PRESIDENTIAL DECREE No.
115 January 29, (a) "Document" shall mean written or
1973
PROVIDING FOR THE REGULATION OF TRUST
RECEIPTS TRANSACTIONS
WHEREAS, the utilization of trust receipts, as a
convenient business device to assist importers
and merchants solve their financing problems,
had gained popular acceptance in international
and domestic business practices, particularly in
commercial banking transactions;
WHEREAS, there is no specific law in the
Philippines that governs trust receipt
transactions, especially the rights and obligations
of the parties involved therein and the
enforcement of the said rights in case of default
or violation of the terms of the trust receipt
agreement;
WHEREAS, the recommendations contained in the
report on the financial system which have been
accepted, with certain modifications by the
monetary authorities included, among others, the
enactment of a law regulating the trust receipt
transactions;
NOW, THEREFORE, I, FERDINAND E. MARCOS,
President of the Philippines, by virtue of the
powers vested in me by the Constitution, as
Commander-in-Chief of all the Armed Forces of
the Philippines, and pursuant to Proclamation No.
1081, dated September 21, 1972, and General
Order No. 1, dated September 22, 1972, as
amended, and in order to effect the desired
changes and reforms in the social, economic, and
political structure of our society, do hereby order
and decree and make as part of the law of the
land the following:
Section 1. Short Title. This Decree shall be
known as the Trust Receipts Law.
Section 2. Declaration of Policy. It is hereby
declared to be the policy of the state (a) to
encourage and promote the use of trust receipts
as an additional and convenient aid to commerce
and trade; (b) to provide for the regulation of
trust receipts transactions in order to assure the
protection of the rights and enforcement of
obligations of the parties involved therein; and (c)
to declare the misuse and/or misappropriation of
goods or proceeds realized from the sale of
goods, documents or instruments released under
trust receipts as a criminal offense punishable
under Article Three hundred and fifteen of the
Revised Penal Code.
Section 3. Definition of terms. As used in this
Decree, unless the context otherwise requires,
the term
printed evidence of title to goods.
(b) "Entrustee" shall refer to the person
having or taking possession of goods,
documents or instruments under a trust
receipt transaction, and any successor in
interest of such person for the purpose or
purposes specified in the trust receipt
agreement.
(c) "Entruster" shall refer to the person
holding title over the goods, documents,
or instruments subject of a trust receipt
transaction, and any successor in interest
of such person.
(d) "Goods" shall include chattels and
personal property other than: money,
things in action, or things so affixed to
land as to become a part thereof.
(e) "Instrument" means any negotiable
instrument as defined in the Negotiable
Instrument Law; any certificate of stock,
or bond or debenture for the payment of
money issued by a public or private
corporation, or any certificate of deposit,
participation certificate or receipt, any
credit or investment instrument of a sort
marketed in the ordinary course of
business or finance, whereby the
entrustee, after the issuance of the trust
receipt, appears by virtue of possession
and the face of the instrument to be the
owner. "Instrument" shall not include a
document as defined in this Decree.
(f) "Purchase" means taking by sale,
conditional sale, lease, mortgage, or
pledge, legal or equitable.
(g) "Purchaser" means any person taking
by purchase.
(h) "Security Interest" means a property
interest in goods, documents or
instruments to secure performance of
some obligations of the entrustee or of
some third persons to the entruster and
includes title, whether or not expressed
to be absolute, whenever such title is in
substance taken or retained for security
only.
(i) "Person" means, as the case may be,
an individual, trustee, receiver, or other
fiduciary, partnership, corporation,
business trust or other association, and
two more persons having a joint or
common interest.
(j) "Trust Receipt" shall refer to the
written or printed document signed by
the entrustee in favor of the entruster
containing terms and conditions
substantially complying with the
provisions of this Decree. No further
formality of execution or authentication
shall be necessary to the validity of a
trust receipt.
(k) "Value" means any consideration
sufficient to support a simple contract.

Section 4. What constitutes a trust receipt
transaction. A trust receipt transaction, within the
meaning of this Decree, is any transaction by and
between a person referred to in this Decree as
the entruster, and another person referred to in
this Decree as entrustee, whereby the entruster,
who owns or holds absolute title or security
interests over certain specified goods, documents
or instruments, releases the same to the
possession of the entrustee upon the latter's
execution and delivery to the entruster of a
signed document called a "trust receipt" wherein
the entrustee binds himself to hold the
designated goods, documents or instruments in
trust for the entruster and to sell or otherwise
dispose of the goods, documents or instruments
with the obligation to turn over to the entruster
the proceeds thereof to the extent of the amount
owing to the entruster or as appears in the trust
receipt or the goods, documents or instruments
themselves if they are unsold or not otherwise
disposed of, in accordance with the terms and
conditions specified in the trust receipt, or for
other purposes substantially equivalent to any of
the following:
1. In the case of goods or documents, (a)
to sell the goods or procure their sale; or
(b) to manufacture or process the goods
with the purpose of ultimate sale:
Provided, That, in the case of goods
delivered under trust receipt for the
purpose of manufacturing or processing
before its ultimate sale, the entruster
shall retain its title over the goods
whether in its original or processed form
until the entrustee has complied fully
with his obligation under the trust receipt;
or (c) to load, unload, ship or tranship or
otherwise deal with them in a manner
preliminary or necessary to their sale; or
2. In the case of instruments,
a) to sell or procure their sale or
exchange; or
b) to deliver them to a principal;
or
c) to effect the consummation of
some transactions involving
delivery to a depository or
register; or
d) to effect their presentation,
collection or renewal
The sale of goods, documents or
instruments by a person in the business
of selling goods, documents or
instruments for profit who, at the outset
of the transaction, has, as against the
buyer, general property rights in such
goods, documents or instruments, or who
sells the same to the buyer on credit,
retaining title or other interest as security
for the payment of the purchase price,
does not constitute a trust receipt
transaction and is outside the purview
and coverage of this Decree.
Section 5. Form of trust receipts; contents. A
trust receipt need not be in any particular form,
but every such receipt must substantially contain
(a) a description of the goods, documents or
instruments subject of the trust receipt; (2) the
total invoice value of the goods and the amount
of the draft to be paid by the entrustee; (3) an
undertaking or a commitment of the entrustee (a)
to hold in trust for the entruster the goods,
documents or instruments therein described; (b)
to dispose of them in the manner provided for in
the trust receipt; and (c) to turn over the
proceeds of the sale of the goods, documents or
instruments to the entruster to the extent of the
amount owing to the entruster or as appears in
the trust receipt or to return the goods,
documents or instruments in the event of their
non-sale within the period specified therein.
The trust receipt may contain other terms and
conditions agreed upon by the parties in addition
to those hereinabove enumerated provided that
such terms and conditions shall not be contrary
to the provisions of this Decree, any existing
laws, public policy or morals, public order or good
customs.
Section 6. Currency in which a trust receipt may
be denominated. A trust receipt may be
denominated in the Philippine currency or any
foreign currency acceptable and eligible as part
of international reserves of the Philippines, the
provisions of existing law, executive orders, rules
and regulations to the contrary notwithstanding:
Provided, however, That in the case of trust
receipts denominated in foreign currency,
payment shall be made in its equivalent in
Philippine currency computed at the prevailing
exchange rate on the date the proceeds of sale of
the goods, documents or instruments held in
trust by the entrustee are turned over to the
entruster or on such other date as may be
stipulated in the trust receipt or other
agreements executed between the entruster and
the entrustee.
Section 7. Rights of the entruster. The entruster
shall be entitled to the proceeds from the sale of
the goods, documents or instruments released
under a trust receipt to the entrustee to the
extent of the amount owing to the entruster or as
appears in the trust receipt, or to the return of
the goods, documents or instruments in case of
non-sale, and to the enforcement of all other
rights conferred on him in the trust receipt
provided such are not contrary to the provisions
of this Decree.
The entruster may cancel the trust and take
possession of the goods, documents or
instruments subject of the trust or of the
proceeds realized therefrom at any time upon
default or failure of the entrustee to comply with
any of the terms and conditions of the trust
receipt or any other agreement between the
entruster and the entrustee, and the entruster in
possession of the goods, documents or
instruments may, on or after default, give notice
to the entrustee of the intention to sell, and may,
not less than five days after serving or sending of
such notice, sell the goods, documents or
instruments at public or private sale, and the
entruster may, at a public sale, become a
purchaser. The proceeds of any such sale,
whether public or private, shall be applied (a) to
the payment of the expenses thereof; (b) to the
payment of the expenses of re-taking, keeping
and storing the goods, documents or
instruments; (c) to the satisfaction of the
entrustee's indebtedness to the entruster. The
entrustee shall receive any surplus but shall be
liable to the entruster for any deficiency. Notice of
sale shall be deemed sufficiently given if in
writing, and either personally served on the
entrustee or sent by post-paid ordinary mail to
the entrustee's last known business address.
Section 8. Entruster not responsible on sale by
entrustee. The entruster holding a security
interest shall not, merely by virtue of such
interest or having given the entrustee liberty of
sale or other disposition of the goods, documents
or instruments under the terms of the trust
receipt transaction be responsible as principal or
as vendor under any sale or contract to sell made
by the entrustee.
Section 9. Obligations of the entrustee. The
entrustee shall (1) hold the goods, documents or
instruments in trust for the entruster and shall
dispose of them strictly in accordance with the
terms and conditions of the trust receipt; (2)
receive the proceeds in trust for the entruster
and turn over the same to the entruster to the
extent of the amount owing to the entruster or as
appears on the trust receipt; (3) insure the goods
for their total value against loss from fire, theft,
pilferage or other casualties; (4) keep said goods
or proceeds thereof whether in money or
whatever form, separate and capable of
identification as property of the entruster; (5)
return the goods, documents or instruments in
the event of non-sale or upon demand of the
entruster; and (6) observe all other terms and
conditions of the trust receipt not contrary to the
provisions of this Decree.
Section 10. Liability of entrustee for loss. The
risk of loss shall be borne by the entrustee. Loss
of goods, documents or instruments which are
the subject of a trust receipt, pending their
disposition, irrespective of whether or not it was
due to the fault or negligence of the entrustee,
shall not extinguish his obligation to the entruster
for the value thereof.
Section 11. Rights of purchaser for value and in
good faith. Any purchaser of goods from an
entrustee with right to sell, or of documents or
instruments through their customary form of
transfer, who buys the goods, documents, or
instruments for value and in good faith from the
entrustee, acquires said goods, documents or
instruments free from the entruster's security
interest.
Section 12. Validity of entruster's security
interest as against creditors. The entruster's
security interest in goods, documents, or
instruments pursuant to the written terms of a
trust receipt shall be valid as against all creditors
of the entrustee for the duration of the trust
receipt agreement.
Section 13. Penalty clause. The failure of an
entrustee to turn over the proceeds of the sale of
the goods, documents or instruments covered by
a trust receipt to the extent of the amount owing
to the entruster or as appears in the trust receipt
or to return said goods, documents or
instruments if they were not sold or disposed of
in accordance with the terms of the trust receipt
shall constitute the crime of estafa, punishable
under the provisions of Article Three hundred and
fifteen, paragraph one (b) of Act Numbered Three
thousand eight hundred and fifteen, as amended,
otherwise known as the Revised Penal Code. If
the violation or offense is committed by a
corporation, partnership, association or other
juridical entities, the penalty provided for in this
Decree shall be imposed upon the directors,
officers, employees or other officials or persons
therein responsible for the offense, without
prejudice to the civil liabilities arising from the
criminal offense.
Section 14. Cases not covered by this
Decree. Cases not provided for in this Decree
shall be governed by the applicable provisions of
existing laws.
Section 15. Separability clause. If any provision
or section of this Decree or the application
thereof to any person or circumstance is held
invalid, the other provisions or sections hereof
and the application of such provisions or sections
to other persons or circumstances shall not be
affected thereby.
Section 16. Repealing clause. All Acts
inconsistent with this Decree are hereby
repealed.
Section 17. This Decree shall take effect
immediately.

PRESIDENTIAL DECREE No. 612 December
18, 1974
ORDAINING AND INSTITUTING AN
INSURANCE CODE OF THE PHILIPPINES
I, Ferdinand E. Marcos, President of the
Philippines, by virtue of the powers in me vested
by the Constitution, do hereby decree and order
the following:
GENERAL PROVISIONS
Section 1. This Decree shall be known as "The
Insurance Code".
Section 2. Whenever used in this Code, the
following terms shall have the respective
meanings hereinafter set forth or indicated,
unless the context otherwise requires:
(1) A "contract of insurance" is an
agreement whereby one undertakes for a
consideration to indemnify another
against loss, damage or liability arising
from an unknown or contingent event.
A contract of suretyship shall be deemed
to be an insurance contract, within the
meaning of this Code, only if made by a
surety who or which, as such, is doing an
insurance business as hereinafter
provided.
(2) The term "doing an insurance
business" or "transacting an insurance
business", within the meaning of this
Code, shall include (a) making or
proposing to make, as insurer, any
insurance contract; (b) making or
proposing to make, as surety, any
contract of suretyship as a vocation and
not as merely incidental to any other
legitimate business or activity of the
surety; (c) doing any kind of business,
including a reinsurance business,
specifically recognized as constituting the
doing of an insurance business within the
meaning of this Code; (d) doing or
proposing to do any business in
substance equivalent to any of the
foregoing in a manner designed to evade
the provisions of this Code.
In the application of the provisions of this
Code the fact that no profit is derived
from the making of insurance contracts,
agreements or transactions or that no
separate or direct consideration is
received therefor, shall not be deemed
conclusive to show that the making
thereof does not constitute the doing or
transacting of an insurance business.
(3) As used in this code, the term
"Commissioner" means the "Insurance
Commissioner".
Chapter 1
THE CONTRACT OF INSURANCE
Title 1
WHAT MAY BE INSURED
Section 3. Any contingent or unknown event,
whether past or future, which may damnify a
person having an insurable interest, or create a
liability against him, may be insured against,
subject to the provisions of this chapter.
The consent of the husband is not necessary for
the validity of an insurance policy taken out by a
married woman on her life or that of her children.
Any minor of the age of eighteen years or more,
may, notwithstanding such minority, contract for
life, health and accident insurance, with any
insurance company duly authorized to do
business in the Philippines, provided the
insurance is taken on his own life and the
beneficiary appointed is the minor's estate or the
minor's father, mother, husband, wife, child,
brother or sister.
The married woman or the minor herein allowed
to take out an insurance policy may exercise all
the rights and privileges of an owner under a
policy.
All rights, title and interest in the policy of
insurance taken out by an original owner on the
life or health of a minor shall automatically vest
in the minor upon the death of the original owner,
unless otherwise provided for in the policy.
Section 4. The preceding section does not
authorize an insurance for or against the drawing
of any lottery, or for or against any chance or
ticket in a lottery drawing a prize.
Section 5. All kinds of insurance are subject to
the provisions of this chapter so far as the
provisions can apply.
Title 2
PARTIES TO THE CONTRACT
Section 6. Every person, partnership,
association, or corporation duly authorized to
transact insurance business as elsewhere
provided in this code, may be an insurer.
Section 7. Anyone except a public enemy may
be insured.
Section 8. Unless the policy otherwise provides,
where a mortgagor of property effects insurance
in his own name providing that the loss shall be
payable to the mortgagee, or assigns a policy of
insurance to a mortgagee, the insurance is
deemed to be upon the interest of the mortgagor,
who does not cease to be a party to the original
contract, and any act of his, prior to the loss,
which would otherwise avoid the insurance, will
have the same effect, although the property is in
the hands of the mortgagee, but any act which,
under the contract of insurance, is to be
performed by the mortgagor, may be performed
by the mortgagee therein named, with the same
effect as if it had been performed by the
mortgagor.
Section 9. If an insurer assents to the transfer of
an insurance from a mortgagor to a mortgagee,
and, at the time of his assent, imposes further
obligation on the assignee, making a new
contract with him, the act of the mortgagor
cannot affect the rights of said assignee.
Title 3 insured must exist when the insurance takes
INSURABLE INTEREST
Section 10. Every person has an insurable
interest in the life and health:
(a) Of himself, of his spouse and of his
children;
(b) Of any person on whom he depends
wholly or in part for education or support,
or in whom he has a pecuniary interest;
(c) Of any person under a legal obligation
to him for the payment of money, or
respecting property or services, of which
death or illness might delay or prevent
the performance; and
(d) Of any person upon whose life any
estate or interest vested in him depends.
Section 11. The insured shall have the right to
change the beneficiary he designated in the
policy, unless he has expressly waived this right
in said policy.
Section 12. The interest of a beneficiary in a life
insurance policy shall be forfeited when the
beneficiary is the principal, accomplice, or
accessory in willfully bringing about the death of
the insured; in which event, the nearest relative
of the insured shall receive the proceeds of said
insurance if not otherwise disqualified.
Section 13. Every interest in property, whether
real or personal, or any relation thereto, or
liability in respect thereof, of such nature that a
contemplated peril might directly damnify the
insured, is an insurable interest.
Section 14. An insurable interest in property
may consist in:
Section 15. A carrier or depository of any kind
has an insurable interest in a thing held by him as
such, to the extent of his liability but not to
exceed the value thereof.
Section 16. A mere contingent or expectant
interest in anything, not founded on an actual
right to the thing, nor upon any valid contract for
it, is not insurable.
Section 17. The measure of an insurable interest
in property is the extent to which the insured
might be damnified by loss or injury thereof.
Section 18. No contract or policy of insurance on
property shall be enforceable except for the
benefit of some person having an insurable
interest in the property insured.
Section 19. An interest in property insured must
exist when the insurance takes effect, and when
the loss occurs, but not exist in the meantime;
and interest in the life or health of a person
effect, but need not exist thereafter or when the
loss occurs.
Section 20. Except in the cases specified in the
next four sections, and in the cases of life,
accident, and health insurance, a change of
interest in any part of a thing insured
unaccompanied by a corresponding change in
interest in the insurance, suspends the insurance
to an equivalent extent, until the interest in the
thing and the interest in the insurance are vested
in the same person.
Section 21. A change in interest in a thing
insured, after the occurrence of an injury which
results in a loss, does not affect the right of the
insured to indemnity for the loss.
Section 22. A change of interest in one or more
several distinct things, separately insured by one
policy, does not avoid the insurance as to the
others.
Section 23. A change on interest, by will or
succession, on the death of the insured, does not
avoid an insurance; and his interest in the
insurance passes to the person taking his interest
in the thing insured.
Section 24. A transfer of interest by one of
several partners, joint owners, or owners in
common, who are jointly insured, to the others,
does not avoid an insurance even though it has
been agreed that the insurance shall cease upon
an alienation of the thing insured.
Section 25. Every stipulation in a policy of
insurance for the payment of loss whether the
person insured has or has not any interest in the
property insured, or that the policy shall be
received as proof of such interest, and every
policy executed by way of gaming or wagering, is
void.
Title
CONCEALMENT
Section 26. A neglect to communicate that
which a party knows and ought to communicate,
is called a concealment.
Section 27. A concealment entitles the injured
party to rescind a contract of insurance.
Section 28. Each party to a contract of
insurance must communicated to the other, in
good faith, all facts within his knowledge which
are material to the contract and as to which he
makes no warranty, and which the other has not
the means of ascertaining.
Section 29. An intentional and fraudulent
omission, on the part of one insured, to
communicate information of matters proving or
tending to prove the falsity of a warranty, entitles
the insurer to rescind.
insurance or by neglect to make inquiry as to
such facts, where they are distinctly implied in
other facts of which information is
communicated.
4
Section 34. Information of the nature or amount
of the interest of one insured need not be
communicated unless in answer to an inquiry,
except as prescribed by section fifty-one.
Section 35. Neither party to a contract of
insurance is bound to communicate, even upon
inquiry, information of his own judgment upon
the matters in question.
Title 5
REPRESENTATION
Section 36. A representation may be oral or
written.
Section 37. A representation may be made at
the time of, or before, issuance of the policy.
Section 38. The language of a representation is
to be interpreted by the same rules as the
language of contracts in general.

Section 30. Neither party to a contract of
insurance is bound to communicate information
of the matters following, except in answer to the
inquiries of the other:
(a) Those which the other knows;
(b) Those which, in the exercise of
ordinary care, the other ought to know,
and of which the former has no reason to
suppose him ignorant;
(c) Those of which the other waives
communication; lawphi1.net
(d) Those which prove or tend to prove
the existence of a risk excluded by a
warranty, and which are not otherwise
material; and
(e) Those which relate to a risk excepted
from the policy and which are not
otherwise material.
Section 31. Materiality is to be determined not
by the event, but solely by the probable and
reasonable influence of the facts upon the party
to whom the communication is due, in forming
his estimate of the disadvantages of the
proposed contract, or in making his inquiries.
Section 32. Each party to a contract of
insurance is bound to know all the general causes
which are open to his inquiry, equally with that of
the other, and which may affect the political or
material perils contemplated; and all general
usages of trade.
Section 33. The right to information of material
facts may be waived, either by the terms of the
Section 39. A representation as to the future is
to be deemed a promise, unless it appears that it
was merely a statement of belief or expectation.
Section 40. A representation cannot qualify an
express provision in a contract of insurance, but it
may qualify an implied warranty.
Section 41. A representation may be altered or
withdrawn before the insurance is effected, but
not afterwards.
