses he may produce to estabsh the
facts that w |ustfy the need and urgency of
examnng and freezng the bank deposts,
pacements, trust accounts, assets, and
records: (1) of the person charged wth or
suspected of the crme of terrorsm or
conspracy to commt terrorsm; (2) of a
|udcay decared and outawed terrorst
organzaton, assocaton or group of persons; or
(3) of any member of such organzaton,
assocaton, or group of persons.
Effectve Perod of Court Authorzaton
The authorzaton ssued or granted by the
authorzng dvson of the Court of Appeas to
examne or cause the examnaton of and to
freeze bank deposts, pacements, trust
accounts, assets, and records, or to gather
nformaton about the same, sha be effectve
for the ength of tme specfed n the wrtten
order of the authorzng dvson of the Court of
Appeas, whch sha not exceed a perod of
thrty (30) days from the date of recept of the
wrtten order of the authorzng dvson of the
Court of Appeas by the appcant poce or aw
enforcement offca.
The authorzng dvson of the Court of Appeas
may extend or renew the sad authorzaton for
another perod, whch sha not exceed thrty
(30) days renewabe to another thrty (30) days
from the expraton of the orgna perod:
Provded, That the authorzng dvson of the
Court of Appeas s satsfed that such extenson
or renewa s n the pubc nterest: and,
Provded, further, That the appcaton for
extenson or renewa, whch must be fed by
the orgna appcant, has been duy authorzed
n wrtng by the Ant-Terrorsm Counc.
In case of death of the orgna appcant or n
case he s physcay dsabed to fe the
appcaton for extenson or renewa, the one
next n rank to the orgna appcant among the
members of the ream named n the orgna
wrtten order of the authorzng dvson of the
Court of Appeas sha fe the appcaton for
extenson or renewa: Provded, That, wthout
pre|udce to the abty of the poce or aw
enforcement personne under SEC 19 hereof,
the appcant poce or aw enforcement offca
sha have thrty (30) days after the termnaton
of the perod granted by the Court of Appeas as
provded n the precedng paragraphs wthn
whch to fe the approprate case before the
Pubc Prosecutor's Offce for any voaton of
ths Act.
If no case s fed wthn the thrty (30)-day
perod, the appcant poce or aw enforcement
offca sha mmedatey notfy n wrtng the
person sub|ect of the bank examnaton and
freezng of bank deposts, pacements, trust
accounts, assets and records. The penaty of
ten (10) years and one day to tweve (12) years
of mprsonment sha be mposed upon the
appcant poce or aw enforcement offca who
fas to notfy n wrtng the person sub|ect of
the bank examnaton and freezng of bank
deposts, pacements, trust accounts, assets
and records.
X. TRUTH lN LENDlNG ACT
RA 3765 (1963)
10.1 Topics
Purpose
SEC 2. Decaraton of Pocy. It s hereby
decared to be the pocy of the State to protect
ts ctzens from a ack of awareness of the true
cost of credt to the user by assurng a fu
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dscosure of such cost wth a vew of
preventng the unnformed use of credt to the
detrment of the natona economy.
Obligation of creditors
SEC 3. As used n ths Act, the term
(4) "Credtor" means any person engaged n the
busness of extendng credt (ncudng any
person who as a reguar busness practce make
oans or ses or rents property or servces on a
tme, credt, or nstament bass, ether as
prncpa or as agent) who requres as an
ncdent to the extenson of credt, the payment
of a fnance charge.
SEC 4. Any credtor sha furnsh to each person
to whom credt s extended, pror to the
consummaton of the transacton, a cear
statement n wrtng settng forth, to the extent
appcabe and n accordance wth rues and
reguatons prescrbed by the Board, the
foowng nformaton:
(1) the cash prce or devered prce of the
property or servce to be acqured;
(2) the amounts, f any, to be credted as down
payment and/or trade-n;
(3) the dfference between the amounts set
forth under causes (1) and (2);
(4) the charges, ndvduay temzed, whch are
pad or to be pad by such person n connecton
wth the transacton but whch are not ncdent
to the extenson of credt;
(5) the tota amount to be fnanced;
(6) the fnance charge expressed n terms of
pesos and centavos; and
(7) the percentage that the fnance bears to the
tota amount to be fnanced expressed as a
smpe annua rate on the outstandng unpad
baance of the obgaton.
Covered and excluded transactions
Covered transactions
SEC 3. As used n ths Act, the term
(2) "Credt" means any oan, mortgage, deed of
trust, advance, or dscount; any condtona
saes contract; any contract to se, or sae or
contract of sae of property or servces, ether
for present or future devery, under whch part
or a of the prce s payabe subsequent to the
makng of such sae or contract; any renta-
purchase contract; any contract or arrangement
for the hre, bament, or easng of property;
any opton, demand, en, pedge, or other cam
aganst, or for the devery of, property or
money; any purchase, or other acquston of, or
any credt upon the securty of, any obgaton
of cam arsng out of any of the foregong; and
any transacton or seres of transactons havng
a smar purpose or effect.
Sec. 3, CB Crcuar No. 158 mpementng RA
3765
a) Any oans, mortgages, deeds of trust,
advances and dscounts;
b) Any condtona saes contracts, any
contract to se, or sae or contract of
sae of property or servces, ether for
present or future devery, under whch
part or a of the prce s payabe
subsequent to the makng of such sae
or contract;
c) Any renta-purchase contract;
d) Any contract for the hre, bament or
easng of property;
e) Any opton, demand, en, pedge or
other cam aganst or for devery of,
property or money;
f) Any purchase, or other acquston of, or
any credt upon the securty of, any
obgaton or cam arsng out of any of
the foregong; and
g) Any transacton or seres of transactons
havng a smar purpose or effect.
Excluded transactions
Sec. 3, CB Crcuar 158
a) Those that do not nvove the payment
of any fnance charge by the debtor; and
b) Those n whch the debtor s the one
specfyng a defnte and fxed set of
credt terms such as bank deposts,
nsurance contracts, sae of bonds, etc.
Finance and non-finance charges
Finance charges
SEC 3. As used n ths Act, the term
(3) "Fnance charge" ncudes nterest, fees,
servce charges, dscounts, and such other
charges ncdent to the extenson of credt as
the Board may be reguaton prescrbe.
Sec. 2 (h), CB Circular 158
Fnance charges are the amounts to be pad by
the debtor ncdent to the extenson of credt
such as nterests, dscounts, coecton fees,
credt nvestgaton fees and attorneys fees.
Non-finance charges
Sec. 2(f), CB Circular 158
Non-fnance charges are the amounts advanced
by a credtor for tems normay assocated wth
the ownershp of property or the avament of
the servces purchased whch are not ncdent
to the extenson of credt. For exampe, when a
debtor purchases a car on credt, the credtor
may advance the nsurance premum as we as
the regstraton fee for the account of the
debtor.
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Consequences of non-compliance with
obligation
SEC 6. (a) Any credtor who n connecton wth
any credt transacton fas to dscose to any
person any nformaton n voaton of ths Act or
any reguaton ssued thereunder sha be abe
to such person n the amount of P100 or n an
amount equa to twce the fnance charged
requred by such credtor n connecton wth
such transacton, whchever s the greater,
except that such abty sha not exceed
P2,000 on any credt transacton. Acton to
recover such penaty may be brought by such
person wthn one year from the date of the
occurrence of the voaton, n any court of
competent |ursdcton. In any acton under ths
subSEC n whch any person s entted to a
recovery, the credtor sha be abe for
reasonabe attorney's fees and court costs as
determned by the court.
(b) Except as specfed n subSEC (a) of ths
SEC, nothng contaned n ths Act or any
reguaton contaned n ths Act or any
reguaton thereunder sha affect the vadty or
enforceabty of any contract or transactons.
(c) Any person who wfuy voates any
provson of ths Act or any reguaton ssued
thereunder sha be fned by not ess than P1,00
or more than P5,000 or mprsonment for not
ess than 6 months, nor more than one year or
both.
(d) No punshment or penaty provded by ths
Act sha appy to the Phppne Government or
any agency or any potca subdvson thereof.
(e) A fna |udgment hereafter rendered n any
crmna proceedng under ths Act to the effect
that a defendant has wfuy voated ths Act
sha be prma face evdence aganst such
defendant n an acton or proceedng brought
by any other party aganst such defendant
under ths Act as to a matters respectng whch
sad |udgment woud be an estoppe as between
the partes thereto.
10.2 Cases
Excessve nterests, penates and other charges
not reveaed n dscosure statements ssued by
banks, even f stpuated n the promssory
notes, cannot be gven effect under the Truth n
Lendng Act
New 5ampaguita 8uilders Construction, lnc., et
al. v. PN8
No penaty charges or ncreases thereof
appear ether n the Dscosure Statements or n
any of the causes n the second and the thrd
Credt Agreements earer dscussed. Whe a
standard penaty charge of 6 percent per
annum has been mposed on the amounts
stated n a three Promssory Notes st
remanng unpad or unrenewed when they fe
due, there s no stpuaton theren that woud
|ustfy any ncrease n that charges. The effect,
therefore, when the borrower s not ceary
nformed of the Dscosure Statements -- pror
to the consummaton of the avament or
drawdown -- s that the ender w have no rght
to coect upon such charge or ncreases
thereof, even f stpuated n the Notes. The
tme s now rpe to gve teeth to the often
gnored forty-one-year od "Truth n Lendng
Act" and thus transform t from a snveng
paper tger to a growng fnanca watchdog of
hapess borrowers.
Faure to dscose requred nformaton n
dscosure statement cured by dscosure
thereof n oan transacton documents
D8P v. Arcilla
Issue: WON DBP comped wth the dscosure
requrement of RA 3765 and CB Crcuar 158?
Hed: Yes. Under Crcuar No. 158 of the Centra
Bank, the nformaton requred by R.A. No. 3765
sha be ncuded n the contract coverng the
credt transacton or any other document to be
acknowedged and sgned by the debtor. If the
borrower s not duy nformed of the data
requred by the aw pror to the consummaton
of the avament or drawdown, the ender w
have no rght to coect such charge or
ncreases thereof, even f stpuated n the
promssory note. However, such faure sha not
affect the vadty or enforceabty of any
contract or transacton. In the present case,
DBP faed to dscose the requste nformaton
n the dscosure statement form authorzed by
the Centra Bank, but dd so n the oan
transacton documents between t and Arca.
Contrary to appeee's cam that he was not
suffcenty nformed of the detas of the oan,
the records dscose that the requred
nformatons were ready avaabe n the three
(3) promssory notes he executed. Thus, DBP
substantay comped wth RA 3765 and CB
Crcuar 158.
10.3 Additional Materials
a) Impementng Rues: CB Crcuar No.
158-63
b) Addtona Impementng Rues: CB
Crcuar No. 431-74
10.4 Related Statute
Access Devces Reguaton Act of 1998 (RA
8484)
a) Dscosure requred upon credt card
appcaton or soctaton
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SEC 4. Credit Card Application and
Solicitation. - Any appcaton to open a credt
card account for any person under an open-end
credt pan or a soctaton to open such an
account, ether by ma, teephone or other
means, sha dscose n wrtng or oray, as the
case may be, the foowng nformaton:
(a) Annua Percentage Rate
1) Each annua percentage rate
of nterest on the amount of
credt obtaned by the credt
card hoder under such credt
pan. Where an extenson of
credt s sub|ect to a varabe
rate, the fact that the rate s
varabe, and the annua
percentage rate n effect at
the tme of the mang.
2) Where more than one rate
appes, the range of baances
to whch each rate appes.
(b) Annua and other Fees
1) Any annua fee, other perodc
fee, or membershp fee
mposed for the ssuance or
avaabty of a credt card,
ncudng any account
mantenance fee or any other
charge mposed based on
actvty or nactvty for the
account durng the bng
cyce.
2) Any mnmum fnance charge
mposed for each perod
durng whch any extenson of
credt whch s sub|ect to a
fnance charge s outstandng.
3) Any transacton charge
mposed n connecton wth
use of the card to purchase
goods or servces.
4) Any fee, penaty or surcharge
mposed for the deay n
payment of an account.
(c) Baance Cacuaton Method - the name or a
detaed expanaton of the baance cacuaton
method used n determnng the baance upon
whch the fnance charge s computed.
(d) Cash Advance Fee - any fee mposed for an
extenson of credt n the form of cash.
(e) Over-the-Lmt-Fee - any fee mposed n
connecton wth an extenson of credt n excess
of the amount of credt authorzed to be
extended wth respect to such amount:
Provded, however, That n case the appcaton
or soctaton to open a credt card account for
any person under an open-end consumer credt
pan be made through cataogs, magaznes, or
other pubcatons, the foowng addtona
nformaton sha be dscosed:
1) A statement, n a conspcuous
and promnent ocaton on the
appcaton or soctaton,
that:
. the nformaton s
accurate as of the date
the appcaton or
soctaton was prnted;
. the nformaton contaned
n the appcaton or
soctaton s sub|ect to
change after such date;
. the appcant shoud
contact the credtor for
nformaton on any change
n the nformaton
contaned n the
appcaton or soctaton
snce t was prnted;
2) The date the appcaton or
soctaton was prnted; and
3) In a conspcuous and
promnent ocaton on the
appcaton or soctaton, a
to free teephone number or
mang address whch the
appcant may contact to
obtan any change n the
nformaton provded n the
appcaton or soctaton
snce t was prnted.
b) Detaed expanaton and cear ustraton of
computaton of charges and fees
SEC 5. Computations. - In addton to the
foregong, a credt card ssuer must, to the
extent practcabe, provde a detaed
expanaton and a cear ustraton of the
manner by whch a charges and fees are
computed.
c) Exceptons to the dscosure requrement
SEC 6. Exceptions. - The dscosures requred
under SEC 4 of ths Act may be omtted n any
teephone soctaton or appcaton f the credt
card ssuer:
(a) does not mpose any fee n connecton wth
paragraph (b)(1), SEC 4 of ths Act;
(b) does not mpose any fee n connecton wth
teephone soctaton uness the consumer
sgnfes acceptance by usng the card;
(c) dscoses ceary the nformaton descrbed n
SEC 4 of ths Act n wrtng wthn thrty (30)
days after the consumer requests the card, but
n no event ater than the date of devery of the
card; and
(d) dscoses ceary that the consumer s not
obgated to accept the card or account and the
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consumer w not be obgated to pay any fees
or charges dscosed uness the consumer eects
to accept the card or account by usng the card.
d) Dscosure requred pror to renewa
SEC 7. Disclosure Prior to Renewal. -
Except n teephone soctatons a card ssuer
that mposes any fee descrbed n SEC 4 sha
transmt to a consumer's credt card account a
cear and conspcuous dscosure of:
(a) the date by whch, the month by whch, or
the bng perod at the cose of whch, the
account w expre f not renewed;
(b) the nformaton descrbed n SEC 4 whch
sha be transmtted to a consumer at east
thrty (30) days pror to the schedued renewa
date of the consumer's credt card account;
(c) the nformaton descrbed n SEC 4 (a) (1)
whch sha be transmtted to a consumer's
credt card account; and
(d) the method by whch the consumer may
termnate contnued credt avaabty under
the account: Provded, That the dscosures
requred by ths SEC must be made pror to
postng a fee descrbed n SEC 4 (b) (1) to the
account, or wth the perodc bng statement
frst dscosng that the fee has been posted to
the account sub|ect to the condton that the
consumer s gven thrty (30) day perod to
avod payment of the fee or to have the fee
recredted to the account n any case where the
consumer does not wsh to contnue the
avaabty of the credt.
e) Penaty for faure to dscose
SEC 8. Failure to Disclose. - Credt card
companes whch sha fa to dscose the
nformaton requred under SECs 4, 5 and 7 of
ths Act, after due notce and hearng, sha be
sub|ect to suspenson or canceaton of ther
authorty to ssue credt cards by the Bangko
Sentra ng Ppnas, Securtes and Exchange
Commsson and such other government
agences.
Xl. LETTERS OF CREDlT
ART 567-572 CODE OF COMMERCE
11.1 Topics
Governing Law
1. Artces 567-572 of the Code of
Commerce, whch provdes a skeeta
ntroducton to the sub|ect of etters of credt
2. The Unform Customs and Practce for
Documentary Credts ssued by the
Internatona Chamber of Commerce, whch
refects accepted commerca usage and
practce on the sub|ect of etters of credt and
the appcaton of whch n the Phppnes has
been acknowedged by the Supreme Court
based on Artce 2 of the Code of Commerce
whch provdes that n the absence of any
appcabe provson n the Code of Commerce,
commerca transactons sha be governed by
usages generay observed. (See 8Pl v. De Reny
Fabric lndustries; Feati 8ank v. CA; and 8ank of
America, NT & 5A v. CA)
Concept and nature
ARTlCLE 567. Letters of credt are those ssued
by one merchant to another or for the purpose
of attendng to a commerca transacton.
Essential conditions
ARTlCLE 568. The essenta condtons of
etters of credt sha be:
1. To be ssued n favor of a defnte person
and not to order.
2. To be mted to a fxed and specfed
amount, or to one or more undetermned
amounts, but wthn a maxmum the mts of
whch has to be stated exacty.
Those whch do not have any of these ast
crcumstances sha be consdered as mere
etters of recommendaton.
Period of validity
ARTlCLE 572. If the bearer of a etter of credt
does not make use thereof wthn the perod
agreed upon wth the drawer, or, n defaut of a
perod fxed, wthn sx months, counted from ts
date n any pont n the Phppnes, and wthn
tweve months anywhere outsde thereof, t
sha be vod n fact and n aw.
Basic parties and governing contracts
Basic parties of a letter of credit
a) The buyer, who procures the etter of
credt and obges hmsef to remburse
the ssung bank upon recept of the
documents of tte;
b) The bank ssung the etter of credt,
whch undertakes to pay the seer upon
recept of the draft and proper
documents of ttes and to surrender the
documents to the buyer upon
rembursement; and
c) The seer, who n compance wth the
contract of sae shps the goods to the
buyer and devers the documents of tte
and draft to the ssung bank to recover
payment. (See 8ank of America v. NT &
5A)
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Governing contracts
a) Issung bank and
appcant/buyer/mporter - Ther
reatonshp s governed by the terms of
the appcaton and agreement for the
ssuance of the etter of credt by the
bank
b) Issung bank and
benefcary/seer/exporter - Ther
reatonshp s governed by the terms of
the etter of credt ssued by the bank
c) Appcant and benefcary - Ther
reatonshp s governed by the saes
contract. (See Reliance Commodities v.
Deawoo lndustrial)
Opening bank - buyers bank whch ssues the
etter of credt
Notifying bank - correspondng bank of the
openng bank through whch t advses the
benefcary of the exstence of the etter of
credt
Negotiating bank - any bank n the cty of the
benefcary
Paying bank - buys or dscounts the drafts f
such draft s drawn on the openng bank or on
another desgnated bank not n the cty of the
benefcary
Confirming bank - upon the request of the
benefcary confrms the etter of credt ssued
by the openng bank
lndependence principle
The ndependence prncpe n a etter of credt
transactons means that a bank, n determnng
compance wth the terms of a etter of credt s
requred to examne ony the shppng
documents presented by the seer and s
precuded from determnng whether the man
contract s actuay accompshed or not. Ths
arrangement assures the seer of prompt
payment, ndependent of any breach of the
man saes contract. (See 8ank of America NT &
5A).
Rule of strict compliance
The rue of strct compance n a etter of credt
transacton means that the documents
tendered by the seer or benefcary must
strcty conform to the terms of the etter of
credt, .e., they must ncude a documents
requred by the etter of credt. Thus, a
correspondent bank whch departs from what
has been stpuated under the etter of credt,
as when t accepts a fauty tender, acts on ts
own rsk and may not thereafter be abe to
recover from the buyer or the ssung bank, as
the case may be; the money thus pad to the
benefcary. (See Feati 8ank)
Documents associated with letters of
credit transactions
a) Draft - sometmes caed a b of
exchange, t s an order wrtten by an
exporter/seer nstructng an
mporter/buyer or ts agent to pay a
specfed amount of money at a specfed
tme.
b) B of adng - document ssued to the
exporter by a common carrer
transportng the merchandse. It serves
three purposes: as a recept, a contract
and a document of tte.
c) Commerca nvoce - a document
sgned and ssued by the seer and
contans a precse descrpton of the
merchandse and the terms of the sae
such as unt prces, amount due from the
buyer and shppng condtons reated to
charges.
d) Consuar nvoce - a document ssued by
the consuate of the mportng country to
provde customs nformaton and
statstcs for that country and to hep
prevent fase decaratons of vaue.
e) Certfcate of anayss - a document that
may be requred to ascertan that certan
specfcatons of weght, purty,
santaton, etc. have been met.
f) Packng st - an enumeraton of the
contents of contaners so that they can
be dentfed, ether for customs
purposes or for mporter dentfcaton of
the contents of separate contaners.
g) Export decaraton - a document
prepared by the exporter to assst the
government to prepare export statstcs.
11.2 Cases
Nature of etters of credt
Prudential 8ank v. lAC
A etter of credt s defned as an engagement
by a bank or other person made at the request
of a customer that the ssuer w honor drafts or
other demands for payment upon compance
wth the condtons specfed n the credt.
Through a etter of credt, the bank merey
substtutes ts own promse to pay for the
promse to pay of one of ts customers who n
return promses to pay the bank the amount of
funds mentoned n the etter of credt pus
credt or commtment fees mutuay agreed
upon.

8ank of America v. CA
A etter of credt s a fnanca devce deveoped
by merchants as a convenent and reatvey
safe mode of deang wth saes of goods to
satsfy the seemngy rreconcabe nterest of a
seer, who refuses to part wth hs goods before
he s pad, and a buyer, who wants to have
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contro of the goods before payng. To break the
mpasse, the buyer may be requred to contract
a bank to ssue a etter of credt n favor of the
seer so that, by vrtue of the etter of the etter
of credt, the ssung bank can authorze the
seer to draw drafts and engage to pay them
upon ther presentment smutaneousy wth the
tender of documents requred by the etter of
credt. The buyer and the seer agree on what
documents are to be presented for payment,
but ordnary they are documents of tte
evdencng or attestng to the shpment of the
goods to the buyer. Under ths arrangement,
the seer gets pad ony f he devers the
documents of tte over the goods, whe the
buyer acqures the sad documents of tte over
the goods ony after rembursng the bank.
Process
1. Once the credt s estabshed, the seer
shps the goods to the buyer and n the process
secures the shppng documents or DOT
2. To get pad, the seer executes a draft
and presents t together wth the requred
documents to the ssung bank
3. The ssung bank redeems the draft and
pays cash to the seer f t fnds the documents
submtted by the seer conform wth what the
etter of credt requres
4. The bank obtans possesson of the
documents upon payng the seer
5. Transacton s competed when the
buyer remburses the ssung bank and acqures
the documents enttng hm to the goods.
Lee v. CA
Modern etters of credt are usuay not made
between natura persons. They nvove bank-to-
bank transactons. Hstorcay, etters of credt
was deveoped to factate the sae of goods
between dstant and unfamar buyers and
seers. It was an arrangement under whch a
bank, whose credt was acceptabe to the seer,
woud at the nstance of the buyer agree to pay
drafts drawn on t by the seer, provded that
certan documents are presented such as bs
of adng accompaned the correspondng
drafts.
Parties to a commercial letter of credit
1. Buyer or mporter
2. Seer or the benefcary
3. Openng bank - buyers bank whch
ssues the etter of credt
4. Notfyng bank - correspondng bank of
the openng bank through whch t advses the
benefcary of the exstence of the etter of
credt
5. Negotatng bank - any bank n the cty
of the benefcary
6. Payng bank - buys or dscounts the
drafts f such draft s drawn on the openng
bank or on another desgnated bank not n the
cty of the benefcary
7. Confrmng bank - upon the request of
the benefcary confrms the etter of credt
ssued by the openng bank
Standby etters of credt
Transfield Philippines, lnc. v. Luzon Hydro
Corporation
Facts: Transfed Phppnes and LHC entered
nto a turnkey contract whereby the former
undertook to construct a hydro-eectrc power
staton by |une 1, 2000. To secure performance
of the obgaton on or before the target
competon date, Transfed opened n favor of
LHC 2 standby etters of credt. Transfed faed
to compete the pro|ect by the target date.
Transfed fed a Compant for In|uncton to
restran LHC from cang on the securtes.
Issue: WON the banks shoud dspose of the
securtes upon appcaton by LHC? Yes.
Hed:
Concept of 5tandby letters of credit - The use of
credts n commerca transactons serves to
reduce the rsk of non-payment of the purchase
prce under the contract of sae of goods.
Standby credts however are used n non-sae
settngs where they serve to reduce the rsk of
non-performance.
Commercial credit v. standby credit
1. Commerca credt nvove of payment of
money under a contract of sae.
2. Commerca credts become payabe
upon the presentaton by the seer of
documents that show he has taken
affrmatve steps to compy wth the
saes agreement. Standby credts s
payabe upon certfcaton of a partys
nonperformance of the agreement.
3. Benefcary of commerca credt must
present documents that he has
performed hs contract. Whe
benefcary of standby credt must certfy
that hs obgor has not performed the
contract.
Independence prncpe
8Pl v. De Reny Fabric lndustries
Facts: De Reny Fabrc obtaned etters of credt
from BPI coverng the purchase by the
corporaton of dyestuffs from ts Amercan
supper. Upon presentment of the bs of adng
and drafts coverng the goods to the
correspondng bank of BPI n the US the supper
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was pad. De Reny refused to pay BPI on the
ground that the goods devered were defectve.
Issue: WON the foregn correspondng banks of
BPI had the duty to take the necessary
precauton to nsure that the goods shpped
conformed wth the tem appearng of the
etters of credt?
Hed: No.
Under the terms of ther commerca etter of
credt agreements wth the bank, De Reny
agreed that the Bank sha not be responsbe or
abe for any defect or oss of the goods. But
even wthout such stpuaton, the burden of
oss st cannot be shfted to the Bank on
account of the seer breach of ts obgaton.
Under Unform Customs and Practce for
Commerca Documentary Credts, banks n
provdng fnancng n nternatona busness
transactons, do not dea wth the property to
be exported or shpped to the mporter but ony
dea wth the documents. Custom n
nternatona bankng and fnancng crces
negate any duty on the part of a bank to verfy
whether what has been descrbed n etters of
credt or drafts or shppng documents actuay
taes wth what was oaded abroad shp.
Rue of strct compance
Feati 8ank v. CA
Facts: The etter of credt provded that the
draft shoud be presented to the ssung bank
wth the foowng documents: commerca
nvoce, tay sheets, bs of adng and a
certfcaton from Han-Axe Chrstansen
(consgnor). The atter refused to ssue the
certfcaton. Feat Bank, a correspondng bank
of the ssung bank n the Phppnes, refused to
honor the drafts wthout the certfcaton.
Issue: WON a correspondent bank can be hed
abe under the etter of credt despte non-
compance by the benefcary wth the terms
thereof.
Hed: It s as setted rue n commerca
transactons nvovng etters of credt that the
documents tendered must strcty conform to
the terms of the etter of credt. The tender of
documents by the benefcary must ncude a
documents requred by the etter. A
correspondent bank whch departs from what
has been stpuated under the etter of credt,
as when t accepts a fauty tender, acts on ts
own rsks and t may not thereafter be abe to
recover from the buyer or the ssung bank the
money thus pad to the benefcary. Thus the
rue of strct compance.
Snce a bank deas ony wth documents, t s
not n a poston to determne whether or not
the documents requred by the etter of credt
are matera or superfuous. There mere fact
that the document was specfed theren ready
means that the document s of vta mportance
to the buyer.
Xll. TRUST RECElPTS LAW
PD 115 (1973)
12.1 Topics
Origin
The Trust Recepts Law has no egsatve
hstory to speak of as t was a presdenta
ssuance. It was cosey patterned after the
Unform Trust Recepts Act promugated n 1993
by the US Natona Conference of
Commssoners on Unform State Laws and
adopted by roughy two-thrds of the states. The
UTRA was repaced n 1952 by the Unform
Commerca Code. The UTRA, |ust ke the Trust
Recepts Law, contempated a trpartte
arrangement under whch a buyer, caed an
entrustee, purchased goods from a seer, wth
the fnancng beng provded by a ender caed
the entruster.
Nature and tripartite character of trust
receipts transaction
SEC 4. What constitutes a trust receipt
transaction. A trust recept transacton, wthn
the meanng of ths Decree, s any transacton
by and between a person referred to n ths
Decree as the entruster, and another person
referred to n ths Decree as entrustee, whereby
the entruster, who owns or hods absoute tte
or securty nterests over certan specfed
goods, documents or nstruments, reeases the
same to the possesson of the entrustee upon
the atter's executon and devery to the
entruster of a sgned document caed a "trust
recept" wheren the entrustee bnds hmsef to
hod the desgnated goods, documents or
nstruments n trust for the entruster and to se
or otherwse dspose of the goods, documents
or nstruments wth the obgaton to turn over
to the entruster the proceeds thereof to the
extent of the amount owng to the entruster or
as appears n the trust recept or the goods,
documents or nstruments themseves f they
are unsod or not otherwse dsposed of, n
accordance wth the terms and condtons
specfed n the trust recept, or for other
purposes substantay equvaent to any of the
foowng:
1. In the case of goods or documents, (a) to se
the goods or procure ther sae; or (b) to
manufacture or process the goods wth the
purpose of utmate sae: Provded, That, n the
case of goods devered under trust recept for
the purpose of manufacturng or processng
before ts utmate sae, the entruster sha
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retan ts tte over the goods whether n ts
orgna or processed form unt the entrustee
has comped fuy wth hs obgaton under the
trust recept; or (c) to oad, unoad, shp or
transhp or otherwse dea wth them n a
manner premnary or necessary to ther sae;
or
2. In the case of nstruments,
a) to se or procure ther sae or exchange; or
b) to dever them to a prncpa; or
c) to effect the consummaton of some
transactons nvovng devery to a depostory
or regster; or
d) to effect ther presentaton, coecton or
renewa
The sae of goods, documents or nstruments by
a person n the busness of seng goods,
documents or nstruments for proft who, at the
outset of the transacton, has, as aganst the
buyer, genera property rghts n such goods,
documents or nstruments, or who ses the
same to the buyer on credt, retanng tte or
other nterest as securty for the payment of the
purchase prce, does not consttute a trust
recept transacton and s outsde the purvew
and coverage of ths Decree.
Distinguish from pledge, conditional sale,
chattel mortgage and consignment
Pledge
In a pedge, the person dong the fnancng has
possesson of the property; n a trust recept,
the property s n the possesson of the person
fnanced.
Conditional Sale
In a condtona sae, there s a sae of the
property from the seer to the buyer; n a trust
recept, there s no sae of the property from the
entruster to the entrustee.
Chattel Mortgage
A chatte mortgage nvoves the creaton of a
en on the property; a trust recept does not
nvove the creaton of a en.
Consignment
In a consgnment, the consgnor retans tte to
the property to secure the ndebtedness due
from the consgnee; n a trust recept, the seer
does not retan tte to the property but
transfers such tte to the entruster.
Rights of entruster
SEC 7. Rights of the entruster. The entruster
sha be entted to the proceeds from the sae
of the goods, documents or nstruments
reeased under a trust recept to the entrustee
to the extent of the amount owng to the
entruster or as appears n the trust recept, or
to the return of the goods, documents or
nstruments n case of non-sae, and to the
enforcement of a other rghts conferred on hm
n the trust recept provded such are not
contrary to the provsons of ths Decree.
The entruster may cance the trust and take
possesson of the goods, documents or
nstruments sub|ect of the trust or of the
proceeds reazed therefrom at any tme upon
defaut or faure of the entrustee to compy
wth any of the terms and condtons of the trust
recept or any other agreement between the
entruster and the entrustee, and the entruster
n possesson of the goods, documents or
nstruments may, on or after defaut, gve
notce to the entrustee of the ntenton to se,
and may, not ess than fve days after servng
or sendng of such notce, se the goods,
documents or nstruments at pubc or prvate
sae, and the entruster may, at a pubc sae,
become a purchaser. The proceeds of any such
sae, whether pubc or prvate, sha be apped
(a) to the payment of the expenses thereof; (b)
to the payment of the expenses of re-takng,
keepng and storng the goods, documents or
nstruments; (c) to the satsfacton of the
entrustee's ndebtedness to the entruster. The
entrustee sha receve any surpus but sha be
abe to the entruster for any defcency. Notce
of sae sha be deemed suffcenty gven f n
wrtng, and ether personay served on the
entrustee or sent by post-pad ordnary ma to
the entrustee's ast known busness address.
Obligations of entrustee
SEC 9. Obligations of the entrustee. The
entrustee sha (1) hod the goods, documents
or nstruments n trust for the entruster and
sha dspose of them strcty n accordance wth
the terms and condtons of the trust recept; (2)
receve the proceeds n trust for the entruster
and turn over the same to the entruster to the
extent of the amount owng to the entruster or
as appears on the trust recept; (3) nsure the
goods for ther tota vaue aganst oss from fre,
theft, pferage or other casuates; (4) keep sad
goods or proceeds thereof whether n money or
whatever form, separate and capabe of
dentfcaton as property of the entruster; (5)
return the goods, documents or nstruments n
the event of non-sae or upon demand of the
entruster; and (6) observe a other terms and
condtons of the trust recept not contrary to
the provsons of ths Decree.
Non-liability of entruster for sale of goods
made by entrustee
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SEC 8. Entruster not responsible on sale by
entrustee. The entruster hodng a securty
nterest sha not, merey by vrtue of such
nterest or havng gven the entrustee berty of
sae or other dsposton of the goods,
documents or nstruments under the terms of
the trust recept transacton be responsbe as
prncpa or as vendor under any sae or
contract to se made by the entrustee.
Risk of loss of goods borne by entrustee
SEC 10. Liability of entrustee for loss. The rsk
of oss sha be borne by the entrustee. Loss of
goods, documents or nstruments whch are the
sub|ect of a trust recept, pendng ther
dsposton, rrespectve of whether or not t was
due to the faut or neggence of the entrustee,
sha not extngush hs obgaton to the
entruster for the vaue thereof.
Acquisition by purchaser of goods free
from entruster's security interest
SEC 11. Rights of purchaser for value and in
good faith. Any purchaser of goods from an
entrustee wth rght to se, or of documents or
nstruments through ther customary form of
transfer, who buys the goods, documents, or
nstruments for vaue and n good fath from the
entrustee, acqures sad goods, documents or
nstruments free from the entruster's securty
nterest.
Security interest of entruster valid against
all creditors of entrustee
SEC 12. Validity of entruster's security interest
as against creditors. The entruster's securty
nterest n goods, documents, or nstruments
pursuant to the wrtten terms of a trust recept
sha be vad as aganst a credtors of the
entrustee for the duraton of the trust recept
agreement.
12.2 Cases
Labty of entrustee not extngushed by return
of goods to entruster
Vintola v. l8AA
Facts: Vntoas were granted a etter of credt by
IBAA to cover ts purchase of seashes.
Thereafter, the Vntoas receved the seashes
from the seer. Vntoas then executed a trust
recept agreement wth IBAA. The Vntoas
defauted on ther obgaton as they were
unabe to se the seashes. After IBAA
demanded payment from them, they returned
the seashes to IBAA. The Vntoas cam that
ther obgaton to IBAA has been extngushed
nasmuch as they have renqushed possesson
thereof to IBAA, as owner of the goods.
Issue: WON the obgaton of the Vntoas under
the trust recept agreement was extngushed?
No
Hed: IBAA dd not become the rea owner of the
goods. It was merey the hoder of a securty of
tte for the advances t had made to the
Vntoas. The goods reman the property of the
Vntoas and they hod t at ther own rsk. The
trust recept agreement dd not convert IBAA n
to an nvestor, the atter remaned a ender and
credtor. Snce the IBAA s not the factua owner
of the goods, the Vntoas cannot cam that
because they have surrendered the goods to
IBAA they are absoutey reeved of ther
obgaton to pay ther oan because of ther
nabty to dspose of the goods.
Trust recepts aw deemed to cover capta
goods
Allied 8anking v. Ordones
Facts: PBM was gven etter of credt by Aed
Bankng to cover the purchase of Doomtes and
Nozze Brcks (nsuatng materas whch do not
form part of the stee products). The drafts
drawn aganst the etter of credt was honored
and pad by Aed Bankng. A trust recept
agreement was entered nto between PBM and
Aed Bankng. PBM faed to turn over the
proceeds of the sae of the goods or to return
the goods themseves. Aed Bankng fed a
crmna case aganst PBM for voaton of PD
115. The DO| hed that PD 115 covers ony
goods or components of goods whch are
utmatey destned for sae.
Issue: WON PD 115 aso covers goods that do
not form part of the fnshed product whch are
utmatey sod but are nstead used up n the
operaton of the equpment and machneres of
the entrustee-manufacturer? Yes
Hed: The Court takes |udca notce of
customary bankng and busness practces
where trust recepts are used for mportaton of
heavy equpment, machneres and suppes
used n manufacturng operatons. A
constructon shoud be avoded when t affords
an opportunty to defeat compance wth the
terms of a statute. The pena provson of PD
115 encompasses any act voatve of an
obgaton covered by the trust recept; t s not
mted to transactons n goods whch are to be
sod, reshpped, stored or processed as a
component of a product utmatey sod. To
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uphod the DO|s rung woud contravene not
ony the etter but the sprt of PD 115.
Bpartte transacton deemed covered by trust
recepts aw
Robles v. CA
Facts: Ng entrusted to Robes offce equpment
whch were a covered by devery trust
recepts. For a these tems, Robes agreed to
se them and remt the proceeds of the saes to
Ng or to return the tems f unsod. When Robes
faed to compy wth hs obgaton, Ng fed a
case for estafa aganst hm. Robes cams that
the trust recepts were merey ntended to
evdence the fact that the artces sted theren
were devered to and receved by hm. He
cams that these transactons were n fact saes
on a tra bass for a perod of 2 days. Thus,
when he faed to return the peces of
equpment wthn the 2 day perod he was
deemed to have purchased the same and hs
abty shoud therefore ony be cv .e. to pay
the purchase prce.
Hed: The provsons of the trust recepts ceary
show that (1) Ng retaned ownershp of the
offce equpment covered by the recepts; (2)
that possesson of the goods were conveyed to
Robes sub|ect to the fducary obgaton ether
to return them wthn a specfed perod of tme
or to pay or account for the prce of proceeds
thereof. Surroundng crcumstances aso
showed that the transactons were not ordnary
saes on tra bass. There were 6 transactons
and each transacton nvoved the devery of
severa equpment ndcatng that Robes was
not an ordnary buyer who woud hmsef use
the artces bought but rather a commsson
merchant.
Voaton of trust recepts aw offense aganst
pubc order, not aganst property
People v. Nitafan
Facts: Aed Bankng Corporaton charged Ang
wth estafa under PD 115. |udge Ntafan
dsmssed the cased on the ground that the
pena cause of PD 115 s noperatve because t
does actuay punsh an offense maa prohbta.
Ntafan aso asserts that PD 115 s
unconsttutona as t voates the consttutona
prohbton aganst mprsonment for non-
payment of a debt.
Issue: WON an entrustee n a trust recept
agreement who fas to dever the proceeds of
the sae or to return the goods f not sod to the
entruster bank s abe for the crme of estafa?
Yes
Hed: The Trusts Recepts Law punshes
dshonesty and abuse of confdence n the
handng of money or goods to the pre|udce of
another regardess of whether the atter s the
owner or not. The aw does not seek to enforce
payment of the oan. Thus, there can be no
voaton of a rght aganst mprsonment for
non-payment of a debt. PD 115 ke BP 22
punshed the act "not as an offense aganst
property, but as an offense aganst pubc
order." It s n the context of uphodng pubc
nterest that the aw now specfcay desgnates
a breach of a trust recept agreement to be an
act that "sha" make one abe for estafa.
Transacton a smpe oan, not a trust recept
transacton
Colinares v. CA
Facts: Conares obtaned materas from CM
Buders to renovate the Carmete Ssters
Convent. The next day, Conares apped for a
etter of credt from PBC n favor of the CM
Buders. PBC approved the etter of credt to
cover the fu nvoce vaue of the goods.
Conares sgned a pro-forma trust recept as
securty. Conares was charged for voaton of
PD 115.
Issue: WON the transacton was an ordnary
oan and not a trust recept agreement under
the Trust Recepts Law?
Hed: The transacton ntended by the partes
was a smpe oan not a trust recept
agreement. Conares receved the merchandse
from CM Buders on October 30. On that day,
ownershp over the merchandse was aready
transferred to Conares who was to use the
materas for hs constructon pro|ect. It was
ony a day ater that Conares went to the bank
to appy for a oan to pay for the merchandse.
Ths stuaton bees what normay obtans n a
pure trust recept transacton where goods are
owned by the bank and ony reeased to the
mporter n trust subsequent to the grant of the
oan. The bank acqures a "securty nterest" n
the goods as hoder of a securty tte for the
advances t had made to the entrustee. The
ownershp of the merchandse contnues to be
vested n the person who had advanced
payment unt he has been pad n fu, or f the
merchandse has aready been sod, the
proceeds of the sae shoud be turned over to
hm by the mporter or by hs representatve or
successor n nterest. To secure that the bank
w be pad t takes fu tte to the goods at the
very begnnng and contnues to hod that tte
as hs ndspensbe securty unt the goods are
sod and the vendee s caed upon to pay for
them. Hence the mporter has never owned the
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goods and s not abe to dever possesson. In a
certan manner, trust recepts partake the
nature of a condtona sae where the mporter
becomes the absoute owner of the
merchandse as soon as he has pad ts prce.
Acqutta n crmna case for estafa under Sec.
13 of PD 115 does not extngush cv abty
arsng from breach of trust recepts contract
Tupaz lV v. CA
Facts: BPI charged Tupaz wth estafa under Sec.
13 PD 115. The tra court rendered |udgment
acquttng Tupaz of estafa on reasonabe doubt.
However, the tra court found Tupaz sodary
abe for the baance of the prncpe debt under
the trust recepts.
Issue: WON Tupazs acqutta of estafa under
Sec. 13 PD 115 extngushed ther cv abty?
Hed: The rue s that where the cv acton s
mpedy nsttuted wth crmna acton, the
cv abty s not extngushed by acqutta:
1. where the acqutta s based on
reasonabe doubt as ony
preponderance of evdence s requred
n cv cases;
2. where the court expressy decares that
the abty of the accused s not
crmna but cv n nature and
3. where the cv abty does not arse
from or s not based upon the crmna
act of whch the accused was acqutted.
Athough the tra court aqutted Tupaz hs
acqutta dd not extngush hs cv abty. Hs
abty arose not from the crmna act of whch
he was acqutted but from the trust recept
contract (ex contractu) whch he sgned n hs
persona capacty.
Entrustee has no authorty to mortgage goods
covered by trust recepts
D8P v. Prudential 8ank
Facts: Ltex opened a etter of credt from
Prudenta Bank to cover the mportaton of
spndes etc. Prudenta Bank reeased the
spndes to Ltex under a trust recept
agreement. Subsequenty, Ltex obtaned a oan
from DBP whch was secured by rea estate and
chatte mortgages over ts pant and
machneres ncudng the goods covered by the
trust recepts. When Ltex faed to pay ts oan,
DBP forecose the mortgages. Prudenta fed a
case for damages aganst DBP.
Issue: WON Ltex as entrustee coud mortgage
the goods covered by the trust recepts?
Hed: The artces were owned by Prudenta
Bank and they were ony hed by Ltex n trust.
Whe t was aowed to se the tems, Ltex had
no authorty to dspose of them or any part
thereof or ther proceeds through condtona
sae, pedge or any other means. Artce 2085
(2) of the Cv Code requres that, n a contract
of pedge or mortgage, t s essenta that the
pedgor or mortgagor shoud be the absoute
owner of the thng pedged or mortgaged.
Artce 2085 (3) further mandates that the
person consttutng the pedge or mortgage
must have the free dsposa of hs property, and
n the absence thereof, that he be egay
authorzed for the purpose. Ltex had nether
absoute ownershp, free dsposa nor the
authorty to freey dspose of the artces. Ltex
coud not have sub|ected them to a chatte
mortgage. Ther ncuson n the mortgage was
vod and had no ega effect. There beng no
vad mortgage, there coud aso be no vad
forecosure or vad aucton sae.
Xlll. MERCHANTS AND
COMMERClAL TRANSACTlONS
CODE OF COMMERCE (1888)
Who are merchants7
ARTlCLE 1. For purposes of ths Code,
merchants are:
1. Those who, havng ega capacty to
engage n commerce, habtuay devote
themseves to t;
2. The commerca or ndustra companes
whch may be created n accordance wth |ths
Code| exstng egsaton.
ARTlCLE 2. Acts of commerce, whether
those who execute them be merchants or not,
and whether specfed n ths Code or not,
shoud be governed by the provsons contaned
n t, n ther absence, by the usages of
commerce generay observed n each pace;
and n the absence of both rues, by those of
the cv aw.
Those acts contaned n ths Code and a
others of anaogous character sha be deemed
acts of commerce.
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ARTlCLE 3. The ega presumpton of
habtuay engagng n commerce sha exst
from the moment the person who ntends to
engage theren announces through crcuars,
newspapers, handbs, posters exhbted to the
pubc, or n any other manner whatsoever, an
estabshment whch has for ts ob|ect some
commerca operaton.
ARTlCLE 4. Persons who possess the foowng
qualifications sha have legal capacity to
habitually engage in commerce:
1. Havng competed the age of twenty-one
years.
2. Not beng sub|ect to the authorty of the
father or of the mother nor to marta authorty.
3. Havng the free dsposton of ther
property.
ARTlCLE 5. Those under twenty-one years of
age and those ncapactated may contnue,
through ther guardans, the busness engaged
n by ther parents or ther predecessors. If the
guardans do not have ega capacty to trade or
are under some dsquafcatons, they sha be
obged to appont one or more factors havng
the ega quafcatons who sha substtute
them n conduct of the busness.
ARTlCLE 6. (Repealed) J
ARTlCLE 7. (Repealed) Z
ARTlCLE 8. The husband may freey revoke the
authorzaton mpedy or expressy granted to
hs wfe to trade, statng the revocaton n a
pubc nstrument whch sha aso be recorded
n the commerca regstry, pubshed n the
offca perodca of the town, f there be one, or
otherwse n that of the town, f there be one, or
otherwse n that of the provnce, and
announced to her correspondents by means of
crcuars. The pubcaton may aso be made, f
the husband so demands, by procamatons and
common crers.
Ths revocaton may, n no case,
pre|udce rghts acqured before ts pubcaton
n the offca perodca.
ARTlCLE 9. (Repealed) 3
ARTlCLE 10. (Repealed) 4
ARTlCLE 11. (Repealed) 5
ARTlCLE 12. (Repealed) 6
Who may NOT engage in commerce7
ARTlCLE 13. The following may not engage
in commerce nor hod offce or have any drect
admnstratve or fnanca nterventon n
commerca or ndustra companes:
1. Those sentenced to the penaty of cv
nterdcton, whe they have not served ther
sentence or have not been amnested or
pardoned.
2. Those decared bankrupt, whe they have
not obtaned ther dscharge |or have not been
authorzed, by vrtue of an agreement accepted
at a genera meetng of credtors and approved
by |udca authorty, to contnue at the head of
the estabshment, the authorty beng
understood n such case as mted to that
expressed n the agreement.|
3. Those who on account of speca aws or
provsons can not trade.
ARTlCLE 14. The foowng cannot engage n
the mercante professon, n person or through
another, nor hod offce or have any drect
admnstratve or fnanca nterventon n
commerca or ndustra assocatons, wthn the
mts of the dstrcts, provnces or towns n
whch they dscharge ther dutes:
1. |ustces, |udges and offcas of the fscas
offce n actve servce.
Ths provson sha not be appcabe to the
muncpa mayors, |udges and prosecutng
attorneys, nor to those who may temporary
dscharge |udca or prosecuton dutes.
2. Admnstratve, economc or mtary
heads of dstrcts, provnces, or posts.
3. Those empoyed n the coecton and
admnstraton of funds of the State, apponted
by the Government.
Those who admnster and coect under
contract and ther representatve are excepted.
4. Stock and commerca brokers of
whatever cass they may be.
5. Those who, under speca aws and
provsons, cannot trade n specfed terrtory.
ARTlCLE 15. Foregners and companes
created abroad may engage n commerce n the
Phppnes, sub|ect to the aws of ther country
wth respect to ther capacty to contract, and to
the provsons of ths Code as regard the
creaton of ther estabshments n Phppne
terrtory, ther mercante operatons, and the
|ursdcton of the courts of the naton.
The provsons of the artce sha be
understood to be wthout pre|udce to what, n
partcuar cases, may be estabshed by treates
or agreements wth other powers.
Tte II - Commerca Regstres
ARTlCLE 16. In a the captas of provnces
sha be opened a mercante regstry composed
of two ndependent books n whch sha be
nscrbed:
1. Indvdua merchants.
2. Assocatons.
In the coasta provnces and n the nteror ones
where t s consdered convenent because of
the presence of navgaton, the regstry sha
ncude a thrd book for the regstraton of
vesses.
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ARTlCLE 17. Regstraton n the mercante
regstry sha be optona for ndvdua
merchants and compusory for assocatons
whch are created n accordance wth ths Code
or wth speca aws, and for vesses.
ARTlCLE 18. The unregstered merchant
cannot request the nscrpton of any document
n the mercante regstry, nor take advantage
of ts ega effects.
ARTlCLE 19. The regster sha keep the books
necessary for regstraton, stamped, fooed and
wth a memorandum on the frst page of the
number of pages whch each book contans,
sgned by the |ustce of the peace.
Where there are severa |ustces of the peace,
any one of them may sgn the memorandum.
ARTlCLE 20. The regstrar sha enter n
chronoogca order n the regstry and genera
ndex a the merchants and companes whch
are regstered, gvng each sheet the correatve
number whch corresponds to t.
ARTlCLE 21. On the record sheet of each
merchant or company sha be entered:
1. The name, frm name, or tte. cd
2. The cass of commerce or transactons n
whch engaged.
3. The date on whch the transactons sha
commence or have commenced.
4. The domce, wth a specfcaton of the
branches whch may have been estabshed,
wthout pre|udce to the regstraton of the
branches n the regstry of the provnce n whch
they may be domced.
5. Instruments for the creaton of
commerca assocatons, whatever ther ob|ect
or denomnaton may be, as we as those for
the modfcaton, rescsson or dssouton of
such assocatons.
6. |Genera powers of attorney, and the
revocaton of the same, shoud there be any,
gven to managers, factors, empoyees and any
other agents.|
7. |The authorzaton of the husband for hs
wfe to engage n commerce and the ega or
|udca authorty of the wfe to admnster her
property on account of the absence or
ncapacty of the husband.|
8. |The revocaton of the permsson gven
to the wfe to trade.|
9. |Dota nstruments|, marrage settement
and the tte whch prove the ownershp of the
parapherna property of the wves of
merchants.
10. The ssue of shares, certfcates, and
bonds of raroads and of a casses of
assocatons, be they assocatons for pubc
works, credt companes, or others, statng the
seres and number of the certfcates of each
ssue, ther partcpaton, nterest, payment and
premum, shoud they have one or the other,
the tota amount of the ssue, and the property,
works, rghts or mortgages, shoud there be
any, by whch ther payment s secured. The
ssues whch may be made by ndvduas sha
aso be recorded n accordance wth the
provsons of the precedng paragraph.
11. |The ssues of bank notes, statng the
date, cass, seres, quantty and vaue of each
ssue.|
12. |The ttes of ndustra property, patents,
and trademarks, n the form and manner
estabshed by aw.|
Foregn assocatons whch desre to estabsh
themseves or create branches n the
Phppnes sha present and record n the
regstry, besdes ther by-aws and the
documents requred of Fpnos, a certfcate
ssued by the Phppne consu that they are
consttuted and authorzed n accordance wth
the aws of ther respectve countres.
ARTlCLE 22. |In the regstry of vesses there
sha be stated:
1. The name of the vesse, knd of
equpment, system or power of the engnes, f t
s a steamer, statng whether they are nomna
or ndcated horsepower; pace of constructon
of the hu and engnes; year thereof, matera
of the hu, statng whether t s of wood, ron,
stee, or mxed; prncpa dmensons of ength,
breadth of beam, and depth of hod; the gross
and net tonnage; dstnctve sgna whch t
bears n the Internatona Code of Sgnas;
fnay, the names and domces of the owners
or part owners of the same.
2. The changes n the ownershp of vesses,
n ther name, or n any of the other condtons
enumerated n the foregong paragraph.
3. The mposton, modfcaton or
canceaton of ens of any cass whatsoever
whch encumber vesses.|
ARTlCLE 23. As a genera rue, the regstraton
sha be made by vrtue of notara copes of the
documents whch the nterested party may
present.
The regstraton of notes, bonds, or order
and bearer nstruments whch do not carry
mortgages of mmovabe property sha be
made upon presentaton of the certfed
mnutes where n appears the resouton of the
person or persons who made the ssue, and the
condtons, requstes and guarantes thereof.
When these guarantes consst of mortgage of
mmovabes, the correspondng nstrument sha
be presented for annotaton n the mercante
regstry.
ARTlCLE 24. Unregstered artces of
assocaton sha produce effect among the
members who execute them, but they sha not
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pre|udce thrd person who, however, may make
use thereof n so far as favorabe.
ARTlCLE 25. A the resoutons or acts whch
effect an ncrease or reducton n the capta of
commerca assocatons, whatever ther
denomnaton may be, and those whch modfy
or ater the condtons of recorded nstruments,
sha aso be recorded n the mercante
regstry. The omsson of ths requste sha
produce the effects mentoned n the precedng
artce.
ARTlCLE 26. Registered documents shall
produce legal effect to the prejudice of third
persons only from the date of their registration,
and cannot be invalidated by prior or
subsequent unregistered documents.
ARTlCLE 27. |Dota| nstruments |and those|
referrng to parapherna property of the
merchants wfe, not regstered n the
mercante regstry, sha have no rght of
preference over other credts.
Immovabe property and rea rghts over
them, acqured by the wfe pror to the creaton
of the concurrent credts, sha be excepted.
ARTlCLE 28. If a merchant shoud fa to make
n the regstry the nscrpton of the |dota or|
parapherna property of hs wfe, the atter
hersef may request t or t may be done for her
by her parents, by others or unces by
consangunty, as we as by those who
dscharge or may have dscharged the dutes of
guardans or curators of the wfe, |or who
consttute or may have consttuted the dowry.|
ARTlCLE 29. |Unregstered powers of attorney
sha gve rse to actons between the prncpa
and the agent, but they cannot be used to the
pre|udce of thrd persons, who, however, may
rey thereon n so far as they may be favorabe.|
ARTlCLE 30. The mercante regstry sha be
pubc. The regstrar sha furnsh those who
may request t any data referrng to what may
appear on the regstraton sheet of each
merchant, assocaton or vesse. Lkewse, he
sha ssue true copes of the whoe or part of
sad sheet to anyone who may ask for t n a
sgned request.
ARTlCLE 31. |The commerca regstrar sha
have under hs charge, where there s an
exchange, copes of the day quotatons of the
propertes negotated and the exchanges fxed
theren.
The copes sha serve as orgna
nstruments n a cases of nvestgaton and
verfcaton of exchanges and quotatons on
determned dates.|
ARTlCLE 32. |The offce of commerca
regstrar sha be fed by the government after
a compettve examnaton.|
TlTLE lll - BOOKS AND BOOKKEEPlNG OF COMMERCE
ARTlCLE 33. Merchants sha necessary keep:
1. A book of nventores and baances.
2. A |ourna.
3. A edger.
4. A book or books for copes of etters and
teegrams.
5. Other books whch may be requred by
speca aws.
Assocatons and companes sha aso
keep a book or books of mnutes, n whch sha
be entered a resoutons referrng to the
progress and operatons of the enttes,
approved at genera meetngs or at those of
managng boards.
ARTlCLE 34. They may aso keep other books
whch they may deem convenent, accordng to
the system of bookkeepng they may adopt.
These books sha not be sub|ect to the
provsons of Artce 36; but they may egaze
those whch they may consder proper.
ARTlCLE 35. Merchants may keep ther books
personay or through persons whom they
authorze for the purpose. If a merchant does
not keep hs books personay, authorzaton
sha be presumed granted to hm who keeps
them uness there s proof to the contrary.
ARTlCLE 36. Merchants sha present the
books referred to n Artce 33, bound, rued,
and fooed, to the |ustce of the peace of the
muncpaty n whch they have ther
commerca estabshments n order that he
may put on the frst page of each one a sgned
memorandum of the number of pages whch the
book contans. The sea of the |ustce of the
peace egazng t sha, furthermore, be
stamped on a the pages of each book.
ARTlCLE 37. The book of inventories and
balance sha begn wth the nventory whch
the merchant must prepare at the tme he
starts hs operatons, and sha contan:
1. An exact statement of the money,
securtes, credts, notes recevabe, movabe
and mmovabe property, merchandse and
goods of a knds, apprased at ther true vaue,
and whch consttute hs assets.
2. An exact statement of the debts and a
knds of pendng obgatons, shoud there be
any, and whch form hs abtes.
3. He sha determne, n proper cases, the
exact dfference between the assets and the
abtes, whch sha be the capta wth whch
he begns hs operatons.
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The merchant sha, furthermore,
prepare annuay and enter n the same book
the genera baance of hs busness, wth the
detas mentoned n ths artce, and n
accordance wth the entres n the |ourna,
wthout any reservatons or omssons, under
hs sgnature and responsbty.
ARTlCLE 38. In the |ourna sha be entered as
the frst tem the resut of the nventory
mentoned n the precedng artce, dvded nto
one or varous consecutve accounts, accordng
to the system of bookkeepng adopted.
Thereafter, a hs operatons sha foow
day by day, each entry statng the credt and
debt of the respectve accounts.
When the operatons are numerous,
whatever ther mportance may be, or when
they have taken pace outsde the domce,
those referrng to each account and whch have
taken pace n each day may be ncuded n a
snge entry, but observng n ther statement, f
temzed, the same order n whch they took
pace.
Lkewse, the amounts whch the
merchant uses for hs househod expenses sha
be entered on the date on whch they are
wthdrawn from the funds, and they sha be
carred nto a speca account to be opened for
that purpose n the edger.
ARTlCLE 39. The accounts referrng to each
ob|ect or person n partcuar sha, furthermore,
be opened wth Debt and Credt n the edger,
and to each of these accounts sha be
transferred, n strct order of dates, the entres
n the |ourna referrng to them.
ARTlCLE 40. In the book of mnutes whch
each assocaton sha carry sha be entered
verbatm the resoutons agreed upon at ts
meetngs or at those of ts managers, statng
the date of each one, those present n them,
the votes cast, and other matters conducve to
an exact knowedge of what as agreed upon,
authentcated wth the sgnatures of the
managers, drectors or admnstrators charged
wth the management of the assocaton or
desgnated by the by-aws or reguatons by
whch t s governed.
ARTlCLE 41. A the etters whch a merchant
may wrte regardng hs busness and the
teegraphc dspatches whch he may send sha
be transferred, ether by hand or by any
mechanca means, to the book for copes., fuy
and successvey by order of dates, ncudng
the subscrbng cause and the sgnatures.
ARTlCLE 42. Merchants sha carefuy keep, n
bundes and n proper order, the etters and
teegraphc dspatches whch they may receve
reatve to ther transactons.
ARTlCLE 43. Besdes compyng wth and
fufng the condtons and formates
prescrbed n ths tte, merchants must keep
ther books wth cearness, n the order of dates,
wthout banks, nterpoatons, erasures or bots,
and wthout showng sgns of havng been
atered by substtutng or tearng out foos, or
n any other manner whatsoever.
ARTlCLE 44. Merchants sha correct the
errors or omssons whch they may make n
enterng n ther books, mmedatey upon
notcng them, expanng ceary n what they
conssted, and wrtng the entry as t shoud
have been wrtten.
If some tme shoud have eapsed snce
the error was commtted or snce the omsson
was ncurred, they sha make the proper entry
of correcton, addng on the margn of the
erroneous entry a memorandum ndcatng the
correcton.
ARTlCLE 45. No |udge or court or authorty
may, on hs own ntatve, make an nqury to
ascertan f merchants keep ther books n
accordance wth the provsons of ths Code, nor
make a genera nvestgaton or examnaton of
the bookkeepng n the offces or countng-
houses of merchants.
ARTlCLE 46. |Nether may the communcaton,
devery or genera examnaton of the books,
correspondence and other documents of
merchants, be decreed at the nstance of a
party, except n the cases of qudaton,
unversa successon or bankruptcy.|
ARTlCLE 47. |Outsde of the cases mentoned
n the precedng artce, the exhbton of the
books and documents of merchants may be
decreed at the nstance of a party or at the
ntatve of the court, ony when the person to
whom they beong has an nterest or
responsbty n the case n whch the exhbton
s made.
The examnaton sha be made n the
countng-house of the merchant, n hs presence
or n that of the person whom he commssons,
and sha be mted to the ponts reated to the
queston at ssue; these beng the ony ones
that may be verfed.|
ARTlCLE 48. In order to measure the
probatve force of the books of merchants, the
foowng rues sha be observed:
1. The books of merchants sha be evdence
aganst themseves, no proof to the contrary
beng admssbe; but the adverse party cannot
accept the entres whch may be favorabe to
hm and re|ect those whch may pre|udce hm,
but havng accepted ths means of proof, he
sha be bound by the resut whch t may show
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n ts entrety, takng nto equa consderaton a
the entres reatve to the queston n tgaton.
2. If there shoud be a confct n the entres
of the books kept by two merchant, and those
of one shoud have been kept wth a the
formates mentoned n ths tte, and those of
the other shoud suffer from any defect or
shoud ack the requstes prescrbed by ths
Code, the entres of the books propery kept
sha be admtted aganst those of the defectve
one. uness the contrary s shown by means of
other evdence admssbe n aw.
3. If one of the merchants shoud not present
hs books or shoud manfest that he does not
have them, those of hs adversary, kept wth a
the ega formates, sha be admtted aganst
hm, uness t s shown that the absence of such
books s due to force ma|eure, and aways
savng proof by other means admssbe n suts
aganst the entres exhbted.
4. If the books of the merchants shoud have
a the ega requstes and shoud be
contradctory, the court sha decde by the
other proofs, weghng them accordng to the
genera rues of aw.
ARTlCLE 49. Merchants and ther hers or
successors shall keep the books, telegrams,
and correspondence of their business in
general, during a the tme that ths may ast
and for five years after the qudaton of a
ther busness and commerca affars.
Documents whch specay concern
specfc acts or transactons may be rendered
useess or destroyed upon the aps of the
prescrptve perod of the actons whch may
arse therefrom, uness some questons
referrng drecty or ndrecty to them shoud be
pendng, n whch case, they must be kept unt
the concuson thereof.
TlTLE lV - GENERAL PROVlSlONS RELATlNG TO
COMMERClAL CONTRACTS
ARTlCLE 50. Commerca contracts, n
everythng reatve to ther requstes,
modfcatons, exceptons, nterpretatons and
extncton and to the capacty of the contractng
partes, sha be governed n a matters not
expressy provded for n ths Code or n speca
aws, by the genera rues of the cv aw.
|Teegraphc correspondence sha ony be the
bass of an obgaton between contractng
partes who have prevousy admtted ths
medum n a wrtten contract, and provded the
teegrams fuf the conventona condtons or
conventona sgns whch may have been
prevousy fxed and agreed to by the
contractng partes.|
ARTlCLE 51. Commerca contracts sha be
vad and sha gve rse to obgatons and
causes of acton n suts, whatever the form and
anguage n whch they may be executed, the
cass to whch they may beong, and the
amount they may nvove, provded ther
exstence s shown by any means estabshed
by the cv aw. However, the testmony of
wtness aone sha not be suffcent to prove
the exstence of a contract whch nvoves an
amount exceedng 1,500 pesetas uness
supported by some other evdence.
ARTlCLE 52. From the provsons of the
precedng artce sha be excepted:
1. Contracts whch, n accordance wth ths
Code or wth speca aws, must be reduced to
wrtng or requre forms or formates necessary
for ther effcacy.
2. Contracts executed n a foregn country n
whch the aw requres certan nstruments,
forms or formates for ther vadty, athough
Phppne aw does not requre them.
In ether case, contracts whch do not satsfy
the crcumstances respectvey requred sha
not gve rse to obgatons or causes of acton.
ARTlCLE 53. Ict agreements do not gve rse
to obgatons or causes of acton even shoud
they refer to commerca transacton.
ARTlCLE 54. Contracts entered nto by
correspondence sha be perfected from the
moment an answer s made acceptng the offer
or the condtons by whch the atter may be
modfed.
ARTlCLE 55. Contracts n whch an agent or
broker ntervenes sha be perfected when the
contractng partes sha have accepted hs
offer.
ARTlCLE 56. In a commerca contract n
whch a penaty for ndemnfcaton aganst the
party fang to compy therewth s fxed, the
n|ured party may demand through ega means
the fufment of the contract or the penaty
stpuated; but the recourse to one of these
actons sha extngush the other uness the
contrary s stpuated.
ARTlCLE 57. Commerca contracts sha be
executed and comped wth n good fath,
accordng to the terms n whch they were
made and drawn up, wthout evadng through
arbtrary nterpretatons the pan, proper and
usua meanng of the spoken or wrtten words,
or mtng the effects whch are naturay
derved from the manner n whch the
contractng partes may have expressed ther
w and contracted ther obgatons.
ARTlCLE 58. If a dscrepancy shoud appear
between the copes of a contract whch the
contractng partes present, and, n ts
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executon, an agent or broker shoud have
ntervened, that whch appears n the books of
the atter sha preva provded they are kept n
accordance wth aw.
ARTlCLE 59. If doubts whch cannot be
decded n accordance wth what s provded n
Artce 2 of ths Code shoud arse, the queston
sha be decded n favor of the debtor.
ARTlCLE 60. In a computatons of days,
months and years, t sha be understood that a
day has twenty four hours, the months as
desgnated n the Gregoran caendar, and the
year has three hundred sxty-fve days.
Bs of exchange, promssory notes, and oans,
wth respect to whch that specay provded for
them by ths Code sha govern, are excepted.
ARTlCLE 61. Days of grace, courtesy or others
whch under any name whatsoever defer the
fufment of commerca obgatons, sha not
be recognzed, except those whch the partes
may have prevousy fxed n the contract or
whch are based on a defnte provson of aw.
ARTlCLE 62. Obgatons whch do not have a
perod prevousy fxed by the partes or
by the provsons of ths Code, sha be
demandabe ten days after havng been
contracted f they gve rse ony to an ordnary
acton, and on the next day f they nvove
mmedate executon.
ARTlCLE 63. The effect of default n the
performance of commerca obgatons sha
commence:
1. In contracts wth a day for performance
fxed by the w of the partes or by the aw, on
the day foowng ther maturty.
2. In those whch do not have such day fxed,
from the day on whch the credtor makes a
|udca demand on the debtor or notfes hm of
the protest for oss and damages made aganst
hm before a |udge, notary or other pubc
offca authorzed to admt the same.
TlTLE ll - ]OlNT ACCOUNTS
ARTlCLE 239. Merchants may nterest
themseves n the transacton of other
merchants, contrbutng thereto the amount of
capta they may agree upon, and partcpatng
n the favorabe or unfavorabe resuts thereof
n the proporton they may
determne.
ARTlCLE 240. Wth regard to ther formaton,
|ont accounts sha not be sub|ected to any
formaty, and may be prvatey contracted
oray or n wrtng, and ther exstence may be
proved by any of the means accepted by aw, n
accordance wth the provsons of Artce 51.
ARTlCLE 241. In the transactons treated of n
the foregong artces, no commerca name
common to a the partcpants can be adopted,
nor can any further drect credt be made use of
except that of the merchant who transacts and
manages the busness n hs own name and
under hs ndvdua abty.
ARTlCLE 242. Persons transactng busness
wth the merchant carryng on the |ont
busness sha ony have a rght of acton
aganst the atter and not aganst the other
persons nterested, and the atter, on the other
hand, sha have no rght of acton aganst the
thrd person who made the transacton wth the
manager uness sad manager formay cedes
hs rghts to them.
ARTlCLE 243. The qudaton sha be effected
by the manager, and after the transactons
have been concuded, he sha render a proper
account of ts resuts.
Commerce (defnton) - It s the exchange of
goods, productons, or property of any knd. It s
ntercourse by way of trade and traffc between
dfferent peopes or states and the ctzens or
nhabtants thereof, ncudng not ony the
purchase, sae, exchange of commodtes, but
aso the nstrumentates and agences by
whch t s promoted and the means and
appances by whch t s carred on, and
transportaton of persons as we as goods.
Law merchant - s an od transaton of the
Latn ex mercatora: an od nternatona aw of
merchants and marners growng out of ther
customary practces. It was a aw practced and
enforced by busnessmen and shpowners n
ther own courts, wthout professona |udges or
awyers.
Who are merchants under the Commercial
Code7 (Art. 1)
1. those who havng capacty engage n
commerce, habtuay devote themseves
thereto; and
!" commerca or ndustra assocatons
organzed n accordance wth the Code
NOTE: The ega presumpton of habtuay
engagng n commerce sha exst from the tme
the person who ntends to engage theren gves
announcement by means of crcuars,
newspapers, handbs, posters, etc. for the
purpose of conductng any commerca
transacton.
What are commercial transactions7
Commercial transactions refer to those acts
covered by the Code of Commerce and a
others of anaogous character. They are
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governed by the provsons of the Code of
Commerce; n defaut of such provsons, by the
commerca usages observed n each pace; and
n the absence of both, by the rues of cv aw.
Who cannot engage in commerce7
The foowng cannot engage n commerce:
#" persons sentenced to cv nterdcton;
!" persons decared bankrupt
$" persons who, on account of aws or
speca provsons, may not engage n
commerce.
For some of the rues to be observed n respect
of commerca contracts, see Artces 50-57
above (mportant parts are aready underned).
]oint Accounts } cuentas en participacion -
s an arrangement among merchants who
nterest themseves n the transactons of other
merchants, contrbutng thereto the part of the
capta they may agree upon, and who
partcpate n the favorabe or unfavorabe
resuts thereof n the proporton they may
determne (Art. 239). (see Artces 240-243
above for rues governng |ont accounts)
]oint Accounts vs. Partnerships
]oint Accounts Partnership
1. has no separate
|urdca personaty;
can sue and be sued
ony n the name of
the ostensbe partner
1. has |urdca
personaty and may
sue and be sued under
the partnershp name
2. prohbted from
havng a commerca
name (thus, busness
s conducted n the
name of the ostensbe
partner)
2. has a frm name
3. busness s
managed by the
ostensbe partner
3. genera partners
have the rght of
management
4. qudaton sha be
made by the
ostensbe partner
4. qudaton may, by
agreement, be
entrusted to a partner
or partners
Case:
Bourns vs. Carman G.R. L-2800
Facts:
The pantff n ths acton seeks to
recover the sum of $437.50, baance due on a
contract for the sawng of umber for the umber
yard of Lo-Chm-Lm. Lo-Chm-Lm and hs
codefendants aeged that at the tme the
contract was made, they were the |ont
propretors and operators of the sad umber
yard engaged n the purchase and sae of
umber under the name and stye of Lo-Chm-
Lm. Apparenty the pantff tres to show that
the other defendants were the partners of Lo-
Chm-Lm n the sad umber yard busness.
Hed:
As far as the evdence shows t seems
that the busness was conducted by Lo-Chm-
Lm n hs own name, athough he gave to the
appeants a share of the earnngs of the
busness; but what that share was has not been
shown wth certanty. The contracts made wth
the pantff were made by Lo-Chm-Lm
ndvduay n hs own name, and there s no
evdence that the partnershp ever contracted
n any other form. Under such crcumstances we
fnd nothng upon whch to consder ths
partnershp other than as a partnershp of
cuentas en participacion. It may be that, as a
matter of fact, t s somethng dfferent, but the
uncertan and scant evdence ntroduced by the
partes does not permt of any other desgnaton
of ths partnershp. We see nothng, accordng
to the evdence, but a smpe busness
conducted by Lo-Chm-Lm excusvey, n hs
own name, the names of other persons
nterested n the profts and osses of the
busness nowhere appearng.
A partnershp consttuted n such a
manner, the exstence of whch was ony known
to those who had an nterest n the same, there
beng no mutua agreements between the
partners, and wthout a corporate name
ndcatng to the pubc n some way that there
were other peope besdes the one who
ostensby managed and conducted the
busness, s exacty the accdenta partnershp
of cuentas en participacion defned n artce
239 of the Code of Commerce.
Those who contract wth the person
under whose name the busness of such
partnershp of cuentas en participacion s
conducted, sha have ony a rght of acton
aganst such person and not aganst the other
persons nterested, and the atter, on the other
hand, sha have no rght of acton aganst the
thrd person who contracted wth the manager
uness such manager formay transfers hs rght
to them. (Art 242 of the code Of Commerce.) It
foows, therefore that the pantff has no rght
to demand from the appeants the payment of
the amount camed n the compant, as Lo-
Chm-Lm was the ony one who contracted wth
hm. the acton of the pantff acks, therefore, a
ega foundaton and shoud be accordngy
dsmssed.
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XlV. THE lNSOLVENCY LAW
ACT 1956 (1909), AS AMENDED BY ACT
3544 (1929), ACT 3616 (1929), AND
ACT 3692 (1932)
14.1 Purpose
The purpose of the aw s to provde for
an ordery mechansm by whch the assets of
the nsovent debtor coud be converted nto
money for dstrbuton among hs credtors and
thereby reeve the debtor from the weght of
hs debts and permt hm to start anew free
from such debts.
14.2 Sources
(Spanish Code of Commerce as to
suspension of payments)
Mitsui Bussan Kaisha vs. Hongkong &
Shanghai Banking Corp. G.R. 11079
Hed:
(Actuay, ths s ony narrates the hstory of
Phppne Insovency Law)
In 1908 two bs (Assemby B No. 126
and Commsson B No. 87) were ntroduced n
the Phppne Legsature and both were
re|ected. The commttee of the Commsson, n
reportng upon the Assemby b, stated n ts
report of |une 12, 1908, that "The aw seeks to
bend the Amercan aws of nsovency and
bankruptcy wth the Spansh aw of bankruptcy.
Such a pocy s sure to resut n compcatons
and to brng about a system so cumbersome
and unwedy as to make t mpractcabe and
uneconomca."
Later a |ont conference commttee was
apponted from the two houses and t prepared
a b whch was desgnated Assemby B No.
576. Ths b was passed wthout any matera
changes and became Act No. 1956. By
comparng the Commsson B No. 87 wth Act
No. 1956, t w be seen that every SEC of the
former s emboded n the atter. The ony
apparent excepton s SEC 41 of the
Commsson B, but the substanta provsons
of that SEC appear n subSEC 9 of SEC 48 of the
Act. Furthermore, there s tte n the Act from
SEC 14 whch s not n the Commsson B.
SubSEC 3 of SEC 71 of the Act contans pena
provsons whch reate to the suspenson of
payments and whch are not n the Commsson
B. SEC 48 of the Act has no counterpart n the
Commsson B. Agan, a comparson of
Commsson B No. 87 wth the Insovency Act
of Caforna, enacted n 1895, SEC by SEC and
cause by cause, shows that the former s, n a
great many respects, a copy of the atter. The
Commsson B omts one of the acts of
bankruptcy named n SEC 9 of the Caforna
Act. Aso SEC 15 and 26, subSEC 5 of SEC 25,
and subSEC 3 of SEC 1, and severa mnor
portons of the other SECs of the Caforna Act
are omtted. These reate to procedure n the
man and are substantay governed by other
provsons n the Commsson B. The
concudng SECs of the Commsson B and of
the Caforna Act are dfferent. The most
mportant dfference s the ncuson n the
Commsson B of SEC 34, whch s whoy
ackng n the Caforna Act. Ths SEC deas wth
preferred cams and has ts counterpart n SEC
48b of the Unted States Bankruptcy Act of
1898. Another addton s chapter 7 of the
Commsson B entted "Compostons." Ths
chapter corresponds cosey to SEC 12 and 13 of
the Unted States Bankruptcy Act of 1898. The
resut s that the ony provsons n Act No.
1956, whch tend to show that the Legsature
dd not ntend to adopt n ths |ursdcton the
Amercan theory of bankruptcy, are found n
SEC 48. Ths SEC, by ts nne subdvsons,
specfes what property n the hands of the
nsovent may not be taken by the assgnee.
These provsons are found nether n the Unted
States Bankruptcy Act of 1898 nor n the
Caforna Act of 1895. They are found, however,
n Assemby B No. 126 and were nserted for
the purpose of avodng a confct between Act
No. 1956 and certan we defned provsons of
the Cv Code.