Section 42. A representation must be presumed
to refer to the date on which the contract goes
into effect.
Section 43. When a person insured has no
personal knowledge of a fact, he may
nevertheless repeat information which he has
upon the subject, and which he believes to be
true, with the explanation that he does so on the
information of others; or he may submit the
information, in its whole extent, to the insurer;
and in neither case is he responsible for its truth,
unless it proceeds from an agent of the insured,
whose duty it is to give the information.
Section 44. A representation is to be deemed
false when the facts fail to correspond with its
assertions or stipulations.
Section 45. If a representation is false in a
material point, whether affirmative or promissory,
the injured party is entitled to rescind the
contract from the time when the representation
becomes false.
Section 46. The materiality of a representation
is determined by the same rules as the
materiality of a concealment.
Section 47. The provisions of this chapter apply
as well to a modification of a contract of
insurance as to its original formation.
Section 48. Whenever a right to rescind a
contract of insurance is given to the insurer by
any provision of this chapter, such right must be
exercised previous to the commencement of an
action on the contract.
After a policy of life insurance made payable on
the death of the insured shall have been in force
during the lifetime of the insured for a period of
two years from the date of its issue or of its last
reinstatement, the insurer cannot prove that the
policy is void ab initio or is rescindible by reason
of the fraudulent concealment or
misrepresentation of the insured or his agent.
Title 6 Commissioner if he determines that such
THE POLICY
Section 49. The written instrument in which a
contract of insurance is set forth, is called a
policy of insurance.
Section 50. The policy shall be in printed form
which may contain blank spaces; and any word,
phrase, clause, mark, sign, symbol, signature,
number, or word necessary to complete the
contract of insurance shall be written on the
blank spaces provided therein.
Any rider, clause, warranty or endorsement
purporting to be part of the contract of insurance
and which is pasted or attached to said policy is
not binding on the insured, unless the descriptive
title or name of the rider, clause, warranty or
endorsement is also mentioned and written on
the blank spaces provided in the policy.
Unless applied for by the insured or owner, any
rider, clause, warranty or endorsement issued
after the original policy shall be countersigned by
the insured or owner, which countersignature
shall be taken as his agreement to the contents
of such rider, clause, warranty or endorsement.
Group insurance and group annuity policies,
however, may be typewritten and need not be in
printed form.
Section 51. A policy of insurance must specify:
(a) The parties between whom the
contract is made;
(b) The amount to be insured except in
the cases of open or running policies;
(c) The premium, or if the insurance is of
a character where the exact premium is
only determinable upon the termination
of the contract, a statement of the basis
and rates upon which the final premium is
to be determined;
(d) The property or life insured;
(e) The interest of the insured in property
insured, if he is not the absolute owner
thereof;
(f) The risks insured against; and
(g) The period during which the insurance
is to continue.
Section 52. Cover notes may be issued to bind
insurance temporarily pending the issuance of
the policy. Within sixty days after the issue of the
cover note, a policy shall be issued in lieu
thereof, including within its terms the identical
insurance bound under the cover note and the
premium therefor.
Cover notes may be extended or renewed beyond
such sixty days with the written approval of the
extension is not contrary to and is not for the
purpose of violating any provisions of this Code.
The Commissioner may promulgate rules and
regulations governing such extensions for the
purpose of preventing such violations and may by
such rules and regulations dispense with the
requirement of written approval by him in the
case of extension in compliance with such rules
and regulations.
Section 53. The insurance proceeds shall be
applied exclusively to the proper interest of the
person in whose name or for whose benefit it is
made unless otherwise specified in the policy.
Section 54. When an insurance contract is
executed with an agent or trustee as the insured,
the fact that his principal or beneficiary is the real
party in interest may be indicated by describing
the insured as agent or trustee, or by other
general words in the policy.
Section 55. To render an insurance effected by
one partner or part-owner, applicable to the
interest of his co-partners or other part-owners, it
is necessary that the terms of the policy should
be such as are applicable to the joint or common
interest.
Section 56. When the description of the insured
in a policy is so general that it may comprehend
any person or any class of persons, only he who
can show that it was intended to include him can
claim the benefit of the policy.
Section 57. A policy may be so framed that it
will inure to the benefit of whomsoever, during
the continuance of the risk, may become the
owner of the interest insured.
Section 58. The mere transfer of a thing insured
does not transfer the policy, but suspends it until
the same person becomes the owner of both the
policy and the thing insured.
Section 59. A policy is either open, valued or
running.
Section 60. An open policy is one in which the
value of the thing insured is not agreed upon, but
is left to be ascertained in case of loss.
Section 61. A valued policy is one which
expresses on its face an agreement that the thing
insured shall be valued at a specific sum.
Section 62. A running policy is one which
contemplates successive insurances, and which
provides that the object of the policy may be
from time to time defined, especially as to the
subjects of insurance, by additional statements or
indorsements.
Section 63. A condition, stipulation, or
agreement in any policy of insurance, limiting the
time for commencing an action thereunder to a
period of less than one year from the time when
the cause of action accrues, is void.
Section 64. No policy of insurance other than life
shall be cancelled by the insurer except upon
prior notice thereof to the insured, and no notice
of cancellation shall be effective unless it is based
on the occurrence, after the effective date of the
policy, of one or more of the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of
acts increasing the hazard insured
against;
(c) discovery of fraud or material
misrepresentation; lawphi1.net
(d) discovery of willful or reckless acts or
omissions increasing the hazard insured
against;
(e) physical changes in the property
insured which result in the property
becoming uninsurable; or
(f) a determination by the Commissioner
that the continuation of the policy would
violate or would place the insurer in
violation of this Code.
Section 65. All notices of cancellation mentioned
in the preceding section shall be in writing,
mailed or delivered to the named insured at the
address shown in the policy, and shall state (a)
which of the grounds set forth in section sixty-
four is relied upon and (b) that, upon written
request of the named insured, the insurer will
furnish the facts on which the cancellation is
based.
Section 66. In case of insurance other than life,
unless the insurer at least forty-five days in
advance of the end of the policy period mails or
delivers to the named insured at the address
shown in the policy notice of its intention not to
renew the policy or to condition its renewal upon
reduction of limits or elimination of coverages,
the named insured shall be entitled to renew the
policy upon payment of the premium due on the
effective date of the renewal. Any policy written
for a term of less than one year shall be
considered as if written for a term of one year.
Any policy written for a term longer than one year
or any policy with no fixed expiration date shall
be considered as if written for successive policy
periods or terms of one year.
Title 7
WARRANTIES
Section 67. A warranty is either expressed or
implied.
Section 68. A warranty may relate to the past,
the present, the future, or to any or all of these.
Section 69. No particular form of words is
necessary to create a warranty.
Section 70. Without prejudice to section fifty-
one, every express warranty, made at or before
the execution of a policy, must be contained in
the policy itself, or in another instrument signed
by the insured and referred to in the policy as
making a part of it.
Section 71. A statement in a policy of matter
relating to the person or thing insured, or to the
risk, as a fact, is an express warranty thereof.
Section 72. A statement in a policy which
imparts that it is intended to do or not to do a
thing which materially affects the risk, is a
warranty that such act or omission shall take
place.
Section 73. When, before the time arrives for
the performance of a warranty relating to the
future, a loss insured against happens, or
performance becomes unlawful at the place of
the contract, or impossible, the omission to fulfill
the warranty does not avoid the policy.
Section 74. The violation of a material warranty,
or other material provision of a policy, on the part
of either party thereto, entitles the other to
rescind.

Section 75. A policy may declare that a violation
of specified provisions thereof shall avoid it,
otherwise the breach of an immaterial provision
does not avoid the policy.
Section 76. A breach of warranty without fraud
merely exonerates an insurer from the time that
it occurs, or where it is broken in its inception,
prevents the policy from attaching to the risk.
Title 8
PREMIUM
Section 77. An insurer is entitled to payment of
the premium as soon as the thing insured is
exposed to the peril insured against.
Notwithstanding any agreement to the contrary,
no policy or contract of insurance issued by an
insurance company is valid and binding unless
and until the premium thereof has been paid,
except in the case of a life or an industrial life
policy whenever the grace period provision
applies.
Section 78. An acknowledgment in a policy or
contract of insurance or the receipt of premium is
conclusive evidence of its payment, so far as to
make the policy binding, notwithstanding any
stipulation therein that it shall not be binding
until the premium is actually paid.
Section 79. A person insured is entitled to a
return of premium, as follows:
(a) To the whole premium if no part of his
interest in the thing insured be exposed
to any of the perils insured against;
(b) Where the insurance is made for a
definite period of time and the insured
surrenders his policy, to such portion of
the premium as corresponds with the
unexpired time, at a pro rata rate, unless
a short period rate has been agreed upon
and appears on the face of the policy,
after deducting from the whole premium
any claim for loss or damage under the
policy which has previously accrued;
Provided, That no holder of a life
insurance policy may avail himself of the
privileges of this paragraph without
sufficient cause as otherwise provided by
law.
Section 80. If a peril insured against has existed,
and the insurer has been liable for any period,
however short, the insured is not entitled to
return of premiums, so far as that particular risk
is concerned.
Section 81. A person insured is entitled to return
of the premium when the contract is voidable, on
account of fraud or misrepresentation of the
insurer, or of his agent, or on account of facts,
the existence of which the insured was ignorant
without his fault; or when by any default of the
insured other than actual fraud, the insurer never
incurred any liability under the policy.
Section 82. In case of an over-insurance by
several insurers, the insured is entitled to a
ratable return of the premium, proportioned to
the amount by which the aggregate sum insured
in all the policies exceeds the insurable value of
the thing at risk.
Title 9
LOSS
Section 83. An agreement not to transfer the
claim of the insured against the insurer after the
loss has happened, is void if made before the loss
except as otherwise provided in the case of life
insurance.
Section 84. Unless otherwise provided by the
policy, an insurer is liable for a loss of which a
peril insured against was the proximate cause,
although a peril not contemplated by the contract
may have been a remote cause of the loss; but
he is not liable for a loss which the peril insured
against was only a remote cause.
Section 85. An insurer is liable where the thing
insured is rescued from a peril insured against
that would otherwise have caused a loss, if, in the
course of such rescue, the thing is exposed to a
peril not insured against, which permanently
deprives the insured of its possession, in whole or
in part; or where a loss is caused by efforts to
rescue the thing insured from a peril insured
against.
Section 86. Where a peril is especially excepted
in a contract of insurance, a loss, which would not
have occurred but for such peril, is thereby
excepted although the immediate cause of the
loss was a peril which was not excepted.
Section 87. An insurer is not liable for a loss
caused by the willful act or through the
connivance of the insured; but he is not
exonerated by the negligence of the insured, or
of the insurance agents or others.
Title 10
NOTICE OF LOSS
Section 88. In case of loss upon an insurance
against fire, an insurer is exonerated, if notice
thereof be not given to him by an insured, or
some person entitled to the benefit of the
insurance, without unnecessary delay.
Section 89. When a preliminary proof of loss is
required by a policy, the insured is not bound to
give such proof as would be necessary in a court
of justice; but it is sufficient for him to give the (e) Each insurer is bound, as between
best evidence which he has in his power at the himself and the other insurers, to
time. contribute ratably to the loss in
proportion to the amount for which he is
Section 90. All defects in a notice of loss, or in liable under his contract.
preliminary proof thereof, which the insured
might remedy, and which the insurer omits to Title 12
specify to him, without unnecessary delay, as REINSURANCE
grounds of objection, are waived.
Section 95. A contract of reinsurance is one by
Section 91. Delay in the presentation to an which an insurer procures a third person to insure
insurer of notice or proof of loss is waived if him against loss or liability by reason of such
caused by any act of him, or if he omits to take original insurance.
objection promptly and specifically upon that
ground. Section 96. Where an insurer obtains
reinsurance, except under automatic reinsurance
Section 92. If the policy requires, by way of treaties, he must communicate all the
preliminary proof of loss, the certificate or representations of the original insured, and also
testimony of a person other than the insured, it is all the knowledge and information he possesses,
sufficient for the insured to use reasonable whether previously or subsequently acquired,
diligence to procure it, and in case of the refusal which are material to the risk.
of such person to give it, then to furnish
reasonable evidence to the insurer that such Section 97. A reinsurance is presumed to be a
refusal was not induced by any just grounds of contract of indemnity against liability, and not
disbelief in the facts necessary to be certified or merely against damage.
testified.
Section 98. The original insured has no interest
Title 11 in a contract of reinsurance.
DOUBLE INSURANCE
Chapter II
Section 93. A double insurance exists where the CLASSES OF INSURANCE
same person is insured by several insurers
separately in respect to the same subject and
Title I
interest.
MARINE INSURANCE

Section 94. Where the insured is overinsured by

Sub-Title 1-A
double insurance:
DEFINITION
(a) The insured, unless the policy
otherwise provides, may claim payment
from the insurers in such order as he may Section 99. Marine Insurance includes:
select, up to the amount for which the (1) Insurance against loss of or damage
insurers are severally liable under their to:
respective contracts; (a) Vessels, craft, aircraft,
(b) Where the policy under which the vehicles, goods, freights, cargoes,
insured claims is a valued policy, the merchandise, effects,
insured must give credit as against the disbursements, profits, moneys,
valuation for any sum received by him securities, choses in action,
under any other policy without regard to evidences of debts, valuable
the actual value of the subject matter papers, bottomry, and
insured; respondentia interests and all
(c) Where the policy under which the other kinds of property and
insured claims is an unvalued policy he interests therein, in respect to,
must give credit, as against the full appertaining to or in connection
insurable value, for any sum received by with any and all risks or perils of
him under any policy; navigation, transit or
transportation, or while being
(d) Where the insured receives any sum
assembled, packed, crated,
in excess of the valuation in the case of
baled, compressed or similarly
valued policies, or of the insurable value
prepared for shipment or while
in the case of unvalued policies, he must
awaiting shipment, or during any
hold such sum in trust for the insurers,
delays, storage, transhipment, or
according to their right of contribution
reshipment incident thereto,
among themselves;
including war risks, marine
 builder's risks, and all personal
property floater risks;
(b) Person or property in
connection with or appertaining
to a marine, inland marine,
transit or transportation
insurance, including liability for
loss of or damage arising out of
or in connection with the
construction, repair, operation,
maintenance or use of the subject
matter of such insurance (but not
including life insurance or surety
bonds nor insurance against loss
by reason of bodily injury to any
person arising out of ownership,
maintenance, or use of
automobiles);
(c) Precious stones, jewels,
jewelry, precious metals, whether
in course of transportation or
otherwise;
(d) Bridges, tunnels and other
instrumentalities of
transportation and
communication (excluding
buildings, their furniture and
furnishings, fixed contents and
supplies held in storage); piers,
wharves, docks and slips, and
other aids to navigation and
transportation, including dry
docks and marine railways, dams
and appurtenant facilities for the
control of waterways.
(2) "Marine protection and indemnity
insurance," meaning insurance against,
or against legal liability of the insured for
loss, damage, or expense incident to
ownership, operation, chartering,
maintenance, use, repair, or construction
of any vessel, craft or instrumentality in
use of ocean or inland waterways,
including liability of the insured for
personal injury, illness or death or for loss
of or damage to the property of another
person.
Sub-Title 1-B
INSURABLE INTEREST
Section 100. The owner of a ship has in all cases
an insurable interest in it, even when it has been
chartered by one who covenants to pay him its
value in case of loss: Provided, That in this case
the insurer shall be liable for only that part of the
loss which the insured cannot recover from the
charterer.
Section 101. The insurable interest of the owner
of the ship hypothecated by bottomry is only the
excess of its value over the amount secured by
bottomry.
Section 102. Freightage, in the sense of a policy
of marine insurance, signifies all the benefits
derived by the owner, either from the chartering
of the ship or its employment for the carriage of
his own goods or those of others.
Section 103. The owner of a ship has an
insurable interest in expected freightage which
according to the ordinary and probable course of
things he would have earned but for the
intervention of a peril insured against or other
peril incident to the voyage.
Section 104. The interest mentioned in the last
section exists, in case of a charter party, when
the ship has broken ground on the chartered
voyage. If a price is to be paid for the carriage of
goods it exists when they are actually on board,
or there is some contract for putting them on
board, and both ship and goods are ready for the
specified voyage.
Section 105. One who has an interest in the
thing from which profits are expected to proceed
has an insurable interest in the profits.
Section 106. The charterer of a ship has an
insurable interest in it, to the extent that he is
liable to be damnified by its loss.
Sub-Title 1-C
CONCEALMENT
Section 107. In marine insurance each party is
bound to communicate, in addition to what is
required by section twenty-eight, all the
information which he possesses, material to the
risk, except such as is mentioned in Section
thirty, and to state the exact and whole truth in
relation to all matters that he represents, or upon
inquiry discloses or assumes to disclose.
Section 108. In marine insurance, information of
the belief or expectation of a third person, in
reference to a material fact, is material.
Section 109. A person insured by a contract of
marine insurance is presumed to have
knowledge, at the time of insuring, of a prior loss,
if the information might possibly have reached
him in the usual mode of transmission and at the
usual rate of communication.
Section 110. A concealment in a marine
insurance, in respect to any of the following
matters, does not vitiate the entire contract, but
merely exonerates the insurer from a loss
resulting from the risk concealed:
(a) The national character of the insured;
(b) The liability of the thing insured to
capture and detention; lawphi1.net
 (c) The liability to seizure from breach of
foreign laws of trade;
(d) The want of necessary documents;
(e) The use of false and simulated papers.
Sub-Title 1-D
REPRESENTATION
Section 111. If a representation by a person
insured by a contract of marine insurance, is
intentionally false in any material respect, or in
respect of any fact on which the character and
nature of the risk depends, the insurer may
rescind the entire contract.
Section 112. The eventual falsity of a
representation as to expectation does not, in the
absence of fraud, avoid a contract of marine
insurance.
Sub-Title 1-E
IMPLIED WARRANTIES
Section 113. In every marine insurance upon a
ship or freight, or freightage, or upon any thing
which is the subject of marine insurance, a
warranty is implied that the ship is seaworthy.
Section 114. A ship is seaworthy when
reasonably fit to perform the service and to
encounter the ordinary perils of the voyage
contemplated by the parties to the policy.
Section 115. An implied warranty of
seaworthiness is complied with if the ship be
seaworthy at the time of the of commencement
of the risk, except in the following cases:
(a) When the insurance is made for a
specified length of time, the implied
warranty is not complied with unless the
ship be seaworthy at the commencement
of every voyage it undertakes during that
time;
(b) When the insurance is upon the cargo
which, by the terms of the policy,
description of the voyage, or established
custom of the trade, is to be transhipped
at an intermediate port, the implied
warranty is not complied with unless each
vessel upon which the cargo is shipped,
or transhipped, be seaworthy at the
commencement of each particular
voyage.
Section 116. A warranty of seaworthiness
extends not only to the condition of the structure
of the ship itself, but requires that it be properly
laden, and provided with a competent master, a
sufficient number of competent officers and
seamen, and the requisite appurtenances and
equipment, such as ballasts, cables and anchors,
cordage and sails, food, water, fuel and lights,
and other necessary or proper stores and
implements for the voyage.
Section 117. Where different portions of the
voyage contemplated by a policy differ in respect
to the things requisite to make the ship
seaworthy therefor, a warranty of seaworthiness
is complied with if, at the commencement of each
portion, the ship is seaworthy with reference to
that portion.
Section 118. When the ship becomes
unseaworthy during the voyage to which an
insurance relates, an unreasonable delay in
repairing the defect exonerates the insurer on
ship or shipowner's interest from liability from
any loss arising therefrom.
Section 119. A ship which is seaworthy for the
purpose of an insurance upon the ship may,
nevertheless, by reason of being unfitted to
receive the cargo, be unseaworthy for the
purpose of the insurance upon the cargo.
Section 120. Where the nationality or neutrality
of a ship or cargo is expressly warranted, it is
implied that the ship will carry the requisite
documents to show such nationality or neutrality
and that it will not carry any documents which
cast reasonable suspicion thereon.
Sub-Title 1-F
THE VOYAGE AND DEVIATION
Section 121. When the voyage contemplated by
a marine insurance policy is described by the
places of beginning and ending, the voyage
insured in one which conforms to the course of
sailing fixed by mercantile usage between those
places.
Section 122. If the course of sailing is not fixed
by mercantile usage, the voyage insured by a
marine insurance policy is that way between the
places specified, which to a master of ordinary
skill and discretion, would mean the most natural,
direct and advantageous.
Section 123. Deviation is a departure from the
course of the voyage insured, mentioned in the
last two sections, or an unreasonable delay in
pursuing the voyage or the commencement of an
entirely different voyage.
Section 124. A deviation is proper:
(a) When caused by circumstances over
which neither the master nor the owner
of the ship has any control;
(b) When necessary to comply with a
warranty, or to avoid a peril, whether or
not the peril is insured against;
 (c) When made in good faith, and upon
reasonable grounds of belief in its
necessity to avoid a peril; or
(d) When made in good faith, for the
purpose of saving human life or relieving
another vessel in distress.
Section 125. Every deviation not specified in the
last section is improper.
Section 126. An insurer is not liable for any loss
happening to the thing insured subsequent to an
improper deviation.