Act No. 1956 deas wth three prncpa
sub|ects, namey, suspenson of payments,
vountary nsovency, and nvountary
nsovency. That part of the Act referrng to the
frst appears to have been taken from the
Spanish Code of Commerce , as amended by
the aw of |une 10, 1897. Formery there were n
Engand and Amerca marked dstnctons
between bankruptcy aws and nsovency aws.
The two prncpa dstnctons, whch have been
gven by varous authors, between these aws
are: Frst, bankruptcy aws apped ony to
traders and merchants, whe nsovency aws
apped to a casses of persons; second, the
former dscharged absoutey the debts of the
honest debtor, whe the atter dscharged ony
the person of the debtor from arrest and
mprsonment, but eft the property
subsequenty acqured by the debtor abe to
the demands of hs credtors. More recenty n
some |ursdctons no attempt has been made to
dstngush between them. A bankruptcy aw
may contan those reguatons whch are
generay found n nsovency aws, and an
nsovency aw may dea wth those whch are
common n bankruptcy aws. Whether these
distinctions were recognized and
maintained in the Spanish system is of no
importance. lt is sufficient to say that the
Act, in so far as it relates to voluntary and
involuntary insolvency, is essentially a
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bankruptcy law because it discharges the
honest debtor.
lnsolvency Act of California of 1895, as to
voluntary and involuntary insolvency
Sun Life Assurance vs. lngersoll G.R.
16475
Held:
(agan, hstorca background ang to ng
Insovency Law) Now, t s a we-known fact n
our egsatve hstory that the Insovency Law
(Act No. 1956) s n great part a copy of the
Insovency Act of Caforna, enacted n 1895,
though t contans a few provsons from the
Amercan Bankruptcy Law of 1898 (see
observaton of |ustce Trent n Mtsu Bussan
Kasha vs. Hongkong and Shangha Bankng
Corporaton, 36 Ph., 27, 37). Agan, upon
comparng the Caforna Insovency Law of
1895 wth the Amercan Bankruptcy Act of
1867, t w be found that the former contans
much n common wth the atter; and among
the provsons common to the Bankruptcy Act of
1867, the Caforna Insovency Law of 1895,
and the Insovency Law n force n these Isands
(Act No. 1956), s precsey the provson whch
appears as SEC 32 of our Act, defnng the
property whch passes as assets to the assgnee
n nsovency. (Bankruptcy Act of 1867, sec. 14;
Caforna Insovency Law of 1895, sec. 21;
Phppne Insovency Law, sec. 32.)
Under each of sad aws the assgnee
acqures a the rea and persona property,
estate, and effects of the debtor, not exempt by
aw from executon, wth a deeds, books and
papers reatng thereto; and whe ths anguage
s broad, t nevertheess acks the
comprehensveness of SEC 70 (a) of the
Amercan Bankruptcy Law of 1898 n the east
two partcuars; for under subSEC 3 of SEC 70
(a) of the ast mentoned aw, the trustee n
bankruptcy acqures the rght to exercse any
powers whch the nsovent mght have
exercsed for hs own beneft, and under subSEC
5 the trustee acqures any property of the
nsovent whch the atter coud by any means
have assgned to another. The Insovency Law
here n force, n common wth the predecessor
aws above-mentoned, contans nothng smar
to these provsons.
14.3 Applicability to banks, quasi banks,
and insurance companies
The Insovency aw s NOT appcabe to banks,
quas-banks, and nsurance companes.
SUSPENSlON OF PAYMENTS
Nature
Who could file petition
SEC 2. The debtor who, possessng suffcent
property to cover a hs debts, be t an
ndvdua person, be t a socedad or
corporaton, foresees the mpossbty of
meetng them when they respectvey fa due,
may petton that he be decared n the state of
suspenson of payments by the court, or the
|udge thereof n vacaton, of the provnce or of
the cty n whch he has resded for sx months
next precedng the fng of hs petton.
He sha necessary annex to hs petton a
schedue and nventory n the form provded n
SECs ffteen, sxteen, and seventeen of ths Act,
n addton to the statement of hs assets and
abtes and the proposed agreement he
requests of hs credtors.
Differentiate from insolvency proceeding
Suspension of payments vs. lnsolvency
proceeding
Suspension of
Payments
lnsolvency
Proceeding
1. ob|ect of suspenson
of payments s the
deferment of the
payment of debts unt
such tme as the
debtor, who possesses
suffcent property to
cover a hs debts, s
abe to convert such
assets nto cash or
otherwse acqures the
cash necessary to pay
hs debts
1. ob|ect s to compe
presentment of a
debts, due or not due,
and secure a compete
dscharge from such
debts
2. amount of debts s
not affected athough
ther payment s
postponed
2. the credtors
receve ess than what
they are entted to; n
some cases, where
preferences are
proper, some credtors
may not receve any
amount at a
Effect of filing of petition
On execution pending against
debtor
On execution against property
specially mortgaged
On action to collect sum of money
still to be filed against debtor
On other actions
SEC 6. If any executon be pendng aganst the
debtor t sha not be consodated wth ths
proceedng, but the course thereof sha be
suspended before sae of property s made
thereunder, provded the debtor makes a
request therefor to the court before whch the
proceedng for suspenson of payments s
pendng, unless the executon be aganst
property especay mortgaged whch s hereby
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exempted from the provsons of ths SEC. The
suspenson ordered by vrtue of ths SEC sha
apse when three months sha have passed
wthout the proposed agreement beng
accepted by the credtors or as
soon as t s dened. No credtor other than
those mentoned n SEC nne sha sue or
nsttute proceedngs to coect hs cam from
the debtor from the moment that suspenson of
payments s apped for and whe the
proceedngs are pendng.
Procedure
(a)fng of petton by the debtor
(b)ssuance by the court of an order cang
for a meetng of the credtors
(c) pubcaton of the order and servce
thereof on the credtors
(d)meetng of credtors for approva or
dsapprova of the debtors proposton
(e)ob|ecton, f any and f |ustfed, to the
decson of the meetng of credtors
lssuance, publication and delivery of order
calling creditors to meeting (Secs. 3 and
5)
SEC 3. Upon recevng and fng the petton
wth the schedue and documents mentoned n
the next precedng SEC, the court, or the |udge
thereof n vacaton, sha make an order cang
a meetng of credtors to take pace n not ess
than two weeks nor more than eght weeks
from the date of such order. Sad order sha
desgnate the day, hour, and pace of meetng
of sad credtors as we as a newspaper of
genera crcuaton pubshed n the provnce or
cty n whch the petton s fed, f there be one,
and f there be none, n a newspaper whch, n
the |udgment of the |udge, w best gve notce
to the credtors of the sad debtor, and n the
newspaper so desgnated sad order sha be
pubshed as often as may be prescrbed by the
court or the |udge thereof.
Sad order sha further contan an
absoute n|uncton forbddng the pettonng
debtor from dsposng n any manner of hs
property, except n so far as concerns the
ordnary operatons of commerce or of ndustry
n whch the pettoner s engaged, and,
furthermore, from makng any payments
outsde of the necessary or egtmate expenses
of hs busness or ndustry, so ong as the
proceedngs reatve to the suspenson of
payments are pendng, and sad proceedngs for
the purposes of ths Act sha be consdered to
have been nsttuted from the date of the fng
of the petton.
SEC 5. Ony credtors ncuded n the schedue
fed by the debtor sha be cted to appear and
take part n the meetng mentoned n SEC
three, and they sha be notfed upon devery
or transmsson to them of a copy of the order
cang the meetng to appear at same wth the
wrtten evdences of ther respectve cams,
wthout whch they sha not be admtted.
Required quorum for holding of meeting
Required vote for approval of debtor's
proposal
SEC 8. The presence of the credtors
representng at least three-fifths of the
liabilities sha be necessary for hodng a
meetng. The meetng sha be hed on the day
and at the hour and pace desgnated, the
|udge, or commssoner deputzed by hm when
he s absent from the provnce where the
meetng s hed, actng as presdent and the
cerk as secretary thereof, sub|ect to the
foowng rues:
(a) The cerk sha prepare for nserton n
the mnutes of the meetng a statement of the
persons present and ther cams; the |udge, or,
n defaut thereof, the commssoner, sha
examne the wrtten evdences of the cams
and the powers of attorney, f any. If the
persons present who have comped wth the
foregong rues represent at east three-ffths of
the abtes, the |udge or commssoner sha
decare the meetng open for busness.
(b) The petton of the debtor, the
schedue of debts and of property, the
statement of assets and abtes, and the
proposed agreement fed therewth sha be
read forthwth by the cerk, and the dscusson
sha be opened.
(c) The debtor may modfy hs proposton
or propostons n vew of the resut of the
debate, or nsst upon the ones aready made,
and the |udge or commssoner, wthout further
dscusson, sha ceary and succncty pace
these severa propostons before the meetng
for a vote thereupon.
(d) The vote sha be taken by a ca of
names and sha be nserted n and the mnutes;
a ma|orty vote sha rue.
(e) To form a majority it is necessary
-
1. That two-thrds of the credtors
votng unte upon the same proposton.
2. That the cams represented by
sad ma|orty vote amount to at east three-
ffths of the tota abtes of the debtor
mentoned n the petton.
(f) After the resut of the votng has been
announced, a protests made aganst the
ma|orty vote sha be admtted and stated n
the record, and the meetng sha be cosed.
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(g) The mnutes of the meetng,
contanng a succnct statement of a
proceedngs had theren, sha be drawn up, and
there sha be nserted theren the proposton
or propostons voted upon, whch, after havng
been read and approved, sha be sgned by the
|udge or commssoner together wth a persons
takng part n the votng; f any such persons
sha be unabe to wrte, any person present
sha sgn, at ther request, and the cerk sha
certfy to a of the above.
Persons not bound by agreement on
debtor's proposal
SEC 9. Persons havng cams for persona
abor, mantenance, expenses of ast ness and
funera of the wfe or chdren of the debtor,
ncurred n the sxty days mmedatey
precedng the fng of the petton, and persons
havng ega or contractua mortgages, may
refran from attendng the meetng and from
votng theren. Such persons sha not be bound
by any agreement determned upon at such
meetng, but f they shoud |on n the votng
they sha be bound n the same manner as are
the other credtors.
Termination of proceedings
SEC 11. If the decson of the meetng be
negatve as regards the proposed agreement or
f no decson s had n defaut of such number
or of such ma|ortes, the proceedng sha be
termnated wthout recourse and the partes
concerned sha be at berty to enforce the
rghts whch may correspond to them. If the
decson s favorabe to the debtor t may be
ob|ected to wthn ten days foowng the date of
the meetng by any credtor who attended the
meetng and who dssented from and protested
aganst the vote of the ma|orty. The opposton
or ob|ecton to the decson of the ma|orty
favorabe to the debtor sha be proceeded wth
as n any other ncdenta moton, the debtor
and the credtors who sha appear decarng
ther purpose to sustan the decson of the
meetng beng the defendants. The court sha
hear and pass upon such ob|ecton as soon as
possbe and n a summary manner, and n ts
order, whch sha be fna, t sha decare
whether or not the decson of the meetng s
vad. In case that the decson of the meetng s
hed to be nu, the court sha decare the
proceedng termnated and the partes
concerned at berty to exercse the rghts whch
may correspond to them; and n case the
decson of the meetng s decared vad, or
when no opposton or ob|ecton to sad decson
has been presented, the court sha order that
the agreement be carred out and the persons
concerned sha be bound by the decson of the
meetng. The court may aso ssue a orders
whch may be proper to enforce the agreement
on moton of any of the partes tgant. The
order drectng the agreement to be made
effectve sha be bndng upon a credtors
ncuded n the schedue of the debtor who may
have been propery summoned, but not upon
credtors mentoned n SEC nne who faed to
attend the meetng or refraned from votng
theren, and ther rghts sha not be affected by
the agreement uness they may have expressy
or mpedy consented thereto.
Consequences of debtor's failure to
perform agreement
SEC 13. If the debtor fas whoy or n part to
perform the agreement decded upon at the
meetng of the credtors, a the rghts whch the
credtors had aganst the debtor before the
agreement sha revest n them. In such case
the debtor may be made sub|ect to the
bankruptcy and nsovency proceedngs n the
manner estabshed by the foowng chapters of
ths Act.
VOLUNTARY lNSOLVENCY
14.5 Nature
Who could file petition
Schedule of debts and liabilities
lnventory of property
Differentiate from involuntary
insolvency
Voluntary vs. lnvoluntary lnsolvency
In vountary nsovency, a debtor s
deemed nsovent upon hs fng of a petton
for vountary nsovency; whe n nvountary
nsovency, the debtor s consdered nsovent
upon the ssuance by the court of an order
decarng hm nsovent.
Procedure
a. fng of petton by the debtor
b. ssuance by the court of an
order decarng, among other
thngs, that the pettoner s
nsovent
c. pubcaton of order and
servce thereof on the
credtors
d. meetng of credtors for
eecton of assgnee n
nsovency
e. conveyance of debtors
property to assgnee n
nsovency
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f. qudaton of assets and
payment of debts
g. dscharge of the debtor
h. ob|ectons to dscharge, f any
. appea to the Supreme Court
n certan cases.
Filing of petition an act of insolvency
SEC 14. An nsovent debtor, owng debts
exceedng n amount the sum of one thousand
pesos, may appy to be dscharged from hs
debts and abtes by petton to the Court of
Frst Instance of the provnce or cty n whch he
has resded for sx months next precedng the
fng of such petton. In hs petton he sha set
forth hs pace of resdence, the perod of hs
resdence theren mmedatey pror to fng
sad petton, hs nabty to pay a hs debts n
fu, hs wngness to surrender a hs property,
estate, and effects not exempt from executon
for the beneft of hs credtors, and an
appcaton to be ad|udged an nsovent. He
sha annex to hs petton a schedue and
nventory n the form herenafter provded. The
filing of such petition shall be an act of
insolvency.
SEC 15. Sad schedule must contan a fu and
true statement of a hs debts and abtes,
together wth a st of a those to whom, to the
best of hs knowedge and beef, sad debts or
abtes are due, the pace of resdence of hs
credtors and the sum due each, the nature of
the ndebtedness or abty and whether
founded on wrtten securty, obgaton, contract
or otherwse, the true cause and consderaton
thereof, the tme and pace when and where
such ndebtedness or abty accrued, a
decaraton of any exstng pedge, en,
mortgage, |udgment, or other securty for the
payment of the debt or abty, and an outne
of the facts gvng rse or whch mght gve rse
to a cause of acton aganst such nsovent
debtor.
SEC 16. Sad inventory must contan, besdes
the credtors, an accurate descrpton of a the
rea and persona property, estate, and effects
of the pettoner, ncudng hs homestead, f
any, together wth a statement of the vaue of
each tem of sad property, estate, and effects
and ts ocaton, and a statement of the
ncumbrances thereon. A property exempt by
aw from executon sha be set out n sad
nventory wth a statement of ts vauaton,
ocaton, and the ncumbrances thereon, f any.
The nventory sha contan an outne of the
facts gvng rse, or whch mght gve rse, to a
rght of acton n favor of the nsovent debtor.
SEC 17. The petton, schedue, and nventory
must be verfed by the affdavt of the
pettoner, annexed thereto, and sha be n
form substantay as foows: "I, _______________,
do soemny swear that the schedue and
nventory now devered by me contan a fu,
correct, and true dscovery of a my debts and
abtes and of a goods, effects, estate, and
property of whatever knd or cass to me n any
way beongng. The nventory aso contans a
fu, true and correct statement of a debts
owng or due to me, or to any person or persons
n trust for me and of a securtes and
contracts whereby any money may hereafter
become due or payabe to me or by or through
whch any beneft or advantage whatever may
accrue to me or to my use, or to any other
person or persons n trust for me. The schedue
contans a cear outne of the facts gvng rse,
or whch mght gve rse, to a cause of acton
aganst me, and the nventory contans an
outne of the facts gvng rse, or whch mght
gve rse, to any cause of acton n my favor. I
have no ands, money, stock, or estate,
reverson, or expectancy, or property of any
knd, except that set forth n sad nventory. I
have n no nstance created or acknowedged a
debt for a greater sum than I honesty and truy
owe. I have not, drecty or ndrecty,
conceaed, frauduenty sod, or otherwse
frauduenty dsposed of, any part of my rea or
persona property, estate, effects, or rghts of
acton, and I have not n any way compounded
wth any of my credtors n order to secure such
credtors, or to receve or to accept any proft or
advantage therefrom, or to defraud or deceve
n any manner any credtor to whom I am
ndebted. So hep me God."
SEC 18. Upon recevng and fng sad petton,
schedue, and nventory, the court, or the |udge
thereof n vacaton, sha make an order
decarng the pettoner nsovent, and drectng
the sherff of the provnce or cty n whch the
petton s fed to take possesson of, and safey
keep, unt the appontment of a recever or
assgnee, a the deeds, vouchers, books of
account, papers, notes, bonds, bs, and
securtes of the debtor, and a hs rea and
persona property, estate, and effects, except
such as may be by aw exempt from executon.
Sad order sha further forbd the payment to
the debtor of any debts due to hm and the
devery to the debtor, or to any person for hm,
of any property beongng to hm, and the
transfer of any property by hm, and sha
further appont a tme and pace for a meetng
of the credtors to choose an assgnee of the
estate. Sad order sha desgnate a newspaper
of genera crcuaton pubshed n the provnce
or cty n whch the petton s fed, f there be
one, and f there be none, n a newspaper
whch, n the opnon of the |udge, w best gve
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notce to the credtors of the sad nsovent, and
n the newspaper so desgnated sad order sha
be pubshed as often as may be prescrbed by
the court or the |udge thereof. The tme
apponted for the eecton of an assgnee sha
not be ess than two, nor more than eght,
weeks from the date of the order of
ad|udcaton. Upon the grantng of sad order a
cv proceedngs pendng aganst the sad
nsovent sha be stayed. When a recever s
apponted, or an assgnee chosen, as provded
n ths Act, the sherff sha thereupon dever to
such recever or assgnee, as the case may be,
a the property, assets, and beongngs of the
nsovent whch have come nto hs possesson,
and he sha be aowed and pad as
compensaton for hs servces the same
expenses and fees as woud by aw be
coectbe f the property had been eved upon
and safey kept under attachment.
SEC 19. A copy of sad order sha mmedatey
be pubshed by the cerk of sad court, n the
newspaper desgnated theren, for the number
of tmes and as prescrbed by the court or the
|udge thereof, and a copy of sad order sha be
devered personay or sent by the cerk
forthwth by regstered ma, postage prepad,
to a credtors named n the schedue. There
sha be deposted, n addton to twenty-four
pesos, whch sha be receved by the cerk on
commencng such proceedngs, a sum of money
suffcent to defray the expense of the
pubcaton ordered by the court, necessary
postage, and ten centavos for each copy, to be
devered personay or maed to the credtors,
whch ast-named sum s hereby consttuted the
ega fee of the cerk for the persona devery or
mang requred by ths SEC.
lNVOLUNTARY lNSOLVENCY
Nature
Who could file petition
Must be accompanied by bond
Acts of insolvency
SEC 20. An ad|udcaton of nsovency may be
made on the petition of three or more
creditors, resdents of the Phppne Isands,
whose credts or demands accrued n the
Phppne Isands, and the amount of whch
credts or demands are n the aggregate not
ess than one thousand pesos: Provded, That
none of sad credtors has become a credtor by
assgnment, however made, wthn thrty days
pror to the fng of sad petton. Such petton
must be fed n the Court of Frst Instance of
the provnce or cty n whch the debtor resdes
or has hs prncpa pace of busness, and must
be verfed by at east three of the pettoners.
The foowng sha be consdered acts of
insolvency, and the petton for nsovency
sha set forth one or more of such acts: (1)
That such person s about to depart or has
departed from the Phppne Isands, wth ntent
to defraud hs credtors; (2) that beng absent
from the Phppne Isands, wth ntent to
defraud hs credtors, he remans absent; (3)
that he conceas hmsef to avod the servce of
ega process for the purpose of hnderng or
deayng or defraudng hs credtors; (4) that he
conceas, or s removng, any of hs property to
avod ts beng attached or taken on ega
process; (5) that he has suffered hs property to
reman under attachment or ega process for
three days for the purpose of hnderng or
deayng or defraudng hs credtors; (6) that he
has confessed or offered to aow |udgment n
favor of any credtor or camant for the purpose
of hnderng or deayng or defraudng any
credtor or camant; (7) that he has wfuy
suffered |udgment to be taken aganst hm by
defaut for the purpose of hnderng or deayng
or defraudng hs credtors; (8) that he has
suffered or procured hs property to be taken on
ega process wth ntent to gve a preference to
one or more of hs credtors and thereby hnder,
deay, or defraud any one of hs credtors; (9)
that he has made any assgnment, gft, sae,
conveyance, or transfer of hs estate, property,
rghts, or credts wth ntent to deay, defraud,
or hnder hs credtors; (10) that he has, n
contempaton of nsovency, made any
payment, gft, grant, sae conveyance, or
transfer of hs estate, property, rghts, or
credts; (11) that beng a merchant or
tradesman he has generay defauted n the
payment of hs current obgatons for a perod
of thrty days; (12) that for a perod of thrty
days he has faed, after demand, to pay any
moneys deposted wth hm or receved by hm
n a fducary capacty; and (13) that an
executon havng been ssued aganst hm on
fna |udgment for money, he sha have been
found to be wthout suffcent property sub|ect
to executon to satsfy the |udgment. The
pettoners may, from tme to tme, by eave of
the court, amend and correct the petton, so
that the same sha conform to the facts, such
amendment or amendments to reate back to
and be receved as embraced n the orgna
petton. The sad petton sha be accompaned
by a bond, approved by the court, wth at east
two suretes, n such pena sum as the court
sha drect, condtoned that f the petton n
nsovency be dsmssed by the court, or
wthdrawn by the pettoner, or f the debtor
sha not be decared an nsovent, the
pettoners w pay to the debtor aeged n the
petton to be nsovent a costs, expenses, and
damages occasoned by the proceedngs n
nsovency, together wth a reasonabe counse
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fee to be fxed by the court. The court may,
upon moton, drect the fng of an addtona
bond, wth dfferent suretes, when deemed
necessary
Determination of solvency or insolvency of
debtor
SEC 23. At the tme fxed for the hearng of
sad order to show cause, or at another tme to
whch such hearng may be ad|ourned, the
debtor must answer the petton, or may demur
for the same causes as are provded for
demurrer n other cases by the Code of Cv
Procedure. If he demur and the demurrer be
overrued, the debtor sha mmedatey answer
the petton. Such answer sha contan a
specfc dena of the matera aegatons of the
petton controverted by hm, and sha be
sworn to; and the ssues rased thereon sha be
prompty tred and dsposed of. If, upon such
tra, the ssues are found n favor of the
respondent, the proceedngs sha be dsmssed,
and the respondent sha be aowed a costs,
counse fees, expenses, and damages sustaned
by reason of the proceedngs theren. Counse
fees, costs, expenses, and damages sha be
fxed and aowed by the court.
PROVlSlONS COMMON TO VOLUNTARY
AND lNVOLUNTARY lNSOLVENClES
14.7 Procedure if debtor defaults or is
found insolvent
Debtor to file schedule of debts and
liabilities and inventory of property
SEC 24. If the respondent sha make defaut,
or f, after tra, the ssues are found n favor of
the pettoners, the court sha make an order
ad|udgng that sad respondent s and was, at
the tme of fng the petton, an nsovent
debtor and that the debtor was guty of the
acts and thngs charged n the petton, or such
of them as the court may fnd to be true; and
sha requre sad debtor, wthn such tme as
the court may desgnate, not to exceed three
days, to fe n court the schedue and nventory
provded for n SECs ffteen and sxteen of ths
Act, duy verfed as requred of a pettonng
debtor: Provded, That n the affdavt of the
nsovent, touchng hs property and ts
dsposton, he sha not be requred to swear
that he has not made any frauduent preference
or commtted any other act n confct wth the
provsons of ths Act; but he may do so f he
desres. Sad order sha further drect the
sherff of the provnce or cty where the
nsovency petton s fed, or the recever, f
one has been theretofore apponted, to take
possesson of and safey keep, unt the
appontment of an assgnee, a the deeds,
vouchers, books of account, papers, notes, bs,
bonds and securtes of the debtor, and a hs
rea and persona property, estate and effects,
except such as may be by aw exempt from
executon. Sad order sha further forbd the
payment to the debtor of any debts due to hm,
and the devery to the debtor, or to any person
for hm, of any property beongng to hm, and
the transfer of any property by hm, and sha
further appont a tme and pace for a meetng
of the credtors to choose an assgnee of the
estate. Sad order sha desgnate a newspaper
of genera crcuaton pubshed n the provnce
or cty n whch the petton s fed, f there be
one, and f there be none, n a newspaper
whch, n the opnon of the |udge, w best gve
notce to the credtors of the sad nsovent, and
n the newspaper so desgnated sad order sha
be pubshed as often as may be prescrbed by
the court or the |udge thereof. The tme
apponted for the eecton of an assgnee sha
not be ess than two nor more than eght weeks
from the date of the order of ad|udcaton. Upon
the grantng of sad order, a cv proceedngs
pendng aganst the sad nsovent sha be
stayed. When an assgnee s chosen as
provded n ths Act, the sherff or recever, f
there be one, sha thereupon dever to such
assgnee a the property, estate, and
beongngs of the nsovent, whch have come
nto hs possesson, and he sha be aowed and
pad as compensaton for hs servces the same
expenses and fees as woud by aw be
coectbe f the property had been eved upon
and safey kept under attachment.
Sheriff to take possession of insolvent's
property
SEC 26. In a cases where the debtor resdes
out of the Phppne Isands; or has departed
from the Phppne Isands; or can not, after due
dgence, be found wthn the Phppne Isands;
or conceas hmsef to avod servce of the order
to show cause, or any other premnary process
or orders n the matter; or s a foregn
corporaton havng no managng or busness
agent, casher, or secretary wthn the Phppne
Isands upon whom servce or orders and
process can be made, and t therefore becomes
necessary to obtan servce of process and
order to show cause, as provded n SEC twenty-
two of ths Act, then the pettonng credtors,
upon submttng the affdavts requste to
procure an order of pubcaton, and presentng
a bond n doube the amount of the aggregate
sum of ther cams aganst the debtor, sha be
entted to an order of the court drectng the
sherff of the provnce or cty n whch the
matter s pendng to take nto hs custody a
suffcent amount of property of the debtor to
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satsfy the demands of the pettonng credtors
and the costs of the proceedngs. Upon
recevng such order of the court to take nto
custody property of the debtor, t sha be the
duty of the sherff to take possesson of the
property and effects of the debtor, not exempt
from executon, to an extent suffcent to cover
the amount provded for, and to prepare, wthn
three days from the tme of takng such
possesson, a compete nventory of a the
property so taken, and to return t to the court
as soon as competed. The tme for takng the
nventory and makng return thereof may be
extended for good cause shown to the court or
a |udge thereof. The sherff sha aso prepare a
schedue of the names and resdences of the
credtors, and the amount due each, from the
books of the debtor, or from such other papers
or data of the debtor avaabe as may come to
hs possesson, and sha fe such schedue st
of credtors and nventory wth the cerk of the
court
Meeting of creditors for election of
assignee in insolvency
Filing of claims by creditors prior to
election
SEC 29. No credtor sha be entted to vote for
the eecton of an assgnee uness he sha have
fed hs cam n the offce of the cerk of the
court n whch the proceedngs are pendng at
east two days pror to the tme apponted for
such eecton. A cams sha contan a
statement showng the amount and nature of
the cam and securty, f any. The cam sha be
verfed by the camant, or hs duy authorzed
agent or attorney. No cam barred by the
statute of mtatons sha be proved or aowed
aganst the estate of an nsovent debtor for any
purpose. Any person nterested n the estate of
the nsovent may fe exceptons to the egaty
or good fath of any cam, by settng forth
specfcay n wrtng hs nterest n the estate,
and the grounds of hs ob|ecton to such cam.
Such exceptons sha be verfed by the
affdavt of the party ob|ectng, or hs duy
authorzed agent or attorney, and the affdavt
sha set out that such exceptons are not made
for the purpose of deay and are made n good
fath n the best nterests of sad estate.
Exceptons to any cam must be fed wth the
cerk of the court at east one day before the
tme apponted for the eecton of an assgnee,
and such exceptons sha be heard and
dsposed of by the court, on affdavt or other
evdence, n a summary manner, before the
eecton of an assgnee. No credtor or camant
who hods any mortgage, pedge, or en of any
knd whatever as securty for the payment of hs
cam or attachment or executon on property of
the debtor duy recorded and not dssoved
under ths Act sha be permtted to vote at the
eecton of the assgnee any part of hs secured
cam unless he sha frst have the vaue of
such securty fxed as provded n SEC ffty-nne
of ths Act, or sha surrender to the sherff or
recever of the estate of the nsovent, f there
be a recever, a such property, or assgn such
en to such sherff or recever. The surrender or
assgnment of such securty or en sha be for
the beneft of a credtors of the estate of the
nsovent. The vaue of such securty, f fxed by
the court, sha be so fxed at east one day
before the day apponted for the eecton of an
assgnee, n whch event the camant may
prove hs demand as provded n ths SEC for
any unsecured baance, sub|ect to the fng of
exceptons as n a other cams.
Conveyance of insolvent's property to
assignee
SEC 32. As soon as an assgnee s eected or
apponted and quafed, the cerk of the court
sha, by an nstrument under hs hand and sea
of the court, assgn and convey to the assgnee
a the rea and persona property, estate, and
effects of the debtor wth a hs deeds, books,
and papers reatng thereto, and such
assignment shall relate back to the
commencement of the proceedings in
insolvency, and sha reate back to the acts
upon whch the ad|udcaton was founded, and
by operaton of aw sha vest the tte to a
such property, estate, and effects n the
assgnee, athough the same s then attached
on mesne process, as the property of the
debtor. Such assgnment sha operate to vest
n the assgnee a of the estate of the nsovent
debtor not exempt by aw from executon. It
sha aso dssove any attachment eved wthn
one month next precedng the commencement
of the nsovency proceedngs and vacate and
set asde any |udgment entered n any acton
commenced wthn thrty days mmedatey
pror to the commencement of nsovency
proceedngs and sha vacate and set asde any
executon ssued thereon and sha vacate and
set asde any |udgment entered by defaut or
consent of the debtor wthn thrty days
mmedatey pror to the commencement of the
nsovency proceedngs.
Assignee's right to recover insolvent's
property to assignee, etc.
SEC 33. The assgnee sha have the rght to
recover a the estate debts, and effects of sad
nsovent. If, at the tme of the commencement
of proceedngs n nsovency, an acton s
pendng n the name of the debtor, for the
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recovery of a debt or other thng whch mght or
ought to pass to the assgnee by the
assgnment, the assgnee sha be aowed and
admtted to prosecute the acton, n ke manner
and wth ke effect as f t had been orgnay
commenced by hm. If there are any rghts of
acton n favor of the nsovent for damages, on
any account, for whch an acton s not pendng,
the assgnee sha have the rght to prosecute
the same wth the same effect as the nsovent
mght have done hmsef f no proceedngs n
nsovency had been nsttuted. If any acton or
proceedng n whch the nsovent s defendant
s pendng at the tme of the ad|udcaton, the
assgnee may defend the same n the same
manner and wth ke effect as t mght have
been defended by the nsovent. In a sut
prosecuted or defended by the assgnee, a
certfed copy of the assgnment made to hm
sha be concusve evdence of hs authorty to
sue or defend.
Powers of assignee
SEC 36. The sad assgnee sha have power:
1. To sue and recover a the estate,
assets, debts, and cams, beongng to or due
to such debtor; and no set-off or countercam
sha be aowed n any such for debts
contracted by the nsovent wthn thrty days
mmedatey precedng the fng of the petton
of nsovency except n case of credtors
specfed n SEC ffty of ths Act.
2. To take nto hs possesson a the
estate of such debtor except property exempt
by aw from executon, whether attached or
devered to hm, or afterwards dscovered, and
a books, vouchers, evdence of ndebtedness,
and securtes beongng to the same.
3. In case of a non-resdent or abscondng
or conceaed debtor, to demand and receve of
every sherff who sha have attached any of the
property of such debtor, or who sha have n hs
possesson any moneys arsng from the sae of
such property, a such property and moneys,
on payng hm hs awfu costs and charges for
attachng and keepng the same.
4. From tme to tme to se at pubc
aucton after advertsement n the manner
provded by subSECs (1), (2), and (3) of SEC
four hundred and ffty-four of the Code of Cv
Procedure, upon order of the court, any of the
estate, rea and persona, whch has come nto
hs possesson, and whch s vested n hm as
such assgnee, and on such saes to execute the
necessary conveyances and bs of sae.
5. To redeem a vad mortgages and
condtona contracts, and a vad pedges of
persona property, and to satsfy any |udgments
whch may be an ncumbrance on any property
sod by hm; or to se such property, sub|ect to
such mortgage, contracts, pedges, |udgments,
or ens.
6. To sette a matters and accounts
between such debtor and hs credtors, sub|ect
to the approva of the court.
7. Under the order of the court or |udge
appontng hm, to compound wth any person
ndebted to such debtor, and thereupon
dscharge a demands aganst such person.
8. To recover from any person recevng a
conveyance, gft, transfer, payment, or
assgnment, made contrary to any provson of
ths Act, the property thereby transferred or
assgned; or n case a re-devery of the
property can not be had, to recover the vaue
thereof, wth damages for the detenton.
Conversion of insolvent's property into
money
SEC 39. The assgnee sha as speedy as
possbe convert the estate, rea and persona,
nto money. He sha keep a reguar account of
a moneys receved by hm as assgnee, to
whch every credtor or other person nterested
theren may, at a reasonabe tmes, have
access. No prvate sae of any property of the
estate of any nsovent debtor sha be vad
uness made under the order of the court, upon
a petton n wrtng, whch sha set forth the
facts showng the sae to be necessary. Upon
fng the petton, notce of the hearng thereof
of at east ten days sha be gven by pubcaton
and mang, n the same manner as s provded
n SEC nneteen of ths Act. If t appears that a
prvate sae s for the best nterests of the
estate, the court sha order t to be made.
Proof of debts (SECs 53-62)
SEC 53. A debts due and payabe from the
debtor at the tme of the ad|udcaton of
nsovency, and a debts then exstng but not
payabe unt a future tme, a dscount beng
made f no nterest s payabe by the terms of
the contract, may be proved aganst the estate
of the debtor.
SEC 54. If the debtor s bound as ndorser,
surety, ba, or guarantor, upon any b, bond,
note, or other specaty or contract, or for any
debt of any person, and hs abty sha not
have become absoute unt after the
ad|udcaton of nsovency, the credtor may
prove the same after such abty sha have
become fxed, and before the fna dvdend
sha have been decared.
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SEC 55. In a cases of contngent debts and
contngent abtes, contracted by the debtor,
and not heren otherwse provded for, the
credtor may make cam therefor and have hs
cam aowed, wth the rght to share n the
dvdends, f the contngency sha happen
before the order of the fna dvdend; or he
may, at any tme, appy to the court to have the
present vaue of the debt or abty ascertaned
and qudated, whch sha be done n such
manner as the court sha order, and t sha be
aowed for the amount so ascertaned.
SEC 56. Any person abe as ba, surety, or
guarantor, or otherwse, for the debtor, who
sha have pad the debt, or any part thereof, n
dscharge of the whoe, sha be entted to
prove such debt, or to stand n the pace of the
credtor, f he sha have proved the same,
athough such payments sha have been made
after the proceedngs n nsovency were
commenced; and any person so abe for the
debtor, and who has not pad the whoe of sad
debt, but s st abe for the same, or any part
thereof, may, f the credtor sha fa or omt to
prove such debt, prove the same n the name of
the credtor.
SEC 57. Where the debtor s abe to pay rent,
or other debt fang due at fxed and stated
perods, the credtor may prove for a
proportonate part thereof up to the tme of the
nsovency, as f the same became due from
day to day, and not at such fxed and stated
perods.
SEC 58. In a cases of mutua debts and
mutua credts between the partes, the account
between them sha be stated, and one debt set
off aganst the other, and the baance ony sha
be aowed and pad. But no set-off or
countercam sha be aowed of a cam n ts
nature not provabe aganst the estate:
Provded, That no set-off or countercam sha
be aowed n favor of any debtor to the
nsovent of a cam purchased by or transferred
to such debtor wthn thrty days mmedatey
precedng the fng, or after the fng of the
petton by or aganst the nsovent.
SEC 59. When a credtor has a mortgage, or
pedge of rea or persona property of the
debtor, or a en thereon, for securng the
payment of a debt owng to hm from the
debtor, or an attachment or executon on
property of the debtor duy recorded and not
dssoved under ths Act, he sha be admtted
as a credtor for the baance of the debt ony,
after deductng the vaue of such property, such
vaue to be ascertaned by agreement between
hm and the recever, f any, and f no recever,
then upon such sum as the court or a |udge
thereof may decde to be far and reasonabe,
before the eecton of an assgnee, or by a sae
thereof, to be made n such manner as the
court or |udge thereof sha drect; or the
credtor may reease or convey hs cam to the
recever, f any, or f no recever then to the
sherff, before the eecton of an assgnee, or to
the assgnee f an assgnee has been eected,
upon such property, and be admtted to prove
hs whoe debt. If the vaue of the property
exceeds the sum for whch t s so hed as
securty, the assgnee may reease to the
credtor the debtors rght of redempton
thereon on recevng such excess; or he may
se the property, sub|ect to the cam of the
credtor thereon, and n ether case the
assgnee and credtor, respectvey, sha
execute a deeds and wrtngs necessary or
proper to consummate the transacton. If the
property s not sod or reeased, and devered
up, or ts vaue fxed, the credtor sha not be
aowed to prove any part of hs debt, but the
assgnee sha dever to the credtor a such
property upon whch the credtor hods a
mortgage, pedge, or en, or upon whch he has
an attachment or executon.
SEC 60. No credtor, provng hs debt or cam,
sha be aowed to mantan any sut therefor
aganst the debtor, but sha be deemed to have
waved a rght of acton and sut aganst hm,
and a proceedngs aready commenced, or any
unsatsfed |udgment aready obtaned thereon,
sha be deemed to be dscharged and
surrendered thereby; and after the debtors
dscharge, upon proper appcaton and proof to
the court havng |ursdcton, a such
proceedngs sha be dsmssed, and such
unsatsfed |udgments satsfed of record:
Provded, That no vad en exstng n good
fath thereunder sha be thereby affected. A
credtor provng hs debt or cam sha not be
hed to have waved hs rght of acton or sut
aganst the debtor when a dscharge has have
been refused or the proceedngs have been
determned wthout a dscharge. No credtor
whose debt s provabe under ths Act sha be
aowed, after the commencement of
proceedngs n nsovency, to prosecute to fna
|udgment any acton therefor aganst the debtor
unt the queston of the debtors dscharge
sha have been determned, and any such sut
or proceedng sha, upon the appcaton of the
debtor or of any credtor, or the assgnee, be
stayed to awat the determnaton of the court
on the queston of dscharge: Provded, That f
the amount due the credtor s n dspute, the
sut, by eave of the court n nsovency, may
proceed to |udgment for the purpose of
ascertanng the amount due, whch amount,
when ad|udged, may be aowed n the
nsovency proceedngs, but executon sha be
stayed as aforesad.
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SEC 61. Any person who sha have accepted
any preference, havng reasonabe cause to
beeve that the same was made or gven by the
debtor contrary to any provson of ths Act,
sha not be aowed to prove the debt or cam
on account of whch the preference was made
or gven, nor sha he receve any dvdend
thereon, unt he sha have surrendered to the
assgnee a property, money, beneft, or
advantage receved by hm under such
preference.
SEC 62. The court may, upon the appcaton of
the assgnee, or of any credtor, or wthout any
appcaton, before or after ad|udcaton n
nsovency, examne upon oath the debtor n
reaton to hs property and hs estate and may
examne any other person tenderng or makng
proof of cams, and may subpoena wtnesses to
gve evdence reatng to such matters. A
examnatons of wtnesses sha be had and
depostons sha be taken n accordance wth
and n the same manner as s provded by the
Code of Cv Procedure.
Discharge (SECs 64-69)
When debtor may apply for discharge
SEC 64. At any tme after the expraton of
three months from the ad|udcaton of
nsovency, but not ater than one year from
such ad|udcaton, uness the property of the
nsovent has not been converted nto money,
the debtor may appy to the court for a
discharge from hs debts, and the court sha
thereupon order notce to be gven to a
credtors who have proved ther debts to appear
on a day apponted for that purpose and show
cause why a dscharge shoud not be granted to
the debtor; sad notce sha be gven by
regstered ma and by pubcaton at east once
a week, for sx weeks, n a newspaper pubshed
n the provnce or cty, or, f there be none, n a
newspaper whch, n the opnon of the |udge,
w best gve notce to the credtors of the sad
nsovent: Provded, That f no debts have been
proven, such notce sha not be requred.
When discharge may not be granted
SEC 65. No dscharge sha be granted, or f
granted sha be vad, (1) f the debtor sha
have sworn fasey n hs affdavt annexed to
hs petton, schedue, or nventory, or upon any
examnaton n the course of the proceedngs n
nsovency, n reaton to any matera fact
concernng hs estate or hs debts or to any
other matera fact; or (2) f he has conceaed
any part of hs estate or effects, or any books or
wrtng reatng thereto; or (3) f he has been
guty of fraud or wfu negect n the care or
custody of hs property or n the devery to the
assgnee of the property beongng to hm at
the tme of the presentaton of hs petton and
nventory, exceptng such property as he s
permtted to retan under the provsons of ths
Act; or (4) f, wthn one month before the
commencement of such proceedngs, he has
procured hs rea estate, goods, moneys, or
chattes to be attached or sezed on executon;
or (5) f he has destroyed, mutated, atered, or
fasfed any of hs books, documents, papers,
wrtngs, or securtes, or has made, or been
prvy to the makng of, any fase or frauduent
entry n any book of account or other document
wth ntent to defraud hs credtors; or (6) f he
has gven any frauduent preference, contrary
to the provsons of ths Act, or has made any
frauduent payment, gft, transfer, conveyance,
or assgnment of any part of hs property, or
has admtted a fase or fcttous debt aganst
hs estate; or (7) f, havng knowedge that any
person has proven such fase or fcttous debt,
he has not dscosed the same to hs assgnee
wthn one month after such knowedge; or (8)
f, beng a merchant or tradesman, he has not
kept proper books of account n Arabc
numeras and n accordance wth the provsons
of the Code of Commerce; or (9) f he, or any
other person on hs account, or n hs behaf,
has nfuenced the acton of any credtor, at any
stage of the proceedngs, by any pecunary
consderaton or obgaton; or (10) f he has, n
contempaton of becomng nsovent, made any
pedge, payment, transfer, assgnment, or
conveyance of any part of hs property, drecty
or ndrecty, absoutey or condtonay, for the
purpose of preferrng any credtor or person
havng a cam aganst hm, or who s, or may
be, under abty for hm, or for the purpose of
preventng the property from comng nto the
hands of the assgnee, or of beng dstrbuted
under ths Act n satsfacton of hs debts; or
(11) f he has been convcted of any
msdemeanor under ths Act, or has been guty
of fraud contrary to the true ntent of ths Act;
or (12) n case of vountary nsovency, has
receved the beneft of ths or any other Act of
nsovency or bankruptcy wthn sx years next
precedng hs appcaton for dscharge; or (13)
f nsovency proceedngs n whch he coud
have apped for a dscharge are pendng by or
aganst hm n the Court of Frst Instance of any
other provnce or cty n the Phppne Isands.
Before any dscharge s granted, the debtor
sha take and subscrbe an oath to the effect
that he has not done, suffered, or been prvy to
any act, matter, or thng specfed n ths Act as
grounds for wthhodng such dscharge or as
nvadatng such dscharge, f granted.
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SEC 66. Any credtor opposng the dscharge of
a debtor sha fe hs ob|ectons thereto,
specfyng the grounds of hs opposton, and
after the debtor has fed and served hs answer
thereto, whch peadngs sha be verfed, the
court sha try the ssue or ssues rased,
accordng to the practce provded by aw n
cv actons.
SEC 67. If t sha appear to the court that the
debtor has n a thngs conformed to hs duty
under ths Act, and that he s entted under the
provsons thereof to receve a dscharge, the
court sha grant hm a dscharge from a hs
debts, except as herenafter provded, and sha
gve hm a certfcate thereof, under the sea of
the court, n substance as foows: "In the Court
of Frst Instance of the _____________, Phppne
Isands. Whereas, ______________, has been duy
ad|udged an nsovent under the Insovency Law
of the Phppne Isands, and appears to have
conformed to a the requrements of aw n that
behaf, t s therefore ordered by the court that
sad _______________ be forever dscharged from
a debts and cams, whch by sad Insovency
Law are made provabe aganst hs estate, and
whch exsted on the _______ day of _________,
on whch the petton of ad|udcaton was fed
by (or aganst) hm, exceptng such debts, f
any, as are by sad Insovency Law excepted
from the operaton of a dscharge n nsovency.
Gven under my hand, and the sea of the court,
ths ____ day of ______________, Anno Domn
______________ Attest: ____________, cerk. (Sea)
_____________, |udge."
Debts not discharged
SEC 68. No tax or assessment due to the
Insuar Government or any provnca or
muncpa government, whether proved or not
as provded for n ths Act, sha be dscharged.
Nor sha any debt created by the fraud or
embezzement of the debtor, or by hs
defacaton as a pubc offcer or whe actng n
a fducary capacty, be dscharged under ths
Act, but the debt may be proved, and the
dvdend thereon sha be a payment on account
of sad debt. No dscharge granted under ths
Act sha reease, dscharge or affect any person
abe for the same debt, for or wth the debtor,
ether as partner, |ont contractor, ndorser,
surety, or otherwse.
SEC 69. A dscharge, duy granted under ths
Act, sha, wth the exceptons aforesad, reease
the debtor from a cams, debts, abtes, and
demands set forth n hs schedue, or whch
were or mght have been proved aganst hs
estate n nsovency, and may be peaded by a
smpe averment that on the day of ts date
such dscharge was granted to hm, settng
forth the same n fu, and the same sha be a
compete bar to a suts brought on any such
debts, cams, abtes, or demands, and the
certfcate sha be prma face evdence n favor
of such fact and of the reguarty of such
dscharge: Provded, however, That any credtor
whose debt was proved or provabe aganst the
estate n nsovency who sha see ft to contest
the vadty of such dscharge on the ground
that t was frauduenty obtaned and who has
dscovered the facts consttutng the fraud
subsequent to the dscharge, may, at any tme
wthn one year after the date thereof, appy to
the court whch granted t to set t asde and
annu the same.
Commissions due assignee
SEC 42. Assgnees sha be aowed a
necessary expenses n the care, management,
and settement of the estate, and sha be
entted to charge and receve for ther servces
commssons upon a sums of money comng to
ther hands and accounted for by them, as
foows: For the frst thousand pesos, at the rate
of seven per centum; for a above that sum and
not exceedng ten thousand pesos, at the rate
of fve per centum; and for a above that sum,
at the rate of four per centum: Provded,
however, That f the person actng as assgnee
was recever of the property of the estate
pendng the eecton of an assgnee, any
compensaton aowed hm as such recever
sha be deducted from the compensaton to
whch he otherwse woud be entted as such
assgnee: And provded further, That f there
shoud be two or more assgnees the court sha
order an equtabe dvson of the compensaton
heren provded, and f for any reason an
assgnees term s competed before the fna
settement of the estate and a successor s
apponted the court sha not aow to any such
assgnee pror to the settement of the estate
an amount exceedng four per centum of the
sums of money comng nto hs hands. Upon the
fna settement of the estate an equtabe
dstrbuton of the compensaton of the assgnee
sha be made.
Composition
SEC 63. An nsovent may offer terms of
composition to hs credtors after , but not
before, he has fed n court a schedue of hs
property and st of hs credtors as provded n
ths Act. An appcaton for the confrmaton of a
composton may be fed n the nsovency
court after, but not before, t has been accepted
n wrtng by a ma|orty n number of a
credtors whose cams have been aowed,
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whch number must represent a ma|orty n
amount of such cams and after the
consderaton to be pad by the nsovent to hs
credtors and the money necessary to pay a
debts whch have prorty and the costs of
proceedngs have been deposted n such pace
as sha be desgnated by and sub|ect to the
order of the court. A tme sha be fxed by the
court for the hearng upon an appcaton for the
confrmaton of a composton, and for the
hearng of such ob|ectons as may be made to
ts confrmaton. The court sha confrm a
composton f satsfed that (1) t s for the best
nterest of the credtors; (2) that the nsovent
has not been guty of any of the acts, or of a
faure to perform any of the dutes, whch
woud create a bar to hs dscharge; and (3) that
the offer and ts acceptance are n good fath,
and have not been made or procured except as
heren provded, or by any means, promses, or
acts heren forbdden. Upon the confrmaton of
a composton the consderaton sha be
dstrbuted as the |udge sha drect, and the
case dsmssed, and the tte to the nsovents
property sha revest n hm. Whenever a
composton s not confrmed, the estate n
nsovency sha be admnstered as heren
provded. The court may, upon appcaton of a
party n nterest, fed at any tme wthn sx
months after the composton has been
confrmed, set the same asde, and renstate
the case f t sha be made to appear upon a
tra that fraud was practced n the procurng of
such composton, and that the knowedge
thereof has come to the pettoner snce the
confrmaton of such composton.
Fraudulent preferences and transfers
SEC 70. If any debtor, beng nsovent, or n
contempaton of nsovency, wthn thrty days
before the fng of a petton by or aganst hm,
wth a vew to gvng a preference to any
credtor or person havng a cam aganst hm or
who s under any abty for hm, procures any
part of hs property to be attached,
sequestered, or sezed on executon, or makes
any payment, pedge, mortgage, assgnment,
transfer, sae, or conveyance of any part of hs
property, ether drecty or ndrecty, absoutey
or condtonay, to any one, the person
recevng such payment, pedge, mortgage,
assgnment, transfer, sae, or conveyance, or to
be benefted thereby, or by such attachment or
sezure, havng reasonabe cause to beeve that
such debtor s nsovent, and that such
attachment, sequestraton, sezure, payment,
pedge, mortgage, conveyance, transfer, sae,
or assgnment s made wth a vew to prevent
hs property from comng to hs assgnee n
nsovency, or to prevent the same from beng
dstrbuted rataby among hs credtors, or to
defeat the ob|ect of, or n any way hnder,
mpede, or deay the operaton of or to evade
any of the provsons of ths Act, such
attachment, sequestraton, sezure, payment,
pedge, mortgage, transfer, sae, assgnment, or
conveyance s vod, and the assgnee, or the
recever, may recover the property, or the vaue
thereof, as assets of such nsovent debtor. If
such payment, pedge, mortgage, conveyance,
sae, assgnment, or transfer s not made n the
usua and ordnary course of busness of the
debtor, or f such sezure s made under a
|udgment whch the debtor has confessed or
offered to aow, that fact sha be prma face
evdence of fraud. Any payment, pedge,
mortgage, conveyance, sae, assgnment, or
transfer of property of whatever character
made by the nsovent wthn one month before
the fng of a petton n nsovency by or
aganst hm, except for a vauabe pecunary
consderaton made n good fath, sha be vod.
A assgnments, transfers, conveyances,
mortgages, or ncumbrances of rea estate sha
be deemed, under ths SEC, to have been made
at the tme the nstrument conveyng or
affectng such reaty was fed for record n the
offce of the regster of deeds of the provnce or
cty where the same s stuated.
Dividends in insolvency
SEC 45. Whenever any dvdend has been duy
decared, the dstrbuton of t sha not be
stayed or affected by reason of debts beng
subsequenty proved, but any credtor provng
such a debt sha be entted to a dvdend equa
to those aready receved by the other credtors
before any further dvdend s made to the
atter, f the faure to prove such cam sha not
have resuted from hs own negect.
Articles 2236-2251 of Civil Code

Art. 2236. The debtor s abe wth a hs
property, present and future, for the fufment
of hs obgatons, sub|ect to the exemptons
provded by aw. (1911a)
Art. 2237. Insovency sha be governed by
speca aws nsofar as they are not nconsstent
wth ths Code. (n)
Art. 2238. So ong as the con|uga partnershp
or absoute communty subssts, ts property
sha not be among the assets to be taken
possesson of by the assgnee for the payment
of the nsovent debtor's obgatons, except
nsofar as the atter have redounded to the
beneft of the famy. If t s the husband who s
nsovent, the admnstraton of the con|uga
partnershp of absoute communty may, by
order of the court, be transferred to the wfe or
to a thrd person other than the assgnee. (n)
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Art. 2239. If there s property, other than that
mentoned n the precedng artce, owned by
two or more persons, one of whom s the
nsovent debtor, hs undvded share or nterest
theren sha be among the assets to be taken
possesson of by the assgnee for the payment
of the nsovent debtor's obgatons. (n)
Art. 2240. Property hed by the nsovent debtor
as a trustee of an express or mped trust, sha
be excuded from the nsovency proceedngs.
(n)

CHAPTER 2
CLASSIFICATION OF CREDITS

Art. 2241. Wth reference to specfc movabe
property of the debtor, the foowng cams or
ens sha be preferred:
(1) Dutes, taxes and fees due thereon to the
State or any subdvson thereof;
(2) Cams arsng from msappropraton,
breach of trust, or mafeasance by pubc
offcas commtted n the performance of ther
dutes, on the movabes, money or securtes
obtaned by them;
(3) Cams for the unpad prce of movabes
sod, on sad movabes, so ong as they are n
the possesson of the debtor, up to the vaue of
the same; and f the movabe has been resod
by the debtor and the prce s st unpad, the
en may be enforced on the prce; ths rght s
not ost by the mmobzaton of the thng by
destnaton, provded t has not ost ts form,
substance and dentty; nether s the rght ost
by the sae of the thng together wth other
property for a ump sum, when the prce thereof
can be determned proportonay;
(4) Credts guaranteed wth a pedge so ong as
the thngs pedged are n the hands of the
credtor, or those guaranteed by a chatte
mortgage, upon the thngs pedged or
mortgaged, up to the vaue thereof;
(5) Credts for the makng, repar, safekeepng
or preservaton of persona property, on the
movabe thus made, repared, kept or
possessed;
(6) Cams for aborers' wages, on the goods
manufactured or the work done;
(7) For expenses of savage, upon the goods
savaged;
(8) Credts between the andord and the
tenant, arsng from the contract of tenancy on
shares, on the share of each n the fruts or
harvest;
(9) Credts for transportaton, upon the goods
carred, for the prce of the contract and
ncdenta expenses, unt ther devery and for
thrty days thereafter;
(10) Credts for odgng and suppes usuay
furnshed to traveers by hote keepers, on the
movabes beongng to the guest as ong as
such movabes are n the hote, but not for
money oaned to the guests;
(11) Credts for seeds and expenses for
cutvaton and harvest advanced to the debtor,
upon the fruts harvested;
(12) Credts for rent for one year, upon the
persona property of the essee exstng on the
mmovabe eased and on the fruts of the
same, but not on money or nstruments of
credt;
(13) Cams n favor of the depostor f the
depostary has wrongfuy sod the thng
deposted, upon the prce of the sae.
In the foregong cases, f the movabes to whch
the en or preference attaches have been
wrongfuy taken, the credtor may demand
them from any possessor, wthn thrty days
from the unawfu sezure. (1922a)
Art. 2242. Wth reference to specfc mmovabe
property and rea rghts of the debtor, the
foowng cams, mortgages and ens sha be
preferred, and sha consttute an encumbrance
on the mmovabe or rea rght:
(1) Taxes due upon the and or budng;
(2) For the unpad prce of rea property sod,
upon the mmovabe sod;
(3) Cams of aborers, masons, mechancs and
other workmen, as we as of archtects,
engneers and contractors, engaged n the
constructon, reconstructon or repar of
budngs, canas or other works, upon sad
budngs, canas or other works;
(4) Cams of furnshers of materas used n the
constructon, reconstructon, or repar of
budngs, canas or other works, upon sad
budngs, canas or other works;
(5) Mortgage credts recorded n the Regstry of
Property, upon the rea estate mortgaged;
(6) Expenses for the preservaton or
mprovement of rea property when the aw
authorzes rembursement, upon the mmovabe
preserved or mproved;
(7) Credts annotated n the Regstry of
Property, n vrtue of a |udca order, by
attachments or executons, upon the property
affected, and ony as to ater credts;
(8) Cams of co-hers for warranty n the
partton of an mmovabe among them, upon
the rea property thus dvded;
(9) Cams of donors or rea property for
pecunary charges or other condtons mposed
upon the donee, upon the mmovabe donated;
(10) Credts of nsurers, upon the property
nsured, for the nsurance premum for two
years. (1923a)
Art. 2243. The cams or credts enumerated n
the two precedng artces sha be consdered
as mortgages or pedges of rea or persona
property, or ens wthn the purvew of ega
provsons governng nsovency. Taxes
mentoned n No. 1, Artce 2241, and No. 1,
Artce 2242, sha frst be satsfed. (n)
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Art. 2244. Wth reference to other property, rea
and persona, of the debtor, the foowng cams
or credts sha be preferred n the order named:
(1) Proper funera expenses for the debtor, or
chdren under hs or her parenta authorty who
have no property of ther own, when approved
by the court;
(2) Credts for servces rendered the nsovent
by empoyees, aborers, or househod hepers
for one year precedng the commencement of
the proceedngs n nsovency;
(3) Expenses durng the ast ness of the
debtor or of hs or her spouse and chdren
under hs or her parenta authorty, f they have
no property of ther own;
(4) Compensaton due the aborers or ther
dependents under aws provdng for ndemnty
for damages n cases of abor accdent, or
ness resutng from the nature of the
empoyment;
(5) Credts and advancements made to the
debtor for support of hmsef or hersef, and
famy, durng the ast year precedng the
nsovency;
(6) Support durng the nsovency proceedngs,
and for three months thereafter;
(7) Fnes and cv ndemnfcaton arsng from a
crmna offense;
(8) Lega expenses, and expenses ncurred n
the admnstraton of the nsovent's estate for
the common nterest of the credtors, when
propery authorzed and approved by the court;
(9) Taxes and assessments due the natona
government, other than those mentoned n
Artces 2241, No. 1, and 2242, No. 1;
(10) Taxes and assessments due any provnce,
other than those referred to n Artces 2241,
No. 1, and 2242, No. 1;
(11) Taxes and assessments due any cty or
muncpaty, other than those ndcated n
Artces 2241, No. 1, and 2242, No. 1;
(12) Damages for death or persona n|ures
caused by a quas-dect;
(13) Gfts due to pubc and prvate nsttutons
of charty or benefcence;
(14) Credts whch, wthout speca prvege,
appear n (a) a pubc nstrument; or (b) n a
fna |udgment, f they have been the sub|ect of
tgaton. These credts sha have preference
among themseves n the order of prorty of the
dates of the nstruments and of the |udgments,
respectvey. (1924a)
Art. 2245. Credts of any other knd or cass, or
by any other rght or tte not comprsed n the
four precedng artces, sha en|oy no
preference. (1925)

CHAPTER 3
ORDER OF PREFERENCE OF CREDITS

Art. 2246. Those credts whch en|oy preference
wth respect to specfc movabes, excude a
others to the extent of the vaue of the persona
property to whch the preference refers.
Art. 2247. If there are two or more credts wth
respect to the same specfc movabe property,
they sha be satsfed pro rata, after the
payment of dutes, taxes and fees due the State
or any subdvson thereof. (1926a)
Art. 2248. Those credts whch en|oy preference
n reaton to specfc rea property or rea
rghts, excude a others to the extent of the
vaue of the mmovabe or rea rght to whch
the preference refers.
Art. 2249. If there are two or more credts wth
respect to the same specfc rea property or
rea rghts, they sha be satsfed pro rata, after
the payment of the taxes and assessments
upon the mmovabe property or rea rght.
(1927a)
Art. 2250. The excess, f any, after the payment
of the credts whch en|oy preference wth
respect to specfc property, rea or persona,
sha be added to the free property whch the
debtor may have, for the payment of the other
credts. (1928a)
Art. 2251. Those credts whch do not en|oy any
preference wth respect to specfc property,
and those whch en|oy preference, as to the
amount not pad, sha be satsfed accordng to
the foowng rues:
(1) In the order estabshed n Artce 2244;
(2) Common credts referred to n Artce 2245
sha be pad pro rata regardess of dates.
(1929a)

14.8 Cases
Appcaton of Cv Code provsons on
concurrence and preference of credts
De Barreto vs. Villanueva G.R. L-14938
Facts:
Cruzado sod and (whch was forecosed
by RFC but ater resod to Cruzado) to
Vanueva wth a stpuaton that Vanueva w
contnue payment to RFC (for the reseng
prce). Vanueva mortgaged the and to De
Barreto when t obtaned a oan from the atter.
Vanueva faed to pay both Cruzado and De
Barreto. On the one hand, De Barreto sued for
forecosure and won. On the other hand,
Cruzado fed a moton n that forecosure
proceedng for the recognton of hs "vendors
en."
RTC: granted Cruzados moton that hs
en be satsfed by the forecosure proceeds.
SC: affrmed RTC. But on MFR, reversed
RTC rung.
Hed:
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The queston as to whether the Cv
Code and the Insovency Law can be
harmonzed s setted by Artce 2243, Cv
Code. The preferences named n Artces 2241
and 2242 are to be enforced in accordance with
the lnvolvency Law.
Thus, it becomes evident that one
preferred creditor's third-party claim to
the proceeds of a foreclosure sale (as in
the case now before us) is not the
proceeding contemplated by law for the
enforcement of preferences under Article
2242, unless the claimant were enforcing
a credit for taxes that enjoy absolute
priority. lf none of the claims is for taxes,
a dispute between two creditors will not
enable the Court to ascertain the pro rata
dividend corresponding to each, because
the rights of the other creditors likewise
enjoying preference under Article 2242
can not be ascertained. Wherefore, the order
of the Court of Frst Instance of Mana now
appeaed from decreeng that the proceeds of
the forecosure sae be apportoned ony
between appeant and appeee, s ncorrect
and must be reversed.
In the absence of nsovency proceedngs
(or other equvaent genera qudaton of the
debtor's estate), the confct between the
partes now before us must be decded
pursuant to the we estabshed prncpe
concernng regster ands; that a purchaser n
good fath and for vaue (as the appeant
concededy s) takes regstered property free
from ens and encumbrances other than
statutory ens and those recorded n the
certfcate of tte. There being no insolvency
or liquidation, the claim of the appellee,
as unpaid vendor, did not acquire the
character and rank of a statutory lien co-
equal to the mortgagee's recorded
encumbrance, and must remain
subordinate to the latter.
No en on specfc property created by Art. 110
of the Labor Code
DBP vs. Secretary of Labor G.R. 79351
Facts:
Dfontorum and other co-empoyees
obtaned a favorabe |udgment aganst RMC for
ega dsmssa, ULP, etc. A wrt of executon
was not satsfed (n 1984). In 1983, DBP
forecosed RMCs premses. Thus, Dfontorum et
a. fed wth the Mnster of Labor and
Empoyment a "moton for devery of
propertes of RMC n possesson of DBP to MOLE
for proper dsposton" pursuant to Art. 110 of
the Labor Code whch gves empoyees 1
st
preference over propertes of the empoyer.
Hed:
SC: Dfontorum et a. are foos!!! lt is
clear from the wording of the law that the
preferential right accorded to employees
and workers under Article 110 may be
invoked only during bankruptcy or judicial
liquidation proceedings against the
employer. The law is unequivocal and
admits of no other construction.
There s no "frst automatc en." What
Article 110 of the Labor Code establishes
is not a lien, but a preference of credit in
favor of employees. This simply means
that during bankruptcy, insolvency or
liquidation proceedings involving the
existing properties of the employer, the
employees have the advantage of having
their unpaid wages satisfied ahead of
certain claims which may be proved
therein.
Contractors cam not entted to preference n
the absence of nsovency proceedng
].L. Bernardo Construction, et al. vs. CA
G.R. 105827
Facts:
The Muncpaty of San Antono faed to
pay pettoners for the atters constructon of
the pubc market of San Antono. Pettoners
then sued the muncpaty for breach of
contract, specfc performance, etc. wth a
prayer for the enforcement of contractors en
(based on Art. 2242 of the Cv Code).
RTC granted pettoners moton and
awarded possesson and use of the budng to
them. CA reversed RTC.
SC: affrmed CA
Hed:
Article 2242 only finds application
when there is a concurrence of credits, i.e.
when the same specific property of the
debtor is subjected to the claims of
several creditors and the value of such
property of the debtor is insufficient to
pay in full all the creditors. In such a
stuaton, the queston of preference w arse,
that s, there w be a need to determne whch
of the credtors w be pad ahead of the others.
Fundamenta tenets of due process w dctate
that ths statutory en shoud then ony be
enforced n the context of some knd of a
proceedng where the cams of a the preferred
credtors may be bndngy ad|udcated, such as
nsovency proceedngs.
Ths s made expct by Artce 2243
whch states that the cams and ens
enumerated n artces 2241 and 2242 sha be
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consdered as mortgages or pedges of rea or
persona property, or ens wthn the purvew of
ega provsons governng nsovency.
The action filed by petitioners in the
trial court does not partake of the nature
of an insolvency proceeding. lt is basically
for specific performance and damages.
Thus, even if it is finally adjudicated that
petitioners herein actually stand in the
position of unpaid contractors and are
entitled to invoke the contractor's lien
granted under Article 2242, such lien
cannot be enforced in the present action
for there is no way of determining
whether or not there exist other preferred
creditors with claims over the San Antonio
Public Market. The records do not contan any
aegaton that pettoners are the ony credtors
wth respect to such property. The fact that no
thrd party cams have been fed n the tra
court w not bar other credtors from
subsequenty brngng actons and camng that
they aso have preferred ens aganst the
property nvoved.
Transfers made wthn a month after date of
ceavage
Union Bank of the Philippines vs. Spouses
Ong G.R. 152347
Facts:
BMC (a corporaton 70% of whch s
owned by Spouses Ong) obtaned a Php 40M
credt ne facty from Unon Bank wheren the
Ongs assumed a sodary abty undertakng.
On Oct. 22, 1991, Spouses Ong sod to Lee ther
house and ot n Greenhs. On Nov. 22, 1991,
BMC fed a petton for rehabtaton wth the
SEC.
Pettoner avers that the Ong-Lee saes
contract partakes of a frauduent transfer and
s nu and vod n contempaton of the
aforequoted provson, the sae havng
occurred on October 22, 1991 or wthn thrty
(30) days before BMC fed a petton for
suspenson of payments on November 22, 1991.
Hed:
Pettoner's reance on the afore-quoted
provson s mspaced for the foowng reasons:
First, SEC 70 of the lnsolvency Law
specifically makes reference to
conveyance of properties made by a
"debtor" or by an "insolvent" who filed a
petition, or against whom a petition for
insolvency has been filed. Respondent
spouses Ong have doubtessy not fed a
petton for a decaraton of ther own
nsovency. Nether has one been fed aganst
them. It was never proven that respondent
spouses are kewse nsovent.
It may be that BMC had fed a petton
for rehabtaton and suspenson of payments
wth the SEC. The naggng fact, however s that
BMC s a dfferent |urdca person from the
respondent spouses. Accordngy, the aeged
nsovency of BMC cannot, as pettoner
postuates, extend to the respondent spouses
such that transacton of the atter comes wthn
the purvew of SEC 70 of the Insovency Law.
5econd, the rea debtor of pettoner
bank n ths case s BMC. The fact that the
respondent spouses bound themseves to
answer for BMCs ndebtedness under the
surety agreement referred to at the outset s
not reason enough to concude that the spouses
are themseves debtors of pettoner bank.
Third, SEC 70 of the lnsolvency Law
considers transfers made within a month
after the date of cleavage void, except
those made in good faith and for valuable
pecuniary consideration. The twin
elements of good faith and valuable and
sufficient consideration have been duly
established. Given the validity and the
basic legitimacy of the sale in question,
there is simply no occasion to apply SEC
70 of the lnsolvency Law to nullify the
transaction subject of the instant case.

Additional materials
Articles 29-33 RA 7653
SEC 29. Appontment of Conservator. -
Whenever, on the bass of a report submtted
by the approprate supervsng or examnng
department, the Monetary Board fnds that a
bank or a quas-bank s n a state of contnung
nabty or unwngness to mantan a condton
of qudty deemed adequate to protect the
nterest of depostors and credtors, the
Monetary Board may appont a conservator
wth such powers as the Monetary Board sha
deem necessary to take charge of the assets,
abtes, and the management thereof,
reorganze the management, coect a mones
and debts due sad nsttuton, and exercse a
powers necessary to restore ts vabty. The
conservator sha report and be responsbe to
the Monetary Board and sha have the power to
overrue or revoke the actons of the prevous
management and board of drectors of the bank
or quas-bank.
The conservator shoud be competent and
knowedgeabe n bank operatons and
management. The conservatorshp shall not
exceed one (1) year.
The conservator sha receve remuneraton to
be fxed by the Monetary Board n an amount
not to exceed two-thrds (2/3) of the saary of
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the presdent of the nsttuton n one (1) year,
payabe n tweve (12) equa monthy
payments: Provded, That, f at any tme wthn
one-year perod, the conservatorshp s
termnated on the ground that the nsttuton
can operate on ts own, the conservator sha
receve the baance of the remuneraton whch
he woud have receved up to the end of the
year; but f the conservatorshp s termnated
on other grounds, the conservator sha not be
entted to such remanng baance. The
Monetary Board may appont a conservator
connected wth the Bangko Sentra, n whch
case he sha not be entted to receve any
remuneraton or emoument from the Bangko
Sentra durng the conservatorshp. The
expenses attendant to the conservatorshp sha
be borne by the bank or quas-bank concerned.
The Monetary Board sha termnate the
conservatorshp when t s satsfed that the
nsttuton can contnue to operate on ts own
and the conservatorshp s no onger necessary.
The conservatorshp sha kewse be
termnated shoud the Monetary Board, on the
bass of the report of the conservator or of ts
own fndngs, determne that the contnuance n
busness of the nsttuton woud nvove
probabe oss to ts depostors or credtors, n
whch case the provsons of SEC 30 sha appy.
SEC 30. Proceedngs n Recevershp and
Lqudaton. - Whenever, upon report of the
head of the supervsng or examnng
department, the Monetary Board fnds that a
bank or quas-bank:
(a) s unabe to pay ts abtes as they
become due n the ordnary course of busness:
Provded, That ths sha not ncude nabty to
pay caused by extraordnary demands nduced
by fnanca panc n the bankng communty;
(b) has nsuffcent reazabe assets, as
determned by the Bangko Sentra, to meet ts
abtes; or
(c) cannot contnue n busness wthout
nvovng probabe osses to ts depostors or
credtors; or
(d) has wfuy voated a cease and desst
order under SEC 37 that has become fna,
nvovng acts or transactons whch amount to
fraud or a dsspaton of the assets of the
nsttuton; n whch cases, the Monetary Board
may summary and wthout need for pror
hearng forbd the nsttuton from dong
busness n the Phppnes and desgnate the
Phppne Depost Insurance Corporaton as
recever of the bankng nsttuton.
For a quas-bank, any person of recognzed
competence n bankng or fnance may be
desgned as recever.
The recever sha mmedatey gather and take
charge of a the assets and abtes of the
nsttuton, admnster the same for the beneft
of ts credtors, and exercse the genera powers
of a recever under the Revsed Rues of Court
but sha not, wth the excepton of
admnstratve expendtures, pay or commt any
act that w nvove the transfer or dsposton of
any asset of the nsttuton: Provded, That the
recever may depost or pace the funds of the
nsttuton n non-specuatve nvestments. The
recever sha determne as soon as possbe,
but not ater than nnety (90) days from take
over, whether the nsttuton may be
rehabtated or otherwse paced n such a
condton so that t may be permtted to resume
busness wth safety to ts depostors and
credtors and the genera pubc: Provded, That
any determnaton for the resumpton of
busness of the nsttuton sha be sub|ect to
pror approva of the Monetary Board.
If the recever determnes that the nsttuton
cannot be rehabtated or permtted to resume
busness n accordance wth the next precedng
paragraph, the Monetary Board sha notfy n
wrtng the board of drectors of ts fndngs and
drect the recever to proceed wth the
qudaton of the nsttuton. The recever sha:
(1) fe ex parte wth the proper regona tra
court, and wthout requrement of pror notce
or any other acton, a petton for assstance n
the qudaton of the nsttuton pursuant to a
qudaton pan adopted by the Phppne
Depost Insurance Corporaton for genera
appcaton to a cosed banks. In case of quas-
banks, the qudaton pan sha be adopted by
the Monetary Board. Upon acqurng |ursdcton,
the court sha, upon moton by the recever
after due notce, ad|udcate dsputed cams
aganst the nsttuton, assst the enforcement
of ndvdua abtes of the stockhoders,
drectors and offcers, and decde on other
ssues as may be matera to mpement the
qudaton pan adopted. The recever sha pay
the cost of the proceedngs from the assets of
the nsttuton.
(2) convert the assets of the nsttutons to
money, dspose of the same to credtors and
other partes, for the purpose of payng the
debts of such nsttuton n accordance wth the
rues on concurrence and preference of credt
under the Cv Code of the Phppnes and he
may, n the name of the nsttuton, and wth
the assstance of counse as he may retan,
nsttute such actons as may be necessary to
coect and recover accounts and assets of, or
defend any acton aganst, the nsttuton. The
assets of an nsttuton under recevershp or
qudaton sha be deemed n custoda egs n
the hands of the recever and sha, from the
moment the nsttuton was paced under such
recevershp or qudaton, be exempt from any
order of garnshment, evy, attachment, or
executon.
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The actons of the Monetary Board taken under
ths SEC or under SEC 29 of ths Act sha be
fna and executory, and may not be restraned
or set asde by the court except on petton for
certorar on the ground that the acton taken
was n excess of |ursdcton or wth such grave
abuse of dscreton as to amount to ack or
excess of |ursdcton. The petton for certorar
may ony be fed by the stockhoders of record
representng the ma|orty of the capta stock
wthn ten (10) days from recept by the board
of drectors of the nsttuton of the order
drectng recevershp, qudaton or
conservatorshp.
The desgnaton of a conservator under SEC 29
of ths Act or the appontment of a recever
under ths SEC sha be vested excusvey wth
the Monetary Board. Furthermore, the
desgnaton of a conservator s not a
precondton to the desgnaton of a recever.
SEC 31. Dstrbuton of Assets. - In case of
qudaton of a bank or quas-bank, after
payment of the cost of proceedngs, ncudng
reasonabe expenses and fees of the recever to
be aowed by the court, the recever sha pay
the debts of such nsttuton, under order of the
court, n accordance wth the rues on
concurrence and preference of credt as
provded n the Cv Code.
SEC 32. Dsposton of Revenues and Earnngs.
- A revenues and earnngs reazed by the
recever n wndng up the affars and
admnsterng the assets of any bank or quas-
bank wthn the purvew of ths Act sha be
used to pay the costs, fees and expenses
mentoned n the precedng SEC, saares of
such personne whose empoyment s rendered
necessary n the dscharge of the qudaton
together wth other addtona expenses caused
thereby. The baance of revenues and earnngs,
after the payment of a sad expenses, sha
form part of the assets avaabe for payment to
credtors.
SEC 33. Dsposton of Bankng Franchse. - The
Bangko Sentra may, f pubc nterest so
requres, award to an nsttuton, upon such
terms and condtons as the Monetary Board
may approve, the bankng franchse of a bank
under qudaton to operate n the area where
sad bank or ts branches were prevousy
operatng: Provded, That whatever proceeds
may be reazed from such award sha be
sub|ect to the approprate excusve dsposton
of the Monetary Board.
Insurance Code
Tte 13
SUSPENSION OR REVOCATION OF AUTHORITY
Sec. 247. If the Commssoner s of the opnon
upon examnaton of other evdence that any
domestc or foregn nsurance company s n an
unsound condton, or that t has faed to
compy wth the provsons of aw or reguatons
obgatory upon t, or that ts condton or
method of busness s such as to render ts
proceedngs hazardous to the pubc or to ts
pocyhoders, or that ts pad-up capta stock,
n the case of a domestc stock company, or ts
avaabe cash assets, n the case of a domestc
mutua company, or ts securty deposts, n the
case of a foregn company, s mpared or
defcent, or that the margn of sovency
requred of such company s defcent, the
Commssoner s authorzed to suspend or
revoke a certfcates of authorty granted to
such nsurance company, ts offcers and
agents, and no new busness sha thereafter be
done by such company or for such company by
ts agent n the Phppnes whe such
suspenson, revocaton or dsabty contnues or
unt ts authorty to do busness s restored by
the Commssoner. Before restorng such
authorty, the Commssoner sha requre the
company concerned to submt to hm a
busness pan showng the company's estmated
recepts and dsbursements, as we as the bass
therefor, for the next succeedng three years.