Sub-Title 1-G
LOSS
Section 127. A loss may be either total or
partial.
Section 128. Every loss which is not total is
partial.
Section 129. A total loss may be either actual or
constructive.
Section 130. An actual total loss is cause by:
(a) A total destruction of the thing
insured;
(b) The irretrievable loss of the thing by
sinking, or by being broken up;
(c) Any damage to the thing which
renders it valueless to the owner for the
purpose for which he held it; or
(d) Any other event which effectively
deprives the owner of the possession, at
the port of destination, of the thing
insured.
Section 131. A constructive total loss is one
which gives to a person insured a right to
abandon, under Section one hundred thirty-nine.
Section 132. An actual loss may be presumed
from the continued absence of a ship without
being heard of. The length of time which is
sufficient to raise this presumption depends on
the circumstances of the case.
Section 133. When a ship is prevented, at an
intermediate port, from completing the voyage,
by the perils insured against, the liability of a
marine insurer on the cargo continues after they
are thus reshipped.
Nothing in this section shall prevent an insurer
from requiring an additional premium if the
hazard be increased by this extension of liability.
Section 134. In addition to the liability
mentioned in the last section, a marine insurer is
bound for damages, expenses of discharging,
storage, reshipment, extra freightage, and all
other expenses incurred in saving cargo
reshipped pursuant to the last section, up to the
amount insured.
Nothing in this or in the preceding section shall
render a marine insurer liable for any amount in
excess of the insured value or, if there be none,
of the insurable value.
Section 135. Upon an actual total loss, a person
insured is entitled to payment without notice of
abandonment.
Section 136. Where it has been agreed that an
insurance upon a particular thing, or class of
things, shall be free from particular average, a
marine insurer is not liable for any particular
average loss not depriving the insured of the
possession, at the port of destination, of the
whole of such thing, or class of things, even
though it becomes entirely worthless; but such
insurer is liable for his proportion of all general
average loss assessed upon the thing insured.
Section 137. An insurance confined in terms to
an actual loss does not cover a constructive total
loss, but covers any loss, which necessarily
results in depriving the insured of the possession,
at the port of destination, of the entire thing
insured.
Sub-Title 1-H
ABANDONMENT
Section 138. Abandonment, in marine
insurance, is the act of the insured by which,
after a constructive total loss, he declares the
relinquishment to the insurer of his interest in the
thing insured.
Section 139. A person insured by a contract of
marine insurance may abandon the thing insured,
or any particular portion thereof separately
valued by the policy, or otherwise separately
insured, and recover for a total loss thereof, when
the cause of the loss is a peril insured against:
(a) If more than three-fourths thereof in
value is actually lost, or would have to be
expended to recover it from the peril;
(b) If it is injured to such an extent as to
reduce its value more than three-fourths;
(c) If the thing insured is a ship, and the
contemplated voyage cannot be lawfully
performed without incurring either an
expense to the insured of more than
three-fourths the value of the thing
abandoned or a risk which a prudent man
would not take under the circumstances;
or
(d) If the thing insured, being cargo or
freightage, and the voyage cannot be
 performed, nor another ship procured by
the master, within a reasonable time and
with reasonable diligence, to forward the
cargo, without incurring the like expense
or risk mentioned in the preceding sub-
paragraph. But freightage cannot in any
case be abandoned unless the ship is also
abandoned.
Section 140. An abandonment must be neither
partial nor conditional.
Section 141. An abandonment must be made
within a reasonable time after receipt of reliable
information of the loss, but where the information
is of a doubtful character, the insured is entitled
to a reasonable time to make inquiry.
Section 142. Where the information upon which
an abandonment has been made proves
incorrect, or the thing insured was so far restored
when the abandonment was made that there was
then in fact no total loss, the abandonment
becomes ineffectual.
Section 143. Abandonment is made by giving
notice thereof to the insurer, which may be done
orally, or in writing; Provided, That if the notice
be done orally, a written notice of such
abandonment shall be submitted within seven
days from such oral notice.
Section 144. A notice of abandonment must be
explicit, and must specify the particular cause of
the abandonment, but need state only enough to
show that there is probable cause therefor, and
need not be accompanied with proof of interest
or of loss.
Section 145. An abandonment can be sustained
only upon the cause specified in the notice
thereof.
Section 146. An abandonment is equivalent to a
transfer by the insured of his interest to the
insurer, with all the chances of recovery and
indemnity.
Section 147. If a marine insurer pays for a loss
as if it were an actual total loss, he is entitled to
whatever may remain of the thing insured, or its
proceeds or salvage, as if there had been a
formal abandonment.
Section 148. Upon an abandonment, acts done
in good faith by those who were agents of the
insured in respect to the thing insured,
subsequent to the loss, are at the risk of the
insurer and for his benefit.
Section 149. Where notice of abandonment is
properly given, the rights of the insured are not
prejudiced by the fact that the insurer refuses to
accept the abandonment.
Section 150. The acceptance of an
abandonment may be either express or implied
from the conduct of the insurer. The mere silence
of the insurer for an unreasonable length of time
after notice shall be construed as an acceptance.
Section 151. The acceptance of an
abandonment, whether express or implied, is
conclusive upon the parties, and admits the loss
and the sufficiency of the abandonment.
Section 152. An abandonment once made and
accepted is irrevocable, unless the ground upon
which it was made proves to be unfounded.
Section 153. On an accepted abandonment of a
ship, freightage earned previous to the loss
belongs to the insurer of said freightage; but
freightage subsequently earned belongs to the
insurer of the ship.
Section 154. If an insurer refuses to accept a
valid abandonment, he is liable as upon actual
total loss, deducting from the amount any
proceeds of the thing insured which may have
come to the hands of the insured.
Section 155. If a person insured omits to
abandon, he may nevertheless recover his actual
loss.
Sub-Title 1-I
MEASURE OF INDEMNITY
Section 156. A valuation in a policy of marine
insurance in conclusive between the parties
thereto in the adjustment of either a partial or
total loss, if the insured has some interest at risk,
and there is no fraud on his part; except that
when a thing has been hypothecated by bottomry
or respondentia, before its insurance, and without
the knowledge of the person actually procuring
the insurance, he may show the real value. But a
valuation fraudulent in fact, entitles the insurer to
rescind the contract.
Section 157. A marine insurer is liable upon a
partial loss, only for such proportion of the
amount insured by him as the loss bears to the
value of the whole interest of the insured in the
property insured.
Section 158. Where profits are separately
insured in a contract of marine insurance, the
insured is entitled to recover, in case of loss, a
proportion of such profits equivalent to the
proportion which the value of the property lost
bears to the value of the whole.
Section 159. In case of a valued policy of marine
insurance on freightage or cargo, if a part only of
the subject is exposed to the risk, the evaluation
applies only in proportion to such part.
Section 160. When profits are valued and
insured by a contract of marine insurance, a loss
of them is conclusively presumed from a loss of
the property out of which they are expected to
arise, and the valuation fixes their amount.
Section 161. In estimating a loss under an open
policy of marine insurance the following rules are
to be observed:
(a) The value of a ship is its value at the
beginning of the risk, including all articles
or charges which add to its permanent
value or which are necessary to prepare it
for the voyage insured;
(b) The value of the cargo is its actual
cost to the insured, when laden on board,
or where the cost cannot be ascertained,
its market value at the time and place of
lading, adding the charges incurred in
purchasing and placing it on board, but
without reference to any loss incurred in
raising money for its purchase, or to any
drawback on its exportation, or to the
fluctuation of the market at the port of
destination, or to expenses incurred on
the way or on arrival;
(c) The value of freightage is the gross
freightage, exclusive of primage, without
reference to the cost of earning it; and
(d) The cost of insurance is in each case
to be added to the value thus estimated.
Section 162. If cargo insured against partial loss
arrives at the port of destination in a damaged
condition, the loss of the insured is deemed to be
the same proportion of the value which the
market price at that port, of the thing so
damaged, bears to the market price it would have
brought if sound.
Section 163. A marine insurer is liable for all the
expenses attendant upon a loss which forces the
ship into port to be repaired; and where it is
stipulated in the policy that the insured shall
labor for the recovery of the property, the insurer
is liable for the expense incurred thereby, such
expense, in either case, being in addition to a
total loss, if that afterwards occurs.
Section 164. A marine insurer is liable for a loss
falling upon the insured, through a contribution in
respect to the thing insured, required to be made
by him towards a general average loss called for
by a peril insured against; provided, that the
liability of the insurer shall be limited to the
proportion of contribution attaching to his policy
value where this is less than the contributing
value of the thing insured.
Section 165. When a person insured by a
contract of marine insurance has a demand
against others for contribution, he may claim the
whole loss from the insurer, subrogating him to
his own right to contribution. But no such claim
can be made upon the insurer after the
separation of the interests liable to the
contribution, nor when the insured, having the
right and opportunity to enforce the contribution
from others, has neglected or waived the exercise
of that right.
Section 166. In the case of a partial loss of ship
or its equipment, the old materials are to be
applied towards payment for the new. Unless
otherwise stipulated in the policy, a marine
insurer is liable for only two-thirds of the
remaining cost of repairs after such deduction,
except that anchors must be paid in full.
Title 2
FIRE INSURANCE
Section 167. As used in this Code, the term "fire
insurance" shall include insurance against loss by
fire, lightning, windstorm, tornado or earthquake
and other allied risks, when such risks are
covered by extension to fire insurance policies or
under separate policies.
Section 168. An alteration in the use or
condition of a thing insured from that to which it
is limited by the policy made without the consent
of the insurer, by means within the control of the
insured, and increasing the risks, entitles an
insurer to rescind a contract of fire insurance.
Section 169. An alteration in the use or
condition of a thing insured from that to which it
is limited by the policy, which does not increase
the risk, does not affect a contract of fire
insurance.
Section 170. A contract of fire insurance is not
affected by any act of the insured subsequent to
the execution of the policy, which does not
violate its provisions, even though it increases
the risk and is the cause of the loss.
Section 171. If there is no valuation in the
policy, the measure of indemnity in an insurance
against fire is the expense it would be to the
insured at the time of the commencement of the
fire to replace the thing lost or injured in the
condition in which at the time of the injury; but if
there is a valuation in a policy of fire insurance,
the effect shall be the same as in a policy of
marine insurance.
Section 172. Whenever the insured desires to
have a valuation named in his policy, insuring
any building or structure against fire, he may
require such building or structure to be examined company by virtue of and under the provisions of
by an independent appraiser and the value of the Act No. 536, as amended by Act No. 2206.
insured's interest therein may then be fixed as
between the insurer and the insured. The cost of Section 176. The liability of the surety or
such examination shall be paid for by the insured. sureties shall be joint and several with the obligor
A clause shall be inserted in such policy stating and shall be limited to the amount of the bond. It
substantially that the value of the insured's is determined strictly by the terms of the contract
interest in such building or structure has been of suretyship in relation to the principal contract
thus fixed. In the absence of any change between the obligor and the obligee. (As
increasing the risk without the consent of the amended by Presidential Decree No. 1455)
insurer or of fraud on the part of the insured, then
in case of a total loss under such policy, the
Section 177. The surety is entitled to payment
whole amount so insured upon the insured's
of the premium as soon as the contract of
interest in such building or structure, as stated in
suretyship or bond is perfected and delivered to
the policy upon which the insurers have received
the obligor. No contract of suretyship or bonding
a premium, shall be paid, and in case of a partial
shall be valid and binding unless and until the
loss the full amount of the partial loss shall be so
premium therefor has been paid, except where
paid, and in case there are two or more policies
the obligee has accepted the bond, in which case
covering the insured's interest therein, each
the bond becomes valid and enforceable
policy shall contribute pro rata to the payment of
irrespective of whether or not the premium has
such whole or partial loss. But in no case shall the
been paid by the obligor to the surety; Provided,
insurer be required to pay more than the amount
That if the contract of suretyship or bond is not
thus stated in such policy. This section shall not
accepted by, or filed with the obligee, the surety
prevent the parties from stipulating in such
shall collect only reasonable amount, not
policies concerning the repairing, rebuilding or
exceeding fifty per centum of the premium due
replacing of buildings or structures wholly or
thereon as service fee plus the cost of stamps or
partially damaged or destroyed.
other taxes imposed for the issuance of the
contract or bond; Provided, however, That if the
Section 173. No policy of fire insurance shall be non-acceptance of the bond be due to the fault or
pledged, hypothecated, or transferred to any negligence of the surety, no such service fee,
person, firm or company who acts as agent for or stamps or taxes shall be collected.
otherwise represents the issuing company, and
any such pledge, hypothecation, or transfer
In the case of a continuing bond, the obligor shall
hereafter made shall be void and of no effect
pay the subsequent annual premium as it falls
insofar as it may affect other creditors of the
due until the contract of suretyship is cancelled
insured.
by the obligee or by the Commissioner or by a
court of competent jurisdiction, as the case may
Title 3 be.
CASUALTY INSURANCE
Section 178. Pertinent provisions of the Civil
Section 174. Casualty insurance is insurance Code of the Philippines shall be applied in a
covering loss or liability arising from accident or suppletory character whenever necessary in
mishap, excluding certain types of loss which by interpreting the provisions of a contract of
law or custom are considered as falling suretyship.
exclusively within the scope of other types of
insurance such as fire or marine. It includes, but
Title 5
is not limited to, employer's liability insurance,
LIFE INSURANCE
motor vehicle liability insurance, plate
glassinsurance, burglary and theft insurance,
personal accident and health insurance as written Section 179. Life insurance is insurance on
by non-life insurance companies, and other human lives and insurance appertaining thereto
substantially similar kinds of insurance. or connected therewith.

Title 4 Section 180. An insurance upon life may be

SURETYSHIP
Section 175. A contract of suretyship is an
agreement whereby a party called the surety
guarantees the performance by another party
called the principal or obligor of an obligation or
undertaking in favor of a third party called the
obligee. It includes official recognizances,
stipulations, bonds or undertakings issued by any
made payable on the death of the person, or on
his surviving a specified period, or otherwise
contingently on the continuance or cessation of
life.
Every contract or pledge for the payment of
endowments or annuities shall be considered a
life insurance contract for purpose of this Code
In the absence of a judicial guardian, the father,
or in the latter's absence or incapacity, the
mother, or any minor, who is an insured or a
beneficiary under a contract of life, health or
accident insurance, may exercise, in behalf of
said minor, any right under the policy, without
necessity of court authority or the giving of a
bond, where the interest of the minor in the
particular act involved does not exceed twenty
thousand pesos. Such right may include, but shall
not be limited to, obtaining a policy loan,
surrendering the policy, receiving the proceeds of
the policy, and giving the minor's consent to any
transaction on the policy.
Section 181. A policy of insurance upon life or
health may pass by transfer, will or succession to
any person, whether he has an insurable interest
or not, and such person may recover upon it
whatever the insured might have recovered.
Section 182. Notice to an insurer of a transfer or
bequest thereof is not necessary to preserve the
validity of a policy of insurance upon life or
health, unless thereby expressly required.
Section 183. Unless the interest of a person
insured is susceptible of exact pecuniary
measurement, the measure of indemnity under a
policy of insurance upon life or health is the sum
fixed in the policy.
Chapter III
THE BUSINESS OF INSURANCE
Title 1
INSURANCE COMPANIES: ORGANIZATION,
CAPITALIZATION AND AUTHORIZATION
Section 184. For purposes of this Code, the term
"insurer" or "insurance company" shall include all
individuals, partnerships, associations, or
corporations, including government-owned or
controlled corporations or entities, engaged as
principals in the insurance business, excepting
mutual benefit associations. Unless the context
otherwise requires, the terms shall also include
professional reinsurers defined in section two
hundred eighty. "Domestic company" shall
include companies formed, organized or existing
under the laws of the Philippines. "Foreign
company" when used without limitation shall
include companies formed, organized, or existing
under any laws other than those of the
Philippines.
Section 185. Corporations formed or organized
to save any person or persons or other
corporations harmless from loss, damage, or
liability arising from any unknown or future or
contingent event, or to indemnify or to
compensate any person or persons or other
corporations for any such loss, damage, or
liability, or to guarantee the performance of or
compliance with contractual obligations or the
payment of debt of others shall be known as
"insurance corporations".
The provisions of the Corporation Law shall apply
to all insurance corporations now or hereafter
engaged in business in the Philippines insofar as
they do not conflict with the provisions of this
chapter.
Section 186. No person, partnership, or
association of persons shall transact any
insurance business in the Philippines except as
agent of a person or corporation authorized to do
the business of insurance in the Philippines,
unless possessed of the capital and assets
required of an insurance corporation doing the
same kind of business in the Philippines and
invested in the same manner; nor unless the
Commissioner shall have granted to him or them
a certificate to the effect that he or they have
complied with all the provisions of law which an
insurance corporation doing business in the
Philippines is required to observe.
Every person, partnership, or association
receiving any such certificate of authority shall be
subject to the insurance laws of the Philippines
and to the jurisdiction and supervision of the
Commissioner in the same manner as if an
insurance corporation authorized by the laws of
the Philippines to engage in the business of
insurance specified in the certificate.
Section 187. No insurance company shall
transact any insurance business in the Philippines
until after it shall have obtained a certificate of
authority for that purpose from the Commissioner
upon application therefor and payment by the
company concerned of the fees hereinafter
prescribed.
The Commissioner may refuse to issue a
certificate of authority to any insurance company
if, in his judgment, such refusal will best promote
the interest of the people of this country. No such
certificate of authority shall be granted to any
such company until the Commissioner shall have
satisfied himself by such examination as he may
make and such evidence as he may require that
such company is qualified by the laws of the
Philippines to transact business therein, that the
grant of such authority appears to be justified in
the light of economic requirements, and that the
direction and administration, as well as the
integrity and responsibility of the organizers and
administrators, the financial organization and the
amount of capital, notwithstanding the provisions
of section one hundred eighty-eight, reasonably
assure the safety of the interests of the
policyholders and the public.
In order to maintain the quality of the
management of the insurance companies and
afford better protection to policyholders and the
public in general, any person of good moral
character, unquestioned integrity and recognized
competence may be elected or appointed
director or officer of insurance companies. The
Commissioner shall prescribe the qualifications of
the executive officers and other key officials of
insurance companies for purposes of this section.
No person shall concurrently be a director and/or
officer of an insurance company and an
adjustment company.
Incumbent directors and/or officers affected by
the above provisions are hereby allowed to hold
on to their positions until the end of their terms
or two years from the effectivity of this decree,
whichever is shorter.
Before issuing such certificate of authority, the
Commissioner must be satisfied that the name of
the company is not that of any other known
company transacting a similar business in the
Philippines, or a name so similar as to be
calculated to mislead the public.
Such certificate of authority shall expire on the
last day of June of each year and shall be
renewed annually if the company is continuing to
comply with the provisions of this Code or the
circulars, instructions, rulings or decisions of the
Commissioner. Every company receiving any such
certificates of authority shall be subject to the
provisions of this Code and other related laws and
to the jurisdiction and supervision of the
Commissioner.
No insurance company may be authorized to
transact in the Philippines the business of life and
non-life insurance concurrently unless specifically
authorized to do so; Provided, That the terms
"life" and "non-life" insurance shall be deemed to
include health, accident and disability insurance.
No insurance company shall have equity in an
adjustment company and neither shall an
adjustment company have an equity in an
insurance company.
Insurance companies and adjustment companies
presently affected by the above provision shall
have two years from the effectivity of this Decree
within which to divest of their stockholdings. (As
amended by Presidential Decree No. 1455).
Section 188. Except as provided in section two
hundred eighty-one, no domestic insurance
company shall, in a stock corporation, engage in
business in the Philippines unless possessed of a
paid-up capital stock equal to at least five million
pesos; Provided, That a domestic insurance
company already doing business in the
Philippines with a paid-up capital stock which is
less than five million pesos shall have a paid-up
capital stock of at least three million pesos by
December thirty-one, nineteen hundred seventy-
eight, four million pesos by December thirty-one,
nineteen hundred seventy-nine and five million
pesos by December thirty-one, nineteen hundred
eighty; Provided, further, that the Secretary of
Finance may, upon recommendation of the
Insurance Commissioner, increase such minimum
paid-up capital stock requirement, under such
terms and conditions as he may impose, to an
amount which, in his opinion, would reasonably
assure the safety of the interests of the
policyholders and the public.
The Commissioner may, as a pre-licensing
requirement of a new insurance company, in
addition to the paid-up capital stock, require the
stockholders to pay in cash to the company in
proportion to their subscription interests a
contributed surplus fund of not less than one
million pesos, in the case of a life insurance
company, or not less than five hundred thousand
pesos, in the case of an insurance company other
than life. He may also require such company to
submit to him a business plan showing the
company's estimated receipts and
disbursements, as well as the basis therefor, for
the next succeeding three years.
If organized as a mutual company, in lieu of such
capital stock, it must have available cash assets
of at least five million pesos above all liabilities
for losses reported, expenses, taxes, legal
reserve, and reinsurance of all outstanding risks,
and the contributed surplus fund equal to the
amounts required of stock corporations. A stock
insurance company doing business in the
Philippines may, subject to the pertinent law and
regulations which now are of hereafter may be in
force, alter its organization and transform itself
into a mutual insurance company. (As amended
by Presidential Decree No. 1455).