(As amended by Presdenta Decree No. 1455).
Tte 14
APPOINTMENT OF CONSERVATOR
Sec. 248. If at any tme before, or after, the
suspenson or revocaton of the certfcate of
authorty of an nsurance company as provded
n the precedng tte, the Commssoner fnds
that such company s n a state of contnung
nabty or unwngness to mantan a condton
of sovency or qudty deemed adequate to
protect the nterest of pocy hoders and
credtors, he may appont a conservator to take
charge the assets, abtes, and the
management of such company, coect a
moneys and debts due sad company and
exercse a powers necessary to preserve the
assets of sad company, reorganze the
management thereof, and restore ts vabty.
The sad conservator sha have the power to
overrue or revoke the actons of the prevous
management and board of drectors of the sad
company, any provson of aw, or of the artces
of ncorporaton or by-aws of the company, to
the contrary notwthstandng, and such other
powers as the Commssoner sha deem
necessary.
The conservator may be another
nsurance company dong busness n the
Phppnes, by offcer or offcers of such
company, or any other competent and quafed
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person, frm or corporaton. The remuneraton
of the conservator and other expenses
attendant to the conservaton sha be borne by
the nsurance company concerned.
The conservator sha not be sub|ect to
any acton, cam or demand by, or abty to,
any person n respect of anythng done or
omtted to be done n good fath n the exercse,
or n connecton wth the exercse, of the
powers conferred on the conservator.
The conservator apponted sha report
and be responsbe to the Commssoner unt
such tme as the Commssoner s satsfed that
the nsurance company can contnue to operate
on ts own and the conservatorshp sha
kewse be termnated shoud be
Commssoner, on the bass of the report of the
conservator or of hs own fndngs, determne
that the contnuance n busness of the
nsurance company woud be hazardous to
pocy hoders and credtors, n whch case the
provsons of Tte 15 sha appy.
Tte 15
PROCEEDINGS UPON INSOLVENCY
Sec. 249. Whenever, upon examnaton or
other evdence, t sha be dscosed that the
condton of any nsurance company dong
busness n the Phppnes s one of nsovency,
or that ts contnuance n busness woud be
hazardous to ts pocyhoders and credtors, the
Commssoner sha forthwth order the
company to cease and desst from transactng
busness n the Phppnes and sha desgnate a
recever to mmedatey take charge of ts
assets and abtes, as expedtousy as
possbe coect and gather a the assets and
admnster the same for the beneft of ts
pocyhoders and credtors, and exercse a the
powers necessary for these purposes ncudng,
but not mted to, brngng suts and forecosng
mortgages n the name of the nsurance
company.
The Commssoner sha thereupon
determne wthn thrty days whether the
nsurance company may be reorganzed or
otherwse paced n such condton so that t
may be permtted to resume busness wth
safety to ts pocyhoders and credtors and
sha prescrbe the condtons under whch such
resumpton of busness sha take pace as we
as the tme for fufment of such condtons. In
such case, the expenses and fees n the
coecton and admnstraton of the nsurance
company sha be determned by the
Commssoner and sha be pad out of the
assets of such company.
If the Commssoner sha determne and
confrm wthn the sad perod that the
nsurance company s sovent, as defned
hereunder, or cannot resume busness wth
safety to ts pocyhoders and credtors, he
sha, f the pubc nterest requres, order ts
qudaton, ndcate the manner of ts
qudaton and approve a qudaton pan and
mpement t mmedatey. The Commssoner
sha desgnate a competent and quafed
person as qudator who sha take over the
functons of the recever prevousy desgnated
and, wth a convenent speed, rensure a ts
outstandng poces, convert the assets of the
nsurance company to cash, or se, assgn or
otherwse dspose of the same to the
pocyhoders, credtors and other partes for the
purpose of settng the abtes or payng the
debts of such company and he may, n the
name of the company, nsttute such actons as
may be necessary n the approprate Court to
coect and recover accounts and assets of the
nsurance company, and to do such other acts
as may be necessary to compete the
qudaton as ordered by the Commssoner.
The provsons of any aw to the contrary
notwthstandng, the actons of the
Commssoner under ths SEC sha be fna and
executory, and can be set asde by the Court
upon petton by the company and ony f there
s convncng proof that the acton s pany
arbtrary and made n bad fath. The
Commssoner, through the Soctor Genera,
sha then fe the correspondng answer rectng
the proceedng taken and prayng the
assstance of the Court n the qudaton of the
company. No restranng order or n|uncton
sha be ssued by the Court en|onng the
Commssoner from mpementng hs actons
under ths SEC, uness there s convncng proof
that the acton of the Commssoner s pany
arbtrary and made n bad fath and the
pettoner or pantff fes wth the Cerk or
|udge of the Court n whch the acton s
pendng a bond executed n favor of the
Commssoner n an amount to be fxed by the
Court. The restranng order or n|uncton sha
be refused or, f granted, sha be dssoved
upon fng by the Commssoner, f he so
desres, of a bond n an amount twce the
amount of the bond of the pettoner or pantff
condtoned that t w pay the damages whch
the petton or pantff may suffer by the refusa
or the dssouton of the n|uncton. The
provsons of Rue 58 of the New Rues of Court
nsofar as they are appcabe sha govern the
ssuance and dssouton of the restranng order
or n|uncton contempated n ths SEC.
A proceedngs under ths Tte sha be
gven preference n the Courts. The
Commssoner sha not be requred to pay any
fee to any pubc offcer for fng, recordng, or
n any manner authentcatng any paper or
nstrument reatng to the proceedngs.
As used n ths Tte, the term
"Insovency" sha mean the nabty of an
nsurance company to pay ts awfu obgatons
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as they fa due n the usua and ordnary course
of busness as may be shown by ts faure to
mantan the margn of sovency requred under
SEC 194 of ths Code. (As amended by
Presdenta Decree No. 1141 and further
amended by Presdenta Decree No. 1455).
Sec. 250. In case of qudaton of an nsurance
company, after payment of the cost of the
proceedngs, ncudng reasonabe expenses
and fees ncurred n the qudaton to be
aowed by the Court, the Commssoner sha
pay a aowed cams aganst such company,
under order of the Court, n accordance wth
ther ega prorty.
Sec. 251. The recever or the qudator, as the
case may be, desgnated under the provsons
of ths tte sha not be sub|ect to any acton,
cam or demand by, or abty to, any person
n respect of anythng done or omtted to be
done n good fath n the exercse, or n
connecton wth the exercse, of the powers
conferred on such recever or qudator.
P.D. 1529
SEC 83. Notice of insolvency. Whenever
proceedng n bankruptcy or nsovency, or
anaogous proceedngs, are nsttuted aganst a
debtor who owns regstered and, t sha be the
duty of the offcer servng the notce of the
nsttuton of such proceedngs on the debtor to
fe a copy thereof wth the offce of the Regster
of Deeds for the provnce or cty where the and
of the debtor es. The assgnee or trustee
apponted by the court n such proceedngs
sha be entted to the entry of a new certfcate
of the regstered and of the debtor or bankrupt,
upon presentng and fng a certfed copy of
the assgnment n nsovency or order or
ad|udcaton n bankruptcy wth the nsovent's
or bankrupt's dupcate certfcate of tte; but
the new certfcate sha state that t s entered
to hm as assgnee n nsovency or trustee n
bankruptcy or other proceedngs, as the case
may be.
SEC 84. ]udgment or order vacating
insolvency proceedings. Whenever any of
the proceedngs of the character named n the
precedng SEC aganst a regstered owner, of
whch notce has been regstered, s vacated by
|udgment, a certfed copy of the |udgment or
order may be regstered. Where a new
certfcate has been entered n the name of the
assgnee or trustee, such certfcate sha be
surrendered for canceaton and forthwth the
debtor sha be entted to the entry of a new
certfcate to hm.
CORPORATE REHABlLlTATlON
SC Rues Procedure on Corporate Rehabtaton
(AM No. 00-8-10-SC)
Coverage (Rule 1)
These Rues sha appy to pettons for
rehabtaton of corporatons, partnershps and
assocatons pursuant to Presdenta Decree No.
902-A.
Definitions of terms and construction
(Rule 2)
"Administrative Expenses"
(a) Reasonable and necessary expenses
that are ncurred n connecton wth the fng of
the petton;
(b) Expenses incurred in the ordinary
course of business after the ssuance of the
stay order
- excudng nterest payabe to the credtors for
oans and credt accommodatons exstng at
the tme of the ssuance of the stay order; and
(c) Other expenses that are authorized under
ths Rues.
"Claim"
Incude all claims or demands of whatever
nature or charter aganst a debtor or ts
property, whether for money or otherwse
"Control"
Power of a parent corporaton to drect or
govern the fnanca and operatng poces of an
enterprse so as to obtan benefts from ts
actvtes.
Control is presumed to exit when:
a. parent owns, drecty or ndrecty though
subsdares, more than one - half () of the
voting power of the votng power of an
enterprse unless, such ownership does not
constitute control.
b. parents owns one-haf (1/2) or ess of the
votng power of an enterprse when there s
power.
a. Over more than one-haf () of agreement
wth nvestors;
b. To drect or govern the fnanca and
operatng poces of the enterprse under a
statute or agreement;
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c. To appont or remove the ma|orty of the
member of the board of drectors or equvaent
governng body; or
d. To cast the ma|orty votes at meetng of the
board of drectors or equvaent governng body.
"Foreign proceeding"
Collective judicial or administrative
proceeding in a foreign State, pursuant to a
aw regardng sovency where the assets and
affars of the debtor are sub|ect to contro or
supervson by a foregn court, for the purpose
of rehabtaton or re-organzaton.
"Group of companies"
Can cover ony, corporatons that are
financially related to one another as parent
corporaton, subsdares and affates.
"Parent"
A corporaton drecty or ndrecty n contro
over another company. (authors own meetng)
"Rehabilitation"
Restoration of the debtor to a poston of
successfu operaton and sovency, f t s shown
that ts contnuance of operaton s
economcay feasbe and ts credtors can
recover more f the corporaton contnues
operaton.
"Secured claim"
Any can whose payment or fufment s
secured by contract or by aw, ncudng any
cam or credt enumerated under Artces 2241
and 2242 of the cv Code and Artce 110, as
amended, of the Labor code of the Phppnes.
"Subsidiary"
A corporaton where more than fifty percent
(50%) of ts votng stock s owned or controed
drecty or ndrecty by another corporaton.
General Provision (Rule 3)
Nature of Proceeding (Sec 1)
- In Rem.
- |ursdcton over a persons consdered as
acqured upon pubcaton of the notce of the
commencement of the proceedngs n any
newspaper or genera crcuaton.
-The proceedngs sha aso be summary and
non-adversara n nature.
- The foowng peadng are prohbted:
(a) Moton to dsmss;
(b) Moton for a b of partcuars:
(c) Petton for reef;
(d) Moton for extenson;
(e) Moton for postponement
(f) Thrd-party compant;
(g) Interventon;
(h) Moton to hear affrmatve defenses; and
(I) Any peadng or moton whch s smar to or
of ke effect as any of the foregong.
Service of pleadings and documents (Sec
3)
-Any peadng and/or document requred by
these Rues may be filed with the court
and/or served upon the other partes by fax or
e-mail.
-Date of transmission shall be deemed to
be the date of service.
-Where the peadng or document s
voluminous, the court may, upon moton,
wave the requrement of servce; provded that
a copy thereof together wth a ts attachments
s duy fed wth the court and s made avaabe
for examnaton and reproducton by any party,
and provded, further, that a notce of such
fng and avaabty s duy served on the
partes.
Executory nature of orders (Sec 5)
-Any order ssued by the court under these
Rues s mmediately executory.
-A petition to review the order shall not
stay the execution of the order uness
restraned or en|oned by the appeate court.
Nullification of lllegal Transfers and
Preferences (Sec 6)
Upon moton the court may nullify any
transfer of property or any other
conveyance, sale, payment or agreement
made in violation of its stay order or n
voaton of these Rues.
Stay Order (Sec 7)
If the court fnds the petton to be suffcent n
form and substance, t sha; not ater than fve
(5) workng days from the fng of the petton,
ssue an order:
Stay of enforcement of claims (Sec 7.b)
-staying enforcement of all claims, whether
for money or otherwse and whether such
enforcement is by court action or otherwse,
aganst the debtor, ts guarantors and persons
not sodary abe wth the debtor;
-stay order sha not cover cams aganst etters
of credt and smar securty arrangements
ssued by a thrd party to secure the payment of
the debtor's obgatons;
-stay order sha not cover forecosure by a
credtor of property not beongng to a debtor
under corporate rehabtaton;
-where the owner of such property sought to be
forecosed s aso a guarantor or one who s not
sodary abe, sad owner sha be entted to
the beneft of excusson as such guarantor;
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Prohibition against disposition and
encumbrances of property (Sec 7.c)
-the debtor cannot se, encumber, transfer, or
dspose n any manner any of ts propertes
except n the ordnary course of busness;
Prohibition against payment of pre-
petition liabilities (Sec 7.d)
-the debtor cannot make any payment on ts
abtes except as provded n tems (e), (f) and
(g) of ths SEC or when ordered by the court
pursuant to SEC 10 of Rue 3;
Prohibition against withholding of goods
and services (Sec 7.e)
-the debtor's suppers of goods or servces
cannot wthhod suppy of goods and servces n
the ordnary course of busness for as ong as
the debtor makes payments for the servces
and goods supped after the ssuance of the
stay order;
Payment of post-petition administrative
expenses (Sec 7.f)
-payment n fu of a admnstratve expenses
ncurred after the ssuance of the stay order;
Payment of post-petition credits (Sec 7.g)
drect the payment of new oans or other forms
of credt accommodatons obtaned for the
rehabtaton of the debtor wth pror court
approva;
Preservation of claims against debtor (Sec
7 last par)
The ssuance of a stay order does not affect the
rght to commence actons or proceedngs
nsofar as t s necessary to preserve a cam
aganst the debtor.
Concept of Adequate Protection of
Property (Sec 10)
the credtor acks adequate protecton f t can
be shown that:
(1) The debtor fas or refuses to honor a pre-
exstng agreement wth the to keep the
property nsured;
(2) The debtor fas or refuses to take
commercay reasonabe steps to mantan the
property; or
(3) The property has deprecated to an extent
that the credtor s undersecured
ualifications and Disqualification of
Rehabilitation Receiver (Sec 11)
ualifications:
(1) Expertse and acumen to manage and
operate a busness smar n sze and
compexty to that of the debtor;
(2) Knowedge n management, fnance and
rehabtaton of dstressed companes;
(3) Genera famarty wth the rghts of
credtors n suspenson of payments or
rehabtaton and genera understandng of the
dutes and obgatons of a rehabtaton
recever;
(4) Good mora character, ndependence and
ntegrty;
(5) Lack of confct of nterest as defned n ths
SEC; and
(6) Wngness and abty to fe a bond n such
amount as may be determned by the court.
Disqualifications:
(1) He s credtor or stockhoder of the debtor;
(2) He s engaged n a ne of busness whch
competes wth the debtor;
(3) He s, or was wthn two (2) years from the
fng of the petton, a drector, offcer, or
empoyee or the audtor or accountant of the
debtor;
(4) He s or was wthn two (2) years from the
fng of the petton, an underwrter of the
outstandng securtes of the debtor;
(5) He s reated by consangunty or affnty
wthn the fourth cv degree to any credtor,
stockhoder, drector, offcer, empoyee, or
underwrter of the debtor; or
(6) He has any other drect or ndrect matera
nterest n the debtor or any credtor.
Powers and Functions of Rehabilitation
Receiver (Sec 12)
- Not take over the management and
contro of the debtor but sha cosey
oversee and montor the operatons of
the debtor durng the pendency of the
proceedngs.
For ths purpose, the rehabtaton recever
sha have the powers, dutes and functons of a
recever under Presdenta Decree No. 902-A
1. consdered as an offcer of the court.
2. He sha be prmary tasked to study the best
way to rehabtate the debtor and to ensure
that the vaue of the debtor's property s
reasonaby mantaned pendng the
determnaton of whether or not the debtor
shoud be rehabtated, as we as
3.mpement the rehabtaton pan after ts
approva.
Accordngy, he sha have the foowng powers
and functons:
(a) To verfy the accuracy of the petton,
ncudng ts annexes such as the Schedue of
Debts and Labtes and the Inventory of Assets
submtted n support to the petton;
(b) To accept and ncorporate, when |ustfed,
amendments to the Schedue of Debts and
Labtes;
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(c) To recommend to the court the dsaowance
of cams and re|ecton of amendments t the
Schedue of Debts and Labtes that ack
suffcent proof and |ustfcaton;
(d) To submt to the court and make avaabe
for revew by the credtors, a revsed Schedue
of Debts and Labtes;
(e) To nvestgate the acts, conduct, propertes,
abtes and fnanca condton of the debtor,
the operaton of ts busness and the desrabty
of the contnuance thereof; and, any other
matter reevant to the proceedng or to the
formuaton of a rehabtaton pan;
(f) To examne under oath the drectors and
offcers of the debtor and any other wtnesses
that he may deem approprate;
(g) To make avaabe to the credtors
documents and notces necessary for them to
foow and partcpate n the proceedngs;
(h) To report to the court any fact ascertaned
by hm pertanng to the causes of the debtor's
probems, fraud, preferences, dspostons,
encumbrances, msconduct, msmanagement
and rreguartes commtted by the
stockhoders, drectors, management,, or any
other person aganst the debtor;
() To empoy such person or persons such as
awyers, accountants, apprasers and staff are
necessary n performng hs functons and
dutes as rehabtaton recever;
(|) To montor the operatons of the debtor and
to mmedatey report to the court any matera
adverse change n the debtor's busness;
(k) To evauate the exstng assets and
abtes, earnngs and operatons of the
debtor;
() To determne and recommend to the court
the best way to savage and protect the
nterests of the credtors, stockhoders and the
genera pubc;
(m) To study the rehabtaton pan proposed by
the debtor or any rehabtaton pan submtted
durng the proceedngs, together wth any
comments made thereon;
(n) To prohbt and report to the court any
encumbrance, transfer or dsposton of the
debtor's property outsde of the ordnary course
of busness or what s aowed by the court;
(o) To prohbt and report to the court any
payments outsde of the ordnary course of
busness;
(p) To have unmted access to the debtor's
empoyees, premses, books, records and
fnanca documents durng busness hours;
(q) To nspect, copy, photocopy or photograph
any document, paper, book, account or etter,
whether n the possesson of the debtor or other
persons;
(r) To gan entry nto any property for the
purpose of nspectng, measurng, surveyng or
photographng t or any desgnated reevant
ob|ect or operaton thereon;
(s) To take possesson, contro and custody of
the debtor's assets;
(t) To notfy counterpartes and the court as to
contracts that the debtor has decded to
contnue to perform the breach;
(u) To be notfed of and to attend a meetngs
of the board of drectors and stockhoder of the
debtor;
(v) To recommend any modfcaton of an
approved rehabtaton pan as he may deem
approprate;
(w) To brng to the attenton of the court any
matera change affectng the debtor's abty to
meet the obgatons under the rehabtaton
pan;
(x) To recommend the appontment of a
management commttee n the cases provded
for under Presdenta Decree No. 902-A, as
amended;
(y) To recommend the termnaton of the
proceedngs and the dssouton of the debtor f
he determnes that the contnuance n busness
of such entty s no onger feasbe or proftabe
or no onger works to the best nterest of the
stockhoders, partes-tgants, credtors or the
genera pubc;
(z) To appy to the court for any order or
drectve that he may deem necessary or
desrabe to ad hm n the exercse of hs
powers and performance of hs dutes and
functons; and
(aa) To exercse such other powers as may from
tme to tme be conferred upon hm by the
court.
Contents of Rehabilitation Plan (Sec 18)
(a) desred business targets or goals and
the duration and coverage of the
rehabtaton;
(b) terms and conditions of such
rehabtaton whch sha ncude the manner
of its implementation, gvng due regard to
the nterests of secured credtors such as, but
not mted, to the non-mparment of ther
securty ens or nterests;
(c) material financial commitments to
support the rehabtaton pan;
(d) means for the execution of the
rehabilitation plan;
(e) a liquidation analysis; and
(f) such other relevant information to enabe
a reasonabe nvestor to make an nformed
decson on the feasbty of the rehabtaton
pan.
Effects of Rehabilitation (Sec 20)
(a) The pan and ts provsons sha be binding
upon the debtor and all persons who may
be affected thereby, including the
creditors, whether or not such persons
have participated n the proceedngs or
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opposed the pan or whether or not ther cams
have been schedued;
(b) The debtor sha comply with the
provisions of the plan and sha take a
actons necessary to carry out the pan;
(c) Payments shall be made to the
creditors n accordance wth the provsons of
the pan;
(d) Contracts and other arrangements
between the debtor and ts credtors sha be
nterpreted as contnung to appy to the extent
that they do not confct wth the provsons of
the pan; and
(e) Any compromises on amounts or
rescheduling of tmng of payments by the
debtor shall be binding on creditors
regardess of whether or not the pan s
successfuy mpemented.
Termination of Rehabilitation Proceeding
(Sec 21)
-Upon moton, wthn nnety (90) days from the
approva of the rehabtaton pan, and after
notce and hearng, the court may revoke the
approval thereof on the ground that the
same was secured through fraud.
Sec 23 (not in outline)
(a) Dsmssa of the petton;
(b) Faure of the debtor to submt the
rehabtaton pan;
(c) Dsapprova of the rehabtaton pan by the
court;
(d) Faure to acheve the desred targets or
goas as set forth n the rehabtaton pan;
(e) Faure of the debtor to perform ts
obgatons under the pan;
(f) Determnaton that the rehabtaton pan
may no onger be mpemented n accordance
wth ts terms, condtons, restrctons or
assumptons; or
(g) Successfu mpementaton of the
rehabtaton pan.
Debtor-lnitiated Rehabilitation (Rule 4)

Who may petition (Sec 1)
-Any debtor who foresees the mpossbty of
meetng ts debts when they respectvey fa
due, may petton the proper regona tra court
for rehabtaton.
- A group of companies may |onty fe a
petton for rehabtaton when one or more of
ts consttuent corporatons foresee the
mpossbty of meetng debts when they
respectvey fa due, and the fnanca dstress
woud key adversey affect the fnanca
condton and/or operatons of the other
member companes of the group s essenta
under the terms and condtons of the proposed
rehabtaton pan.
Opposition to or Comment on the Petition
(Sec 4)
-Every credtor of the debtor or any nterested
party sha fe hs verified opposition to or
comment on the petton not later than
fifteen (15) days before the date of the
initial hearing fxed n the stay order. -After
such time, no creditor or interested party
shall be allowed to file any comment thereon
or opposton thereto wthout eave of court.
-If the Schedue of Debts and Labtes omts a
cam or abty, the credtor concerned sha
attach to ts comment or opposton a verfed
statement of the obgatons aegedy due t.

Approval of Rehabilitation Plan
By Court (Sec 7.b)
The court sha approve the new rehabtaton
pan not later than ninety (90) days from
the date of the ast nta hearng.
By Creditors (Sec 7.b.1)
Approval or endorsement of creditors
holding at least two-thirds (2}3) of the tota
abtes of the debtor including secured
creditors holding more than fifty percent
(50%) of the tota secured cams of the debtor
and unsecured creditors holding more than
fifty percent (50%) of the tota unsecured
cams of the debtor;
Cram Down (Sec 11)
The court may approve a rehabilitation
plan even over the opposition of credtors of
the debtor, if, in its judgment, the
rehabilitation of the debtor is feasible and
the opposition of the creditors is
manifestly unreasonable f the foowng are
present:
(a) The rehabilitation plan complies with
the requirements specified n SEC 18 of Rue
3;
(b) The rehabilitation plan would provide
the objecting class of credtors with
payments whose present value projected
in the plan would be greater than that
which they would have received f the
assets of the debtor were sod by a qudator
wthn a sx (6)-month perod from the date of
fng of the petton; and
(c) The rehabilitation receiver has
recommended approva of the pan.
In approvng the rehabtaton pan, the court
shall ensure that the rights of the secured
creditors are not impaired.
Creditor-initiated rehabilitation (Rule 5)
Who May Petition (Sec 1)
Any creditor or creditors hodng at least
twenty percent (20%) of the debtor's total
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liabilities may fe a petton wth the proper
regona tra court for rehabtaton of a debtor
that cannot meet ts debts as they respectvey
fa due.
Requirements (Sec 2)
The petton s accompaned by:
1. rehabtaton pan
2. st of at east three (3) nomnees to the
poston of rehabtaton recever and
3. verfed by a sworn statement that the affant
has read the petton and that ts contents are
true and correct of hs persona knowedge or
based on authentc records and that the
petton s beng fed to protect the nterests of
the debtor, the stockhoders, the nvestors and
the credtors of the debtor.
Pre-negotiated rehabilitation (Rule 6)
Requirements (Sec 1)
1. A debtor that foresees the impossibility
of meetng ts debts as they fa due may, by
tsef or |onty wth any of ts credtors,
2. fe a verified petition for the approval of
a pre-negotated rehabtaton pan.
3. The petton sha comply with SEC 2 of
Rule 4 and be supported by an affidavit
showng the written approval or
endorsement of creditors hodng at east
two-thrds (2/3) of the tota abtes of the
debtor, ncudng secured credtors hodng
more than ffty percent (50%) of the tota
secured cams of the debtor and unsecured
credtors hodng more than ffty percent (50%)
of the tota unsecured cams of the debtor.
Recognition of Foreign Proceedings (Rule
7)
Scope (Sec 1)
Ths Rue appes where:
(a) assistance is sought in a Philippine
court by a foreign court or a foreign
representative n connecton wth a foregn
proceedng;
(b) assistance is sought in a foreign State
in connection with a domestic proceeding
governed by these Rues; or
(c) a foregn proceedng and a domestc
proceedng are concurrently taking place.
The sole fact that a petition is filed
pursuant to this Rule does not subject the
foreign representative or the foreign
assets and affairs of the debtor to the
jurisdiction of the oca courts for any purpose
other than the petton.
Period for Recognition (Sec 5)
-Petton for recognton of a foregn proceedng
sha be decided within thirty (30) days
from the filing thereof.
Effect of recognition of foreign procedure
(Sec 8)
Upon recognton of a foregn proceedng:
(a) Commencement or continuation of
individual actions or individual
proceedings concernng the debtor's assets,
rghts, obgatons or abtes is stayed;
provded, that such stay does not affect the
right to commence individual actions or
proceedings to the extent necessary to
preserve a claim against the debtor.
(b) Execution against the debtor's assets
is stayed; and
(c) The right to transfer, encumber or
otherwse dspose of any assets of the debtor is
suspended.
Procedural remedies (Rule 8)
Motion for recognition (Sec 1)
a. Prior to the approval of the
rehabilitation plan.
-No relief can be extended to the party
aggreved by the court's order on the moton
through a special civil action for certiorari
under Rule 65 of the rules of Court. Such
order can only be elevated to the Court of
Appeals as an assgned error n the petton for
revew of the decson or order approvng or
dsapprovng the rehabtaton pan.
b. After the approval of rehabilitation
plan.
-An order issued after the approval of the
rehabilitation plan can be reviewed only
through a special civil action for certiorari
under Rule 65 of the Rules of Court.
Review of decision or order on
rehabilitation plan (Sec 2)
-an order approving or disapproving a
rehabilitation plan can only be reviewed
through a petition for review to the Court
of Appeals under Rule 43 of the Rues of
Court wthn ffteen (15) days from notce of the
decson or order.
Concept of debtor-in-place
-The rehabtaton recever does not take over
the management and contro of the debtor but
smpy oversees and montors cosey the
operatons of the debtor durng the pendency of
the proceedngs
Appointment of management committee
(Rule 9, Sec 1, SC lnterim Rules of
Procedure for lntra-corporate
Controversies)
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The appontment of a management commttee
for a corporaton, partnershp or assocaton
may be apped for as ncdent to any of the
cases that may be fed under the Rues or the
Interm Rues on Corporate Rehabtaton when
there s mmnent danger of:
a. dsspaton, oss, wastage or destructon of
assets or other propertes; and
b. parayzaton of ts busness operatons whch
may be pre|udca to the nterest of the
mnorty stockhoders, partes-tgants or the
genera pubc.
Cases:
Equality is Equity"
Alemar's Sibal & Sons, lnc. vs. Elbinias,
et.al.,
Durng rehabtaton, assets are hed n trust for
the equa beneft of a credtors. As between
credtors, equaty s equty. A credtors shoud
stand on equa footng.
5uspension of money claim
PAL vs. Spouses Kurangkang, et.al.,
The stay order is effective from the date
of its issuance until the dismissal of the
petition or the termination of the
rehabilitation proceedings. The nterm rues
must kewse be read and apped aong wth
SEC 6(c) of P.D. 902-A, as so amended,
directing that upon the appointment of a
management committee, rehabilitation
receiver, board or body pursuant to the
decree, "all actions" for claims against the
distressed corporation "pending before
any court, tribunal, board or body shall be
suspended accordingly." A "claim" s sad to
be "a rght to payment, whether or not It s
reduced to |udgment, qudated or
unqudated, fxed or contngent, matured or
unmatured, dsputed or undsputed, ega or
equtabe, and secured or unsecured." In Fnasa
Investments and Fnance Corporaton ths Court
has defned the word "cam," contempated n
SEC 6(c) of P.D. 902-A, as referrng to debts or
demands of a pecunary nature and the
asserton of a rght to have money pad as we.
Very, the claim of private respondents
against petitioner PAL is a money claim
for the missing luggages, a financial
demand, that the law requires to be
suspended pending the rehabilitation
proceedings.
Non-suspension of claims against guarantors
and sureties solidarily liable with debtor
MWSS vs. Hon. Daway
Except when a etter of credt specfcay
stpuates otherwse, the obgaton of the banks
ssung etters of credt are sodary wth that of
the person or entty requestng for ts ssuance,
the same beng a drect, prmary, absoute and
defnte undertakng to pay the benefcary upon
the presentaton of the set of documents
requred theren. Beng a sodary obgaton,
the etter of credt here s excuded from the
|ursdcton of the rehabtaton court.
Purpose of 5uspension of actions for claims
against the corporation
Sobrejuanite, et.al., vs. ASB Development
Corp
The purpose for the suspenson of the
proceedngs s to prevent a credtor from
obtanng an advantage or preference over
another and to protect and preserve the rghts
of party tgants as we as the nterest of the
nvestng pubc or credtors. Such suspenson s
ntended to gve enough breathng space for the
management commttee or rehabtaton
recever to make the busness vabe agan,
wthout havng to dvert attenton and resources
to tgatons n varous fora. The suspenson
woud enabe the management commttee or
rehabtaton recever to effectvey exercse
ts/hs powers free from any |udca or extra-
|udca nterference that mght unduy hnder or
prevent the "rescue" of the debtor company.
5erious 5ituation Test"
Pryce Corporation vs. CA.
Recevers w be apponted whenever:
1. necessary n order to preserve the rghts of
the tgants; and/or
2. necessary n order to protect the nterest of
the pubc
- cear and mmnent danger of osng
corporaton assets f a recever s not apponted.
XV. SEC REORGANlZATlON DECREE
PD 902-A AS AMENDED
Organization
Sec 4, RA 8799
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Admnstratve Agency.
4.1.
- Ths Code s admnstered by SEC as coega
body composed of Charperson and 4
Commssoners
- apponted by Pres for term of 7y ea
- who serve as such unt successor s apponted
& quafed
- Commssoner apponted to f vacancy pror
to expraton of term for w/c hs / her
predecessor was apponted, serves ony for
unexpred porton of term.
- Uness context ndcates otherwse,
"Commssoner" nc Charperson.
4.2.
- Commssoners must be
- natura-born ctzens
- at east 40y for Charperson and at east 35y
for Commssoners
- of good mora character
- of unquestonabe ntegrty
- of known probty & patrotsm
- w/ recognzed competence n soca &
economc dscpnes
- Ma|orty of Commssoners, nc Charperson,
sha be members of Ph Bar.
4.3.
- Charperson s CEO of the Commsson.
- Charperson sha
- execute & admnster poces, decsons,
orders, resoutons approved by Commsson
AND
- have gen executve drecton & supervson of
work & operaton of Commsson and ts
members, bodes, boards, offces, personne,
and a admn bz
4.4.
- Saary of Charperson & Commssoners sha
be
- fxed by Pres
- based on ob|ectve cassfcaton system
- at a sum comparabe to members of Monetary
Board and commensurate to mportance
attached to poston
4.5.
- Commsson hods mtgs at east once a wk OR
as often as necessary upon ca of Charperson
or upon request of 3 Commssoners.
- Notce of mtg s gven to a Commssoners
and presence of 3 Commssoners consttutes
quorum. In absence of Charperson, the most
senor Commssoner acts as presdng offcer.
4.6.
- Commsson may deegate any of ts fcns to
any dept / ofc of the Commsson, an ndvdua
Commssoner or staff member of Commsson
except ts
- rvw / appeate authorty AND
- power to adopt, ater, suppement any rue
- Commsson may rvw upon own ntatve or
upon petton of party any acton of dept / ofc,
ndvdua Commssoner, or staff member of
Commsson.
Sec 6, RA 8799
Indemnfcaton and Responsbtes of
Commssoners.
6.1.
- Commsson sha ndemnfy ea Commssoner
and offcas of Commsson, nc personne
performng supervson & exam fcns for a costs
& expenses reasonaby ncurred n connecton
w/ any cv / crmna actons, suts, proceedngs
to w/c they may be or made party by reason of
ther fcns / dutes, uness theyre fnay
ad|udged to be abe for gross neggence /
msconduct.
- In settement / compromse, ndemnfcaton s
provded ony n connecton w/ such matters
covered by settement as to w/c Commsson s
advsed by externa counse that persons to be
ndemnfed ddnt commt any gross neggence
/ msconduct.
- Costs & expenses n defendng acton, sut,
proceedng may be pd by Commsson n
advance of fna dsposton upon recept of
undertakng by or on behaf of Commssoner,
offcer, empoyee to repay amt advanced shd t
be determned by Commsson that he / she
snt entted.
6.2.
- Commssoners, offcers, empoyees of
Commsson who wfuy voate ths Code OR
are guty of neggence, abuse, mafeasance or
fa to exercse extraordnary dgence n
performance of dutes sha be hed abe.
- Smar responsbty appes to
Commssoners, offcers, empoyees of
Commsson for
1. dscosure of nfo, dscusson, resouton of
Commsson of confdenta nature OR abt
confdenta operatons of Commsson, uness
dscosure s
- n connecton w/ offca fcns w/ Commsson
OR
- w/ pror authorzaton of Commssoners
2. use of such nfo for persona gan or to
detrment of govt, the Commsson, 3rd partes
- Data / nfo requred to be submtted to Pres
and / or Congress or ts commttee OR to be
pubshed sha not be confdenta.
Sec 7, RA 8799
Reorganzaton.
7.1.
- Commsson s authorzed to provde for ts
reorganzaton, to streamne structure &
operatons, upgrade HR component and enabe
t to more effcenty & effectvey perform fcns
& exercse powers.
7.2.
- A postons of Commsson are governed by
compensaton & poston cassfcaton systems
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& quafcaton standards approved by
Commsson based on comprehensve |ob
anayss & audt of actua dutes &
responsbtes.
- Compensaton pan sha be
- comparabe w/ prevang pan n Bangko
Sentra and other govt fnanca nsttutons
AND
- sub|ect to perodc rvw by Commsson no
more than once every 2y w/o pre|udce to
yeary mert rvws / ncreases based on
productvty & effcency.
- Commsson sha be exempt fr aws, rues,
reguatons on compensaton, poston
cassfcaton, quafcaton standards.
- Commsson sha endeavor to make ts system
conform as cosey as possbe w/ Compensaton
& Poston Cassfcaton Act of 1989.
Sec 76, RA 8799
Repeang Cause.
- Revsed Securtes Act (BP 178) n ts entrety
AND Sec 2, 4, 8 of PD 902A as amended, are
repeaed.
- A other aws, orders, rues, reguatons, or
parts thereof, nconsstent w/ ths Code are
repeaed or modfed.
Powers and Functons
Sec 3.
- Commsson has absoute |ursdcton,
supervson, contro over a corps, partnershps,
assns, who are grantees of prmary franchse
and / or cense or permt ssued by govt to
operate n Phs
- It has power to enst ad of any and a
enforcement agences of govt, cv or mtary.
Sec 6.
- Commsson has ff powers:
a. ssue prem / permanent n|unctons,
prohbtory / mandatory, where t has
|ursdcton (RoC sha appy)
b. punsh for contempt of Commsson, drect &
ndrect, n accordance w/ RoC
c. compe offcers of corp / assn regstered by t
to ca mtgs of stockhoders / members under ts
supervson
d. pass upon vadty of ssuance & use of
proxes & votng trust agreements for absent
stockhoders / members
e. ssue subpoena duces tecum and summon
wtnesses to appear n proceedngs of
Commsson; n approprate cases order search
& sezure or cause search & sezure of docs,
papers, fes, records, books of accts of entty
under nvestgaton
f. mpose fnes and / or penates for voaton of
ths Decree, aws mpemented by Commsson,
rues, etc
g. authorze estabshment of stock exchanges,
commodty exchanges, other smar orgs AND
supervse & reguate the same; nc authorty to
determne ther number, sze, ocaton
h. pass upon, refuse, deny, after consutaton
w/ BoI, Dept of Industry, NEDA or other govt
agency, the appcaton for regstraton of corp,
partnershp, assn, org w/n ts |ursdcton, f not
consstent w/ nat economc poces
. suspend, revoke, after notce & hearng, the
franchse / cert of regstraton of corp,
partnershp, assn, upon any of grounds
provded by aw, nc:
1. fraud n procurng cert of regstraton
2. serous msrepresentaton as to what corp
can do or s dong
3. refusa to compy / defance of awfu order
of Commsson restranng commsson of acts
w/c woud amt to grave voaton of franchse
4. contnuous noperaton for at east 5y
5. faure to fe by-aws w/n requred perod
6. faure to fe reports n forms determned by
Commsson w/n perod
|. exercse other powers as mped, necessary,
ncdenta to express powers
- Hearngs are conducted by Commsson OR by
Commssoner OR other bodes, boards,
commttees and / or offcer created / desgnated
by Commsson for the purpose. Decson,
rung, order may be appeaed to Commsson
en banc w/n 30d after recept by appeant of
notce of decson, rung, order.
- Commsson sha promugate rues of
procedures to govern proceedngs, hearngs,
appeas.
- Aggreved party may appea order, decson,
rung of Commsson en banc to SC by petton
for rvw.
Sec 5, RA 8799
Powers and Functons of the Commsson.
5.1.
- Commsson sha act w/ transparency and
have powers & fcns provded by ths Code, PD
902A, Corp Code, Investment Houses Law,
Fnancng Company Act, other aws.
- Commsson, powers & fcns:
a. have |ursdcton & supervson over corp,
partnershp, assn who are grantees of prmary
franchses and / or cense / permt ssued by
govt
b. formuate poces & recommendatons on
ssues re securtes market, advse Congress &
govt agences on securtes market, propose
egsaton and amendments
c. approve, re|ect, suspend, revoke, requre
amendments to regstraton statements,
regstraton & censng appcatons
d. reguate, nvestgate, supervse actvtes of
persons to ensure compance
e. supervse, montor, suspend, take over
actvtes of exchanges, cearng agences, other
SROs
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f. mpose sanctons
g. prepare, approve, amend, repea rues,
reguatons, orders; ssue opnons, provde
gudance on and supervse compance w/ such
rues
h. enst ad of and / or deputze enforcement
agences of govt, cv or mtary as we as pvt
nsttuton, corp, frm, assn or person n
mpementaton
. ssue cease & desst orders
|. punsh for contempt of Commsson, drect &
ndrect, n accordance w/ RoC
k. compe offcers of corp or assn to ca mtgs
of stockhoders / members under ts supervson
. ssue subpoena duces tecum, summon
wtnesses to appear n proceedngs of
Commsson, order exam, search, sezure of
docs, papers, fes, records, tax returns, books
of accts of entty under nvestgaton
m. suspend, revoke, after notce & hearng the
franchse / cert of regstraton of corp,
partnershp, assn, upon grounds provded by
aw
n. exercse other powers provded by aw as
we as those mped fr, or w/c are necessary /
ncdenta to express powers
XXX
|ursdcton
Sec 5, RA 8799
Powers and Functons of the Commsson.
XXX
5.2.
- Commssons |ursdcton over cases under
Sec 5 PD 902A s transferred to Courts of gen
|ursdcton OR RTC.
- SC may desgnate RTC branches that exercse
|ursdcton over these cases.
Cases
Prof Catindig:
Read Espino and Easycall cases together. Read
Cualoping and Provident cases together.
Compare and contrast.
REMOVAL FROM EMPLOYMENT OF
CORPORATE OFFlCERS NOT WlTHlN
]URlSDlCTlON OF NLRC
Espino v. NLRC
- A corporate officer's dismissal is always
corporate act and / or intra-corporate
controversy. That nature isnt altered by
reason / wisdom w/c 8oard may have in taking
such action.
- That Espino sought payment of backwages,
other benefits, moral & exemplary damages,
atty's fees in complaint for illegal dismissal will
not prevent 5EC fr exercising jurisdiction under
PD 902A.
NLRC HAS ]URlSDlCTlON OVER CASE
lNVOLVlNG "OFFlCER" WHOSE POSlTlON
lS NOT PROVlDED FOR lN THE BY-LAWS
AND WHO WAS NOT ELECTED BY THE
BOARD OF DlRECTORS
Easycall Communications Phils lnc v. King
- lt had to be first established that the person
removed / dismissed was a corporate officer
before removal / dismissal could properly fall
w/in jurisdiction of 5EC and not NLRC.
- Corporate officers" in context of PD 902A are
those officers of corp who are given that
character either by Corp Code or by by-laws.
Under 5ec 25 of Corp Code, the corporate
officers" are the pres, sec, treas and such other
officers as provided for in by-laws.
- An office" is created by charter of the corp;
the officer is elected by directors / stockholders.
On the other hand, an employee occupies no
ofc and generally is employed not by action of
directors / stockholders but by managing officer
who also determines compensation to be pd.
REGULATORY AND AD]UDlCATORY
FUNCTlONS OF SEC DlSTlNGUlSHED
SEC v. CA, Cualoping Securities and
Fidelity Transfers
- 5EC has both regulatory AND adjudicative
functions.
- Under its regulatory responsibilities, 5EC may
- pass upon applications for, suspend, revoke
(after notice & hearing), certificates of
registration of corps, partnerships, assn (excl
cooperatives, homeowners' assn, labor unions)
- compel legal & regulatory compliances
- conduct inspections
- impose fines / penalties for violations of
Revised 5ecurities Act, implementing rules &
directives of 5EC
- justiciable controversy such as can occasion
exercise of 5EC's exclusive jurisdiction would
require assertion of right by proper party
against another who, in turn, contests it. lt is
one instituted by & against parties having
interest in subject matter appropriate for
judicial determination predicated on given state
of facts. That controversy must be raised by
party entitled to maintain action. Hes the
person to whom right to seek judicial redress /
relief belongs w/c can be enforced against party
charged w/ having been responsible for, or to
have given rise to, the cause of action. A
person / entity tasked w/ power to adjudicate
stands neutral & impartial and acts on basis of
admissible representations of parties.
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- ln this case, the proper parties that can bring
the controversy & can cause exercise by 5EC of
its orig & exclusive jurisdiction would be all or
any of those who are adversely affected by
transfer of pilfered certificates of stock. Any
peremptory judgment by 5EC, w/o such
proceedings having first been initiated, would
be precipitate.
DETERMlNATlON OF WHlCH OF TWO
STOCK AND TRANSFER BOOKS lS VALlD
NOT AN lNTRA-CORPORATE DlSPUTE
Provident lnternational Resources Corp v.
]oaquin T. Venus
- 5ECs regulatory authority over pvt corps
encompasses a wide margin of areas, touching
nearly all of corps concerns.
- Under its regulatory responsibilities, 5EC may
- pass upon applications for, suspend, revoke
(after notice & hearing), certificates of
registration of corps, partnerships, assn (excl
cooperatives, homeowners' assn, labor unions)
- compel legal & regulatory compliances
- conduct inspections
- impose fines / penalties for violations of
Revised 5ecurities Act, implementing rules &
directives of 5EC
- Considering that the 5EC, after notice &
hearing, has regulatory power to revoke
corporate franchise - fr w/c a corp owes its
legal existence, 5EC must likewise have lesser
power of merely recalling and canceling 5T8
that was erroneously registered.
- As regulatory body, it is 5ECs duty to ensure
that theres only one set of 5T8 for ea corp.
NLRC HAS NO ]URlSDlCTlON OVER CASE
lNVOLVlNG NON-REELECTlON OF
DlRECTOR ETC.
Pearson and George (SE Asia) lnc v. NLRC
- Any question relating or incident to election of
new 8oard of Directors, non-reelection of
Llorente as Director, his loss of position of
Managing Director, or abolition of said ofc are
intra-corporate matters. Disputes arising
therefrom are intra-corporate disputes w/c, if
unresolved w/in corporate structure, may be
resolved in appropriate action only by 5EC
pursuant to its authority under 5ec 5 of PD
902A.
- This isnt a case of dismissal. The matter of
whom to elect is a prerogative that belongs to
8oard, and involves exercise of deliberate
choice and faculty of discriminative selection.
Cenerally, the relationship of person to a corp,
whether as officer or as agent or employee,
isnt determined by nature of the svcs
performed, but by incidents of relationship as
they actually exist.
lNTRA-CORPORATE CONTROVERSlES (AM
NO. 0J-Z-04-SC)
Cases Covered (Rue 1)
Sec 1.
a. Cases covered.
- These Rues govern n cv cases nvovng:
1. devces / schemes empoyed by OR act of
board of drectors, bz assocates, offcers,
partners, amountng to fraud /
msrepresentaton w/c may be detrmenta to
pubc and / or stockhoders, partners, members
of corp, partnershp, assn
2. controverses
- out of ntra-corporate, partnershp, assn
reatons
- between & among stockhoders, members,
assocates
- between any or a of them and the corp,
partnershp, assn of w/c theyre stockhoders,
members, assocates
3. controverses n eecton / appontment of
drectors, trustees, offcers, managers of corp,
partnershp, assn
4. dervatve suts
5. nspecton of corp books
b. Prohbton aganst nusance and harassment
suts.
- Nusance & harassment suts are prohbted.
In determnng whether sut s nusance /
harassment sut, court consders:
1. extent of sharehodng / nterest of ntatng
stockhoder / member
2. sub|ect matter of sut
3. ega & factua bass
4. avaabty of apprasa rghts
5. pre|udce to corp, partnershp, assn n
reaton to reef sought
- In case of nusance / harassment suts, court
may, motu propro or upon moton, dsmss the
case.
Dstngush from SC Interm Rues of Procedure
on Corporate Rehabtaton
Modes of Dscovery (Rue 3)
Sec 1. In genera.
- A party can ony ava of any of modes of
dscovery not ater than 15d fr |onder of ssues.
Sec 2. Ob|ectons.
- Any mode of dscovery may be ob|ected to
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- w/n 10d fr recept of dscovery devce AND
- ony on ground that the matter requested s
patenty ncompetent, mmatera, rreevant,
prveged
- Court sha rue on ob|ectons not ater than
15d fr fng.
Sec 3. Compance.
- Compance w/ mode of dscovery sha be
made w/n 10d fr recept of dscovery devce OR
f there are ob|ectons, fr recept of rung of
court.
Sec 4. Sanctons.
- Sanctons n RoC for faure to ava of, or
refusa to compy w/ modes of dscovery appy.
- In addton, court may upon moton, decare
party non-suted or as n defaut, as case may
be, f refusa to compy w/ mode of dscovery s
patenty un|ustfed.
Pre-tra (Rue 4)
Sec 1. Pre-tra conference; mandatory nature.
- W/n 5d after perod for avament of, and
compance w/ modes of dscovery, whchever
comes ater, court ssues & serves order
- settng the case for pre-tra conference AND
- drectng partes to submt pre-tra brefs
- Partes sha fe w/ court and furnsh ea other
copes of pre-tra bref to ensure recept by
court & other party at east 5d before date set
for pre-tra.
- Partes set forth n pre-tra brefs ff:
1. bref statement of nature of case; summarze
theory of party n cear & concse anguage
2. aegatons expressy admtted by ether /
both partes
3. aegatons deemed admtted by ether /
both partes
4. docs not specfcay dened under oath by
ether / both partes
5. amendments to peadngs
6. statement of ssues, w/c separatey
summarzes factua & ega ssues
7. names of wtnesses to be presented;
summary of ther testmony as contaned n
affdavts
8. other pcs of evdence
9. specfc proposas for amcabe settement
10. possbty of referra to medaton or other
aternatve modes of dspute resouton
11. proposed schedue of hearngs
12. other matters
Sec 2. Nature and purpose of pre-tra
conference.
- Durng pre-tra conference, court sha ensure
that partes consder ff:
1. possbty of amcabe settement
2. referra to medaton / other forms of dspute
resouton
3. facts that need not be proven, bec theyre of
|udca notce or expressy / deemed admtted
4. amendments to peadngs
5. possbty of obtanng stpuatons &
admsson of facts & docs
6. ob|ectons to admssbty of testmona,
documentary, other evdence
7. ob|ectons to form / substance of affdavt, or
part thereof
8. smpfcaton of ssues
9. possbty of submttng case for decson on
bass of poston papers, affdavts,
documentary & rea evdence
10. schedue of hearng dates
11. other matters
Sec 3. Termnaton.
- Prem conference s termnated not ater than
10d after commencement, WON partes agreed
to sette amcaby.
Sec 4. |udgment before pre-tra.
- If, after submsson of pre-tra brefs, court
determnes that upon consderaton of
peadngs, affdavts, other evdence submtted,
a |udgment may be rendered, court may order
partes to fe smutaneousy respectve
memoranda w/n non-extendbe 20d fr recept
of order.
- Court renders |udgment, fu or otherwse, not
ater than 90d fr expraton of perod to fe
memoranda.
Sec 5. Pre-tra order; |udgment after pre-tra.
- Proceedngs n pre-tra are recorded.
- W/n 10d after termnaton of pre-tra, court
ssues order w/c rectes
- matters taken up n conference
- actons taken
- amendments aowed n peadngs
- agreements / admssons made by partes
- Court sha rue on ob|ectons to or comments
on admssbty of documentary / other
evdence, nc affdavt or part thereof.
- Shd acton proceed to tra, order defnes &
mts ssues and sha strcty foow form n
Annex "A".
- Contents of order contro subsequent course
of acton, uness modfed before tra to prevent
manfest n|ustce.
- After pre-tra, court may render |udgment, fu
or parta, as evdence presented durng pre-
tra may warrant.
Eecton Contests (Rue 6)
Sec 2. Defnton.
- Eecton contests - any controversy / dspute
nvovng tte / cam to any eectve ofc n stock
/ non-stock corp, vadaton of proxes, manner
& vadty of eectons, quafcatons of
canddates, nc procamaton of wnners to ofc
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of drector, trustee, other offcer drecty eected
by stockhoders n cose corp or by members of
non-stock corp where artce of ncorporaton or
by-aws so provde.
Inspecton of Corporate Books and Records
(Rue 7)
Sec 1. Cases covered.
- Ths Rue appes to dsputes excusvey
nvovng rghts of stockhoders / members to
nspect books & records and / or to be furnshed
w/ fnanca statements of corp under Corp
Code.
Sec 2. Compant.
- In addton to requrements n Sec 4 Rue 2,
compant must state ff:
1. case s for enforcement of pantff's rght of
nspecton of corporate orders / records and / or
to be furnshed w/ fnanca statements
2. demand for nspecton & copyng of books &
records and / or to be furnshed w/ fnanca
statements
3. refusa of defendant to grant demands of
pantff and reasons gven
4. reasons why refusa to grant demands of
pantff s un|ustfed & ega, statng aw &
|ursprudence
Sec 7. Decson.
- Court renders decson based on peadngs,
affdavts, documentary & other evdence
attached w/n 15d fr recept of ast peadng.
- Decson orderng defendants to aow
nspecton and / or to furnsh copes sha aso
- order pantff to depost estmated cost of
manpower necessary to produce books &
records and cost of copyng AND
- state mtatons & condtons to exercse of
rght
Dervatve Suts (Rue 8)
Sec 1. Dervatve acton.
- Stockhoder / member may brng acton n the
name of corp / assn provded that:
1. he was stockhoder / member at tme the
acts / transactons occurred and the tme the
acton was fed
2. he exerted a reasonabe efforts, and aeges
the same w/ partcuarty n compant, to
exhaust a remedes avaabe under artces of
ncorporaton, by-aws, aws / rues governng
the corp / partnershp to obtan reef he desres
3. no apprasa rghts are avaabe for acts
companed of
4. sut snt nusance or harassment sut
- n nusance / harassment sut, court sha
dsmss case.
Sec 2. Dscontnuance.
- Dervatve acton sha not be dscontnued,
compromsed, setted w/o approva of court.
- Durng pendency of acton, any sae of shares
of companng stockhoders sha be approved
by court.
- If court determnes that nterest of
stockhoders / members are substantay
affected by dscontnuance, compromse,
settement, the court may drect that notce, by
pubcaton or otherwse, be gven to
stockhoders / members whose nterest w be
affected.
Management Commttee (Rue 9)
Sec 1. Creaton of a management commttee.
- As ncdent to cases fed under these Rues
OR Interm Rues Corporate Rehabtaton, party
may appy for appontment of mgmt commttee
for corp, partnershp, assn, when theres
mmnent danger of:
1. dsspaton, oss, wastage, destructon of
assets / props
2. parayzaton of bz w/c may be pre|udca to
mnorty stockhoders, partes-tgants, pubc
Sec 2. Recever.
- If court fnds appcaton to be suffcent n
form & substance, court ssues order
a. appontng rcver of known probty, ntegrty,
competence and w/o confct of nterest to take
over corp, partnershp, assn, specfyng such
powers t deems approprate
b. fxng bond of rcver
c. drectng rcver to make report w/n 60d fr
tme he assumes ofc
d. prohbtng ncumbent mgmt fr seng,
encumberng, transferrng, dsposng any of ts
props except n ordnary course of bz
e. drectng payment n fu of admn expenses
ncurred after ssuance of order
Sec 4. Composton of the management
commttee.
- After notce & hearng, court may appont
mgmt commttee composed of 3 members
chosen by court.
- In appontment, ff quafcatons are
consdered
1. expertse & acumen to manage bz smar n
sze & compexty as the corp, assn, partnershp
to be put under mgmt commttee
2. knowedge n mgmt & fnance
3. good mora character, ndependence,
ntegrty
4. ack of confct of nterest
5. wngness & abty to fe bond n amt
determned by court
- W/o mtng generaty of ff, member of mgmt
commttee may be deemed to have confct of
nterest f he s
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1. engaged n ne of bz w/c competes w/ corp,
assn, partnershp sought to be paced under
mgmt
2. drector, offcer, stockhoder charged w/
msmgmt, dsspaton, wastage of prop of entty
under mgmt
3. reated by consangunty / affnty w/n 4th
cv degree to drector, offcer, stockhoder
charged w/ msmgmt, dsspaton, wastage of
props
Sec 5. Powers and functons of the
management commttee.
- Upon assumpton to ofc of mgmt commttee,
rcver renders report AND turns over mgmt &
contro of entty to mgmt commttee.
- Mgmt commttee has power to take custody of
& contro assets & propertes owned /
possessed by entty.
- It sha take pace of mgmt and board of
drectors, assume ther rghts & responsbtes,
and preserve assets & propertes n possesson.
- W/o mtng generaty of foregong, mgmt
commttee exercses powers & fcns:
1. nvestgate acts, conduct, props, abtes,
fnanca condton of corp, assn, partnershp
2. examne under oath the drectors & offcers,
other wtnesses
3. report to court any fact ascertaned by t
pertanng to causes of probems, fraud,
msconduct, msmgmt, rreguartes
4. empoy person/s such as awyers,
accountants, audtors, apprasers, staff as
necessary
5. report to court matera adverse change n
bz
6. evauate exstng assets & abtes,
earnngs, operatons of corp, assn, partnershp
7. determne & recommend to court the best
way to savage & protect nterest of credtors,
stockhoders, pubc, nc rehab of the corp,
assn, partnershp
8. prohbt & report to court encumbrance,
transfer, dsposton of debtor's prop outsde of
ordnary course of bz or whats aowed by
court
9. prohbt & report to court payments made
outsde of ordnary course of bz
10. have untd access to empoyees, premses,
books, records, fnanca docs durng bz hrs
11. nspect, copy, photocopy, photograph any
doc, paper, book, acct, etter, whether n
possesson of corp, assn, partnershp, other
persons
12. gan entry nto prop for purposes of
nspectng, measurng, surveyng,
photographng t or any reevant ob|ect /
operaton thereon
13. brng to attn of court any matera change
affectng entty's abty to meet obgatons
14. revoke resoutons passed by Executve
Commttee or Board of Drectors / Trustees or
governng body of entty under mgmt and pass
resouton n substtuton of the same
15. modfy, nufy, revoke transactons w/c t
deems detrmenta / pre|udca
16. recommend termnaton of proceedngs &
dssouton of entty f contnuance n bz s no
onger feasbe / proftabe or no onger works to
best nterest of stockhoders, partes-tgants,
credtors, pubc
17. appy to court for order / drectve to ad t
n exercse of powers & performance of dutes
18. exercse other powers conferred upon t by
court
Sec 7. Transactons deemed to be n bad fath.
- Transactons made by prevous mgmt and
drectors are deemed frauduent & rescssbe f
made
- w/n 30d pror to appontment of rcver / mgmt
commttee OR
- durng ther ncumbency as rcver / mgmt
commttee
Sec 9. Immunty from sut.
- Rcver & members of mgmt commttee and
persons empoyed by them sha not be sub|ect
to acton, cam, demand n connecton w/ act
done / omtted by them n good fath n exercse
of ther fcns & powers.
- Offca acts & transactons of rcver / mgmt
commttee approved / ratfed by court render
them mmune fr sut n connecton w/ such act /
transacton.
Sec 12. Dscharge of the management
commttee.
- Mgmt commttee s dscharged & dssoved
under ff:
1. court, on moton or motu propro,
determned that necessty for mgmt commttee
no onger exsts
2. by agreement of partes
3. upon termnaton of proceedngs
- Upon dscharge & dssouton, mgmt
commttee submts fna report & renders acctg.
Cases
PURPOSE AND NATURE OF DERlVATlVE
SUlTS
Chua v. CA
- Under 5ec 36 of Corp Code in relation to 5ec
23, where corp is injured party, its power to sue
is lodged w/ board of directors / trustees. An
individual stockholder is permitted to institute
derivative suit on behalf of corp where he holds
stocks to protect / vindicate corporate rights,
when officials refuse to sue, or are the ones to
be sued, or hold control of the corp. ln such
actions, suing stockholder is nominal party, w/
the corp as real party in interest.
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- Derivative action is suit by shareholder to
enforce corporate cause of action. The corp is
necessary party to the suit. The relief granted
is judgment against 3rd person in favor of corp.
5imilarly, if corp has defense to action against it
and isnt asserting it, stockholder may
intervene & defend on behalf of corp.
- Not every suit filed in behalf of corp is
derivative suit. For derivative suit to prosper,
its required that minority stockholder suing for
and on behalf of corp must allege in his
complaint that hes suing on derivative cause of
action on behalf of corp and other stockholders
similarly situated who may wish to join him.
- lts condition sine qua non that the corp be
impleaded as party bec not only is the corp an
indispensable party, but its also the present
rule that it must be served w/ process.
judgment must be made binding upon corp in
order that the corp may get the benefit of suit
and may not bring subsequent suit against
same defendants for same cause of action. The
corp must be joined as party bec it is its cause
of action thats being litigated and bec
judgment must be a res judicata against it.
NOT ALL STOCKHOLDERS } MEMBERS ARE
lNDlSPENSABLE PARTlES lN DERlVATlVE
SUlT
Symaco Trading Corp v. Santos
- One of the requisites of derivative suit is that
the party bringing suit shld be stockholder /
member at the time of action / transaction
complained of.
- The right to sue derivatively is an attribute of
corporate ownership w/c requires that the injury
alleged be indirect as far as stockholders /
members are concerned, and direct only insofar
as corp is concerned.
- The whole purpose of law authorizing
derivative suit is to allow stockholder / member
to enforce rights w/c are derivative (secondary)
in nature. A derivative action is suit by
shareholder / member to enforce corporate
cause of action.
- Not all MF8Al members are indispensable
parties in derivative suit. lts enough that a
member or minority of members file derivative
suit for and in behalf of corp. After all,
members / stockholders who filed derivative
suit are merely nominal parties, the real party-
in-interest being the corp for and in whose
behalf the suit is filed. Any monetary benefits
under the decision shall pertain to the corp.
APPOlNTMENT OF MANAGEMENT
COMMlTTEE VALlD
]acinto v. First Women's Credit Corp
- For minority stockholder to obtain
appointment of interim mgmt committee, he
must do more than merely make prima facie
showing of denial of his right to share in
concerns of the corp. He must show that the
corporate prop is in danger of being wasted &
destroyed and the biz of the corp is being
diverted fr the purpose for w/c it has been
organized and there is serious paralization of
operations all to his detriment.
- lts only in strong case where theres showing
that the majority are clearly violating chartered
rights of minority and putting their interests in
imminent danger that mgmt committee may be
created. Mere disagreement among
stockholders as to affairs of corp wouldnt in
itself suffice as ground for appointment of
mgmt committee.
- At least where theres no imminent danger of
loss of corporate prop or of any other injury to
stockholders, mgmt of corporate biz shldnt be
wrested away fr duly elected officers, who are
prima facie entitled to administer affairs of corp
and placed in the hands of mgmt committee.
- However, where dissension among
stockholders is such that the corp cant
successfully carry on corporate fcns the
appointment of mgmt committee becomes
imperative.
APPOlNTMENT OF MANAGEMENT
COMMlTTEE NOT VALlD
Sy Chim v. Sy Siy Ho & Sons lnc
- For minority stockholder to obtain
appointment of interim mgmt committee, he
must do more than merely make prima facie
showing of denial of his right to share in
concerns of the corp. He must show that the
corporate prop is in danger of being wasted &
destroyed and the biz of the corp is being
diverted fr the purpose for w/c it has been
organized and there is serious paralization of
operations all to his detriment.
- The rationale for the need to establish
confluence of the 2 requisites under 5ec J Rule
9 by applicant for appointment of mgmt
committee is primarily based upon fact that
such committee & rcver appointed by court will
immediately take over mgmt of the corp,
partnership, assn incl such power as
appropriate, and any of powers in 5ec 5 of the
Rule.
- Upon appointment of rcver, the elected /
appointed officers of corp are divested of mgmt
of corp in favor of mgmt committee / rcver.
5uch transference of mgmt will certainly have
negative, if not crippling effect, on operations /
affairs of corp not only w/ banks & other biz
institutions including those abroad w/c it deals
with. A wall of uncertainty is erected; the short
& long-term plans are disrupted, if not derailed.
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- The creation & appointment of mgmt
committee & rcver is an extraordinary & drastic
remedy to be exercised w/ care; and only when
requirements under lnterim Rules are shown.
lts a drastic course for benefit of minority
stockholders, the parties-litigants or gen public
are allowed only under pressing circumstances
and, when theres inadequate / ineffectual legal
or other remedies or when they have been
exhausted.
- Neither PD 902A and RA 8799 nor the lnterim
Rules of Procedure define "imminent danger."
"Danger" is a gen term, incl peril, jeopardy,
hazard, risk; as used in the Rule, it refers to
exposure / liability to injury. "lmminent" refers
to something w/c is threatening to happen at
once, something close at hand, something to
happen upon the instant, close although not yet
happening, and on the verge of happening.
- ln the absence of strong showing of imminent
danger of dissipation, loss, wastage, destruction
of assets / props of corp and paralysis of biz
operations, the mere apprehension of future
misconduct based upon prior mismanagement
will not authorize appointment of mgmt
committee / rcver.
Ao-As v. CA
- Appointment of mgmt committee inevitably
results in drastic summary removal of all
directors & officers.
- Where the corp is solvent, rcver will not be
appointed bec of past misconduct and
subsequent mere apprehension of future
misdoing, where present situation and
prospects for the future are not such as to
warrant receivership.
- Cen rule: Rcver or mgmt committee will not
be appointed unless necessary either to
prevent fraud, or to save prop fr fraud /
threatened destruction, or at least in case of
solvent corporation. The burden of proof is
heavy one w/c requires clear showing that
emergency exists. 5imilarly, rcver / mgmt
committee shldnt be appointed in action by
minority stockholder against corporate officers
for accounting where corp is solvent and going
concern and rcver isnt necessary to preserve
corporate prop pending accounting.
- Mgmt committee shldnt be created when
there was adequate remedy available to pvt
respondents for liquidation of unaccounted
funds. Appointment of rcver for going corp is
last resort remedy, and shldnt be employed
when another remedy is available.
POWER TO CREATE MANAGEMENT
COMMlTTEE lNCLUDES POWER TO
REORGANlZE THE SAME
Punongbayan v. Punongbayan
- A mgmt committee is tasked to manage, take
custody of and control existing assets, funds,
records of corp AND to determine the best way
to protect interest of stockholders & creditors.
- Having the power to create mgmt committee,
it follows that RTC can order reorganization of
existing mgmt committee. 5uch appointment
of new members doesnt mean creation of new
mgmt committee. Existing mgmt committee
wasnt abolished.
XVl. THE SECURlTlES REGULATlON
CODE
RA 8799 (2000)
LlCENSlNG OF BROKERS
NlCOLAS vs. CA
G.R. No. 122857
27 March 1998
RTC granted. CA dsmssed.
February 19, 1987 Ncoas and Buan entered
nto a Portfoo Management Agreement !
Ncoas w manage Buans stock transactons
for 3 months, wth an automatc renewa cause.
August 19, 1987 Buan sought termnaton of the
Agreement and requested an accountng from
Ncoas.
Three weeks after, Ncoas demanded
management fees of P68,263.67 for |une 30,
|uy 31 and August 19, 1987 as stated n the
Agreement. ! Ignored.
Ncoas fed n RTC a compant for coecton of
sum of money.
Buans answer: Not entted - Ncoas
msmanaged hs transactons resutng n
osses.
RTC: Granted - Buan shoud pay Ncoas
management fees.
CA reversed and dsmssed: Sweepng
statement |that profts were generated by
Ncoas transactons| were unsubstantated
|Ncoas proft and oss statements were
reevant and admssbe, but they are not
credbe because sef-servng|.
Anchor Hocking Class Corp. vs. White Cap.: The
statements smpy tabuate the number of
shares acqured from each company, a coumn
for proft and the ast coumn for oss. The
statements were not authentcated by an
audtor, nor by the person who caused the
preparaton of the same.
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Sampe Statement submtted by Ncoas:
"Proft & Loss Statement of Atty. Beso Buan
for the Perod Ended |une 30, 1987
Shares Issue Proft Loss
1,500 PLDT P 7,265.62"
"The edger of accounts as proof of the
transactons entered nto ony shows the
foowng data:
(1) dates n whch the stocks were acqured;
(2) cassfed the acqured stocks to be n ong
or short term tradng;
(3) the prce of each stock;
(4) whch company's stocks were acqured; and,
(5) the tota amount pad for each stock.
It does not show how much proft was reazed
from each transacton."
SC: CA affrmed.
Portfoo Management Agreement states that
Buan woud pay Ncoas 20% of a reazed
profts every end of the month as hs
management fees.
"Profts" = "excess of return over expendture n
a transacton or seres of transactons" or
"seres of an amount receved over the amount
pad for goods and servces."
Ncoas bears burden of provng that the
transacton reazed gans or profts.
Yes, stock brokers are entted to commerca
fees or compensaton:
"Revsed Securtes Act Rue 19-13. Charges for
Servces Performed.
Charges by brokers or deaers.sha be
reasonabe and not unfary dscrmnatory
between customers."
8auer & Cie vs. O'Donnel: Any fee or
commsson must be wth due regard to
reevant crcumstances.
But here, the statements are ncompete,
yedng easy to the ncuson or deeton of
certan matters.. There are no concrete bases or
specfcs as to the method of arrvng at the
amounts ndcated. It does not state when the
stocks were purchased, the type of stocks
(whether Cass "A" or "B" or common or
preferred) bought, when the stocks were sod,
the acquston and seng prce of each stock,
when the profts, f any, were devered to the
prvate respondent, the cost of safekeepng or
custody of the stocks, as we as the taxes pad
for each transacton.
8auer & Cie vs. O'Donne: Where a proft or oss
statement shows a oss, the statement must
show ncome and tems of expense to expan
the method of determnng such oss.
There were no credbe documentary evdence
(e.g. recepts of the transactons, order tcket,
certfcate of depost; whether the stock
certfcates were deposted n a bank or
professona custodan, and others) to support
hs cam that profts were ndeed reazed.
Ncoas's compant s smar to an acton for
damages. The recoverabe damage not ony be
capabe of proof but must actuay be proved
wth a reasonabe degree of certanty. The
awardng court must post specfc facts as
suffcent bass for measurng compensatory or
actua damages.
Lasty, Ncoas cant recover because he traded
securtes for the account of others wthout the
necessary cense from the Securtes and
Exchange Commsson (SEC), voatng SEC 19
of the Revsed Securtes Act.
Agbayani: Purpose = protect the pubc and
strengthen the securtes mechansm.
Am jur: ". . ., an uncensed person may not
recover compensaton for servces as a broker
where a statute or ordnance requrng a cense
s appcabe and such statute or ordnance s of
a reguatory nature, was enacted n the
exercse of the poce power for the purpose of
protectng the pubc, requres a cense as
evdence of quafcaton and ftness, and
expressy precudes an uncensed person from
recoverng compensaton by sut, or at east
manfests an ntent to prohbt and render
unawfu the transacton of busness by an
uncensed person."
WHERE BOTH PARTlES ARE EUALLY AT FAULT, NElTHER
ONE COULD HAVE RECOURSE AGAlNST THE OTHER
ABACUS SECURlTlES CORPORATlON vs.
AMPlL
G.R. No. 160016
27 February 2006
Facts:
Abacus s engaged n busness as a broker and
deaer of securtes of sted companes at the
Phppne Stock Exchange Center.
On Apr 8, 1997, Amp opened a cash account
wth Abacus for hs transactons n securtes;
Amps purchases were consstenty unpad
from Apr 10 to 30, 1997;
Amp faed to pay n fu, or even |ust hs
defcency, for the transactons on Apr 10 and
11, 1997;
Despte Amps faure to cover hs nta
defcency, Abacus subsequenty purchased and
sod securtes for Amps account on Apr 25
and 29;
Abacus dd not cance or qudate a substanta
amount of Amps stock transactons unt May
6, 1997.
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RTC RULlNG: RTC hed that Abacus voated
SECs 23 and 25 of the Revsed Securtes Act
(RSA) and Rue 25-1 of the Rues Impementng
the Act (RSA Rues) when t faed to: 1) requre
the Amp to pay for hs stock purchases wthn
three or four days from tradng; and 2) request
from the approprate authorty an extenson of
tme for the payment of Amps cash
purchases. RTC noted that despte Amps non-
payment wthn the requred perod, Abacus dd
not cance the purchases of Amp. Nether dd
t requre hm to depost cash payments before
t executed the buy and/or se orders
subsequent to the frst unsetted transacton.
Accordng to the RTC, by aowng Amp to
trade hs account actvey wthout cash, Abacus
effectvey nduced hm to purchase securtes
thereby ncurrng excessve credts.
RTC aso found Amp to be equay at faut, by
ncurrng excessve credts and watng to see
how hs nvestments turned out before decdng
to nvoke the RSA. Thus, the RTC concuded
that Abacus and Amp were n par decto and
therefore wthout recourse aganst each other.
CA RULlNG: CA uphed the ower courts
fndng that the partes were n par decto. It
castgated Abacus for aowng Amp to keep on
tradng despte the atters faure to pay hs
outstandng obgatons. It expaned that "the
reason |behnd Abacuss act| s eementa n ts
smpcty. And t s not exacty atrustc.
Because whether |Amps| tradng transacton
woud resut n a surpus or defct, he woud st
be abe to pay Abacus ts commsson.
|Abacuss| cash regster w keep on rngng to
the sound of ncomng money, no matter what
happened to Amp."
Hence, ths Petton.
lssue: WON the par decto rue s appcabe n
the present case.
Held: In Par Decto rue appes ony to
transactons entered nto AFTER the initial
trades made on Apr 10 and 11, 1997.
Ratio:
The provsons governng the above
transactons are SECs 23 and 25 of the RSA and
Rue 25-1 of the RSA Rues, whch state as
foows:
SEC. 23. Margn Requrements. -
xxx
(b) It sha be unawfu for any member of an
exchange or any broker or deaer, drecty or
ndrecty, to extend or mantan credt or
arrange for the extenson or mantenance of
credt to or for any customer -
(1) On any securty other than an exempted
securty, n contraventon of the rues and
reguatons whch the Commsson sha
prescrbe under subSEC (a) of ths SEC;
(2) Wthout coatera or on any coatera
other than securtes, except () to mantan a
credt ntay extended n conformty wth the
rues and reguatons of the Commsson and ()
n cases where the extenson or mantenance of
credt s not for the purpose of purchasng or
carryng securtes or of evadng or
crcumventng the provsons of subparagraph
(1) of ths subSEC.
xxx
SEC. 25. Enforcement of margn requrements
and restrctons on borrowngs. - To prevent
ndrect voatons of the margn requrements
under SEC 23 hereof, the broker or deaer sha
requre the customer n nonmargn transactons
to pay the prce of the securty purchased for
hs account wthn such perod as the
Commsson may prescrbe, whch sha n no
case exceed three tradng days; otherwse, the
broker sha se the securty purchased startng
on the next tradng day but not beyond ten
tradng days foowng the ast day for the
customer to pay such purchase prce, uness
such sae cannot be effected wthn sad perod
for |ustfabe reasons. The sae sha be wthout
pre|udce to the rght of the broker or deaer to
recover any defcency from the customer. x x
x."
RSA RULE 25-1
Purchases and Saes n Cash Account
(a) Purchases by a customer n a cash
account sha be pad n fu wthn three (3)
busness days after the trade date.
(b) If fu payment s not receved wthn the
requred tme perod, the broker or deaer sha
cance or otherwse qudate the transacton, or
the unsetted porton thereof, startng on the
next busness day but not beyond ten (10)
busness days foowng the ast day for the
customer to pay, uness such sae cannot be
effected wthn sad perod for |ustfabe
reasons.
(c) If a transacton s canceed or otherwse
qudated as a resut of non-payment by the
customer, pror to any subsequent purchase
durng the next nnety (90) days, the customer
sha be requred to depost suffcent funds n
the account to cover each purchase transacton
pror to executon.
x x x x x x x x x
(f) Wrtten appcaton for an extenson of
the perod of tme requred for payment under
paragraph (a) be made by the broker or deaer
to the Phppne Stock Exchange, n the case of
a member of the Exchange, or to the
Commsson, n the case of a non-member of
the Exchange. Appcatons for the extenson
must be based upon exceptona crcumstances
and must be fed and acted upon before the
expraton of the orgna payment perod or the
expraton of any subsequent extenson."
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SEC 23(b) above -- the aeged voaton of
Abacus whch provdes the bass for Amps
defense -- makes t unawfu for a broker to
extend or mantan credt on any securtes
other than n conformty wth the rues and
reguatons ssued by Securtes and Exchange
Commsson (SEC). SEC 25 ays down the rues
to prevent ndrect voatons of SEC 23 by
brokers or deaers. RSA Rue 25-1 prescrbes n
deta the reguatons governng cash accounts.
The margn requrements set out n the RSA are
prmary ntended to acheve a macroeconomc
purpose -- the protecton of the overa
economy from excessve specuaton n
securtes. Ther recognzed secondary purpose
s to protect sma nvestors.
The aw paces the burden of compance wth
margn requrements prmary upon the brokers
and deaers. SECs 23 and 25 and Rue 25-1,
otherwse known as the "mandatory cose-out
rue," ceary vest upon Abacus the obgaton,
not |ust the rght, to cance or otherwse
qudate a customers order, f payment s not
receved wthn three days from the date of
purchase.
Ampil is liable for the first, but not for the
subsequent trades
Nonetheess, these margn requrements are
appcabe ony to transactons entered nto by
the present partes subsequent to the nta
trades of Apr 10 and 11, 1997. Thus, we hod
that Abacus can st coect from Amp to the
extent of the dfference between the atters
outstandng obgaton as of Apr 11, 1997 ess
the proceeds from the mandatory se out of the
shares pursuant to the RSA Rues. Abacuss
rght to coect s |ustfed under the genera aw
on obgatons and contracts.