Section 189. Every company must, before
engaging in the business of insurance in the
Philippines, file with the Commissioner the
following:
(a) A certified copy of the last annual
statement or a verified financial
statement exhibiting the condition and
affairs of such company;
(b) If incorporated under the laws of the
Philippines, a copy of the articles of
incorporation and by-laws, and any
amendments to either, certified by the
Securities and Exchange Commission to
be a copy of that which is filed in its
Office;
(c) If incorporated under any laws other
than those of the Philippines, a certificate
from the Securities and Exchange
Commission showing that it is duly
registered in the mercantile registry of
that Commission in accordance with the
 Corporation Law. A copy of the articles of
incorporation and by-laws, and any
amendments to either, if organized or
formed under any law requiring such to
be filed, duly certified by the officer
having the custody of same, or if not so
organized, a copy of the law, charter or
deed of settlement under which the deed
of organization is made, duly certified by
the proper custodian thereof, or proved
by affidavit to be a copy; also, a
certificate under the hand and seal of the
proper officer of such state or country
having supervision of insurance business
therein, if any there be, that such
corporation or company is organized
under the laws of such state or country,
with the amount of capital stock or assets
and legal reserve required by this Code;
(d) If not incorporated and of foreign
domicile, aside from the certificate
mentioned in paragraph (c) of this
section, a certificate setting forth the
nature and character of the business, the
location of the principal office, the name
of the individual or names of the persons
composing the partnership or association,
the amount of actual capital employed or
to be employed therein and the names of
all officers and persons by whom the
business is or may be managed.
The certificate must be verified by the affidavit of
the chief officer, secretary, agent, or manager of
the company; and if there are any written articles
of agreement of the company, a copy thereof
must be accompany such certificate.
Section 190. The Commissioner must require as
a condition precedent to the transaction of
insurance business in the Philippines by any
foreign insurance company, that such company
file in his office a written power of attorney
designating some person who shall be a resident
of the Philippines as its general agent, on whom
any notice provided by law or by any insurance
policy, proof of loss, summons and other legal
processes may be served in all actions or other
legal proceedings against such company, and
consenting that service upon such general agent
shall be admitted and held as valid as if served
upon the foreign company at its home office. Any
such foreign company shall, as further condition
precedent to the transaction of insurance
business in the Philippines, make and file with the
Commissioner an agreement or stipulation,
executed by the proper authorities of said
company in form and substance as follows:
"The (name of company) does hereby stipulate
and agree in consideration of the permission
granted by the Insurance Commissioner to
transact business in the Philippines, that if at any
time said company shall leave the Philippines, or
cease to transact business therein, or shall be
without any agent in the Philippines on whom any
notice, proof of loss, summons, or legal process
may be served, then in any action or proceeding
arising out any business or transaction which
occurred in the Philippines, service of any notice
provided by law, or insurance policy, proof of loss,
summons, or other legal process may be made
upon the Insurance Commissioner shall have the
same force and effect as if made upon the
company."
Whenever such service of notice, proof of loss,
summons, or other legal process shall be made
upon the Commission, he must, within ten days
thereafter, transmit by mail, postage paid, a copy
of such notice, proof of loss, summons, or other
legal process to the company at its home or
principal office. The sending of such copy by the
Commissioner shall be a necessary part of the
service of the notice, proof of loss, or other legal
process.
Section 191. No insurance company organized
or existing under the government or laws other
than those of the Philippines shall engage in
business in the Philippines unless possessed of
paid-up unimpaired capital or assets and reserve
not less than that herein required of domestic
insurance companies, nor until it shall have
deposited with the Commissioner for the benefit
and security of the policyholders and creditors of
such company in the Philippines, securities
satisfactory to the Commissioner consisting of
good securities of the Philippines, including new
issues of stock of "registered enterprises", as this
term is defined in Republic Act No. 5186,
otherwise known as the Investment Incentives
Act, as amended, to the actual market value of
not less than the minimum paid-up capital
required of domestic insurance companies:
Provided, That at least fifty per centum of such
securities shall consist of bonds or other
evidences of debt of the Government of the
Philippines, its political subdivisions and
instrumentalities, or of government-owned or
controlled corporations and entities, including the
Central Bank. The total investment of a foreign
insurance company in any registered enterprise
shall not exceed twenty per centum of the net
worth of said foreign insurance company nor
twenty per centum of the capital of the registered
enterprise, unless previously authorized in writing
by the Commissioner.
For purposes of this Code, the net worth of a
foreign insurance company shall refer only to its
net worth in the Philippines.
Section 192. The Commissioner shall hold the
securities, deposited as aforesaid, for the benefit
and security of all the policyholders of the
company depositing the same, but shall as long
as the company is solvent, permit the company
to collect the interest or dividends on the
securities so deposited, and, from time to time,
with his assent, to withdraw any of such
securities, upon depositing with said
Commissioner other like securities, the market
value of which shall be equal to the market value
of such as may be withdrawn. In the event of any
company ceasing to do business in the
Philippines the securities deposited as aforesaid
shall be returned upon the company's making
application therefor and proving to the
satisfaction of the Commissioner that it has no
further liability under any of its policies in the
Philippines.
Section 193. Every foreign company doing
business in the Philippines shall set aside an
amount corresponding to the legal reserves of the
policies written in the Philippines and invest and
keep the same therein in accordance with the
provisions of this section. The legal reserve
therein required to be set aside shall be invested
only in the classes of the Philippine securities
described in section two hundred; Provided,
however, That no investment in stocks or bonds
of any single entity shall, in the aggregate exceed
twenty per centum of the net worth of the
investing company or twenty per centum of the
capital of the issuing company, whichever is the
lesser unless otherwise approved in writing by
the Commissioner. The securities purchased and
kept in the Philippines under this section, shall
not be sent out of the territorial jurisdiction of the
Philippines without the written consent of the
Commissioner.
Title 2 section one hundred ninety-four;
MARGIN OF INSOLVENCY
Section 194. An insurance company doing
business in the Philippines shall at all times
maintain a margin of solvency which shall be an
excess of the value of its admitted assets
exclusive of its paid-up capital, in the case of a
domestic company, or an excess of the value of
its admitted assets in the Philippines, exclusive of
its security deposits, in the case of a foreign
company, over the amount of its liabilities,
unearned premium and reinsurance reserves in
the Philippines of at least two per mille of the
total amount of its insurance in force as of the
preceding calendar year on all policies, except
term insurance, in the case of a life insurance
company, or of at least ten per centum of the
total amount of its net premium written during
the preceding calendar year, in the case of a
company other than a life insurance company;
Provided, That in either case, such margin shall in
no event be less than five hundred thousand
pesos; and Provided, further, That the term "paid-
up capital" shall not include contributed surplus
and capital paid in excess of par value. Such
assets, liabilities and reserves shall exclude
assets, liabilities and reserves included in
separate accounts established in accordance with
section two hundred thirty-seven. Whenever the
aforementioned margin be found to be less than
that herein required to be maintained, the
Commissioner shall forthwith direct the company
to make good any such deficiency by cash, to be
contributed by all stockholders of record in
proportion to their respective interest, and paid to
the treasurer of the company, within fifteen days
from receipt of the order; Provided, That the
company in the interim shall not be permitted to
take any new risk of any kind or character unless
and until it make good any such deficiency;
Provided, further, that a stockholder who aside
from paying the contribution due from him, pays
the contribution due from the another
stockholder by reason of the failure or refusal of
the latter to do so, shall have a lien on the
certificates of stock of the insurance company
concerned appearing in its books in the name of
the defaulting stockholder on the date of default,
as well as on any interests or dividends that have
accrued or will accrue to the said certificates of
stock, until the corresponding payment or
reimbursement is made by the defaulting
stockholder. (As amended by Presidential Decree
No. 1455)
Section 195. No domestic insurance corporation
shall declare or distribute any dividend on its
outstanding stocks except from profits attested in
a sworn statement to the Commissioner by the
president or treasurer of the corporation to be
remaining on hand after retaining unimpaired:
(a) The entire paid-up capital stock;
(b) The margin of solvency required by
(c) In the case of life insurance
corporation, the legal reserve fund
required by section two hundred eleven;
(d) In the case of corporations other than
life, the legal reserve fund required by
section two hundred thirteen;
(e) A sum sufficient to pay all net losses
reported, or in the course of settlement,
and all liabilities for expenses and taxes.
Any dividend declared or distributed under the
preceding paragraph shall be reported to the
Commissioner within thirty days after such
declaration or distribution.
If the Commissioner finds that any such
corporation has declared or distributed any such
dividend in violation of this section, he may order
such corporation to cease and desist from doing
business until the amount of such dividend or the
portion thereof in excess of the amount allowed
under this section has been restored to said
corporation.
Title 3
ASSETS
Section 196. In any determination of the
financial condition of any insurance company
doing business in the Philippines, there shall be
allowed and admitted as assets only such assets
owned by the insurance company concerned and
which consist of:
1. Cash in the possession of the insurance
company or in transit under its control,
and the true and duly verified balance of
any deposit of such company in a
financially sound commercial bank or
trust company.
2. Investments in securities, including
money market instruments, and in real
property acquired or held in accordance
with and subject to the applicable
provisions of this Code and the income
realized therefrom or accrued thereon.
3. Loans granted by the insurance
company concerned to the extent of that
portion thereof adequately secured by
non-speculative assets with readily
realizable values in accordance with and
subject to the limitations imposed by
applicable provisions of this Code.
4. Policy loans and other policy assets
and liens on policies, contracts or
certificates of a life insurance company,
in an amount not exceeding legal
reserves and other policy liabilities
carried on each individual life insurance
policy, contract or certificate.
5. The net amount of uncollected and
deferred premiums and annuity
considerations in the case of a life
insurance company which carries the full
mean tabular reserve liability.
6. Reinsurance recoverable by the ceding
insurer: (a) from an insurer authorized to
transact business in this country, the full
amount thereof; or (b) from an insurer not
authorized in this country, in an amount
not exceeding the liabilities carried by the
ceding insurer for amounts withheld
under a reinsurance treaty with such
unauthorized insurer as security for the
payment of obligations thereunder if such
funds are held subject to withdrawal by,
and under the control of, the ceding
insurer. The Commissioner may prescribe
the conditions under which a ceding
insurer may be allowed credit, as an
asset or as a deduction from loss and
unearned premium reserves, for
reinsurance recoverable from an insurer
not authorized in this country but which
presents satisfactory evidence that it
meets the applicable standards of
solvency required in this country.
7. Funds withheld by a ceding insurer
under a reinsurance treaty, provided
reserves for unpaid losses and unearned
premiums are adequately provided.
8. Deposits or amounts recoverable from
underwriting associations, syndicates and
reinsurance funds, or from any
suspended banking institution, to the
extent deemed by the Commissioner to
be available for the payment of losses
and claims and values to be determined
by him.
9. Electronic data processing machines,
as may be authorized by the
Commissioner to be acquired by the
insurance company concerned, the
acquisition cost of which to be amortized
in equal annual amounts within a period
of five years from the date of acquisition
thereof.
10. Other assets, not inconsistent with
the provisions of paragraphs 1 to 9
hereof, which are deemed by the
Commissioner to be readily realizable and
available for the payment of losses and
claims at values to be determined by him.
Section 197. In addition to such assets as the
Commissioner may from time to time determine
to be non-admitted assets of insurance
companies doing business in the Philippines, the
following assets shall in no case be allowed as
admitted assets of an insurance company doing
business in the Philippines, in any determination
of its financial condition:
1. Goodwill, trade names, and other like
intangible assets.
2. Prepaid or deferred charges for
expenses and commissions paid by such
insurance company.
3. Advances to officers (other than policy
loans), which are not adequately secured
and which are not previously authorized
by the Commissioner, as well as
advances to employees, agents, and
other persons on mere personal security.
4. Shares of stock of such insurance
company, owned by it, or any equity
therein as well as loans secured thereby,
or any proportionate interest in such
shares of stock through the ownership by
such insurance company of an interest in
another corporation or business unit.
5. Furniture, furnishing, fixtures, safes,
equipment, library, stationery, literature,
and supplies.
6. Items of bank credits representing
checks, drafts or notes returned unpaid
after the date of statement.
7. The amount, if any, by which the
aggregate value of investments as
carried in the ledger assets of such
insurance company exceeds the
aggregate value thereof as determined in
accordance with the provisions of this
Code and/or the rules of the
Commissioner.
All non-admitted assets and all other assets of
doubtful value or character included as ledger or
non-ledger assets in any statement submitted by
an insurance company to the Commissioner, or in
any insurance examiner's report to him, shall also
be reported, to the extent of the value disallowed
as deductions from the gross assets of such
insurance company, except where the
Commissioner permits a reserve to be carried
among the liabilities of such insurance company
in lieu of any such deduction.
Title 4 Land Registration Act, or shall be a titulo real duly
INVESTMENTS
Section 198. No insurance company shall loan
any of its money or deposits to any person,
corporation or association, except upon first
mortgage or deeds of trust of unencumbered,
improved or unimproved real estate, including
condominiums, in cities and centers of population
of municipalities in the Philippines when the
amount of such loan is not in excess of seventy
per centum of the market value of such real
estate; or upon the security of first mortgages or
deeds of trust of actually cultivated, improved
and unencumbered agricultural lands in the
Philippines when the amount of such loan is not
in excess of forty per centum of the market value
of such land; or upon the purchase money
mortgages or like securities received by it upon
the sale or exchange of real property acquired
pursuant to sections two hundred and two
hundred two; or upon bonds or other evidences of
debt of the Government of the Philippines or its
political subdivisions authorized by law to issue
bonds, or upon bonds or other evidences of debt
of government-owned or controlled corporations
and instrumentalities including the Central Bank
or upon obligations issued or guaranteed by the
International Bank for Reconstruction and
Development; or upon stocks, bonds or other
evidences of debt as are specified in section two
hundred.
A life insurance company, however, may lend to
any of its policyholders upon the security of the
value of its policy such sum as may be
determined pursuant to the provisions of the
policy.
Loans granted upon the security of real estate for
a period longer than five years shall be amortized
in monthly, quarterly, semi-annual or annual
installments; Provided, That no such loans shall
have a maturity in excess of twenty years.
The phrase "improved real estate" used above is
hereby defined to mean land with permanent
building or buildings erected or being erected
thereon. Except as otherwise approved by the
Commissioner, in case the building or buildings
on land do not belong to the owner of the latter,
no loan shall be granted on the security of the
real estate in question unless both the owner of
the building or buildings and the owner of the
land sign the deed of mortgage, and unless the
owner of the land is the Government of the
Philippines or one of its political subdivisions, in
which event the owner is not required to sign the
deed of mortgage.
Section 199. No loan by any insurance company
on the security of real estate shall be made
unless the title to such real estate shall have first
been registered in accordance with the existing
registered, or have been previously registered
under the provisions of the existing Mortgage
Law.
Section 200. (1) An insurance company may
purchase, hold, own and convey such property,
real and personal, as may have been mortgaged,
pledged, or conveyed to it in good faith in trust
for its benefit by reason of money loaned by it in
pursuance of the regular business of the
company, and such real or personal property as
may have been purchased by it at sales under
pledges, mortgages or deeds of trust for its
benefit on account of money loaned by it; and
such real and personal property as may have
been conveyed to it by borrowers in satisfaction
and discharge of loans made by the company to
them: Provided, however, That any real estate
purchased by an insurance company in payment
or by reason of any loan made by it shall be sold
by the company within twenty years after the
title thereto has been vested in it.
(2) An insurance company may purchase,
hold, own and convey real and personal
property as follows:
(a) The lot with building thereon
in which the company conducts
and carries on its business.
(b) Bonds or other evidences of
debt of the Government of the
Philippines or its political
subdivisions authorized by law to
issue bonds at the reasonable
market value thereof.
(c) Bonds or other evidences of
debt of the government-owned or
controlled corporations and
entities, including the Central
Bank.
(d) Bonds, debentures or other
evidences of indebtedness of any
solvent corporations or institution
created or existing under the laws
of the Philippines; Provided,
however, That the issuing,
assuming or guaranteeing entity
or its predecessors shall not have
defaulted in the payment of
interest on any of its securities
and that during each of any three
including the last two of the five
fiscal years next preceding the
date of acquisition by such
insurance company of such
bonds, debentures, or other
evidences of indebtedness, the
net earnings of the issuing,
assuming or guaranteeing
institution available for its fixed
charges, as hereinafter defined,
shall have been not less than one
and one-quarter times the total of
its fixed charges for such year;
and provided, further, that no life
insurance company shall invest in
or loan upon the obligations of
any one institution in the kinds
permitted under this sub-section
an amount in excess of twenty-
five per centum of the total
admitted assets of such insurer
as of December thirty-first next
preceding the date of such
investment.
As used in this sub-section the
term "net earnings available for
fixed charges" shall mean net
income after deducting operating
and maintenance expenses, taxes
other than income taxes,
depreciation and depletion; but
excluding extraordinary non-
recurring items of income or
expense appearing in the regular
financial statement of the issuing,
assuming or guaranteeing
institution. The term "fixed
charges" shall include interest on
funded and unfunded debt,
amortization of debt discount,
and rentals for leased properties.
(e) Preferred or guaranteed
stocks of any solvent corporation
or institution created or existing
under the laws of the Philippines;
Provided, however, That the
issuing, assuming or
guaranteeing entity or its
predecessors has paid regular
dividends upon its preferred or
guaranteed stocks for a period of
at least three years next
preceding the date of investment
in such preferred or guaranteed
stock; Provided, further, That if
the stocks are guaranteed, the
amount of stocks so guaranteed
is not excess of fifty per centum
of the amount of the preferred or
common stocks, as the case may
be, of the guaranteeing
corporation; And provided, finally,
That no life insurance company
shall invest in or loan upon
(3) Any domestic insurer which has
obligations of any one institution
outstanding
in the kinds permitted under this
sub-section an amount in excess
of ten per centum of the total
admitted assets of such insurer
as of December thirty-first next
preceding the date of such
investment.
(f) Common stocks of any solvent
corporation or institution created
or existing under the laws of the
Philippines upon which regular
dividends shall have been paid
for the three years next
preceding the purchase of such
stock; Provided, however, That no
life insurance company shall
invest in or loan upon the
obligations of any one corporation
or institution in the kinds
permitted under this sub-section
an amount in excess of ten per
centum of the total admitted
assets of such insurer as of
December thirty-first next
preceding the date of such
investment.
(g) Certificates, notes and other
obligations issued by the trustees
or receivers of any institution
created or existing under the laws
of the Philippines which, or the
assets of which, are being
administered under the direction
of any court having jurisdiction;
Provided, however, That such
certificates, notes or other
obligations are adequately
secured as to principal and
interests.
(h) Equipment trust obligations or
certificates which are adequately
secured or other adequately
secured instruments evidencing
an interest in equipment wholly
or in part within the Philippines;
Provided, however, That there is a
right to receive determined
portions of rental, purchase or
other fixed obligatory payments
for the use or purchase of such
equipment.
(i) Any obligation of any
corporation or institution created
or existing under the laws of the
Philippines which is, on the date
of acquisition by the insurer,
adequately secured and has
qualities and characteristics
wherein the speculative elements
are not predominant.
(j) Such other securities as may
be approved by the
Commissioner.
insurance, annuity or
 reinsurance contracts in currencies other
than the national currency of the
Philippines may invest in, or otherwise
acquire or loan upon securities and
investments in such currency which are
substantially of the same kinds, classes
and investment grades as those eligible
for investment under the foregoing
subdivisions of this section; but the
aggregate amount of such investment
and of such cash in such currency which
is at anytime held by such insurer shall
not exceed one and one-half times the
amount of its reserves and other
obligations under such contracts or the
amount which such insurer is required by
the law of any country or possession
outside the Republic of the Philippines to
be invest in such country or possession,
whichever shall be greater.
Section 201. An insurance company may (1)
invest in equities of other financial institutions,
and (2) engage in the buying and selling of short-
term debt instruments; Provided, That any or all
of such investments shall be with the prior
approval of the Commissioner.
Section 202. Any life insurance company may:
(a) Acquire or construct housing projects
and, in connection with any such project,
may acquire land or any interest therein
by purchase, lease or otherwise, or use
land acquired pursuant to any other
provision of this Code. Such company
may thereafter own, maintain, manage,
collect or receive income from, or sell and
convey, any land or interest therein so
acquired and any improvements thereon.
The aggregate book value of the
investments of any such company in all
such projects shall not exceed at the time
of such investments twenty five per
centum of the total admitted assets of
such company on the thirty-first day of
December next preceding;
(b) Acquire real property, other than
property to be used primarily for
providing housing and property for
accommodation of its own business, as
an investment for the production of
income, or may acquire real property to
be improved or developed for such
investment purpose pursuant to a
program therefor, subject to the condition
that the cost of each parcel of real
property so acquired under the authority
of this paragraph (b), including the
estimated cost to the company of the
improvement or development thereof,
when added to the book value of all other
real property held by its pursuant to this
paragraph (b), shall not exceed twenty-
five per centum of its admitted assets as
of the thirty-first day of December next
preceding.