The rght to coect cannot be dened to Abacus
as the nta transactons were entered
pursuant to the nstructons of Amp. The
obgaton of Amp for stock transactons made
and entered nto on Apr 10 and 11, 1997
remans outstandng. These transactions
were valid and the obligations incurred by
Ampil concerning his stock purchases on
these dates subsist. At that tme, there was
no voaton of the RSA yet. Abacuss faut
arose ony when t faed to: 1) qudate the
transactons on the fourth day foowng the
stock purchases, or on Apr 14 and 15, 1997;
and 2) compete ts qudaton no ater than ten
days thereafter, appyng the proceeds thereof
as payment for Amps outstandng obgaton.
Eucdatng further, snce the buyer was not
abe to pay for the transactons that took pace
on Apr 10 and 11,, the broker was duty-bound
to advance the payment to the settement
banks wthout pre|udce to the rght of the
broker to coect ater from the cent.
In securtes tradng, the brokers are essentay
the counterpartes to the stock transactons at
the Exchange. Snce the prncpas of the broker
are generay undscosed, the broker s
personay abe for the contracts thus made.
Hence, Abacus had to advance the payments
for Amps trades. Brokers have a rght to be
rembursed for sums advanced by them wth
the express or mped authorzaton of the
prncpa (n ths case, Amp).
In the present case, Abacus obvousy faed to
enforce the terms and condtons of ts
Agreement wth Amp, purportedy actng on
the pea of Amp to gve hm tme to rase funds
therefor. By fang to ensure Amps payment
of hs frst purchase transacton wthn the
perod prescrbed by aw, thereby aowng hm
to make subsequent purchases, Abacus
effectvey converted Amps cash account nto
a credt account. However, extenson or
mantenance of credts on nonmargn
transactons, are specfcay prohbted under
SEC 23(b). Thus, Abacus was remss n ts duty
and cannot be sad to have come to court wth
"cean hands" nsofar as t ntended to coect
on transactons subsequent to the initial trades
of April J0 and JJ, J997.
Ampil is equally guilty for subsequent
trades
On the other hand, we fnd Amp equay guty
n enterng nto the transactons n voaton of
the RSA and RSA Rues. We are not prepared to
accept hs sef-servng assertons of beng an
"nnocent vctm" n a the transactons. Rather,
he s an experenced and knowedgeabe trader
who s we versed n the securtes market and
who made hs own nvestment decsons.
We note that t was Amp who repeatedy asked
for some tme to pay hs obgatons for hs
stock transactons. Abacus acceded to hs
requests. It s ony when sued upon hs
ndebtedness that Amp rased as a defense the
nvadty of the transactons due to aeged
voatons of the RSA. It was Amps prvege to
gambe or specuate, as he apparenty dd so by
askng for extensons of tme and refranng
from gvng orders to hs broker to se, n the
hope that the prces woud rse. Sustanng hs
argument now woud amount to reevng hm of
the rsk and consequences of hs own
specuaton and saddng them on the Abacus
after the resut was known to be unfavorabe.
ln the final analysis, both partes acted n
voaton of the aw and dd not come to court
wth cean hands wth regard to transactons
subsequent to the initial trades made on Apr
10 and 11, 1997. Thus, the peculiar facts of
the present case bar the application of the
pari delicto rule -- expressed n the maxms
"Ex doo mao non ortur acton" and "In par
decto potor est condto defendents" -- to a
the transactons entered nto by the partes.
The par deecto rue refuses ega remedy to
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ether party to an ega agreement and eaves
them where they were.
ln this case, the pari delicto rule applies
only to transactions entered into AFTER
the initial trades made on April 10 and 11,
1997.
Since the lNlTlAL trades are valid and
subsisting obligations, Ampil is liable for
them.
Dispositive: WHEREFORE, CA Decson and
Resouton are MODIFIED. Amp s ordered to
pay Abacus the dfference between the formers
outstandng obgaton as of Apr 11, 1997 ess
the proceeds from the mandatory se out of
shares pursuant to the RSA Rues, wth nterest
thereon at the ega rate unt fuy pad.
TENDER OFFER RULES APPLY TO lNDlRECT ACUlSlTlON
OF SHARES
CEMCO HOLDlNGS, lNC. vs. NATlONAL LlFE
lNSURANCE COMPANY
G.R. 171815
7 August 2007
Facts:
Unon Cement or "UCC" (pubcy sted) has 2
prncpa SH (stockhoders) - UCHC (non-sted)
ownng 60.51% and Cemco ownng 17.03%.
Ma|orty of UCHCs stocks were owned by BCI
(21.31%) and ACC (29.69%). Cemco owned 9%
of UCHCs stocks.
5 |uy 2004: BCI nformed the Phppne Stock
Exchange (PSE) that t and ts subsdary ACC
had passed resoutons to se to Cemco a of
the stocks of BCI and ACC n UCHC.
8 |uy 2004: In PSE Crcuar for Brokers No.
3146-2004 t was stated that as a resut of
Cemcos acquston of BCI and ACCs shares n
UCHC, ts tota benefca ownershp, drect and
ndrect, n UCC has ncreased by 36% and
amounted to at east 53% of the shares of UCC.
15 |uy 2004: As a consequence of ths
dscosure, the PSE, n a etter to the SEC
nqured as to whether the Tender Offer Rue
under Rue 19 of the Impementng Rues of the
Securtes Reguaton Code s not appcabe to
Cemcos purchase of the ma|orty of shares of
UCC.
16 |uy 2004: Drector |ustna Caangan of the
SECs Corporate Fnance Department reped
that t was the stance of the department that
the tender offer rue was not appcabe.
However, the matter must st have to be
confrmed by the SEC en banc.
27 |uy 2004: In a subsequent etter, Drector
Caangan confrmed that the SEC en banc had
resoved that the Cemco transacton was not
covered by the tender offer rue.
28 |uy 2004, feeng aggreved by the
transacton, respondent Natona Lfe Insurance
Company of the Phppnes, Inc., a mnorty
stockhoder of UCC, sent a etter to Cemco
demandng the atter to compy wth the rue on
mandatory tender offer.
Cemco, however, refused.
5 August 2004: a Share Purchase Agreement
was executed by ACC and BCI, as seers, and
Cemco, as buyer.
19 August 2004: Respondent Natona Lfe fed
a compant wth the SEC askng t to reverse ts
27 |uy 2004 Resouton and to decare the
purchase agreement of Cemco vod and prayng
that the mandatory tender offer rue be apped
to ts UCC shares.
Cemco, UCC, UCHC, BCI and ACC (a
mpeaded) fed ther comments:
COMMON POINT: the tender offer rue apped
ony to a drect acquston of the shares of the
sted company and dd not extend to an
ndrect acquston arsng from the purchase of
the shares of a hodng company of the sted
frm.
CEMCO: whe the SEC can take cognzance of
respondents compant on the aeged voaton
by pettoner Cemco of the mandatory tender
offer requrement under SEC 19 of Repubc Act
No. 8799, the same statute does not vest the
SEC wth |ursdcton to ad|udcate and
determne the rghts and obgatons of the
partes snce, under the same statute, the SECs
authorty s purey admnstratve.
Havng been vested wth purey admnstratve
authorty, the SEC can ony mpose
admnstratve sanctons such as the mposton
of admnstratve fnes, the suspenson or
revocaton of regstratons wth the SEC, and
the ke.
Nothng n the statute authorzes the SEC to
ssue orders grantng affrmatve reefs.
Snce the SECs order commandng t to make a
tender offer s an affrmatve reef fxng the
respectve rghts and obgatons of partes,
such order s vod.
In the absence of any specfc grant of
|ursdcton by Congress, the SEC cannot, by
mere admnstratve reguaton, confer on tsef
that |ursdcton.
ALSO, the rung on mandatory tender offer rue
by the SEC and the Court of Appeas shoud not
have retroactve effect or be made to appy to
ts purchase of the UCHC shares as t reed n
good fath on the etter dated 27 |uy 2004 of
the SEC whch opned that the proposed
acquston of the UCHC shares was not covered
by the mandatory offer rue.
14 Feb 2005: SEC rued n favor of the
respondent - reversed and set asde ts 27 |uy
2004 Resouton and drected pettoner Cemco
to make a tender offer for UCC shares to
respondent and other hoders of UCC shares
smar to the cass hed by UCHC n accordance
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wth SEC 9(E), Rue 19 of the Securtes
Reguaton Code.
The CA affrmed: It rued that the SEC has
|ursdcton to render the questoned decson
and, n any event, Cemco was barred by
estoppe from questonng the SECs
|ursdcton. It, kewse, hed that the tender
offer requrement under the Securtes
Reguaton Code and ts Impementng Rues
appes to Cemcos purchase of UCHC stocks.
Issue/s & Hed:
WON the SEC has |ursdcton over respondents
compant and to requre Cemco to make a
tender offer for respondents UCC shares - YES
WON the rue on mandatory tender offer appes
to the ndrect acquston of shares n a sted
company, n ths case, the ndrect acquston
by Cemco of 36% of UCC, a pubcy-sted
company, through ts purchase of the shares n
UCHC, a non-sted company - YES
WON the questoned rung of the SEC can be
apped retroactvey to Cemcos transacton
whch was consummated under the authorty of
the SECs pror resouton - YES
Rato:
Frst Issue - |ursdcton
SEC was actng pursuant to Rue 19(13) of the
Amended Impementng Rues and Reguatons
of the Securtes Reguaton Code, to wt:
J3. Violation: If there sha be voaton of ths
Rue by pursung a purchase of equty shares of
a pubc company at threshod amounts wthout
the requred tender offer, the Commsson, upon
compant, may nufy the sad acquston and
drect the hodng of a tender offer. Ths sha
be wthout pre|udce to the mposton of other
sanctons under the Code.
The foregong rue emanates from the SECs
power and authorty to reguate, nvestgate or
supervse the actvtes of persons to ensure
compance wth the Securtes Reguaton Code,
more specfcay the provson on mandatory
tender offer under SEC 19 thereof.
Another provson of the statute, whch provdes
the bass of Rue 19(13) of the Amended
Impementng Rues and Reguatons of the
Securtes Reguaton Code, s SEC 5.1(n):
The Commsson sha have, among others, the
foowng powers and functons:
(n) Exercse such other powers as may be
provded by aw as we as those whch may be
mped from, or whch are necessary or
ncdenta to the carryng out of, the express
powers granted the Commsson to acheve the
ob|ectves and purposes of these aws
The foregong provson bestows upon the SEC
the genera ad|udcatve power whch s mped
from the express powers of the Commsson or
whch s ncdenta to, or reasonaby necessary
to carry out, the performance of the
admnstratve dutes entrusted to t.
As a reguatory agency, t has the ncdenta
power to conduct hearngs and render decsons
fxng the rghts and obgatons of the partes.
In fact, to deprve the SEC of ths power woud
render the agency nute, because t woud
become poweress to reguate and mpement
the aw.
Moreover, pettoner s barred from questonng
the |ursdcton of the SEC. It must be ponted
out that pettoner had partcpated n a the
proceedngs before the SEC and had prayed for
affrmatve reef.
In fact, pettoner defended the |ursdcton of
the SEC n ts Comment dated 15 September
2004. Pettoner dd not queston the |ursdcton
of the SEC when t rendered an opnon
favorabe to t, such as the 27 |uy 2004
Resouton, where the SEC opned that the
Cemco transacton was not covered by the
mandatory tender offer rue.
Second Issue - appcabty of the mandatory
tender offer rue
Tender offer s a pubcy announced ntenton
by a person actng aone or n concert wth
other persons to acqure equty securtes of a
pubc company. A pubc company s defned
as a corporaton whch s sted on an exchange,
or a corporaton wth assets exceedng
P50,000,000.00 and wth 200 or more
stockhoders, at east 200 of them hodng not
ess than 100 shares of such company.
Stated dfferenty, a tender offer s an offer by
the acqurng person to stockhoders of a pubc
company for them to tender ther shares
theren on the terms specfed n the offer.
Tender offer s n pace to protect mnorty
sharehoders aganst any scheme that dutes
the share vaue of ther nvestments. It gves
the mnorty sharehoders the chance to ext the
company under reasonabe terms, gvng them
the opportunty to se ther shares at the same
prce as those of the ma|orty sharehoders.
See text of Sec 19.1, SRC:
"(a) Any person or group of persons actng n
concert who ntends to acqure at east ffteen
percent (15%) of any cass of any equty
securty of a sted corporaton or of any cass of
any equty securty of a corporaton wth assets
of at east Ffty mon pesos (P50,000,000.00)
and havng two hundred (200) or more
stockhoders wth at east one hundred (100)
shares each or who ntends to acqure at east
thrty percent (30%) of such equty over a
perod of tweve (12) months sha make a
tender offer to stockhoders by fng wth the
Commsson a decaraton to that effect; and
furnsh the ssuer, a statement contanng such
of the nformaton requred n SEC 17 of ths
Code as the Commsson may prescrbe.
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Such person or group of persons sha pubsh
a requests or nvtatons for tender, or
materas makng a tender offer or requestng or
nvtng etters of such a securty. Copes of any
addtona matera soctng or requestng such
tender offers subsequent to the nta
soctaton or request sha contan such
nformaton as the Commsson may prescrbe,
and sha be fed wth the Commsson and sent
to the ssuer not ater than the tme copes of
such materas are frst pubshed or sent or
gven to securty hoders."
Under exstng SEC Rues, the 15% and 30%
threshod acquston of shares under the
foregong provson was ncreased to thrty-fve
percent (35%). It s further provded theren
that mandatory tender offer s st appcabe
even f the acquston s ess than 35% when
the purchase woud resut n ownershp of over
51% of the tota outstandng equty securtes of
the pubc company.
The SEC and the Court of Appeas rued that the
ndrect acquston by pettoner of 36% of UCC
shares through the acquston of the non-sted
UCHC shares s covered by the mandatory
tender offer rue. Ths nterpretaton gven by
the SEC and the Court of Appeas must be
sustaned.
The rue n ths |ursdcton s that the
constructon gven to a statute by an
admnstratve agency charged wth the
nterpretaton and appcaton of that statute s
entted to great weght by the courts, uness
such constructon s ceary shown to be n
sharp contrast wth the governng aw or
statute.
The ratonae for ths rue reates not ony to the
emergence of the mutfarous needs of a
modern or modernzng socety and the
estabshment of dverse admnstratve
agences for addressng and satsfyng those
needs; t aso reates to accumuaton of
experence and growth of specazed
capabtes by the admnstratve agency
charged wth mpementng a partcuar statute.
The SEC and the Court of Appeas accuratey
ponted out that the coverage of the mandatory
tender offer rue covers not ony drect
acquston but aso ndrect acquston or "any
type of acquston." Ths s cear from the
dscussons of the Bcamera Conference
Commttee on the Securtes Act of 2000, on 17
|uy 2000:
SEN. S. OSMEA. Eto ang mangyayar dyan,
eh. Somebody contros 67% of the Company. Of
course, he w pay a premum for the frst 67%.
Contro yan, eh. Eh, kawawa yung mga
mawan, ang 33% because the vaue of the
stock market coud go down, coud go down
after that, because there w be no more
market. Waa nang gustong bumenta. Waa
nang... I mean maramng gustong bumenta,
waang gustong bum kung hnd yung ma|orty
owner. And they w not buy. They aready have
67%. They aready have contro. And ths
protects the mnorty. And we have had a case
n Cebu wheren Ayaa A who aready owned
40% of Ayaa B made an offer for another 40%
of Ayaa B wthout offerng the 20%. Kawawa
naman yung nakahawak ngayon ng 20%. Ang
baba ng share sa market. But we dd not have a
aw protectng them at that tme.
CHAIRMAN ROCO. So what s t that you want to
acheve?
SEN. S. OSMEA. That f a certan group
acheves a certan amount of ownershp n a
corporaton, yeah, he s obgated to buy
anybody who wants to se.
CHAIRMAN ROCO. Pro-rata ang.
REP. TEODORO. As ong as t reaches 30, ayan
na. Any type of acquisition just as long as it will
result in 30... (p.50)... reaches 30, ayan na. Any
type of acquston |ust as ong as t w resut n
30, genera tender, pro-rata.
Pettoner counters that the egsator's
reference to "any type of acquston" durng the
deberatons on the Securtes Reguaton Code
does not ndcate that congress meant to
ncude the "ndrect" acquston of shares of a
pubc corporaton to be covered by the tender
offer rue.
Pettoner aso avers that t dd not drecty
acqure the shares n UCC and the ncdenta
beneft of havng acqured the contro of the
sad pubc company must not be taken aganst
t.
These arguments are not convncng. The
egsatve ntent of SEC 19 of the Code s to
reguate actvtes reatng to acquston of
contro of the sted company and for the
purpose of protectng the mnorty stockhoders
of a sted corporaton. Whatever may be the
method by whch contro of a pubc company s
obtaned, ether through the drect purchase of
ts stocks or through an ndrect means,
mandatory tender offer appes.
The pettoner posts that what t acqured were
stocks of UCHC and not UCC. By happenstance,
as a resut of the transacton, t became an
ndrect owner of UCC. We are constraned,
however, to construe ownershp acquston to
mean both drect and ndrect. What s decsve
s the determnaton of the power of contro.
The egsatve ntent behnd the tender offer
rue makes cear that the type of actvty
ntended to be reguated s the acquston of
contro of the sted company through the
purchase of shares. Contro may |be| effected
through a drect and ndrect acquston of
stock, and when ths takes pace, rrespectve of
the means, a tender offer must occur.
The bottomne of the aw s to gve the
sharehoder of the sted company the
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opportunty to decde whether or not to se n
connecton wth a transfer of contro.
Thrd Issue - retroactve appcaton of SEC
rung
The acton of the SEC on the PSE request for
opnon on the Cemco transacton cannot be
construed as passng merts or gvng approva
to the questoned transacton.
The etter dated 27 |uy 2004 of the SEC was
nothng but an approva of the draft etter
prepared by Drector Caanga. There was no
pubc hearng where nterested partes coud
have been heard. Hence, t was not ssued upon
a defnte and concrete controversy affectng
the ega reatons of partes thereby makng t a
|udgment concusve on a the partes. Sad
etter was merey advsory.
|ursprudence has t that an advsory opnon of
an agency may be strcken down f t devates
from the provson of the statute. Snce the
etter dated 27 |uy 2004 runs counter to the
Securtes Reguaton Code, the same may be
dsregarded as what the SEC has done n ts
decson dated 14 February 2005.
Moreover, the mpementng rues and
reguatons of the Code are suffcent to nform
and gude the partes on how to proceed wth
the mandatory tender offer.
XVll. lNTELLECTUAL PROPERTY
CODE
RA 8923 (1997), AS AMENDED BY RA
9150 (2001)
THE TRlPS AGREEMENT
17.1 Topics
lnternational Agreements on lntellectual
Property
a. Pars Conventon (1883) - Protecton of
Industra Property
b. Berne Conventon (1896) - Protecton of
Lterary and Artstc Works
c. Madrd Agreement (1891) - Represson
of Fase or Deceptve Indcatons of
Source of Goods
d. Madrd Agreement (1891) - Internatona
Regstraton of Marks
e. Hague Agreement (1925) - Internatona
Depost of Industra Desgns
f. Nce Agreement (1957) - Internatona
Cassfcaton of Goods and Servces for
the Purposes of the Regstraton of Marks
g. Lsbon Agreement (1958) - Protecton of
Appeatons of Orgn and ther
Internatona Regstraton
h. Rome Conventon (1961) - Protecton of
Performers, Producers of Phonograms
and Broadcastng Organzatons
. Locarno Agreement (1968) -
Internatona Cassfcatons of Industra
Desgns
|. Patent Cooperaton Treaty (1970) -
smutaneous fng of "nternatona"
patent appcaton
k. Geneva Conventon (1971) - Protecton
of Producers of Phonograms aganst
Unauthorzed Dupcaton of ther
Phonograms
. Strasbourg Agreement (1971) -
Internatona Patent Appcaton
m. Venna Agreement (1973) -
Internatona Cassfcaton of the
Fguratve Eements of Marks
n. Brusses Conventon (1974) -
Dstrbuton of Programme-Carryng
Sgnas Transmtted by Satete
o. Budapest Treaty (1977) - depost of
mcroorgansms for purposes of patent
procedure
p. Narob Treaty (1981) - Protecton of
Oympc Symbo
q. Washngton Treaty (1989) - Inteectua
Property n Respect of Integrated
Crcuts
r. Protoco on Madrd Agreement (1989) -
Internatona Regstraton of Marks
s. Trademark Law Treaty (1994) - make
regstraton systems
t. WIPO Copyrght Treaty (1996) -
computer program and databases,
u. WIPO Performances and Phonogram
Treaty (1996)

The WTO and TRlPS Agreements
Trade-Reated Aspects of Inteectua Property
Rghts (TRIPS) Agreement - bndng on a
members of WTO
a) National Treatment - each WTO member
sha accord to the natonas of other members
treatment no ess favorabe than that whch t
accords to ts own natonas wth regard to the
protecton of nteectua property (sub|ect to
certan exceptons provded n the Pars, Berne
and Rome conventons and n the Treaty on
Inteectua Property n respect of Integrated
Crcuts)
b) Most-Favored Nation Treatment - wth
regard to the protecton of nteectua property,
any advantage, favor, prvege or mmunty
granted by a member to the natonas of any
other country sha be accorded mmedatey
and uncondtonay to the natonas of a other
members
17.2 Case
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WTO Agreement not unconstitutional
TAADA vs. ANGARA
272 SCRA 18
1997
Facts:
After WWII, the GATT (Genera Agreement on
Tarffs and Trade) was born. Later, the WTO
(Word Trade Organzaton) was consttuted to
be the treatys admnsterng body.
The WTO was sgned n Morocco by ts foundng
members, one of whch was the Phppnes.
The Presdent of the Phppnes (Ramos) ratfed
the WTO. The Senate concurred n ths
ratfcaton.
The senate ratfcaton s the sub|ect of ths
petton for certorar, mandamus, and
prohbton, whch questons the
consttutonaty of the WTO.
The WTO "Fna Act" sgned by the Phppnes
ncudes varous agreements and assocated
ega nstruments, among whch s the TRIPS
(Agreement on Trade-Reated Aspects of
Inteectua Property Rghts)
The petton questons the consttutonaty of
certan provsons n the WTO Agreement.
Among those questoned are provsons of the
TRIPS on evdence
lssue: WON certan provsons of the
Agreement mpar the exercse of |udca power
by ths Honorabe Court n promugatng the
rues of evdence.
Held: No
Ratio:
Pettoners aver that paragraph 1, Artce 34 of
the Genera Provsons and Basc Prncpes of
the Agreement on Trade-Reated Aspects of
Inteectua Property Rghts (TRIPS) ntrudes on
the power of the Supreme Court to promugate
rues concernng peadng, practce and
procedures.
Article 34
Process Patents: Burden of Proof
1. For the purposes of cv proceedngs n
respect of the nfrngement of the rghts of the
owner referred to n paragraph 1(b) of Artce
28, f the sub|ect matter of a patent s a process
for obtanng a product, the |udca authortes
sha have the authorty to order the defendant
to prove that the process to obtan an dentca
product s dfferent from the patented process.
Therefore, Members sha provde, n at east
one of the foowng crcumstances, that any
dentca product when produced wthout the
consent of the patent owner sha, n the
absence of proof to the contrary, be deemed to
have been obtaned by the patented process:
(a) f the product obtaned by the patented
process s new;
(b) f there s a substanta kehood that the
dentca product was made by the process and
the owner of the patent has been unabe
through reasonabe efforts to determne the
process actuay used.
2. Any Member sha be free to provde that the
burden of proof ndcated n paragraph 1 sha
be on the aeged nfrnger ony f the condton
referred to n subparagraph (a) s fufed or
ony f the condton referred to n subparagraph
(b) s fufed.
3. In the adducton of proof to the contrary, the
egtmate nterests of defendants n protectng
ther manufacturng and busness secrets sha
be taken nto account.
From the above, a WTO Member s requred to
provde a rue of dsputabe (note the words "n
the absence of proof to the contrary")
presumpton that a product shown to be
dentca to one produced wth the use of a
patented process sha be deemed to have been
obtaned by the (ega) use of the sad
patented process, (1) where such product
obtaned by the patented product s new, or (2)
where there s "substanta kehood" that the
dentca product was made wth the use of the
sad patented process but the owner of the
patent coud not determne the exact process
used n obtanng such dentca product.
Hence, the "burden of proof" contempated by
Artce 34 shoud actuay be understood as the
duty of the aeged patent nfrnger to
overthrow such presumpton. Such burden,
propery understood, actuay refers to the
"burden of evdence" (burden of gong forward)
paced on the producer of the dentca (or fake)
product to show that hs product was produced
wthout the use of the patented process.
The foregong notwthstandng, the patent
owner st has the "burden of proof" snce,
regardess of the presumpton provded under
paragraph 1 of Artce 34, such owner st has
to ntroduce evdence of the exstence of the
aeged dentca product, the fact that t s
"dentca" to the genune one produced by the
patented process and the fact of "newness" of
the genune product or the fact of "substanta
kehood" that the dentca product was made
by the patented process.
The foregong shoud reay present no probem
n changng the rues of evdence as the present
aw on the sub|ect, Repubc Act No. 165, as
amended, otherwse known as the Patent Law,
provdes a smar presumpton n cases of
nfrngement of patented desgn or utty
mode, thus:
SEC. 60. lnfringement. - Infrngement of a
desgn patent or of a patent for utty mode
sha consst n unauthorzed copyng of the
patented desgn or utty mode for the purpose
of trade or ndustry n the artce or product and
n the makng, usng or seng of the artce or
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product copyng the patented desgn or utty
mode. Identty or substanta dentty wth the
patented desgn or utty mode sha consttute
evdence of copyng.
Moreover, t shoud be noted that the
requrement of Artce 34 to provde a
dsputabe presumpton appes ony f (1) the
product obtaned by the patented process s
NEW or (2) there s a substanta kehood that
the dentca product was made by the process
and the process owner has not been abe
through reasonabe effort to determne the
process used. Where ether of these two
provsos does not obtan, members sha be free
to determne the approprate method of
mpementng the provsons of TRIPS wthn
ther own nterna systems and processes.
Suffce t to say that the recprocty cause more
than |ustfes such ntruson, f any actuay
exsts. Besdes, Artce 34 does not contan an
unreasonabe burden, consstent as t s wth
due process and the concept of adversara
dspute settement nherent n our |udca
system.
So too, snce the Phppne s a sgnatory to
most nternatona conventons on patents,
trademarks and copyrghts, the ad|ustment n
egsaton and rues of procedure w not be
substanta.
lNTELLECTUAL PROPERTY OFFlCE
J7.3 Topics
Structure and Functions
SEC 5. Functions of the lntellectual Property
Office (lPO). - 5.1. To admnster and mpement
the State poces decared n ths Act, there s
hereby created the Inteectua Property Offce
(IPO) whch sha have the foowng functons:
a) Examne appcatons for grant of etters
patent for nventons and regster utty modes
and ndustra desgns;
b) Examne appcatons for the regstraton of
marks, geographc ndcaton, ntegrated
crcuts;
c) Regster technoogy transfer arrangements
and sette dsputes nvovng technoogy
transfer payments covered by the provsons of
Part II, Chapter IX on Vountary Lcensng and
deveop and mpement strateges to promote
and factate technoogy transfer;
d) Promote the use of patent nformaton as a
too for technoogy deveopment;
e) Pubsh reguary n ts own pubcaton the
patents, marks, utty modes and ndustra
desgns, ssued and approved, and the
technoogy transfer arrangements regstered;
f) Admnstratvey ad|udcate contested
proceedngs affectng nteectua property
rghts; and
g) Coordnate wth other government agences
and the prvate sector efforts to formuate and
mpement pans and poces to strengthen the
protecton of nteectua property rghts n the
country.
5.2. The Offce sha have custody of a records,
books, drawngs, specfcatons, documents, and
other papers and thngs reatng to nteectua
property rghts appcatons fed wth the Offce.
(n)
SEC 6. The Organizational 5tructure of the lPO.
- 6.1. The Offce sha be headed by a Drector
Genera who sha be asssted by two (2)
Deputes Drector Genera.
6.2. The Offce sha be dvded nto sx (6)
Bureaus, each of whch sha be headed by a
Drector and asssted by an Assstant Drector.
These Bureaus are:
a) The Bureau of Patents;
b) The Bureau of Trademarks;
c) The Bureau of Lega Affars;
d) The Documentaton, Informaton and
Technoogy Transfer Bureau;
e) The Management Informaton System and
EDP Bureau; and
f) The Admnstratve, Fnanca and Personne
Servces Bureau.
6.3. The Drector Genera, Deputes Drector
Genera, Drectors and Assstant Drectors sha
be apponted by the Presdent, and the other
offcers and empoyees of the Offce by the
Secretary of Trade and Industry, conformaby
wth and under the Cv Servce Law. (n)
SEC 7. The Director Ceneral and Deputies
Director Ceneral. - 7.1. Functons. - The Drector
Genera sha exercse the foowng powers and
functons:
a) Manage and drect a functons and actvtes
of the Offce, ncudng the promugaton of
rues and reguatons to mpement the
ob|ectves, poces, pans, programs and
pro|ects of the Offce: Provded, That n the
exercse of the authorty to propose poces and
standards n reaton to the foowng: (1) the
effectve, effcent, and economca operatons
of the Offce requrng statutory enactment; (2)
coordnaton wth other agences of government
n reaton to the enforcement of nteectua
property rghts; (3) the recognton of attorneys,
agents, or other persons representng
appcants or other partes before the Offce;
and (4) the estabshment of fees for the fng
and processng of an appcaton for a patent,
utty mode or ndustra desgn or mark or a
coectve mark, geographc ndcaton and other
marks of ownershp, and for a other servces
performed and materas furnshed by the
Offce, the Drector Genera sha be sub|ect to
the supervson of the Secretary of Trade and
Industry;
b) Exercse excusve appeate |ursdcton over
a decsons rendered by the Drector of Lega
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Affars, the Drector of Patents, the Drector of
Trademarks, and the Drector of the
Documentaton, Informaton and Technoogy
Transfer Bureau. The decsons of the Drector
Genera n the exercse of hs appeate
|ursdcton n respect of the decsons of the
Drector of Patents, and the Drector of
Trademarks sha be appeaabe to the Court of
Appeas n accordance wth the Rues of Court;
and those n respect of the decsons of the
Drector of Documentaton, Informaton and
Technoogy Transfer Bureau sha be appeaabe
to the Secretary of Trade and Industry; and
c) Exercse orgna |ursdcton to resove
dsputes reatng to the terms of a cense
nvovng the author's rght to pubc
performance or other communcaton of hs
work. The decsons of the Drector Genera n
these cases sha be appeaabe to the
Secretary of Trade and Industry.
7.2. Ouafcatons. - The Drector Genera and
the Deputes Drector Genera must be natura
born ctzens of the Phppnes, at east thrty-
fve (35) years of age on the day of ther
appontment, hoders of a coege degree, and
of proven competence, ntegrty, probty and
ndependence: Provded, That the Drector
Genera and at east one (1) Deputy Drector
Genera sha be members of the Phppne Bar
who have engaged n the practce of aw for at
east ten (10) years: Provded further, That n
the seecton of the Drector Genera and the
Deputes Drector Genera, consderaton sha
be gven to such quafcatons as woud resut,
as far as practcabe, n the baanced
representaton n the Drectorate Genera of the
varous feds of nteectua property.
7.3. Term of Offce. - The Drector Genera and
the Deputes Drector Genera sha be
apponted by the Presdent for a term of fve (5)
years and sha be egbe for reappontment
ony once: Provded, That the frst Drector
Genera sha have a frst term of seven (7)
years. Appontment to any vacancy sha be
ony for the unexpred term of the predecessor.
7.4. The Offce of the Drector Genera. - The
Offce of the Drector Genera sha consst of
the Drector Genera and the Deputes Drector
Genera, ther mmedate staff and such Offces
and Servces that the Drector Genera w set
up to support drecty the Offce of the Drector
Genera. (n)
SEC 8. The 8ureau of Patents. - The Bureau of
Patents sha have the foowng functons:
8.1. Search and examnaton of patent
appcatons and the grant of patents;
8.2. Regstraton of utty modes, ndustra
desgns, and ntegrated crcuts; and
8.3. Conduct studes and researches n the fed
of patents n order to assst the Drector
Genera n formuatng poces on the
admnstraton and examnaton of patents. (n)
SEC 9. The 8ureau of Trademarks. - The Bureau
of Trademarks sha have the foowng
functons:
9.1. Search and examnaton of the appcatons
for the regstraton of marks, geographc
ndcatons and other marks of ownershp and
the ssuance of the certfcates of regstraton;
and
9.2. Conduct studes and researches n the fed
of trademarks n order to assst the Drector
Genera n formuatng poces on the
admnstraton and examnaton of trademarks.
(n)
SEC 10. The 8ureau of Legal Affairs. - The
Bureau of Lega Affars sha have the foowng
functons:
10.1. Hear and decde opposton to the
appcaton for regstraton of marks;
canceaton of trademarks; sub|ect to the
provsons of SEC 64, canceaton of patents,
utty modes, and ndustra desgns; and
pettons for compusory censng of patents;
10.2. (a) Exercse orgna |ursdcton n
admnstratve compants for voatons of aws
nvovng nteectua property rghts: Provded,
That ts |ursdcton s mted to compants
where the tota damages camed are not ess
than Two hundred thousand pesos (P200,000):
Provded further, That avament of the
provsona remedes may be granted n
accordance wth the Rues of Court. The
Drector of Lega Affars sha have the power to
hod and punsh for contempt a those who
dsregard orders or wrts ssued n the course of
the proceedngs. (n)
(b) After forma nvestgaton, the Drector for
Lega Affars may mpose one (1) or more of the
foowng admnstratve penates:
() The ssuance of a cease and desst order
whch sha specfy the acts that the respondent
sha cease and desst from and sha requre
hm to submt a compance report wthn a
reasonabe tme whch sha be fxed n the
order;
() The acceptance of a vountary assurance of
compance or dscontnuance as may be
mposed. Such vountary assurance may ncude
one or more of the foowng:
(1) An assurance to compy wth the provsons
of the nteectua property aw voated;
(2) An assurance to refran from engagng n
unawfu and unfar acts and practces sub|ect
of the forma nvestgaton;
(3) An assurance to reca, repace, repar, or
refund the money vaue of defectve goods
dstrbuted n commerce; and
(4) An assurance to remburse the companant
the expenses and costs ncurred n prosecutng
the case n the Bureau of Lega Affars.
The Drector of Lega Affars may aso requre
the respondent to submt perodc compance
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reports and fe a bond to guarantee compance
of hs undertakng;
() The condemnaton or sezure of products
whch are sub|ect of the offense. The goods
sezed hereunder sha be dsposed of n such
manner as may be deemed approprate by the
Drector of Lega Affars, such as by sae,
donaton to dstressed oca governments or to
chartabe or reef nsttutons, exportaton,
recycng nto other goods, or any combnaton
thereof, under such gudenes as he may
provde;
(v) The forfeture of paraphernaa and a rea
and persona propertes whch have been used
n the commsson of the offense;
(v) The mposton of admnstratve fnes n
such amount as deemed reasonabe by the
Drector of Lega Affars, whch sha n no case
be ess than Fve thousand pesos (P5,000) nor
more than One hundred ffty thousand pesos
(P150,000). In addton, an addtona fne of not
more than One thousand pesos (P1,000) sha
be mposed for each day of contnung voaton;
(v) The canceaton of any permt, cense,
authorty, or regstraton whch may have been
granted by the Offce, or the suspenson of the
vadty thereof for such perod of tme as the
Drector of Lega Affars may deem reasonabe
whch sha not exceed one (1) year;
(v) The wthhodng of any permt, cense,
authorty, or regstraton whch s beng secured
by the respondent from the Offce;
(v) The assessment of damages;
(x) Censure; and
(x) Other anaogous penates or sanctons.
(Secs. 6, 7, 8, and 9, Executve Order No. 913
|1983|a)
10.3. The Drector Genera may by Reguatons
estabsh the procedure to govern the
mpementaton of ths SEC. (n)
SEC 11. The Documentation, lnformation and
Technology Transfer 8ureau. - The
Documentaton, Informaton and Technoogy
Transfer Bureau sha have the foowng
functons:
11.1. Support the search and examnaton
actvtes of the Offce through the foowng
actvtes:
(a) Mantan and upkeep cassfcaton systems
whether they be natona or nternatona such
as the Internatona Patent Cassfcaton (IPC)
system;
(b) Provde advsory servces for the
determnaton of search patterns;
(c) Mantan search fes and search rooms and
reference brares; and
(d) Adapt and package ndustra property
nformaton.
11.2. Estabsh networks or ntermedares or
regona representatves;
11.3. Educate the pubc and bud awareness
on nteectua property through the conduct of
semnars and ectures, and other smar
actvtes;
11.4. Estabsh workng reatons wth research
and deveopment nsttutons as we as wth
oca and nternatona nteectua property
professona groups and the ke;
11.5. Perform state-of-the-art searches;
11.6. Promote the use of patent nformaton as
an effectve too to factate the deveopment of
technoogy n the country;
11.7. Provde technca, advsory, and other
servces reatng to the censng and promoton
of technoogy, and carry out an effcent and
effectve program for technoogy transfer; and
11.8. Regster technoogy transfer
arrangements, and sette dsputes nvovng
technoogy transfer payments. (n)
SEC 12. The Management lnformation 5ervices
and EDP 8ureau. - The Management Informaton
Servces and EDP Bureau sha:
12.1. Conduct automaton pannng, research
and deveopment, testng of systems, contracts
wth frms, contractng, purchase and
mantenance of equpment, desgn and
mantenance of systems, user consutaton, and
the ke; and
12.2. Provde management nformaton support
and servce to the Offce. (n)
SEC 13. The Administrative, Financial and
Human Resource Development 5ervice 8ureau.
- 13.1. The Admnstratve Servce sha: (a)
Provde servces reatve to procurement and
aocaton of suppes and equpment,
transportaton, messengera work, casherng,
payment of saares and other Offce's
obgatons, offce mantenance, proper safety
and securty, and other utty servces; and
compy wth government reguatory
requrements n the areas of performance
apprasa, compensaton and benefts,
empoyment records and reports;
(b) Receve a appcatons fed wth the Offce
and coect fees therefor, and
(c) Pubsh patent appcatons and grants,
trademark appcatons, and regstraton of
marks, ndustra desgns, utty modes,
geographc ndcaton, and ay-out-desgns of
ntegrated crcuts regstratons.
13.2. The Patent and Trademark Admnstraton
Servces sha perform the foowng functons
among others:
(a) Mantan regsters of assgnments, mergngs,
censes, and bbographc on patents and
trademarks;
(b) Coect mantenance fees, ssue certfed
copes of documents n ts custody and perform
smar other actvtes; and
(c) Hod n custody a the appcatons fed wth
the offce, and a patent grants, certfcate of
regstratons ssued by the offce, and the ke.
13.3. The Fnanca Servce sha formuate and
manage a fnanca program to ensure
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avaabty and proper utzaton of funds;
provde for an effectve montorng system of
the fnanca operatons of the Offce; and
13.4. The Human Resource Deveopment
Servce sha desgn and mpement human
resource deveopment pans and programs for
the personne of the Offce; provde for present
and future manpower needs of the organzaton;
mantan hgh morae and favorabe empoyee
atttudes towards the organzaton through the
contnung desgn and mpementaton of
empoyee deveopment programs. (n)
SEC 14. Use of lntellectual Property Rights
Fees by the lPO. - 14.1. For a more effectve and
expedtous mpementaton of ths Act, the
Drector Genera sha be authorzed to retan,
wthout need of a separate approva from any
government agency, and sub|ect ony to the
exstng accountng and audtng rues and
reguatons, a the fees, fnes, royates and
other charges, coected by the Offce under ths
Act and the other aws that the Offce w be
mandated to admnster, for use n ts
operatons, ke upgradng of ts factes,
equpment outay, human resource
deveopment, and the acquston of the
approprate offce space, among others, to
mprove the devery of ts servces to the
pubc. Ths amount, whch sha be n addton
to the Offce's annua budget, sha be
deposted and mantaned n a separate account
or fund, whch may be used or dsbursed
drecty by the Drector Genera.
14.2. After fve (5) years from the comng nto
force of ths Act, the Drector Genera sha,
sub|ect to the approva of the Secretary of
Trade and Industry, determne f the fees and
charges mentoned n SubSEC 14.1 hereof that
the Offce sha coect are suffcent to meet ts
budgetary requrements. If so, t sha retan a
the fees and charges t sha coect under the
same condtons ndcated n sad SubSEC 14.1
but sha forthwth, cease to receve any funds
from the annua budget of the Natona
Government; f not, the provsons of sad
SubSEC 14.1 sha contnue to appy unt such
tme when the Drector Genera, sub|ect to the
approva of the Secretary of Trade and Industry,
certfes that the above-stated fees and charges
the Offce sha coect are enough to fund ts
operatons. (n)
SEC 15. 5pecial Technical and 5cientific
Assistance. - The Drector Genera s
empowered to obtan the assstance of
technca, scentfc or other quafed offcers
and empoyees of other departments, bureaus,
offces, agences and nstrumentates of the
Government, ncudng corporatons owned,
controed or operated by the Government,
when deemed necessary n the consderaton of
any matter submtted to the Offce reatve to
the enforcement of the provsons of ths Act.
(Sec. 3, R.A. No. 165a)
SEC 16. 5eal of Office. - The Offce sha have a
sea, the form and desgn of whch sha be
approved by the Drector Genera. (Sec. 4, R.A.
No. 165a)
SEC 17. Publication of Laws and Regulations. -
The Drector Genera sha cause to be prnted
and make avaabe for dstrbuton, pamphet
copes of ths Act, other pertnent aws,
executve orders and nformaton crcuars
reatng to matters wthn the |ursdcton of the
Offce. (Sec. 5, R.A. No. 165a)
SEC 18. The lPO Cazette. - A matters requred
to be pubshed under ths Act sha be
pubshed n the Offce's own pubcaton to be
known as the IPO Gazette. (n)
SEC 19. Disqualification of Officers and
Employees of the Office. - A offcers and
empoyees of the Offce sha not appy or act as
an attorney or patent agent of an appcaton for
a grant of patent, for the regstraton of a utty
mode, ndustra desgn or mark nor acqure,
except by heredtary successon, any patent or
utty mode, desgn regstraton, or mark or
any rght, tte or nterest theren durng ther
empoyment and for one (1) year thereafter.
(Sec. 77, R.A. No. 165a)
]urisdiction over lP disputes and Appeals
SEC 7. The Director Ceneral and Deputies
Director Ceneral. - 7.1. Functons. - The Drector
Genera sha exercse the foowng powers and
functons:
b) Exercse excusve appeate |ursdcton over
a decsons rendered by the Drector of Lega
Affars, the Drector of Patents, the Drector of
Trademarks, and the Drector of the
Documentaton, Informaton and Technoogy
Transfer Bureau. The decsons of the Drector
Genera n the exercse of hs appeate
|ursdcton n respect of the decsons of the
Drector of Patents, and the Drector of
Trademarks sha be appeaabe to the Court of
Appeas n accordance wth the Rues of Court;
and those n respect of the decsons of the
Drector of Documentaton, Informaton and
Technoogy Transfer Bureau sha be appeaabe
to the Secretary of Trade and Industry; and
c) Exercse orgna |ursdcton to resove
dsputes reatng to the terms of a cense
nvovng the author's rght to pubc
performance or other communcaton of hs
work. The decsons of the Drector Genera n
these cases sha be appeaabe to the
Secretary of Trade and Industry.
SEC 10. The 8ureau of Legal Affairs. - The
Bureau of Lega Affars sha have the foowng
functons:
10.1. Hear and decde opposton to the
appcaton for regstraton of marks;
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canceaton of trademarks; sub|ect to the
provsons of SEC 64, canceaton of patents,
utty modes, and ndustra desgns; and
pettons for compusory censng of patents;
10.2. (a) Exercse orgna |ursdcton n
admnstratve compants for voatons of aws
nvovng nteectua property rghts: Provded,
That ts |ursdcton s mted to compants
where the tota damages camed are not ess
than Two hundred thousand pesos (P200,000):
Provded further, That avament of the
provsona remedes may be granted n
accordance wth the Rues of Court. The
Drector of Lega Affars sha have the power to
hod and punsh for contempt a those who
dsregard orders or wrts ssued n the course of
the proceedngs. (n)
(b) After forma nvestgaton, the Drector for
Lega Affars may mpose one (1) or more of the
foowng admnstratve penates:
() The ssuance of a cease and desst order
whch sha specfy the acts that the respondent
sha cease and desst from and sha requre
hm to submt a compance report wthn a
reasonabe tme whch sha be fxed n the
order;
() The acceptance of a vountary assurance of
compance or dscontnuance as may be
mposed. Such vountary assurance may ncude
one or more of the foowng:
(1) An assurance to compy wth the provsons
of the nteectua property aw voated;
(2) An assurance to refran from engagng n
unawfu and unfar acts and practces sub|ect
of the forma nvestgaton;
(3) An assurance to reca, repace, repar, or
refund the money vaue of defectve goods
dstrbuted n commerce; and
(4) An assurance to remburse the companant
the expenses and costs ncurred n prosecutng
the case n the Bureau of Lega Affars.
The Drector of Lega Affars may aso requre
the respondent to submt perodc compance
reports and fe a bond to guarantee compance
of hs undertakng;
() The condemnaton or sezure of products
whch are sub|ect of the offense. The goods
sezed hereunder sha be dsposed of n such
manner as may be deemed approprate by the
Drector of Lega Affars, such as by sae,
donaton to dstressed oca governments or to
chartabe or reef nsttutons, exportaton,
recycng nto other goods, or any combnaton
thereof, under such gudenes as he may
provde;
(v) The forfeture of paraphernaa and a rea
and persona propertes whch have been used
n the commsson of the offense;
(v) The mposton of admnstratve fnes n
such amount as deemed reasonabe by the
Drector of Lega Affars, whch sha n no case
be ess than Fve thousand pesos (P5,000) nor
more than One hundred ffty thousand pesos
(P150,000). In addton, an addtona fne of not
more than One thousand pesos (P1,000) sha
be mposed for each day of contnung voaton;
(v) The canceaton of any permt, cense,
authorty, or regstraton whch may have been
granted by the Offce, or the suspenson of the
vadty thereof for such perod of tme as the
Drector of Lega Affars may deem reasonabe
whch sha not exceed one (1) year;
(v) The wthhodng of any permt, cense,
authorty, or regstraton whch s beng secured
by the respondent from the Offce;
(v) The assessment of damages;
(x) Censure; and
(x) Other anaogous penates or sanctons.
(Secs. 6, 7, 8, and 9, Executve Order No. 913
|1983|a)
10.3. The Drector Genera may by Reguatons
estabsh the procedure to govern the
mpementaton of ths SEC. (n)
SEC 11. The Documentation, lnformation and
Technology Transfer 8ureau. - The
Documentaton, Informaton and Technoogy
Transfer Bureau sha have the foowng
functons:
11.1. Support the search and examnaton
actvtes of the Offce through the foowng
actvtes:
(a) Mantan and upkeep cassfcaton systems
whether they be natona or nternatona such
as the Internatona Patent Cassfcaton (IPC)
system;
(b) Provde advsory servces for the
determnaton of search patterns;
(c) Mantan search fes and search rooms and
reference brares; and
(d) Adapt and package ndustra property
nformaton.
11.2. Estabsh networks or ntermedares or
regona representatves;
11.3. Educate the pubc and bud awareness
on nteectua property through the conduct of
semnars and ectures, and other smar
actvtes;
11.4. Estabsh workng reatons wth research
and deveopment nsttutons as we as wth
oca and nternatona nteectua property
professona groups and the ke;
11.5. Perform state-of-the-art searches;
11.6. Promote the use of patent nformaton as
an effectve too to factate the deveopment of
technoogy n the country;
11.7. Provde technca, advsory, and other
servces reatng to the censng and promoton
of technoogy, and carry out an effcent and
effectve program for technoogy transfer; and
11.8. Regster technoogy transfer
arrangements, and sette dsputes nvovng
technoogy transfer payments. (n)
Administrative Penalties
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SEC 10.2 (b) After forma nvestgaton, the
Drector for Lega Affars may mpose one (1) or
more of the foowng admnstratve penates:
() The ssuance of a cease and desst order
whch sha specfy the acts that the respondent
sha cease and desst from and sha requre
hm to submt a compance report wthn a
reasonabe tme whch sha be fxed n the
order;
() The acceptance of a vountary assurance of
compance or dscontnuance as may be
mposed. Such vountary assurance may ncude
one or more of the foowng:
(1) An assurance to compy wth the provsons
of the nteectua property aw voated;
(2) An assurance to refran from engagng n
unawfu and unfar acts and practces sub|ect
of the forma nvestgaton;
(3) An assurance to reca, repace, repar, or
refund the money vaue of defectve goods
dstrbuted n commerce; and
(4) An assurance to remburse the companant
the expenses and costs ncurred n prosecutng
the case n the Bureau of Lega Affars.
The Drector of Lega Affars may aso requre
the respondent to submt perodc compance
reports and fe a bond to guarantee compance
of hs undertakng;
() The condemnaton or sezure of products
whch are sub|ect of the offense. The goods
sezed hereunder sha be dsposed of n such
manner as may be deemed approprate by the
Drector of Lega Affars, such as by sae,
donaton to dstressed oca governments or to
chartabe or reef nsttutons, exportaton,
recycng nto other goods, or any combnaton
thereof, under such gudenes as he may
provde;
(v) The forfeture of paraphernaa and a rea
and persona propertes whch have been used
n the commsson of the offense;
(v) The mposton of admnstratve fnes n
such amount as deemed reasonabe by the
Drector of Lega Affars, whch sha n no case
be ess than Fve thousand pesos (P5,000) nor
more than One hundred ffty thousand pesos
(P150,000). In addton, an addtona fne of not
more than One thousand pesos (P1,000) sha
be mposed for each day of contnung voaton;
(v) The canceaton of any permt, cense,
authorty, or regstraton whch may have been
granted by the Offce, or the suspenson of the
vadty thereof for such perod of tme as the
Drector of Lega Affars may deem reasonabe
whch sha not exceed one (1) year;
(v) The wthhodng of any permt, cense,
authorty, or regstraton whch s beng secured
by the respondent from the Offce;
(v) The assessment of damages;
(x) Censure; and
(x) Other anaogous penates or sanctons.
(Secs. 6, 7, 8, and 9, Executve Order No. 913
|1983|a)
Prescriptive Period of Actions for Damages
SEC 79. Limitation of Action for Damages. - No
damages can be recovered for acts of
nfrngement commtted more than four (4)
years before the nsttuton of the acton for
nfrngement.
SEC 226. Damages. - No damages may be
recovered under ths Act after four (4) years
from the tme the cause of acton arose.
lNTELLECTUAL PROPERTY RlGHTS lN
GENERAL
PATENTS
17.5 Topics
Patentable lnventions
SEC 21. Patentable lnventions. - Any technca
souton of a probem n any fed of human
actvty whch s new, nvoves an nventve step
and s ndustray appcabe sha be
Patentabe. It may be, or may reate to, a
product, or process, or an mprovement of any
of the foregong. (Sec. 7, R.A. No. 165a)
Novelty
SEC 23. Novelty. . - An nventon sha not be
consdered new f t forms part of a pror art.
(Sec. 9, R.A. No. 165a)
Prior Art
SEC 24. Prior Art. - Pror art sha consst of:
24.1. Everythng whch has been made
avaabe to the pubc anywhere n the word,
before the fng date or the prorty date of the
appcaton camng the nventon; and
24.2. The whoe contents of an appcaton for a
patent, utty mode, or ndustra desgn
regstraton, pubshed n accordance wth ths
Act, fed or effectve n the Phppnes, wth a
fng or prorty date that s earer than the
fng or prorty date of the appcaton:
Provded, That the appcaton whch has vady
camed the fng date of an earer appcaton
under SEC 31 of ths Act, sha be pror art wth
effect as of the fng date of such earer
appcaton: Provded further, That the appcant
or the nventor dentfed n both appcatons
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are not one and the same. (Sec. 9, R.A. No.
165a)
lnventive Step or Non-Obviousness
SEC 26. lnventive 5tep. - An nventon nvoves
an nventve step f, havng regard to pror art, t
s not obvous to a person sked n the art at
the tme of the fng date or prorty date of the
appcaton camng the nventon. (n)
lndustrial Applicability
SEC 27. lndustrial Applicability. - An nventon
that can be produced and used n any ndustry
sha be ndustray appcabe. (n)
Non-Patentable lnventions
SEC 22. Non-Patentable lnventions. - The
foowng sha be excuded from patent
protecton:
]DMTPAP|
22.1. Dscoveres, scentfc theores and
mathematca methods;
22.2. Schemes, rues and methods of
performng menta acts, payng games or dong
busness, and programs for computers;
22.3. Methods for treatment of the human or
anma body by surgery or therapy and
dagnostc methods practced on the human or
anma body. Ths provson sha not appy to
products and composton for use n any of
these methods;
22.4. Pant varetes or anma breeds or
essentay boogca process for the producton
of pants or anmas. Ths provson sha not
appy to mcro-organsms and non-boogca
and mcroboogca processes.
Provsons under ths subSEC sha not precude
Congress to consder the enactment of a aw
provdng su geners protecton of pant
varetes and anma breeds and a system of
communty nteectua rghts protecton:
22.5. Aesthetc creatons; and
22.6. Anythng whch s contrary to pubc order
or moraty. (Sec. 8, R.A. No. 165a)
Right to a Patent
]lHA|
SEC 28. Right to a Patent. - The rght to a
patent beongs to the nventor, hs hers, or
assgns. When two (2) or more persons have
|onty made an nventon, the rght to a patent
sha beong to them |onty. (Sec. 10, R.A. No.
165a)
First-to-File Rule
SEC 29. First to File Rule. - If two (2) or more
persons have made the nventon separatey
and ndependenty of each other, the rght to
the patent sha beong to the person who fed
an appcaton for such nventon, or where two
or more appcatons are fed for the same
nventon, to the appcant who has the earest
fng date or, the earest prorty date. (3rd
sentence, Sec. 10, R.A. No. 165a.)
Right of Priority
]CTS|
SEC 31. Right of Priority. . - An appcaton for
patent fed by any person who has prevousy
apped for the same nventon n another
country whch by treaty, conventon, or aw
affords smar prveges to Fpno ctzens,
sha be consdered as fed as of the date of
fng the foregn appcaton: Provded, That: (a)
the oca appcaton expressy cams prorty;
(b) t s fed wthn tweve (12) months from the
date the earest foregn appcaton was fed;
and (c) a certfed copy of the foregn
appcaton together wth an Engsh transaton
s fed wthn sx (6) months from the date of
fng n the Phppnes. (Sec. 15, R.A. No. 165a)
Contents of Application
]RRDCA|
SEC 33. Appointment of Agent or
Representative. - An appcant who s not a
resdent of the Phppnes must appont and
mantan a resdent agent or representatve n
the Phppnes upon whom notce or process for
|udca or admnstratve procedure reatng to
the appcaton for patent or the patent may be
served. (Sec. 11, R.A. No. 165a)
SEC 34. The Request. - The request sha
contan a petton for the grant of the patent,
the name and other data of the appcant, the
nventor and the agent and the tte of the
nventon. (n) ]PNT|
SEC 35. Disclosure and Description of the
lnvention. - 35.1. Dscosure. - The appcaton
sha dscose the nventon n a manner
suffcenty cear and compete for t to be
carred out by a person sked n the art. Where
the appcaton concerns a mcroboogca
process or the product thereof and nvoves the
use of a mcro-organsm whch cannot be
suffcenty dscosed n the appcaton n such a
way as to enabe the nventon to be carred out
by a person sked n the art, and such matera
s not avaabe to the pubc, the appcaton
sha be suppemented by a depost of such
matera wth an nternatona depostory
nsttuton. ]SCC-PSA-MDM|
35.2. Descrpton. - The Reguatons sha
prescrbe the contents of the descrpton and
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the order of presentaton. (Sec. 14, R.A. No.
165a)
SEC 36. The Claims. - 36.1. The appcaton
sha contan one (1) or more cams whch sha
defne the matter for whch protecton s
sought. Each cam sha be cear and concse,
and sha be supported by the descrpton.
]ODCC|
36.2. The Reguatons sha prescrbe the
manner of the presentaton of cams. (n)
SEC 37. The Abstract. - The abstract sha
consst of a concse summary of the dscosure
of the nventon as contaned n the descrpton,
cams and drawngs n preferaby not more
than one hundred ffty (150) words. It must be
drafted n a way whch aows the cear
understandng of the technca probem, the gst
of the souton of that probem through the
nventon, and the prncpa use or uses of the
nventon. The abstract sha merey serve for
technca nformaton. (n) ]CCD|
Procedure of Grant of Patent
SEC 40. Filing Date Requirements. - 40.1. The
fng date of a patent appcaton sha be the
date of recept by the Offce of at east the
foowng eements: ]ElD|
(a) An express or mpct ndcaton that a
Phppne patent s sought;
(b) Informaton dentfyng the appcant; and
(c) Descrpton of the nventon and one (1) or
more cams n Fpno or Engsh.
40.2. If any of these eements s not submtted
wthn the perod set by the Reguatons, the
appcaton sha be consdered wthdrawn. (n)
SEC 41. According a Filing Date. - The Offce
sha examne whether the patent appcaton
satsfes the requrements for the grant of date
of fng as provded n SEC 40 hereof. If the
date of fng cannot be accorded, the appcant
sha be gven an opportunty to correct the
defcences n accordance wth the
mpementng Reguatons. If the appcaton
does not contan a the eements ndcated n
SEC 40, the fng date shoud be that date when
a the eements are receved. If the defcences
are not remeded wthn the prescrbed tme
mt, the appcaton sha be consdered
wthdrawn. (n)
SEC 42. Formality Examination. - 42.1. After
the patent appcaton has been accorded a
fng date and the requred fees have been pad
on tme n accordance wth the Reguatons, the
appcant sha compy wth the forma
requrements specfed by SEC 32 and the
Reguatons wthn the prescrbed perod,
otherwse the appcaton sha be consdered
wthdrawn.
42.2. The Reguatons sha determne the
procedure for the re-examnaton and revva of
an appcaton as we as the appea to the
Drector of Patents from any fna acton by the
examner. (Sec. 16, R.A. No. 165a)
SEC 43. Classification and 5earch. - An
appcaton that has comped wth the forma
requrements sha be cassfed and a search
conducted to determne the pror art. (n)
SEC 44. Publication of Patent Application. -
44.1. The patent appcaton sha be pubshed
n the IPO Gazette together wth a search
document estabshed by or on behaf of the
Offce ctng any documents that refect pror
art, after the expraton of eghteen (18) months
from the fng date or prorty date.
44.2. After pubcaton of a patent appcaton,
any nterested party may nspect the
appcaton documents fed wth the Offce.
44.3. The Drector Genera sub|ect to the
approva of the Secretary of Trade and Industry,
may prohbt or restrct the pubcaton of an
appcaton, f n hs opnon, to do so woud be
pre|udca to the natona securty and nterests
of the Repubc of the Phppnes. (n)
SEC 45. Confidentiality 8efore Publication. - A
patent appcaton, whch has not yet been
pubshed, and a reated documents, sha not
be made avaabe for nspecton wthout the
consent of the appcant. (n)
SEC 46. Rights Conferred by a Patent
Application After Publication. - The appcant
sha have a the rghts of a patentee under SEC
76 aganst any person who, wthout hs
authorzaton, exercsed any of the rghts
conferred under SEC 71 of ths Act n reaton to
the nventon camed n the pubshed patent
appcaton, as f a patent had been granted for
that nventon: Provded, That the sad person
had: ]AK-RWN|
46.1. Actua knowedge that the nventon that
he was usng was the sub|ect matter of a
pubshed appcaton; or
46.2. Receved wrtten notce that the nventon
that he was usng was the sub|ect matter of a
pubshed appcaton beng dentfed n the
sad notce by ts sera number: Provded, That
the acton may not be fed unt after the grant
of a patent on the pubshed appcaton and
wthn four (4) years from the commsson of the
acts companed of. (n)
SEC 47. Observation by Third Parties. -
Foowng the pubcaton of the patent
appcaton, any person may present
observatons n wrtng concernng the
patentabty of the nventon. Such
observatons sha be communcated to the
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appcant who may comment on them. The
Offce sha acknowedge and put such
observatons and comment n the fe of the
appcaton to whch t reates. (n)
SEC 48. Request for 5ubstantive Examination. -
48.1. The appcaton sha be deemed
wthdrawn uness wthn sx (6) months from the
date of pubcaton under SEC 41, a wrtten
request to determne whether a patent
appcaton meets the requrements of SECs 21
to 27 and SECs 32 to 39 and the fees have been
pad on tme.
48.2. Wthdrawa of the request for examnaton
sha be rrevocabe and sha not authorze the
refund of any fee. (n)
SEC 49. Amendment of Application. - An
appcant may amend the patent appcaton
durng examnaton: Provded, That such
amendment sha not ncude new matter
outsde the scope of the dscosure contaned n
the appcaton as fed. (n)
SEC 50. Crant of Patent. - 50.1. If the
appcaton meets the requrements of ths Act,
the Offce sha grant the patent: Provded, That
a the fees are pad on tme.
50.2. If the requred fees for grant and prntng
are not pad n due tme, the appcaton sha
be deemed to be wthdrawn.
50.3. A patent sha take effect on the date of
the pubcaton of the grant of the patent n the
IPO Gazette. (Sec. 18, R.A. No. 165a)
SEC 51. Refusal of the Application. - 51.1. The
fna order of refusa of the examner to grant
the patent sha be appeaabe to the Drector n
accordance wth ths Act.
51.2. The Reguatons sha provde for the
procedure by whch an appea from the order of
refusa from the Drector sha be undertaken.
(n)
SEC 52. Publication Upon Crant of Patent. -
52.1. The grant of the patent together wth
other reated nformaton sha be pubshed n
the IPO Gazette wthn the tme prescrbed by
the Reguatons.
52.2. Any nterested party may nspect the
compete descrpton, cams, and drawngs of
the patent on fe wth the Offce. (Sec. 18, R.A.
No. 165a)
SEC 53. Contents of Patent. - The patent sha
be ssued n the name of the Repubc of the
Phppnes under the sea of the Offce and sha
be sgned by the Drector, and regstered
together wth the descrpton, cams, and
drawngs, f any, n books and records of the
Offce. (Secs. 19 and 20, R.A. No. 165a)
SEC 54. Term of Patent. - The term of a patent
sha be twenty (20) years from the fng date of
the appcaton. (Sec. 21, R.A. No. 165a)
SEC 55. Annual Fees. - 55.1. To mantan the
patent appcaton or patent, an annua fee sha
be pad upon the expraton of four (4) years
from the date the appcaton was pubshed
pursuant to SEC 44 hereof, and on each
subsequent annversary of such date. Payment
may be made wthn three (3) months before
the due date. The obgaton to pay the annua
fees sha termnate shoud the appcaton be
wthdrawn, refused, or canceed.
55.2. If the annua fee s not pad, the patent
appcaton sha be deemed wthdrawn or the
patent consdered as apsed from the day
foowng the expraton of the perod wthn
whch the annua fees were due. A notce that
the appcaton s deemed wthdrawn or the
apse of a patent for non-payment of any annua
fee sha be pubshed n the IPO Gazette and
the apse sha be recorded n the Regster of
the Offce.
55.3. A grace perod of sx (6) months sha be
granted for the payment of the annua fee,
upon payment of the prescrbed surcharge for
deayed payment. (Sec. 22, R.A. No. 165a)
SEC 56. 5urrender of Patent. - 56.1. The owner
of the patent, wth the consent of a persons
havng grants or censes or other rght, tte or
nterest n and to the patent and the nventon
covered thereby, whch have been recorded n
the Offce, may surrender hs patent or any
cam or cams formng part thereof to the
Offce for canceaton.
56.2. A person may gve notce to the Offce of
hs opposton to the surrender of a patent
under ths SEC, and f he does so, the Bureau
sha notfy the propretor of the patent and
determne the queston.
56.3. If the Offce s satsfed that the patent
may propery be surrendered, he may accept
the offer and, as from the day when notce of
hs acceptance s pubshed n the IPO Gazette,
the patent sha cease to have effect, but no
acton for nfrngement sha e and no rght
compensaton sha accrue for any use of the
patented nventon before that day for the
servces of the government. (Sec. 24, R.A. No.
165a)
SEC 57. Correction of Mistakes of the Office. -
The Drector sha have the power to correct,
wthout fee, any mstake n a patent ncurred
through the faut of the Offce when ceary
dscosed n the records thereof, to make the
patent conform to the records. (Sec. 25, R.A.
No. 165)
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SEC 58. Correction of Mistake in the
Application. - On request of any nterested
person and payment of the prescrbed fee, the
Drector s authorzed to correct any mstake n
a patent of a forma and cerca nature, not
ncurred through the faut of the Offce. (Sec.
26, R.A. No. 165a)
SEC 59. Changes in Patents. - 59.1. The owner
of a patent sha have the rght to request the
Bureau to make the changes n the patent n
order to:
(a) Lmt the extent of the protecton conferred
by t;
(b) Correct obvous mstakes or to correct
cerca errors; and
(c) Correct mstakes or errors, other than those
referred to n etter (b), made n good fath:
Provded, That where the change woud resut n
a broadenng of the extent of protecton
conferred by the patent, no request may be
made after the expraton of two (2) years from
the grant of a patent and the change sha not
affect the rghts of any thrd party whch has
reed on the patent, as pubshed.
59.2. No change n the patent sha be
permtted under ths SEC, where the change
woud resut n the dscosure contaned n the
patent gong beyond the dscosure contaned n
the appcaton fed.
59.3. If, and to the extent to whch the Offce
changes the patent accordng to ths SEC, t
sha pubsh the same. (n)
SEC 60. Form and Publication of Amendment. -
An amendment or correcton of a patent sha
be accompshed by a certfcate of such
amendment or correcton, authentcated by the
sea of the Offce and sgned by the Drector,
whch certfcate sha be attached to the
patent. Notce of such amendment or correcton
sha be pubshed n the IPO Gazette and copes
of the patent kept or furnshed by the Offce
sha ncude a copy of the certfcate of
amendment or correcton. (Sec. 27, R.A. No.
165)
Rights Conferred by a Patent
SEC 71. Rights Conferred by Patent. - 71.1. A
patent sha confer on ts owner the foowng
excusve rghts:
]RPP-MUSl-MDUSOSl-ATL|
(a) Where the sub|ect matter of a patent s a
product, to restran, prohbt and prevent any
unauthorzed person or entty from makng,
usng, offerng for sae, seng or mportng that
product;
(b) Where the sub|ect matter of a patent s a
process, to restran, prevent or prohbt any
unauthorzed person or entty from usng the
process, and from manufacturng, deang n,
usng, seng or offerng for sae, or mportng
any product obtaned drecty or ndrecty from
such process.
71.2. Patent owners sha aso have the rght to
assgn, or transfer by successon the patent,
and to concude censng contracts for the
same. (Sec. 37, R.A. No. 165a)
Term
SEC 54. Term of Patent. - The term of a patent
sha be twenty (20) years from the fng date of
the appcaton. (Sec. 21, R.A. No. 165a)
Cancellation of Patents
SEC 61. Cancellation of Patents. - 61.1. Any
nterested person may, upon payment of the
requred fee, petton to cance the patent or
any cam thereof, or parts of the cam, on any
of the foowng grounds:
]NN-ND-CP|
(a) That what s camed as the nventon s not
new or Patentabe;
(b) That the patent does not dscose the
nventon n a manner suffcenty cear and
compete for t to be carred out by any person
sked n the art; or
(c) That the patent s contrary to pubc order or
moraty.
61.2. Where the grounds for canceaton reate
to some of the cams or parts of the cam,
canceaton may be effected to such extent
ony. (Secs. 28 and 29, R.A. No. 165a)
Remedies of True and Actual lnventor
SEC 68. Remedies of the True and Actual
lnventor. - If a person, who was deprved of the
patent wthout hs consent or through fraud s
decared by fna court order or decson to be
the true and actua nventor, the court sha
order for hs substtuton as patentee, or at the
opton of the true nventor, cance the patent,
and award actua and other damages n hs
favor f warranted by the crcumstances. (Sec.
33, R.A. No. 165a)
Limitations on the Rights of Patentees
SEC 72. Limitations of Patent Rights. - The
owner of a patent has no rght to prevent thrd
partes from performng, wthout hs
authorzaton, the acts referred to n SEC 71
hereof n the foowng crcumstances:
]APElS|
72.1. Usng a patented product whch has been
put on the market n the Phppnes by the
owner of the product, or wth hs express
consent, nsofar as such use s performed after
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that product has been so put on the sad
market;
72.2. Where the act s done prvatey and on a
non-commerca scae or for a non-commerca
purpose: Provded, That t does not sgnfcanty
pre|udce the economc nterests of the owner
of the patent;
72.3. Where the act conssts of makng or usng
excusvey for the purpose of experments that
reate to the sub|ect matter of the patented
nventon;
72.4. Where the act conssts of the preparaton
for ndvdua cases, n a pharmacy or by a
medca professona, of a medcne n
accordance wth a medca prescrpton or acts
concernng the medcne so prepared;
72.5. Where the nventon s used n any shp,
vesse, arcraft, or and vehce of any other
country enterng the terrtory of the Phppnes
temporary or accdentay: Provded, That such
nventon s used excusvey for the needs of
the shp, vesse, arcraft, or and vehce and not
used for the manufacturng of anythng to be
sod wthn the Phppnes. (Secs. 38 and 39,
R.A. No. 165a)
SEC 73. Prior User. - 73.1. Notwthstandng SEC
72 hereof, any pror user, who, n good fath
was usng the nventon or has undertaken
serous preparatons to use the nventon n hs
enterprse or busness, before the fng date or
prorty date of the appcaton on whch a
patent s granted, sha have the rght to
contnue the use thereof as envsaged n such
preparatons wthn the terrtory where the
patent produces ts effect.
73.2. The rght of the pror user may ony be
transferred or assgned together wth hs
enterprse or busness, or wth that part of hs
enterprse or busness n whch the use or
preparatons for use have been made. (Sec. 40,
R.A. No. 165a)
SEC 74. Use of lnvention by Covernment. -
74.1. A Government agency or thrd person
authorzed by the Government may expot the
nventon even wthout agreement of the patent
owner where:
]Pl-]AAC|
(a) The pubc nterest, n partcuar, natona
securty, nutrton, heath or the deveopment of
other sectors, as determned by the approprate
agency of the government, so requres; or
(b) A |udca or admnstratve body has
determned that the manner of expotaton, by
the owner of the patent or hs censee s ant-
compettve.
74.2. The use by the Government, or thrd
person authorzed by the Government sha be
sub|ect, mutats mutands, to the condtons set
forth n SECs 95 to 97 and 100 to 102. (Sec. 41,
R.A. No. 165a)
Patent lnfringement
SEC 76. Civil Action for lnfringement. - 76.1.
The makng, usng, offerng for sae, seng, or
mportng a patented product or a product
obtaned drecty or ndrecty from a patented
process, or the use of a patented process
wthout the authorzaton of the patentee
consttutes patent nfrngement. ]MUOSlUWA|
Civil Action
SEC 76. Civil Action for lnfringement. - 76.1.
The makng, usng, offerng for sae, seng, or
mportng a patented product or a product
obtaned drecty or ndrecty from a patented
process, or the use of a patented process
wthout the authorzaton of the patentee
consttutes patent nfrngement.
]DAlDC|
76.2. Any patentee, or anyone possessng any
rght, tte or nterest n and to the patented
nventon, whose rghts have been nfrnged,
may brng a cv acton before a court of
competent |ursdcton, to recover from the
nfrnger such damages sustaned thereby, pus
attorney's fees and other expenses of tgaton,
and to secure an n|uncton for the protecton of
hs rghts.
76.3. If the damages are nadequate or cannot
be ready ascertaned wth reasonabe
certanty, the court may award by way of
damages a sum equvaent to reasonabe
royaty.
76.4. The court may, accordng to the
crcumstances of the case, award damages n a
sum above the amount found as actua
damages sustaned: Provded, That the award
does not exceed three (3) tmes the amount of
such actua damages.
76.5. The court may, n ts dscreton, order that
the nfrngng goods, materas and mpements
predomnanty used n the nfrngement be
dsposed of outsde the channes of commerce
or destroyed, wthout compensaton.
76.6. Anyone who actvey nduces the
nfrngement of a patent or provdes the
nfrnger wth a component of a patented
product or of a product produced because of a
patented process knowng t to be especay
adopted for nfrngng the patented nventon
and not sutabe for substanta non-nfrngng
use sha be abe as a contrbutory nfrnger
and sha be |onty and severay abe wth the
nfrnger. (Sec. 42, R.A. No. 165a)
Defenses
]FKl|
SEC 79. Limitation of Action for Damages. - No
damages can be recovered for acts of
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nfrngement commtted more than four (4)
years before the nsttuton of the acton for
nfrngement. (Sec. 43, R.A. No. 165)
SEC 80. Damages, Requirement of Notice. -
Damages cannot be recovered for acts of
nfrngement commtted before the nfrnger
had known, or had reasonabe grounds to know
of the patent. It s presumed that the nfrnger
had known of the patent f on the patented
product, or on the contaner or package n
whch the artce s supped to the pubc, or on
the advertsng matera reatng to the
patented product or process, are paced the
words "Phppne Patent" wth the number of
the patent. (Sec. 44, R.A. No. 165a)
SEC 81. Defenses in Action for lnfringement. -
In an acton for nfrngement, the defendant, n
addton to other defenses avaabe to hm,
may show the nvadty of the patent, or any
cam thereof, on any of the grounds on whch a
petton of canceaton can be brought under
SEC 61 hereof. (Sec. 45, R.A. No. 165)
Burden of Proof in lnfringement Process
SEC 78. Process Patents; 8urden of Proof . - If
the sub|ect matter of a patent s a process for
obtanng a product, any dentca product sha
be presumed to have been obtaned through
the use of the patented process f the product s
new or there s substanta kehood that the
dentca product was made by the process and
the owner of the patent has been unabe
despte reasonabe efforts, to determne the
process actuay used. In orderng the
defendant to prove that the process to obtan
the dentca product s dfferent from the
patented process, the court sha adopt
measures to protect, as far as practcabe, hs
manufacturng and busness secrets. (n)
Criminal Action
lMP - 6MOS-3 YRS
FlNE - 100K-300K
3 YRS
SEC 84. Criminal Action for Repetition of
lnfringement. - If nfrngement s repeated by
the nfrnger or by anyone n connvance wth
hm after fnaty of the |udgment of the court
aganst the nfrnger, the offenders sha,
wthout pre|udce to the nsttuton of a cv
acton for damages, be crmnay abe therefor
and, upon convcton, sha suffer mprsonment
for the perod of not ess than sx (6) months
but not more than three (3) years and/or a fne
of not ess than One hundred thousand pesos
(P100,000) but not more than Three hundred
thousand pesos (P300,000), at the dscreton of
the court. The crmna acton heren provded
sha prescrbe n three (3) years from date of
the commsson of the crme. (Sec. 48, R.A. No.
165a)
Voluntary Licensing
Prohibited Clauses
SEC 87. Prohibited Clauses. - Except n cases
under SEC 91, the foowng provsons sha be
deemed prma face to have an adverse effect
on competton and trade:
]SPVCP TREUP CRALE|
87.1. Those whch mpose upon the censee the
obgaton to acqure from a specfc source
capta goods, ntermedate products, raw
materas, and other technooges, or of
permanenty empoyng personne ndcated by
the censor;
87.2. Those pursuant to whch the censor
reserves the rght to fx the sae or resae prces
of the products manufactured on the bass of
the cense;
87.3. Those that contan restrctons regardng
the voume and structure of producton;
87.4. Those that prohbt the use of compettve
technooges n a non-excusve technoogy
transfer agreement;
87.5. Those that estabsh a fu or parta
purchase opton n favor of the censor;
87.6. Those that obgate the censee to
transfer for free to the censor the nventons or
mprovements that may be obtaned through
the use of the censed technoogy;
87.7. Those that requre payment of royates to
the owners of patents for patents whch are not
used;
87.8. Those that prohbt the censee to export
the censed product uness |ustfed for the
protecton of the egtmate nterest of the
censor such as exports to countres where
excusve censes to manufacture and/or
dstrbute the censed product(s) have aready