Section 203. Every domestic insurance
company shall, to the extent of an amount equal
in value to twenty-five per centum of the
minimum paid-up capital required under section
one hundred eighty-eight, invest its funds only in
securities, satisfactory to the Commissioner,
consisting of bonds or other evidences of debt of
the Government of the Philippines or its political
subdivisions or instrumentalities, or of
government-owned or controlled corporations
and entities, including the Central Bank of the
Philippines; Provided, That such investments shall
at all times be maintained free from any lien or
encumbrance; and Provided, further, That such
securities shall be deposited with and held by the
Commissioner for the faithful performance by the
depositing insurer of all its obligations under its
insurance contracts. The provisions of section one
hundred ninety-two shall, so far as practicable,
apply to the securities deposited under this
section.
Except as otherwise provided in this Code, no
judgment creditor or other claimant shall have
the right to levy upon any of the securities of the
insurer held on deposit under this section or held
on deposit pursuant to the requirement of the
Commissioner. (As amended by Presidential
Decree No. 1455)
Section 204. After satisfying the requirements
contained in the preceding section, any domestic
non-life insurance company, shall invest, to an
amount prescribed below, its funds in, or
otherwise, acquire or loan upon, only the classes
of investments described in section two hundred,
including securities issued by any "registered
enterprise", as this term is defined in Republic Act
No. 5186, otherwise known as the Investment
Incentives Act, and such other classes of
investments as may be authorized by the
Commissioner for purposes of this section;
Provided, That (a) no more than twenty per
centum of the net worth of such company as
shown by its latest financial statement approved
by the Commissioner shall be invested in the lot
and building in which the insurance company
conducts its business and (b) the total investment
of an insurance company in any registered
enterprise shall not exceed twenty per centum of
the net worth of said insurance company as
shown by its aforesaid financial statement nor
twenty per centum of the paid-up capital of the
registered enterprise excluding the intended
investment, unless previously authorized by the
Commissioner; and, Provided, further, That such
investments free from any lien or encumbrance,
shall be at least equal in amount to the
aggregate amount of (a) its legal reserve, as
provided in section two hundred thirteen, and (b)
its reserve fund held for reinsurance as provided
for in the pertinent treaty provision in the case of
reinsurance ceded to authorized insurers. (As
amended by Presidential Decree No.1455)
Section 205. After satisfying the requirements
contained in sections one hundred ninety-one,
one hundred ninety-three, two hundred three and
two hundred four, any non-life insurance
company may invest any portion of its funds
representing earned surplus in any of the
investments described in sections one hundred
ninety-eight, two hundred and two hundred one,
or in any securities issued by a "registered
enterprise" mentioned in the preceding sections;
Provided, That no investment in stocks or bonds
of any single entity shall in the aggregate, exceed
twenty per centum of the net worth of the
insurance company as shown in its latest
financial statement approved by the
Commissioner or twenty per centum of the paid-
up capital of the issuing company, whichever is
lesser, unless otherwise approved by the
Commissioner.
Section 206. After satisfying the minimum
capital investment required in section two
hundred three, any life insurance company may
invest its legal policy reserve, as provided in
section two hundred eleven or in section two
hundred twelve, in any of the classes of securities
or types of investments described in sections one
hundred ninety-eight, two hundred, two hundred
one and two hundred two, subject to the
limitations therein contained, and in any
securities issued by any "registered enterprise"
mentioned in section two hundred four, free from
any lien or encumbrance, in such amounts as
may be approved by the Commissioner. Such
company may likewise invest any portion of its
earned surplus in the aforesaid securities or
investments subject to the aforesaid limitations.
Section 207. Any investment made in violation
of the applicable provisions of this title shall be
considered non-admitted assets.
Section 208. (1) All bonds or other evidences of
indebtedness having a fixed term and rate of
interest and held by any life insurance company
authorized to do business in this country, if amply
secured and if not in default as to principal or
interest, shall be valued as follows: If purchased
at par, at the par value; if purchased above or
below par, on the basis of the purchase price
adjusted so as to bring the value to par at
maturity and so as to yield in the meantime the
effective rate of interest at which the purchase
was made, or in the discretion of the
Commissioner, on the basis of the method of
calculation commonly known as the pro-rata
method. In applying the foregoing rule the
purchase price shall in no case be taken at a
higher figure than the actual market value at the
time of acquisition. The Commissioner shall have
the power to determine the eligibility of any such
investments for valuation on the basis of
amortization, and may by regulation prescribe or
limit the classes of securities so eligible for
amortization. All bonds or other evidences of
indebtedness which in the judgment of the
Commissioner are not amply secured shall not be
eligible for amortization and shall be valued in
accordance with paragraph two. The
Commissioner may, if he finds that the interest of
policy holders so permit or require, by official
regulation permit or require any class or classes
of insurers, other than life insurance companies,
authorized to do business in this country, to value
their bonds or other evidences of indebtedness in
accordance with the foregoing rule.
(2) The investments of all insurers
authorized to do business in this country,
except securities subject to amortization
and except as otherwise provided in this
chapter, shall be valued, in the discretion
of the Commissioner, at their market
value, or at their appraised value, or at
prices determined by him as representing
their fair market value. If the
Commissioner finds that in view of the
character of investments of any insurer
authorized to do business in this country
it would be prudent for such insurer to
establish a special reserve for possible
losses or fluctuations in the values of its
investments, he may require such insurer
to establish such reserve, reasonable in
amount, and may require that such
reserve be maintained and reported in
any statement or report of the financial
condition of such insurer. The
Commissioner may, in connection with
any examination or required financial
statement of an authorized insurer,
require such insurer to furnish him
complete financial statements and
audited report of the financial condition
of any corporation of which the securities
are owned wholly or partly by such
insurer and may cause an examination to
be made of any subsidiary or affiliate of
such insurer.
(3) The stock of an insurance company
shall be valued at the lesser of its market
value or its book value as shown by its
last approved annual statement or the
last report on examination, whichever is
more recent. The book value of a share of
common stock of an insurance company
shall be ascertained by dividing (a) the
amount of its capital and surplus less the
value of all of its preferred stock, if any,
outstanding, by (b) the number of shares
of its common stock issued and
outstanding. Notwithstanding the
foregoing provisions, an insurer may, at
its option, value its holdings of stock in a
subsidiary insurance company in an
amount not less than acquisition cost if
 such acquisition cost is less than the
value determined as hereinbefore
provided.
(4) Real estate required by foreclosure or
by deed in lieu thereof, in the absence of
a recent appraisal deemed by the
Commissioner to be reliable, shall not be
valued at an amount greater than the
unpaid principal of the defaulted loan at
the date of such foreclosure or deed,
together with any taxes and expenses
paid or incurred by such insurer at such
time in connection with such acquisition,
and the cost of additions or
improvements thereafter paid by such
insurer and any amount or amounts
thereafter paid by such insurer on any
assessments levied for improvements in
connection with the property.
(5) Purchase money mortgages received
on dispositions of real property held
pursuant to section one hundred ninety-
eight shall be valued in an amount
equivalent to ninety per centum of the
value of such real property. Purchase
money mortgages received on disposition
of real property otherwise held shall be
valued in an amount not exceeding
ninety per centum of the value of such
real property as determined by an
appraisal made by an appraiser at or
about the time of disposition of such real
property.
(6) The stock of a subsidiary of an insurer
shall be valued on the basis of the
greater of (i) the value of only such
subsidiary of the assets of such
subsidiary as would constitute lawful
investments for the insurer if acquired or
held directly by the insurer or (ii) such
other value determined pursuant to
standards and cumulative limitations,
contained in a regulation to be
promulgated by the Commissioner.
(7) Notwithstanding any provision
contained in this section or elsewhere in
this chapter, if the Commissioner find
that the interests of policyholders so
permit or require, he may permit or
require any class or classes of insurers
authorized to do business in this country
to value their investments or any class or
classes thereof as of any date heretofore
or hereafter in accordance with any
applicable valuation or method.
Section 209. It shall be the duty of the officers
of the insurance company to report within the
first fifteen days of every month all such
investments as may be made by them during the
preceding month, and the Commissioner may, if
such investments or any of them seem
injudicious to him, require the sale or disposal of
the same. The report shall also include a list of
investments sold or disposed of by the company
during the same period.
Title 5
RESERVES
Section 210. Every life insurance company,
doing business in the Philippines, shall annually
make a valuation of all policies, additions thereto,
unpaid dividends, and all other obligations
outstanding on the thirty-first day of December of
the preceding year. All such valuations shall be
made upon the net premiums basis, according to
the standard adopted by the company, which
standard shall be stated in its annual report.
Such standard of valuation whether of the net
level premium, full preliminary term, any
modified preliminary term, or select and ultimate
reserve basis, shall be according to a standard
table of mortality with interest at not more than
six per centum compound interest. When the
preliminary term basis is used, the term
insurance shall be limited to the first policy year.
The results of such valuations shall be reported to
the Commissioner on or before the thirtieth day
of April of each year accompanied by a sworn
statement of the company's actuary certifying to
the figures and stating upon what mortality table
it is based, upon what rate of interest the
valuation is made, and the methods used in
arriving at the result obtained.
Section 211. The aggregate net value so
ascertained of the policies of such company shall
be deemed its reserve liability, to provide for
which it shall hold funds in secure investments
equal to such net value, above all its other
liabilities; and it shall be the duty of the
Commissioner, after having verified, to such an
extent as he may deem necessary, the valuation
of all policies in force, to satisfy himself that the
company has such amount in safe legal securities
after all other debts and claims against it have
been provided for.
The reserve liability for variable contracts defined
in section two hundred thirty-two shall be
established in accordance with actuarial
procedures that recognize the variable nature of
the benefits provided, and shall be approved by
the Commissioner.
Section 212. Every domestic life insurance
company, conducted on the mutual plan or a plan
in which policyholders are by the terms of their
policies entitled to share in the profits or surplus
shall, on all policies of life insurance heretofore or
hereafter issued, under the conditions of which
the distribution of surplus is deferred to a fixed or
specified time and contingent upon the policy
being in force and the insured living at that time,
annually ascertain the amount of the surplus to
which all such policies as separate class are
entitled, and shall annually apportion to such
policies as a class the amount of the surplus so
ascertained, and carry the amount of such
apportioned surplus, plus the actual interest
earnings and accretions to such fund, as a
distinct and separate liability to such class of
policies on and for which the same was
accumulated, and no company or any of its
officers shall be permitted to use any part of such
apportioned surplus fund for any purpose
whatsoever other than for the express purpose
for which the same was accumulated.
Section 213. Every insurance company, other
than life, shall maintain a reserve for unearned
premiums on its policies in force, which shall be
charged as a liability in any determination of its
financial condition. Such reserve shall be equal to
forty per centum of the gross premiums, less
returns and cancellations, received on policies or
risks having not more than a year to run, and pro
rata on all gross premiums received on policies or
risks having more than a year to run; Provided,
That for marine cargo risks the reserve shall be
equal to forty per centum of the premiums
written in the policies upon yearly risks, and the
full amount of the premiums written during the
last two months of the calendar year upon all
other marine risks not terminated.
Section 214. In addition to its liabilities and
reserves on contracts of insurance issued by it,
every insurance company shall be charged with
the estimated amount of all of its other liabilities,
including taxes, expenses and other obligations
due or accrued at the date of statement, and
including any special reserves required by the
Commissioner pursuant to the provisions of this
Code.
Title 6 business in the Philippines desiring to cede their
LIMIT OF SINGLE RISK
Section 215. No insurance company other than
life, whether foreign or domestic, shall retain any
risk on any one subject of insurance in an amount
exceeding twenty per centum of its net worth. For
purposes of this section, the term "subject of
insurance" shall include all properties or risks
insured by the same insurer that customarily are
considered by non-life company underwriters to
be subject to loss or damage from the same
occurrence of any hazard insured against.
Reinsurance ceded as authorized under the
succeeding title shall be deducted in determining
the risk retained. As to surety risk, deduction
shall also be made of the amount assumed by
any other company authorized to transact surety
business and the value of any security mortgage,
pledged, or held subject to the surety's control
and for the surety's protection.
Title 7
REINSURANCE TRANSACTIONS
Section 216. An insurance company doing
business in the Philippines may accept
reinsurances only of such risks, and retain risk
thereon within such limits, as it is otherwise
authorized to insure.
Section 217. No insurance company doing
business in the Philippines shall cede all or part of
any risks situated in the Philippines by way of
reinsurance directly to any foreign insurer not
authorized to do business in the Philippines
unless such foreign insurer or, if the services of a
non-resident broker are utilized, such non-
resident broker is represented in the Philippines
by a resident agent duly registered with the
Commissioner as required in this Code.
The resident agent of such unauthorized foreign
insurer or non- resident broker shall immediately
upon registration furnish the Commissioner with
the annual statement of such insurer, or of such
company or companies where such broker may
place Philippine business as of the year preceding
such registration, and annually thereafter as soon
as available.
Section 218. All insurance companies, both life
and non-life, authorized to do business in the
Philippines shall cede their excess risks to other
companies similarly authorized to do business in
the Philippines in such amounts and under such
arrangements as would be consistent with sound
underwriting practices before they enter into
reinsurance arrangements with unauthorized
foreign insurers.
Section 219. Any insurance company doing
excess risks to foreign insurance or reinsurance
companies not authorized to transact business in
the Philippines may do so under the following
conditions:
(1) Except in facultative reinsurance and
excess of loss covers, the full amount of
the reserve fund required by law shall be
set up in the books of and held by the
ceding company for so long as the risk
concerned is in force; Provided, That in
case of facultative insurance, the ceding
company shall show to the satisfaction of
the Commissioner that the Philippine
market cannot provide the facilities
sought abroad.
(2) The reserve fund withheld shall be
invested in bonds or other evidences of
debt of the Government of the Philippines
or its political subdivisions or
instrumentalities, or of government-
owned or controlled corporations and
 entities, including the Central Bank,
and/or other securities acceptable under
section two hundred.
Should any reinsurance agreement be for any
reason cancelled or terminated, the ceding
company concerned shall inform the
Commissioner in writing of such cancellation or
termination within thirty days from the date of
such cancellation or termination or from the date
notice or information of such cancellation or
termination is received by such company as the
case may be.
Section 220. Every insurance company
authorized to do business in the Philippines shall
report to the Commissioner on forms prescribed
by him the particulars of reinsurance treaties as
of the first day of January of the year following
the approval of this Code and shall thereafter
similarly report to the Commissioner particulars
of any new treaties or changes in existing
treaties.
Section 221. No credit shall be allowed as an
admitted asset or as a deduction from liability, to
any ceding insurer for reinsurance made, ceded,
renewed, or otherwise becoming effective after
January first, nineteen hundred seventy-five,
unless the reinsurance shall be payable by the
assuming insurer on the basis of the liability of
the ceding insurer under the contract or contracts
reinsured without diminution because of the
insolvency of the ceding insurer nor unless under
the contract or contracts of reinsurance the
liability for such reinsurance is assumed by the
assuming insurer or insurers as of the same
effective date; nor unless the reinsurance
agreement provides that payments by the
assuming insurer shall be made directly to the
ceding insurer or to its liquidator, receiver, or
statutory successor except (a) where the contract
specifically provides another payee of such
reinsurance in the event of the insolvency of the
ceding insurer and (b) where the assuming
insurer with the consent of the direct insured or
insureds has assumed such policy obligations of
the ceding insurer as direct obligations of the
assuming insurer to the payees under such
policies and in substitution for the obligations of
the ceding insurer to such payees.
Section 222. No life insurance company doing
business in the Philippines shall reinsure its whole
risk on any individual life or joint lives, or
substantially all of its insurance in force, without
having first obtained the written permission of
the Commissioner.
Title 8 substance the following conditions:
ANNUAL STATEMENT
Section 223. Every insurance company doing
business in the Philippines shall terminate its
fiscal period on the thirty-first day of December
every year, and shall annually on or before the
thirtieth day of April of each year render to the
Commissioner a statement signed and sworn to
by the chief officer of such company showing, in
such form and details as may be prescribed by
the Commissioner, the exact condition of its
affairs on the preceding thirty-first day of
December.
Any entry in the statement which is found to be
false shall constitute a misdemeanor and the
officer signing such statement shall be subject to
the penalty provided for under section four
hundred nineteen.
Section 224. Every insurance company
authorized under title ten of this chapter to issue,
deliver or use variable contracts shall annually
file with the Commissioner separate annual
statement of its separate variable accounts. Such
statement shall be on a form prescribed or
approved by the Commissioner and shall include
details as to all of the income, disbursements,
assets and liability items of and associated with
the said separate variable accounts. Said
statement shall be under oath of two officers of
the company and shall be filed simultaneously
with the annual statement required by the
preceding section.
Section 225. Within thirty days after receipt of
the annual statement approved by the
Commissioner, every insurance company doing
business in the Philippines shall publish in two
newspapers of general circulation in the City of
Manila, one published in English and one in
Pilipino, a full sypnosis of its annual financial
statement showing fully the conditions of its
business, and setting forth its resources and
liabilities.
Title 9
POLICY FORMS
Section 226. No policy, certificate or contract of
insurance shall be issued or delivered within the
Philippines unless in the form previously
approved by the Commissioner, and no
application form shall be used with, and no rider,
clause, warranty or endorsement shall be
attached to, printed or stamped upon such policy,
certificate or contract unless the form of such
application, rider, clause, warranty or
endorsement has been approved by the
Commissioner.
Section 227. In the case of individual life or
endowment insurance, the policy shall contain in
(a) A provision that the policyholder is
entitled to a grace period either of thirty
days or of one month within which the
payment of any premium after the first
may be made, subject at the option of the
insurer to an interest charge not in excess
of six per centum per annum for the
number of days of grace elapsing before
the payment of the premium, during
which period of grace the policy shall
continue in full force, but in case the
policy becomes a claim during the said
period of grace before the overdue
premium is paid, the amount of such
premium with interest may de deducted
from the amount payable under the
policy in settlement;
(b) A provision that the policy shall be
incontestable after it shall have been in
force during the lifetime of the insured for
a period of two years from its date of
issue as shown in the policy, or date of
approval of last reinstatement, except for
non-payment of premium and except for
violation of the conditions of the policy
relating to military or naval service in
time of war;
(c) A provision that the policy shall
constitute the entire contract between
the parties, but if the company desires to
make the application a part of the
contract it may do so provided a copy of
such application shall be indorsed upon
or attached to the policy when issued,
and in such case the policy shall contain
a provision that the policy and the
application therefor shall constitute the
entire contract between the parties;
(d) A provision that if the age of the
insured is considered in determining the
premium and the benefits accruing under
the policy, and the age of the insured has
been misstated, the amount payable
under the policy shall be such as the
premium would have purchased at the
correct age;
(e) If the policy is participating, a
provision that the company shall
periodically ascertain and apportion any
divisible surplus accruing on the policy
under conditions specified therein;
(f) A provision specifying the options to
which the policyholder is entitled to in the
event of default in a premium payment
after three full annual premiums shall
have been paid. Such option shall consist
of:
(1) A cash surrender value
payable upon surrender of the
policy which shall not be less
than the reserve on the policy,
the basis of which shall be
indicated, for the then current
policy year and any dividend
additions thereto, reduced by a
surrender charge which shall not
be more than one-fifth of the
entire reserve or two and one-half
per centum of the amount
insured and any dividend
additions thereto;
(2) One or more paid-up benefits
on a plan or plans specified in the
policy of such value as may be
purchased by the cash surrender
value;
(g) A provision that at anytime after a
cash surrender value is available under
the policy and while the policy is in force,
the company will advance, on proper
assignment or pledge of the policy and on
sole security thereof, a sum equal to, or
at the option of the owner of the policy,
less than the cash surrender value on the
policy, at a specified rate of interest, not
more than the maximum allowed by law,
to be determined by the company from
time to time, but not more often than
once a year, subject to the approval of
the Commissioner; and that the company
will deduct from such loan value any
existing indebtedness on the policy and
any unpaid balance of the premium for
the current policy year, and may collect
interest in advance on the loan to the end
of the current policy year, which provision
may further provide that such loan may
be deferred for not exceeding six months
after the application therefor is made;
(h) A table showing in figures cash
surrender values and paid-up options
available under the policy each year upon
default in premium payments, during at
least twenty years of the policy beginning
with the year in which the values and
options first become available, together
with a provision that in the event of the
failure of the policyholder to elect one of
the said options within the time specified
in the policy, one of said options shall
automatically take effect and no
policyholder shall ever forfeit his right to
same by reason of his failure to so elect;
(i) In case the proceeds of a policy are
payable in installments or as an annuity,
a table showing the minimum amounts of
the installments or annuity payments;
(j) A provision that the policyholder shall
be entitled to have the policy reinstated
at any time within three years from the
date of default of premium payment
unless the cash surrender value has been
duly paid, or the extension period has
expired, upon production of evidence of
insurability satisfactory to the company
and upon payment of all overdue
premiums and any indebtedness to the
company upon said policy, with interest
rate not exceeding that which would have
been applicable to said premiums and
indebtedness in the policy years prior to
reinstatement.

Any of the foregoing provisions or portions
thereof not applicable to single premium or term
policies shall to that extent not be incorporated
therein; and any such policy may be issued and
delivered in the Philippines which in the opinion
of the Commissioner contains provisions on any
one or more of the foregoing requirements more
favorable to the policyholder than hereinbefore
required.
This section shall not apply to policies of group
life or industrial life insurance.
Section 228. No policy of group life insurance
shall be issued and delivered in the Philippines
unless it contains in substance the following
provisions, or provisions which in the opinion of
the Commissioner are more favorable to the
persons insured, or at least as favorable to the
persons insured and more favorable to the policy-
holders:
(a) A provision that the policyholder is
entitled to a grace period of either thirty
days or of one month for the payment of
any premium due after the first, during
which grace period the death benefit
coverage shall continue in force, unless
the policyholder shall have given the
insurer written notice of discontinuance in
advance of the date of discontinuance
and in accordance with the terms of the
policy. The policy may provide that the
policyholder shall be liable for the
payment of a pro rata premium for the
time the policy is in force during such
grace period;
(b) A provision that the validity of the
policy shall not be contested, except for
non-payment of premiums after it has
been in force for two years from its date
of issue; and that no statement made by
any insured under the policy relating to
his insurability shall be used in contesting
the validity of the insurance with respect
to which such statement was made after
such insurance has been in force prior to
the contest for a period of two years
during such person's lifetime nor unless
contained in written instrument signed by
him;
(c) A provision that a copy of the
application, if any, of the policyholder
shall be attached to the policy when
issued, that all statements made by the
policyholder or by persons insured shall
be deemed representations and not
warranties, and that no statement made
by any insured shall be used in any
contest unless a copy of the instrument
containing the statement is or has been
furnished to such person or to his
beneficiary;
(d) A provision setting forth the
conditions, if any, under which the insurer
reserves the right to require a person
eligible for insurance to furnish evidence
of individual insurability satisfactory to
the insurer as a condition to part or all of
his coverage;
(e) A provision specifying an equitable
adjustment of premiums or of benefits or
of both to be made in the event that the
age of a person insured has been
misstated, such provision to contain a
clear statement of the method of
adjustment to be used;
(f) A provision that any sum becoming
due by reason of death of the person
insured shall be payable to the
beneficiary designated by the insured,
subject to the provisions of the policy in
the event that there is no designated
beneficiary, as to all or any part of such
sum, living at the death of the insured,
and subject to any right reserved by the
insurer in the policy and set forth in the
certificate to pay at its option a part of
such sum not exceeding five hundred
pesos to any person appearing to the
insurer to be equitably entitled thereto by
reason of having incurred funeral or other
expenses incident to the last illness or
death of the person insured;
(g) A provision that the insurer will issue
to the policyholder for delivery to each
person insured an individual certificate
setting forth a statement as to the
insurance protection to which he is
entitled, to whom the insurance benefits
are payable, and the rights set forth in
paragraphs (h), (i) and (j) following;
(h) A provision that if the insurance, or
any portion of it, on a person covered
under the policy ceases because of
termination of employment or of
membership in the class or classes
eligible for coverage under the policy,
such person shall be entitled to have
issued to him by the insurer, without
evidence of insurability, an individual
policy of life insurance without disability
or other supplementary benefits,
provided application for the individual
policy and payment of the first premium
to the insurer shall be made within thirty
days after such termination and provided
further that:
(1) the individual policy shall be
on any one of the forms, except
term insurance, then customarily
issued by the insurer at the age
and for an amount not in excess
of the coverage under the group
policy; and
(2) the premium on the individual
policy shall be at the insurer's
 then customary rate applicable to
the form and amount of the
individual policy, to the class of
risk to which such person then
belongs, and to his age attained
on the effective date of the
individual policy.
(i) A provision that if the group policy
terminates or is amended so as to
terminate the insurance of any class of
insured persons, every person insured
thereunder at the date of such
termination whose insurance terminates
and who has been so insured for five
years prior to such termination date shall
be entitled to have issued to him by the
insurer an individual policy of life
insurance subject to the same limitations
as set forth in paragraph (h), except that
the group policy may provide that the
amount of such individual policy shall not
exceed the smaller of (a) the amount of
the person's life insurance protection
ceasing less the amount of any life
insurance for what he is or becomes
eligible under any group policy issued or
reinstated by the same or another
reinsurer within thirty days after such
termination, and (b) two thousand pesos;
(j) A provision that if a person insured
under the group policy dies during the
thirty-day period within which he would
have been entitled to an individual policy
issued to him in accordance with (h) and
(i) above and before such individual
policy shall have become effective, the
amount of life insurance which he would
have been entitled to have issued to him
as an individual policy shall be payable as
a claim under the group policy whether or
not application for the individual policy or
the payment of the first premium has
been made;
(k) In the case of a policy issued to a
creditor to insure debtors of such
creditor, a provision that the insurer will
furnish to the policyholder for delivery to
each debtor insured under the policy a
form which will contain a statement that
the life of the debtor is insured under the
policy and that any death benefit paid
thereunder by reason of his death shall
be applied to reduce or extinguish
indebtedness.
The provisions of paragraphs (f) to (j) shall not
apply to policies issued to a creditor to insure his
debtors. If a group life policy is on a plan of
insurance other than term, it shall contain a non-
forfeiture provision or provisions which in the
opinion of the Commissioner is or are equitable to
the insured or the policyholder; Provided, That
nothing herein contained shall be so construed as
to require group life policies to contain the same
non-forfeiture provisions as are required of
individual life policies.
Section 229. The term "industrial life insurance"
as used in this Code shall mean that form of life
insurance under which the premiums are payable
either monthly or oftener, if the face amount of
insurance provided in any policy is not more than
five hundred times that of the current statutory
minimum daily wage in the City of Manila, and if
the words "industrial policy" are printed upon the
policy as part of the descriptive matter.
An industrial life policy shall not lapse for non-
payment of premium if such non-payment was
due to the failure of the company to send its
representative or agent to the insured at the
residence of the insured or at some other place
indicated by him for the purpose of collecting
such premium; Provided, That the provisions of
this paragraph shall not apply when the premium
on the policy remains unpaid for a period of three
months or twelve weeks after the grace period
has expired.
Section 230. In the case of industrial life
insurance, the policy shall contain in substance
the following provisions:
(a) A provision that the insured is entitled
to a grace period of four weeks within
which the payment of any premium after
the first may be made, except that where
premiums are payable monthly, the
period of grace shall be either one month
or thirty days; and that during the period
of grace, the policy shall continue in full
force, but if during such grace period the
policy becomes a claim, then any
overdue and unpaid premiums may be
deducted from any amount payable
under the policy in settlement;
(b) A provision that the policy shall be
incontestable after it has been in force
during the lifetime of the insured for a
specified period, not more than two years
from its date of issue, except for non-
payment of premiums and except for
violation of the conditions of the policy
relating to naval or military service, or
services auxiliary thereto, and except as
to provisions relating to benefits in the
event of disability as defined in the
policy, and those granting additional
insurance specifically against death by
accident or by accidental means, or to
additional insurance against loss of, or
loss of use of, specific members of the
body;
(c) A provision that the policy shall
constitute the entire contract between
the parties, or if a copy of the application
is endorsed upon and attached to the
policy when issued, a provision that the
policy and the application therefor shall
constitute the entire contract between
the parties, and in the latter case, a
provision that all statements made by the
insured shall, in the absence of fraud, be
deemed representations and not
warranties;
(d) A provision that if the age of the
person insured, or the age of any person,
considered in determining the premium,
or the benefits accruing under the policy,
has been misstated, any amount payable
or benefit accruing under the policy shall
be such as the premium paid would have
purchased at the correct age;
(e) A provision that if the policy is a
participating policy, the company shall
periodically ascertain and apportion any
divisible surplus accruing on the policy
under the conditions specified therein;
(f) A provision that in the event of default
in premium payments after three full
years' premiums have been paid, the
policy shall be converted into a stipulated
form of insurance, and that in the event
of default in premium payments after five
full years' premiums have been paid, a
specified cash surrender value shall be
available, in lieu of the stipulated form of
insurance, at the option of the
policyholder. The net value of such
stipulated form of insurance and the
amount of such cash value shall not be
less than the reserve on the policy and
dividend additions thereto, if any, at the
end of the last completed policy year for
which premiums shall have been paid
(the policy to specify the mortality table,
rate of interest and method of valuation
adopted to compute such reserve),
exclusive of any reserve on disability
benefits and accidental death benefits,
less an amount not to exceed two and
one-half per centum of the maximum
amount insured by the policy and
dividend additions thereto, if any, at the
end of the last completed policy year for
which premiums shall have been paid
(the policy to specify the mortality table,
rate of interest and method of valuation
adopted to compute such reserve),
exclusive of any reserve on disability
benefits and accidental death benefits,
less an amount not to exceed two and
one-half per centum of the maximum
amount insured by the policy and
dividend additions thereto, if any, when
the issue age is under ten years, and less
an amount not to exceed two and one-
half per centum of the current amount
insured by the policy and dividend
additions thereto, if any, if the issue age
is ten years or older, and less any
existing indebtedness to the company on
or secured by the policy;
(g) A provision that the policy may be
surrendered to the company at its home
office within a period of not less than
sixty days after the due date of a
premium in default for the specified cash
value, provided that the insurer may
defer payment for not more than six
months after the application therefor is
made;
(h) A table that shows in figures the non-
forfeiture benefits available under the
policy every year upon default in
payment of premiums during at least the
first twenty years of the policy, such table
to begin with the year in which such
values become available, and a provision
that the company will furnish upon
request an extension of such table
beyond the year shown in the policy;
(i) A provision that specifies which one of
the stipulated forms of insurance
provided for under the provision of
paragraph (f) of this section shall take
effect in the event of the insured's failure,
within sixty days from the due date of the
premium in default, to notify the insurer
in writing as to which one of such forms
he has selected;
(j) A provision that the policy may be
reinstated at any time within two years
from the due date of the premium in
default unless the cash surrender value
has been paid or the period of extended
term insurance expired, upon production
of evidence of insurability satisfactory to
the company and payment of arrears of
premiums with interest at a rate not
exceeding six per centum per annum
payable annually;
(k) A provision that when a policy shall
become a claim by death of the insured,
settlement shall be made upon receipt of
due proof of death, or not later than two
months after receipt of such proof;
(l) A title on the face and on the back of
the policy correctly describing its form;
(m) A space on the front or the back of
the policy for the name of the beneficiary
designated by the insured with a
reservation of the insured's right to
designate or change the beneficiary after
the issuance of the policy. The policy may
also provide that no designation or
change of beneficiary shall be binding on
the insurer until endorsed on the policy
by the insurer, and that the insurer may
refuse to endorse the name of any
proposed beneficiary who does not
appear to the insurer to have an
insurable interest in the life of the
insured. Such policy may also contain a
provision that if the beneficiary
designated in the policy does not
surrender the policy with due proof of
 death within the period stated in the
policy, which shall not be less than thirty
days after the death of the insured, or if
the beneficiary is the estate of the
insured, or is a minor, or dies before the
insured, or is not legally competent to
give valid release, then the insurer may
make any payment thereunder to the
executor or administrator of the insured,
or to any of the insured's relatives by
blood or legal adoption or connections by
marriage or to any person appearing to
the insurer to be equitably entitled
thereto by reason of having incurred
expense for the maintenance, medical
attention or burial of the insured; and
(n) A provision that when an industrial life
insurance policy is issued providing for
accidental or health benefits, or both, in
addition to life insurance, the foregoing
provisions shall apply only to the life
insurance portion of the policy.
Any of the foregoing provisions or portions
thereof not applicable to non-participating or
term policies shall to that extent not be
incorporated therein. The foregoing provisions
shall not apply to policies issued or granted
pursuant to the non-forfeiture provisions
prescribed in provisions of paragraphs (f) and (i)
of this section, nor shall provisions of paragraphs
(f), (g), (h), and (i) hereof be required in term
insurance of twenty years or less but such term
policies shall specify the mortality table, rate of
interest, and method of computing reserves.
Section 231. No policy of industrial life
insurance shall be issued or delivered in the
Philippines if it contains any of the following
provisions:
(a) A provision that gives the insurer the
right to declare the policy void because
the insured has had any disease or
ailment, whether specified or not, or
because the insured has received
institutional, hospital, medical or surgical
treatment or attention, except a provision
which gives the insurer the right to
declare the policy void if the insured has,
within two years prior to the issuance of
the policy, received institutional hospital,
medical or surgical treatment or attention
and if the insured or the claimant under
the policy fails to show that the condition
occasioning such treatment or attention
was not of a serious nature or was not
material to the risk;
(b) A provision that gives the insurer the
right to declare the policy void because
the insured has been rejected for
insurance, unless such right be
conditioned upon a showing by the
insurer that knowledge of such rejection
would have led to a refusal by the insurer
to make such contract;
(c) A provision that allows the company
to pay the proceeds of the policy at the
death of the insured to any person other
than the named beneficiary, except in
accordance with a standard provision as
specified under the provisions of
paragraph (m) of the preceding
section; lawphi1.net
(d) A provision that limits the time within
which any action at law or in equity may
be commenced to less than six years
after the cause of action shall accrue; and
(e) A provision that specifies any mode of
settlement at maturity of less value than
the amount insured by the policy plus
dividend additions, if any, less any
indebtedness to the company on the
policy and less any premium that may by
the terms of the policy be deducted,
payments to be made in accordance with
the terms of the policy.
Nothing contained in this section nor in the
provision of paragraph (b) of the preceding
section, relating to incontestability, shall be
construed as prohibiting the life insurance
company from placing in its industrial life policies
provisions limiting its liability with respect to: (1)
death resulting from aviation other than as a fare-
paying passenger on a regularly scheduled route
between definitely established airports; and (2)
military or naval service; Provided, That if the
liability of the company is limited as herein
provided, such liability shall in no event be fixed
at an amount less than the reserve on the policy
(excluding the reserve for any additional benefits
in the event of death by accident or accidental
means or for benefits in the event of any type of
disability), less any indebtedness on or secured
by such policy; nor shall any provision of this
section apply to any provision in an industrial life
insurance policy for additional benefits in the
event of death by accident or accidental means.
Title 10
VARIABLE CONTRACTS
Section 232. (1) No insurance company
authorized to transact business in the Philippines
shall issue, deliver, sell or use any variable
contract in the Philippines, unless and until such
company shall have satisfied the Commissioner
that its financial and general condition and its
methods of operations, including the issue and
sale of variable contracts, are not and will not be
hazardous to the public or to its policy and
contract owners. No foreign insurance company
shall be authorized to issue, deliver or sell any
variable contract in the Philippines, unless it is
likewise authorized to do so by the laws of its
domicile.
(2) The term "variable contract" shall
mean any policy or contract on either a
group or on an individual basis issued by
 an insurance company providing for
benefits or other contractual payments or
values thereunder to vary so as to reflect
investment results of any segregated
portfolio of investments or of a
designated separate account in which
amounts received in connection with such
contracts shall have been placed and
accounted for separately and apart from
other investments and accounts. This
contract may also provide benefits or
values incidental thereto payable in fixed
or variable amounts, or both. It shall not
be deemed to be a "security" or
"securities" as defined in The Securities
Act, as amended, or in the The
Investment Company Act, as amended,
nor subject to regulation under said Acts.
(3) In determining the qualifications of a
company requesting authority to issue,
deliver, sell or use variable contracts, the
Commissioner shall always consider the
following: (a) the history, financial and
general condition of the company;
Provided, That such company, if a foreign
company, must have deposited with the
Commissioner for the benefit and security
of its variable contract owners in the
Philippines, securities satisfactory to the
Commissioner consisting of bonds of the
Government of the Philippines or its
instrumentalities with an actual market
value of two million pesos; (b) the
character, responsibility and fitness of the
officers and directors of the company;
and (c) the law and regulation under
which the company is authorized in the
state of domicile to issue such contracts.
(4) If after notice and hearing, the
Commissioner shall find that the
company is qualified to issue, deliver, sell
or use variable contracts in accordance
with this Code and the regulations and
rules issued thereunder, the
corresponding order of authorization shall
be issued. Any decision or order denying
authority to issue, deliver, sell or use
variable contracts shall clearly and
distinctly state the reasons and grounds
on which it is based.
Section 233. Any insurance company issuing
variable contracts pursuant to this Code may in
its discretion issue contracts providing a
combination of fixed amount and variable amount
of benefits and for option lump-sum payment of
benefits.
Section 234. Every variable contract form
delivered or issued for delivery in the Philippines,
and every certified form evidencing variable
benefits issued pursuant to any such contract on
a group basis, and the application, rider and
endorsement forms applicable thereto and used
in connection therewith, shall be subject to the
prior approval of the Commissioner.
Section 235. Illustration of benefits payable
under any variable contract shall not include or
involve projections of past investment experience
into the future and shall conform with the rules
and regulations promulgated by the
Commissioner.
Section 236. Variable contracts may be issued
on the industrial life basis, provided that the
pertinent provisions of this Code and of the rules
and regulations of the Commissioner governing
variable contracts are complied with in
connection with such contracts.
Section 237. Every life insurance company
authorized under the provisions of this Code to
issue, deliver, sell or use variable contracts shall,
in connection with same, establish one or more
separate accounts to be known as separate
variable accounts. All amounts received by the
company in connection with any such contracts
which are required by the terms thereof, to be
collected or applied to one or more designated
separate variable accounts shall be placed in
such designated account or accounts. The assets
and liabilities of each such separate variable
account shall at all times be clearly identifiable
and distinguishable from the assets and liabilities
in all other accounts of the company.
Notwithstanding any provision of law to the
contrary, the assets held in any such separate
variable account shall not be chargeable with
liabilities arising out of any other business the
company conduct but shall be held and applied
exclusively for the benefit of the owners or
beneficiaries of the variable contracts applicable
thereto. In the event of the insolvency of the
company, the assets of each such separate
variable account shall be applied to the
contractual claims of the owners or beneficiaries
of the variable contracts applicable thereto.
Except as otherwise specifically provided by the
contract, no sale, exchange or other transfer of
assets may be made by a company, between any
of its separate accounts or between any other
investment account and one or more of its
separate accounts, unless in the case of a
transfer into a separate account, such transfer is
made solely to establish the account or to
support the operation of the contracts with
respect to the separate account to which the
transfer is made, or in case of a transfer from a
separate account, such transfer would not cause
the remaining assets of the account to become
less than the reserves and other contract
liabilities with respect to such separate account.
Such transfer, whether into or from a separate
account, shall be made by a transfer of cash, or
by a transfer of securities having a valuation
which could be readily determined in the market
place, provided that such transfer of securities is
approved by the Commissioner. The
Commissioner may authorize other transfers
among such accounts, if, in his opinion, such
transfer would not be inequitable. All amounts
and assets allocated to any such separate
variable account shall be owned by the company
and with respect to same the company shall not
be nor hold itself out to be a trustee.
Section 238. Any insurance company which has
established one or more separate variable
accounts pursuant to the preceding section may
invest and re-invest all or any part of the assets
allocated to any such account in the securities
and investments authorized by sections one
hundred ninety-eight, two hundred, two hundred
one and two hundred two for any of the funds of
an insurance company in such amount or
amounts as may be approved by the
Commissioner. In addition thereto, such company
may also invest in common stocks or other
equities which are listed on or admitted to trading
in a securities exchange located in the
Philippines, or which are publicly held and traded
in the "over-the-counter market" as defined by
the Commissioner and as to which market
quotations have been available; Provided,
however, That no such company shall invest in
excess of ten per centum of the assets of any
such separate variable accounts in any one
corporation issuing such common stock. The
assets and investments of such separate variable
accounts shall not be taken into account in
applying the quantitative investment limitations
applicable to other investments of the company.
In the purchase of common capital stock or other
equities, the insurer shall designate to the broker,
or to the seller if the purchase is not made
through a broker, the specific variable account for
which the investment is made.
Section 239. Assets allocated to any separate
variable account shall be valued at their market
value on the date of any valuation, or if there is
no readily available market then in accordance
with the terms of the variable contract applicable
to such assets, or if there are no such contract
terms then in such manner as may be prescribed
by the rules and regulations of the Commissioner.
Section 240. The reserve liability for variable
contracts shall be established in accordance with
actuarial procedures that recognize the variable
nature of the benefits provided, and shall be
approved by the Commissioner.
Title 11
CLAIMS SETTLEMENT
Section 241. (1) No insurance company doing
business in the Philippines shall refuse, without
just cause, to pay or settle claims arising under
coverages provided by its policies, nor shall any
such company engage in unfair claim settlement
practices. Any of the following acts by an
insurance company, if committed without just
cause and performed with such frequency as to
indicate a general business practice, shall
constitute unfair claim settlement practices:
(a) knowingly misrepresenting to
claimants pertinent facts or policy
provisions relating to coverage at
issue;
(b) failing to acknowledge with
reasonable promptness pertinent
communications with respect to
claims arising under its policies;
(c) failing to adopt and implement
reasonable standards for the
prompt investigation of claims
arising under its policies;
(d) not attempting in good faith
to effectuate prompt, fair and
equitable settlement of claims
submitted in which liability has
become reasonably clear; or
(e) compelling policyholders to
institute suits to recover amounts
due under its policies by offering
without justifiable reason
substantially less than the
amounts ultimately recovered in
suits brought by them.
(2) Evidence as to numbers and types of
valid and justifiable complaints to the
Commissioner against an insurance
company, and the Commissioner's
complaint experience with other
insurance companies writing similar lines
of insurance shall be admissible in
evidence in an administrative or judicial
proceeding brought under this section.
(3) If it is found, after notice and an
opportunity to be heard, that an
insurance company has violated this
section, each instance of non-compliance
with paragraph (1) may be treated as a
separate violation of this section and
shall be considered sufficient cause for
the suspension or revocation of the
company's certificate of authority.
Section 242. The proceeds of a life insurance
policy shall be paid immediately upon maturity of
the policy, unless such proceeds are made
payable in installments or as an annuity, in which
case the installments, or annuities shall be paid
as they become due: Provided, however, That in
the case of a policy maturing by the death of the
insured, the proceeds thereof shall be paid within
sixty days after presentation of the claim and
filing of the proof of the death of the insured.
Refusal or failure to pay the claim within the time
prescribed herein will entitle the beneficiary to
collect interest on the proceeds of the policy for
the duration of the delay at the rate of twice the
ceiling prescribed by the Monetary Board, unless
such failure or refusal to pay is based on the
ground that the claim is fraudulent.
The proceeds of the policy maturing by the death
of the insured payable to the beneficiary shall
include the discounted value of all premiums paid
in advance of their due dates, but are not due
and payable at maturity.
Section 243. The amount of any loss or damage
for which an insurer may be liable, under any
policy other than life insurance policy, shall be
paid within thirty days after proof loss is received
by the insurer and ascertainment of the loss or
damage is made either by agreement between
the insured and the insurer or by arbitration; but
if such ascertainment is not had or made within
sixty days after such receipt by the insurer of the
proof of loss, then the loss or damage shall be
paid within ninety days after such receipt. Refusal
or failure to pay the loss or damage within the
time prescribed herein will entitle the assured to
collect interest on the proceeds of the policy for
the duration of the delay at the rate of twice the
ceiling prescribed by the Monetary Board, unless
such failure or refusal to pay is based on the
ground that the claim is fraudulent.
Section 244. In case of any litigation for the
enforcement of any policy or contract of
insurance, it shall be the duty of the
Commissioner or the Court, as the case may be,
to make a finding as to whether the payment of
the claim of the insured has been unreasonably
denied or withheld; and in the affirmative case,
the insurance company shall be adjudged to pay
damages which shall consist of attorney's fees
and other expenses incurred by the insured
person by reason of such unreasonable denial or
withholding of payment plus interest of twice the
ceiling prescribed by the Monetary Board of the
amount of the claim due the insured, from the
date following the time prescribed in section two
hundred forty-two or in section two hundred forty-
three, as the case may be, until the claim is fully
satisfied; Provided, That the failure to pay any
such claim within the time prescribed in said
sections shall be considered prima facie evidence
of unreasonable delay in payment.
Title 12
EXAMINATION OF COMPANIES
Section 245. The Commissioner shall require
every insurance company doing business in the
Philippines to keep its books, records, accounts
and vouchers in such manner that he or his
authorized representatives may readily verify its
annual statements and ascertain whether the
company is solvent and has complied with the
provisions of this Code or the circulars,
instructions, rulings or decisions of the
Commissioner.
Section 246. The Commissioner shall at least
once a year and whenever he considers the
public interest so demands, cause an
examination to be made into the affairs, financial
condition and method of business of every
insurance company authorized to transact
business in the Philippines and of any other
person, firm or corporation managing the affairs
and/or property of such insurance company. Such
company, as well as such managing person, firm
or corporation, shall submit to the examiner all
such books, papers and securities as he may
require and such examiner shall also have the
power to examine the officers of such company
under oath touching its business and financial
condition, and the authority to transact business
in the Philippines of any such company shall be
suspended by the Commissioner if such
examination is refused and such company shall
not thereafter be allowed to transact further
business in the Philippines until it has fully
complied with the provisions of this section.
Government-owned or controlled corporations or
entities engaged in social private insurance shall
similarly be subject to such examination by the
Commissioner unless their respective charters
otherwise provide.
Title 13
SUSPENSION OR REVOCATION OF
AUTHORITY
Section 247. If the Commissioner is of the
opinion upon examination of other evidence that
any domestic or foreign insurance company is in
an unsound condition, or that it has failed to
comply with the provisions of law or regulations
obligatory upon it, or that its condition or method
of business is such as to render its proceedings
hazardous to the public or to its policyholders, or
that its paid-up capital stock, in the case of a
domestic stock company, or its available cash
assets, in the case of a domestic mutual
company, or its security deposits, in the case of a
foreign company, is impaired or deficient, or that
the margin of solvency required of such company
is deficient, the Commissioner is authorized to
suspend or revoke all certificates of authority
granted to such insurance company, its officers
and agents, and no new business shall thereafter
be done by such company or for such company
by its agent in the Philippines while such
suspension, revocation or disability continues or
until its authority to do business is restored by
the Commissioner. Before restoring such
authority, the Commissioner shall require the
company concerned to submit to him a business
plan showing the company's estimated receipts
and disbursements, as well as the basis therefor,
for the next succeeding three years. (As amended
by Presidential Decree No. 1455)
Title 14
APPOINTMENT OF CONSERVATOR
Section 248. If at any time before, or after, the
suspension or revocation of the certificate of
authority of an insurance company as provided in
the preceding title, the Commissioner finds that
such company is in a state of continuing inability
or unwillingness to maintain a condition of
solvency or liquidity deemed adequate to protect
the interest of policy holders and creditors, he
may appoint a conservator to take charge the
assets, liabilities, and the management of such
company, collect all moneys and debts due said
company and exercise all powers necessary to
preserve the assets of said company, reorganize
the management thereof, and restore its viability.
The said conservator shall have the power to
overrule or revoke the actions of the previous
management and board of directors of the said
company, any provision of law, or of the articles
of incorporation or by-laws of the company, to the
contrary notwithstanding, and such other powers
as the Commissioner shall deem necessary.
The conservator may be another insurance
company doing business in the Philippines, by
officer or officers of such company, or any other
competent and qualified person, firm or
corporation. The remuneration of the conservator
and other expenses attendant to the
conservation shall be borne by the insurance
company concerned.
The conservator shall not be subject to any
action, claim or demand by, or liability to, any
person in respect of anything done or omitted to
be done in good faith in the exercise, or in
connection with the exercise, of the powers
conferred on the conservator.
The conservator appointed shall report and be
responsible to the Commissioner until such time
as the Commissioner is satisfied that the
insurance company can continue to operate on
its own and the conservatorship shall likewise be
terminated should be Commissioner, on the basis
of the report of the conservator or of his own
findings, determine that the continuance in
business of the insurance company would be
hazardous to policy holders and creditors, in
which case the provisions of Title 15 shall apply.
Title 15
PROCEEDINGS UPON INSOLVENCY
Section 249. Whenever, upon examination or
other evidence, it shall be disclosed that the
condition of any insurance company doing
business in the Philippines is one of insolvency, or
that its continuance in business would be
hazardous to its policyholders and creditors, the
Commissioner shall forthwith order the company
to cease and desist from transacting business in
the Philippines and shall designate a receiver to
immediately take charge of its assets and
liabilities, as expeditiously as possible collect and
gather all the assets and administer the same for
the benefit of its policyholders and creditors, and
exercise all the powers necessary for these
purposes including, but not limited to, bringing
suits and foreclosing mortgages in the name of
the insurance company.
The Commissioner shall thereupon determine
within thirty days whether the insurance
company may be reorganized or otherwise placed
in such condition so that it may be permitted to
resume business with safety to its policyholders
and creditors and shall prescribe the conditions
under which such resumption of business shall
take place as well as the time for fulfillment of
such conditions. In such case, the expenses and
fees in the collection and administration of the
insurance company shall be determined by the
Commissioner and shall be paid out of the assets
of such company.
If the Commissioner shall determine and confirm
within the said period that the insurance
company is solvent, as defined hereunder, or
cannot resume business with safety to its
policyholders and creditors, he shall, if the public
interest requires, order its liquidation, indicate
the manner of its liquidation and approve a
liquidation plan and implement it immediately.
The Commissioner shall designate a competent
and qualified person as liquidator who shall take
over the functions of the receiver previously
designated and, with all convenient speed,
reinsure all its outstanding policies, convert the
assets of the insurance company to cash, or sell,
assign or otherwise dispose of the same to the
policyholders, creditors and other parties for the
purpose of settling the liabilities or paying the
debts of such company and he may, in the name
of the company, institute such actions as may be
necessary in the appropriate Court to collect and
recover accounts and assets of the insurance
company, and to do such other acts as may be
necessary to complete the liquidation as ordered
by the Commissioner.
The provisions of any law to the contrary
notwithstanding, the actions of the Commissioner
under this Section shall be final and executory,
and can be set aside by the Court upon petition
by the company and only if there is convincing
proof that the action is plainly arbitrary and made
in bad faith. The Commissioner, through the
Solicitor General, shall then file the corresponding
answer reciting the proceeding taken and praying
the assistance of the Court in the liquidation of
the company. No restraining order or injunction
shall be issued by the Court enjoining the
Commissioner from implementing his actions
under this Section, unless there is convincing
proof that the action of the Commissioner is
plainly arbitrary and made in bad faith and the
petitioner or plaintiff files with the clerk or Judge
of the Court in which the action is pending a bond
executed in favor of the Commissioner in an
amount to be fixed by the Court. The restraining
order or injunction shall be refused or, if granted,
shall be dissolved upon filing by the
Commissioner, if he so desires, of a bond in an
amount twice the amount of the bond of the
petitioner or plaintiff conditioned that it will pay
the damages which the petition or plaintiff may
suffer by the refusal or the dissolution of the
injunction. The provisions of Rule 58 of the New
Rules of Court insofar as they are applicable shall
govern the issuance and dissolution of the
restraining order or injunction contemplated in
this Section.
All proceedings under this Title shall be given
preference in the Courts. The Commissioner shall
not be required to pay any fee to any public
officer for filing, recording, or in any manner
authenticating any paper or instrument relating
to the proceedings.
As used in this Title, the term "Insolvency" shall
mean the inability of an insurance company to
pay its lawful obligations as they fall due in the
usual and ordinary course of business as may be
shown by its failure to maintain the margin of
solvency required under Section 194 of this Code.
(As amended by Presidential Decree No. 1141
and further amended by Presidential Decree No.
1455)
Section 250. In case of liquidation of an
insurance company, after payment of the cost of
the proceedings, including reasonable expenses
and fees incurred in the liquidation to be allowed
by the Court, the Commissioner shall pay all
allowed claims against such company, under
order of the Court, in accordance with their legal
priority.
Section 251. The receiver or the liquidator, as
the case may be, designated under the provisions
of this title shall not be subject to any action,
claim or demand by, or liability to, any person in
respect of anything done or omitted to be done in
good faith in the exercise, or in connection with
the exercise, of the powers conferred on such
receiver or liquidator.
Title 16
CONSOLIDATION AND MERGER OF
INSURANCE COMPANIES
Section 252. Upon prior notice to the
Commissioner, two or more domestic insurance
companies, acting through their respective
boards of directors, may negotiate to merge into
a single corporation which shall be one of the
constituent corporations, or consolidate into a
single corporation which shall be a new
corporation to be formed by the consolidation. A
common agreement of the proposed merger or
consolidation shall be drawn up for submission to
the stockholders or members of the constituent
companies for adoption and approved in
accordance with the provisions of the respective
by-laws of the constituent companies and all
existing laws that may be pertinent.
Section 253. Such agreement shall include,
aside from the proposed merger or consolidation,
provisions relative to the manner of transfer of
assets to and assumption of liabilities by the
absorbing or acquiring company from the
absorbed or dissolved company or companies;
the proposed articles of merger or consolidation
and by-laws of the surviving or acquiring
company; the corporate name to be adopted
which should not be that of any other existing
company transacting similar business or one so
similar as to be calculated to mislead the public;
the rights of the stockholders or members of the
absorbed or dissolved companies; date of
effectivity of the merger or consolidation; and
such particulars as may be necessary to explain
and make manifest the objects and purposes of
the absorbing or acquiring company.
Section 254. Upon execution of such agreement
to merge or consolidate by and between or
among the boards of directors of the constituent
companies, notice thereof shall be mailed
immediately to their policyholders and creditors.
The company or companies to be absorbed or
dissolved shall discharge all its accrued liabilities;
otherwise, such liabilities shall, with the consent
of its creditors, be transferred to and assumed by
the absorbing or acquiring company, or such
liabilities be reinsured by the latter. In the case of
such policies as are subject to cancellation by the
company or companies to be absorbed or
dissolved, same may be cancelled pursuant to
the terms thereof in lieu of such transfer,
assumption, or reinsurance.
Section 255. Upon approval or adoption in the
meetings of the stockholders or members called
for the purpose in each of the constituent
companies of the agreement to merge or
consolidate, all stockholders or members
dissenting or objecting to merger or consolidation
shall be paid the value of their shares by the
company concerned in accordance with the by-
laws thereof.
Section 256. Upon the approval or adoption of
the agreement to merge or consolidate by the
stockholders or members of the constituent
companies, the corresponding articles of merger
or of consolidation shall be duly executed by the
presidents and attested by the corporate
secretaries and shall bear the corporate seals of
the merging or consolidating companies setting
forth:
 (1) The plan of merger or the plan of
consolidation; lawphi1.net
(2) As to each corporation, the number of
shares outstanding, or in case of mutual
corporations, the number of members;
and
(3) As to each corporation, the number of
shares or members voted for and against
such plan respectively. Thereafter, a
certified copy of such articles of merger
or consolidation, together with a convert itself into an incorporated mutual life
certificate of approval or adoption by the
stockholders or members of such articles
of merger or consolidation, verified by
affidavits of such officers and under the
seal of the constituent companies, shall
be submitted to the Commissioner,
together with such other papers or
documents which the Commissioner may
require, for his consideration.
Section 257. The articles of merger or of
consolidation, signed and verified as hereinabove
required, shall be filed with the Securities and
Exchange Commission for its examination and
approval.
Section 258. Upon receipt from the Securities
and Exchange Commission of the certificate of
merger or of consolidation, the constituent
companies shall surrender to the Commissioner
their respective certificates of authority to
transact insurance business. The absorbing or
surviving company in case of merger, or the
newly formed company in case of consolidation,
shall immediately file with the commissioner the
corresponding application for issuance of a new
certificate of authority to transact insurance
business, together with a certified copy of the
certificate of merger or of consolidation, and of
the certificate of increase of stocks, if there is
any, issued by the Securities and Exchange
Commission.
Section 259. Nothing in this title shall be
construed to enlarge the powers of the absorbing
or surviving company in case of merger, or the
newly formed company in case of consolidation,
except those conferred by the certificate of
merger or of consolidation and the articles of
merger of consolidation, or the amended articles
of incorporation, as registered with the Securities
and Exchange Commission.
Section 260. No director, officer, or stockholder
of any such constituent companies shall receive
any fee, commission, compensation, or other
valuable consideration whatsoever, directly or
indirectly, or in any manner aiding, promoting or
assisting in such merger or consolidation.
Section 261. The merger of consolidation of
companies under, this Code shall be subject to
the provisions of the Corporation Law, and, in
those cases specified in Republic Act No. 5455, as
amended, be further subject to the provisions of
said law.
Title 17
MUTUALIZATION OF STOCK LIFE INSURANCE
COMPANIES
Section 262. Any domestic stock life insurance
company doing business in the Philippines may
insurer. To that end it may provide and carry out a
plan for the acquisition of the outstanding shares
of its capital stock for the benefit of its
policyholders, or any class or classes of its
policyholders, by complying with the
requirements of this chapter.
Section 263. Such plan shall include appropriate
proceedings for amending the insurer's articles of
incorporation to give effect to the acquisition, by
said insurer, for the benefit of its policyholders or
any class or classes thereof, of the outstanding
shares of its capital stock and the conversion of
the insurer from a stock corporation into a non-
stock corporation for the benefit of its members.
The members of such non-stock corporation shall
be the policyholders from time to time of the
class or classes for whose benefit the stock of the
insurer was acquired, and the policyholders of
such other class or classes as may be specified in
such corporation's articles of incorporation as
they may be amended from time to time. Such
plan shall be:
(1) Adopted by a vote of a majority of the
directors;
(2) Approved by the vote of the holders of
at least a majority of the outstanding
shares at a special meeting of
shareholders called for that purpose, or
by the written consent of such
sharesholders;
(3) Submitted to the Commissioner and
approved by him in writing;
(4) Approved by a majority vote of all the
policyholders of the class or classes for
whose benefit the stock is to be acquired
voting at an election by the policyholders
called for that purpose, subject to the
provisions of section two hundred sixty-
five. The terms "policyholder" or
"policyholders" as used in this chapter
shall be deemed to mean the person or
persons insured under an individual
policy of life insurance, or of health and
accident insurance, or of any combination
of life, health and accident insurance.
They shall also include the person or
persons to whom any annuity or pure
endowment is presently or prospectively
payable by the terms of an individual
annuity or pure endowment contract,
except where the policy or contract
declares some other person to be the
 owner or holder thereof, in which case
such other person shall be deemed
policyholder. In any case where a policy
or contract names two or more persons
as joint insured, payees, owners or
holders thereof, the persons so named
shall be deemed collectively to be one
policyholder for the purpose of this
chapter. In any case where a policy or
contract shall have been assigned by
assignment absolute on its face to an
assignee other than the insurer, and such
assignment shall have been filed at the
principal office of the insurer at least
thirty days prior to the date of any
election or meeting referred to in this
chapter, then such assignee shall be
deemed at such election or meeting to be
the policyholder. For the purpose of this
chapter the terms "policyholder" and
"policyholders" include the employer to
whom, or a president, secretary or other
executive officer of any corporation or
association to which a master group
policy has been issued, but exclude the
holders of certificates or policies issued
under or in connection with a master
group policy. Beneficiaries under
unmatured contracts shall not as such be
deemed to be policyholders;
(5) Filed with the Commissioner after
having been approved as provided in this
section.
Section 264. The Commissioner shall examine
the plan submitted to him under the provisions of
sub-paragraph three of section two hundred
sixty-three. He shall not approve such plan unless
in his opinion the rights and interest of the
insurer, its policyholders and shareholders are
protected nor unless he is satisfied that the plan
will be fair and equitable in its operation.
Section 265. The election prescribed by sub-
paragraph four of section two hundred sixty-three
shall be called by the board of directors or the
president, and every policyholder of the class or
classes for whose benefit the stock is to be
acquired, whose insurance shall have been in
force for at least one year prior to such election
shall have one vote, regardless of the number of
policies or amount of insurance he holds, and
regardless of whether such policies are policies of
life insurance or policies of health and accident
insurance or annuity contracts. Notice of such
election shall be given to policyholders entitled to
vote by mail from the principal office of such
insurer at least thirty days prior to the date set
for such election, in a sealed envelope, postage
prepaid, addressed to each such policyholder at
his last known address.
Voting shall be by one of the following methods:
(1) At a meeting of such policyholders,
held pursuant to such notice, by ballot in
person or by proxy.
(2) If not by the method described in the
preceding sub-paragraph, then by mail
pursuant to a procedure and on forms to
be prescribed by such plan.
Such election shall be conducted under the
direction and supervision of three impartial and
disinterested inspectors appointed by the insurer
and approved by the Commissioner. In case any
person appointed as inspector fails to appear at
such meeting or fails or refuses to act at such
election, the vacancy, if occurring in advance of
the convening of the meeting or in advance of
the opening of the mail vote, may be filled in the
manner prescribed for the appointment of
inspectors and, if occurring at the meeting or
during the canvass of the mail vote, may be filled
by the person acting as chairman of said meeting
or designated for that purpose in such plan. The
decision, act or certificate of a majority of the
inspectors shall be effective in all respects as the
decision, act or certificate of all. The inspectors of
election shall determine the number of
policyholders, the voting power of each, the
policyholders represented at the meeting or
voting by mail, the existence of a quorum and the
authencity, validity and effect of proxies. They
shall receives votes, hear and determine all
challenges and questions in any way arising in
connection with the right to vote, count and
tabulate all votes, determine the result, and do
such other acts as are proper to conduct the vote
with fairness to all policyholders. The inspectors
of election shall, before commencing
performance of their duties, subscribe to and file
with the insurer and with the Commissioner on
oath that they, and each of them, will perform
their duties impartially, in good faith, to the best
of their ability and as expeditiously as in
practicable. On the request of the insurer, the
Commissioner, a policyholder or his proxy, the
inspectors shall make a report in writing of any
challenge or question or matter determined by
them and execute a certificate of any fact found
by them. They shall also certify the result of such
vote to the insurer and to the Commissioner. Any
report or certificate made by them shall be prima
facie evidence of facts stated therein. All
necessary expenses incurred in connection with
such election shall be paid by the insurer. For the
purpose of this section, a quorum shall consist of
five per centum of the policyholders of such
insurer entitled to vote at such election.
Section 266. In carrying out any such plan, the
insurer may acquire any shares of its own stock
by gift, bequest or purchase. Any shares so
acquired shall, unless as a result of such
acquisition all of the shares of the insurer shall
have been acquired, be acquired in trust for the
policyholders of the class or classes for whose
benefit the plan provides that the stock of the
insurer shall be acquired as hereinafter provided.
Such shares shall be assigned and transferred on
the books of such insurer and approved by the
Commissioner. Such trustees shall hold such
stock in trust until all of the outstanding shares of
capital stock of such insurer have been acquired,
but for not longer than thirty years with such
extensions of not more than five years each as
may be granted by the Commissioner. Such
extensions may be granted by the Commissioner
if the plan so provides and if in his opinion the
plan of acquisition of all of such stock can be
completed within a reasonable period. Such
trustees shall vote such stock at all corporate
meetings at which stockholders have the right to
vote. When all the outstanding shares of capital
stock of such insurer have been acquired, all said
shares shall be cancelled, the certificate of
amendment of the insurer's articles of
incorporation giving effect thereto shall be filed in
accordance with the provisions of the Corporation
Law, and the insurer shall become a non-stock
corporation for the profit of its members and such
trust shall thereupon terminate. Thereafter such
corporation shall be conducted for the mutual
benefit, ratably, of its policyholders of the class or
classes for whose benefit the stock was acquired
and shall have power to issue non-assessable
policies on a reserve basis subject to all
provisions of law applicable to incorporated life
insurers issuing nonassessable policies on a
reserve basis. Policies so issued may be upon the
basis of full or partial participation therein as
agreed between the insurer and the insured.
Upon the termination of any such voting trust,
either in accordance with its terms or as
hereinabove provided, such plan of mutualization
shall terminate, unless theretofore completed.
Upon such termination, unless the plan of
mutualization provides for the disposition of the
shares acquired by the insurer under such plan or
for the disposition of the proceeds thereof, the
shares held by such trustees shall be disposed of
in accordance with an order of the court of
competent jurisdiction in the judicial district in
which is located the principal office of such
insurer, made upon a verified petition of the
Commissioner.
Section 267. Any such plan of mutualization
may provide for the creation of a voting trust
under a trust agreement for the holding and
voting by three or more trustees of any portion or
all of the shares of the insurer not required upon
the adoption of such plan. The voting trustees
shall be named in accordance with such plan or, if
no provision is made therein for the naming of
such trustees, then by the insurer. The voting
trust agreement and voting trustees shall be
subject to the approval of the Commissioner. Any
or all of the trustees under such voting trust
agreement may be the same person or persons
as any or all of the trustees referred to in section
two hundred sixty-six. Such voting trust
agreement shall provide that in the event of
acquisition by the insurer of any of the shares of
stock held thereunder in accordance with the
provisions of the plan, such shares so acquired
together with the voting rights thereof shall be
transferred by the trustees named under the
provisions of this section to the trustees named
under the provisions of section two hundred sixty-
six. Any voting trust agreement created pursuant
to the provisions of this section may be made
irrevocable for not longer than thirty years and
thereafter until the termination of the trust
provided for in section two hundred sixty-six. The
trust created pursuant to the provisions of this
section shall terminate in any event upon
termination of the trust provided for in section
two hundred sixty-six. Upon the termination of
the trust created pursuant to the provisions of
this section, any shares held in such trust shall
revert to the persons entitled thereto by law.
Section 268. Every payment for the acquisition
of any shares of the capital stock of such insurer,
the purchase price of which is not fixed by such
plan, shall be subject to the prior approval of the
Commissioner. Neither such plan, nor any such
payment, may be approved by the Commissioner
unless he finds that the rights and interests of the
insurer, its policyholders, and shareholders are
protected.
Section 269. The trustees referred to in section
two hundred sixty-six shall file with such insurer
and with the Commissioner a verified acceptance
of their appointments and verified declarations
that they will faithfully discharge their duties as
such trustees. All dividends and other sums
received by said trustees on the shares held by
them, after paying the necessary expenses of
executing their trust, shall be immediately repaid
to such insurer for the benefit of all who are, or
may become, policyholders of such insurance of
the class or classes for whose benefit the stock of
such insurer was acquired and entitled to
participate in the profits thereof and shall be
added to and become part of the assets of such
insurer.
Section 269-A. If, at any time within the period
provided in the plan for the acquisition of the
outstanding shares of stock of the insurer, ninety
percent thereof has already been acquired and
transferred to the trustees under the plan, the
insurer by a vote of a majority of the directors
may determine to make an offer, with the
permission of the Commissioner and subject to
such requirement as he may specify, to acquire
by purchase all of the shares not theretofore
acquired under the plan, at a specified price
which the insurer considers to be their fair value
as of the date of making such offer.
If the offer to acquire is permitted by the
Commissioner, the insurer shall make a written
offer by registered mail to each shareholder
whose shares have not theretofore been acquired
under the plan or otherwise, offering to acquire
all his shares at such price if accepted in writing
within thirty days after the mailing of such offer.
Any shareholder accepting such offer, within the
time therefor shall, within sixty days after his
acceptance, transfer to the insurer the
certificates representing such shares and, upon
doing so, shall be paid by the insurer the amount
of such offer for his shares. Any share so acquired
shall be assigned and transferred to the trustees
under the plan and held by them as shares
acquired pursuant to the plan.
Each shareholder who does not accept such offer
to acquire his shares within the time stated in
such offer for acceptance thereof shall within
fifteen days after the expiration of such offer
apply to the Secretary of Finance for
determination of the fair value of his shares as of
the date of making such offer. The Secretary of
Finance may himself, after due notice and
hearing, determine upon the evidence received
the fair value of the shares as of the date of
making such offer, or appoint three impartial and
disinterested persons to appraise the fair value of
such shares with such direction as he shall deem
proper and necessary to expedite the
proceedings. Upon completion of the appraisal
proceedings, the appraisers shall file with the
Secretary of Finance their report in writing stating
the fair value of such shares as of the date of the
making of such offer and setting forth their
findings in support of such statement. The
appraisers shall furnish each party to the
proceedings a copy of their appraisal report, and
within ten days after receipt thereof any such
party may signify his objection, if any, to the
report or move for the approval thereof. Upon the
expiration of the period of ten days referred to
above, the report shall be set for hearing, after
which the Secretary of Finance shall issue an
order adopting, modifying or rejecting the report
in whole or in part or he may receive further
evidence or may recommit it with instructions.
Whenever the Secretary of Finance shall
determine in any manner, as aforesaid, the fair
value of such shares, he may also determine the
terms of payment thereof by the insurer. The
expenses incidental to the proceedings including
charges of the appraisers, if any, shall be paid
equally by the insurer and the shareholder.
The findings of the Secretary of Finance on all
questions of fact raised at the hearing of the
application for determination of the fair value of
such shares shall be conclusive upon all parties to
the proceedings. The order of the Secretary of
Finance determining the fair value of the shares
and the terms of payment thereof shall have the
force and effect of a judgment which shall be
appealable on any question of law. Such order
shall become final and executory fifteen days
after receipt thereof by the parties to the
proceedings.
Upon any such order becoming final and from
which no appeal is pending, or when the time to
appeal therefrom has expired, each shareholder
party to the proceedings shall transfer his shares
to the insurer and surrender to the said insurer
the certificates representing such shares and the
insurer shall make payment therefor as provided
in such order. Any shares so acquired by the
insurer shall be assigned and transferred to the
trustees and held by them as shares acquired
pursuant to the plan.
Any shareholder who does not apply to the
Secretary of Finance in the manner and within the
time hereinbefore prescribed shall be deemed to
have accepted the offer referred to above,
effective, however, upon the expiration of the
time hereinabove prescribed for making such
application, and such shareholder's time for
accepting such offer shall, for that purpose only,
be deemed to have been extended accordingly.
Any offer to acquire shares made pursuant to this
section shall, except as otherwise provided
herein, be irrevocable until all proceedings upon
such offer have been completed or all shares
have otherwise been earlier acquired by the
insurer.
Any shareholder who has expressly or impliedly
accepted the plan or the offer to acquire his
shares not theretofore acquired under the plan,
and any shareholder who has rejected such plan
or such offer and has applied, as aforesaid, to the
Secretary of Finance for a determination of the
fair value of his shares subsequent to which an
agreement has been reached or a final order
issued fixing such fair value but who fails to
surrender his certificates for cancellation upon
payment of the amount to which he is entitled,
may be compelled to do so by an order of the
Secretary of Finance for that purpose and such
order may provide that upon failure of such
shareholder to surrender such certificates for
cancellation such order shall stand in lieu of such
surrender and cancellation. (As amended by
Presidential Decree No. 1280)
Section 270. Such insurer, after mutualization,
shall be a continuation of the original insurer, and
such mutualization shall not affect such insurer's
certificate of authority nor existing suits, rights or
contracts except as provided in said plan for the
acquisition of the outstanding shares of the
capital stock of such insurer, approved as
provided in this chapter. Such insurer, after
mutualization, shall exercise all the rights and
powers and shall perform all the duties conferred
or imposed by law upon insurers writing the
classes of insurance written by it, and to protect
rights and contracts existing prior to
mutualization, subject to the effect of said plan.
The board of directors of such insurer, prior to
mutualization, may adopt amendments to its by-
laws to take effect upon mutualization.
Section 271. (1) An annual meeting of members
shall be held at ten o'clock in the morning of the
fourth Tuesday of March of each year at the
principal office of the insurer, unless a different
time or place be provided in the by-laws.
(2) Special meetings of the members, for
any purpose or purposes whatsoever,
may be called at any time by the
president, or by the board of directors, or
by one or more members holding not less
than one-fifth of the voting power of such
insurer, or by such other officers or
persons as the by-laws authorize.
(3) Notice of all meetings of members
whether annual or special shall be given
in writing to the members entitled to vote
by the secretary, or an assistant
secretary, or other person charged with
that duty, or if there be no such officer, or
in case of his neglect or refusal, by any
director or member. At the option of the
insurer such notice may be imprinted on
premium notices of receipts or on both.
A notice may be given by such insurer to
any member either personally, or by mail,
or other means of written
communication, charges prepaid,
addressed to such member at his address
appearing on the books of the insurer, or
given by him to the insurer for the
purpose of notice. If a member gives no
address, notice shall be deemed to have
been given him if sent by mail or other
means of written communication
addressed to the place where the
principal office of the insurer is situated,
or if published at least once in some
newspaper of general circulation in the
place in which said office is located.
Notice of any meeting of members shall
be sent to each member entitled thereto
not less than seven days before such
meeting, unless the by-laws provide
otherwise.
Notice of any meeting of members shall
specify the place, the day and the hour of
the meeting and the general nature of
the business to be transacted.
Notice of an annual meeting to be held at
the time and place specified in sub-
paragraph one of this section shall be
sufficiently given if published at least
once in each of four successive weeks in
a newspaper of general circulation in the
place in which the principal office of such
insurer is located, and if so published no
other notice of such meeting shall be
required.
(4) The presence in person or by proxy of
five per centum of the members entitled
to vote at any meeting shall constitute a
quorum for the transaction of business,
unless otherwise provided by the by-laws.
(5) Each such member shall have one
vote at any meeting of members
regardless of the number of policies or
the amount of insurance that such
member holds and regardless of whether
such policies are policies of life insurance,
or of health and accident insurance, or
both. Any member entitled to vote shall
have the right to do so either in person or
by an agent or agents authorized by a
written proxy executed by such person or
his duly authorized agent and filed with
the secretary of such insurer.
(6) The directors of the insurer in office at
the time the insurer is mutualized as
provided in this chapter shall continue in
office until the first annual meeting of
members. At the first annual meeting of
members and at each annual meeting
thereafter directors shall be elected by
the members for the term or terms
authorized by this chapter.
(7) The articles of incorporation or the
bay-laws may provide that the directors
may be divided into two or more classes
whose terms of office shall expire at
different times, but no terms shall
continue longer than six years. In the
absence of such provisions, each director,
except members of the board of directors
at the time the insurer is mutualized,
shall be elected for a term of one year. All
directors shall hold office for a term for
which they are elected and until their
successors are elected and qualified. A
director may, but need not be a member
or policyholder of the insurer of which he
is acting as director. Vacancies in the
board of directors may be filled by a
majority of the remaining directors,
though less than a quorum, and each
director so elected shall hold office until
the next annual meeting.
(8) All insurers mutualized under the
provisions of this chapter shall be subject
to all other applicable provisions of this
Code and of the Corporation Law.
Section 272. The provisions of Commonwealth
Act No. 83, otherwise known as the Securities
Act, as amended, shall not apply to any of the
following:
(a) Shares of the capital stock of such
insurer acquired as provided in section
two hundred sixty-six and assigned and
transferred to the trustees as is provided
in said section, and the assignment and
transfer of said shares as so provided;
(b) Any certificate or other instrument
issued to a policyholder of such
mutualized insurer conferring or
evidencing membership in such
 mutualized insurer or conferring or
evidencing such member's right to
participate in the profits or share in the
assets of such mutualized insurer by the
virtue of his membership therein, and the
issuance of such certificate or other
instrument;
(c) The plan for the acquisition of the
outstanding shares of the capital stock of
such insurer authorized by the provisions
of this chapter, the submission of said
plan to the Commissioner and to the
policyholders of such insurer as provided
in this chapter, and the approval and
carrying out of said plan or any part
thereof in accordance with the provisions
of this chapter.
Title 18
WITHDRAWAL OF FOREIGN INSURANCE
COMPANIES
Section 273. A foreign insurance company doing
business in the Philippines, upon payment of the
fee hereinafter prescribed and surrender to the
Commissioner of its certificate of authority, may
apply to withdraw from the Philippines. Such
application shall be duly executed in writing,
accompanied by evidence of due authority for
such execution, properly acknowledged.
Section 274. The Commissioner shall publish
the application for withdrawal daily for a period of
one week in two newspapers of general
circulation in the City of Manila, one in English
and the other in Pilipino. The expenses of such
publication shall be paid by the insurance
company filing such application.
Section 275. Every foreign insurance company
desiring to withdraw from the Philippines shall,
prior to such withdrawal, discharge its liabilities
to policyholders and creditors in this country. In
case of its policies insuring residents of the
Philippines, it shall cause the primary liabilities
under such policies to be reinsured and assumed
by another insurance company authorized to
transact business in the Philippines. In the case of
such policies as are subject to cancellation by the
withdrawing company, it may cancel such policies
pursuant to the terms thereof in lieu of such
reinsurance and assumption of liabilities.
Section 276. The Commissioner shall make an
examination of the books and records of the
withdrawing company, and if, upon such
examination, the Commissioner finds that the
insurer has no outstanding liabilities to residents
of the Philippines, it shall cancel the withdrawing
company's certificate of authority, if unexpired,
and shall permit the insurer to withdraw. The cost
and expenses of all such examination shall be
paid as prescribed in section four hundred
seventeen.
Section 277. Upon the failure of such
withdrawing insurance company or its agents in
the Philippines to pay the expenses of such
publication within thirty days after the
presentation of the bill therefor, the
Commissioner shall collect such fee from the
deposit furnished in accordance with the
provisions of section one hundred ninety-one.
Section 278. A foreign life insurance company
that withdraws from the Philippines shall be
considered a "servicing insurance company" if its
business transactions are confined to accepting
periodic premium payments from, or granting
policy loans and paying cash surrender values of
outstanding policies to, or reviving lapsed policies
of, Philippine policyholders, and such other
related services.
Section 279. No company shall act as a
servicing insurance company until after it shall
have obtained a special certification of authority
to act as such from the Commissioner upon
application therefor and payment by the
company of the fees hereinafter prescribed. Such
certificate shall expire on the last day of June of
each year and shall be renewed annually, while
the company continues to service its
policyholders, and to comply with all the
applicable provisions of law and regulations.
Title 19
PROFESSIONAL REINSURERS
Section 280. Except as otherwise provided in
this Code, no person, partnership, association or
corporation shall transact any business in the
Philippines as a professional reinsurer until it shall
have obtained a certificate of authority for that
purpose from the Commissioner upon the
application therefor and payment by such person,
partnership, association or corporation of the fees
hereinafter prescribed. As used in this Code, the
term "professional reinsurer" shall mean any
person, partnership, association or corporation
that transacts solely and exclusively reinsurance
business in the Philippines.
The Commissioner may refuse to issue a
certificate of authority to any such person,
partnership, association or corporation if, in his
judgment, such refusal will best promote public
interest. No such certificate of authority shall be
granted to any such person, partnership,
association or corporation unless and until the
Commissioner shall have satisfied himself by
such examination as he may make and such
evidence as he may require that such person,
partnership, association or corporation is
qualified by the laws of the Philippines to transact
business therein as a professional reinsurer.
Before issuing such certificate of authority of the
Commissioner must be satisfied that the name of
the applicant is not that of any other known
company transacting insurance or reinsurance
business in the Philippines, or a name so similar
as to be calculated to mislead the public.
Such certificate of authority shall expire on the
last day of June of each year and shall be
renewed annually if such person, partnership,
association, or corporation is continuing to
comply with provisions of this Code, or the
circulars, instructions, rulings, or decisions of the
Commissioner and such other pertinent law, rules
and regulations.
Every such person, partnership, association, or
corporation receiving such certificate of authority
shall be subject to the provisions of this Code and
other related laws, and to the jurisdiction and
supervision of the Commissioner.
Section 281. Any person, partnership,
association, or corporation authorized to transact
solely reinsurance business must have a paid-up
capital stock of at least ten million pesos, twenty-
five per centum of which must be invested in
securities satisfactory to the Commissioner,
consisting of bonds or other evidences of debt of
the Government of the Philippines or its political
subdivisions or instrumentalities, or of
government-owned or controlled corporations
and entities, including the Central Bank of the
Philippines, and deposited with the
Commissioner, and the remaining seventy-five
per centum in such other securities as may be
allowed and permitted by the Commissioner,
which securities shall at all times be maintained
free from any lien or encumbrance; Provided,
That reinsurers already doing business as such in
the Philippines shall comply with the requirement
of this section by increasing their respective
capital as herein provided not later than
December thirty-one, nineteen hundred eighty;
Provided, Further, That the provisions of this
chapter applicable to insurance companies shall
so far as practicable be likewise applicable to
professional reinsurers. (As amended by
Presidential Decree No. 1455)
Title 20
HOLDING COMPANIES
Section 282. As used in this title, the following
terms shall have the respective meanings
hereinafter set forth unless the context shall
otherwise require:
(a) "Person" means an individual,
partnership, firm, association,
corporation, trust, any similar entity or
any combination of the foregoing acting
in concert;
(b) "Control", including the terms
"controlling", "controlled by" and "under
common control with", means the
possession directly or indirectly of the
power to direct or cause the direction of
the management and policies of a
person, whether through the ownership of
voting securities by a contract other than
a commercial contract for goods or non-
management services or otherwise.
Subject to section two hundred eight-four,
control shall be presumed to exist if any
person directly or indirectly owns,
controls or holds with the power to vote
forty per centum or more of the voting
securities of any other person; Provided,
That no person shall be deemed to
control another person solely by reason of
his being an officer or director of such
other person;
(c) "Holding company" means any person
who directly or indirectly controls any
authorized insurer;
(d) "Controlled insurer" means an
authorized insurer controlled directly or
indirectly by a holding company;
(e) "Controlled person" means any
person, other than a controlled insurer,
who is controlled directly or indirectly by
a holding company;
(f) "Holding company system" means a
holding company together with its
controlled insurers and controlled
persons.
Section 283. Notwithstanding paragraph (b) of
section two hundred eighty-two, the
Commissioner may determine after notice and
opportunity to be heard, that a person exercises
directly or indirectly either alone or pursuant to
an agreement with one or more other persons
such a controlling influence over the
management or policies of an authorized insurer
as to make it necessary or appropriate in the
public interest or for the protection of
policyholders or stockholders of the insurer that
the person be deemed to control the insurer.
Section 284. The Commissioner may determine
upon application that any person, either alone or
pursuant to agreement with one or more other
persons, does not or will not upon the taking of
some proposed action control another person.
The filing of an application hereunder in good
faith by any person shall relieve the applicant
from any obligation or liability imposed by this
title with respect to the subject of the application,
except as contained in section two hundred
ninety-four, until the Commissioner has acted
upon the application. Within thirty days or such
further period as he may prescribe, the
Commissioner may prospectively revoke or
modify his determination, after notice and
opportunity to be heard, whenever in his
judgment revocation or modification is consistent
with his title.

Section 285. Notwithstanding any other
provisions of this title, the following shall not be
deemed holding companies:
(a) authorized insurers or reinsurers or
their subsidiaries;
(b) the Government of the Philippines, or
any political subdivision, agency or
instrumentality thereof, or any
corporation which is wholly owned
directly or indirectly by one or more of
the foregoing.
The Commissioner may conditionally or
unconditionally exempt any specified person or
class of persons from any of the obligations or
liabilities imposed under this title, if and to the
extent he finds the exemption necessary to
appropriate in the public interest or not adverse
to the interests of policyholders or stockholders
and consistent with the purposes of this title.
Section 286. (1) Every person who on the date
this Code takes effect is a controlled insurer and
every person who thereafter becomes a
controlled insurer, shall, within sixty days
thereafter, or within thirty days after becoming a
controlled insurer, whichever is later, register
with the Commissioner. Such registration shall be
amended within thirty days following any change
in the identity of its holding company. The
Commissioner may grant one or more reasonable
extensions of the time to register.
(2) Every registrant shall furnish the
Commissioner with the following
information concerning its holding
company: (a) a copy of its charter or
articles of incorporation and its by-laws,
(b) the identities of its principal
shareholders, officers, directors and
controlled persons, and (c) information as
to its capital structure and financial
condition, and a description of its
principal business activities.
Section 287. Every controlled insurer shall file
with the Commissioner such reports or material
as he may direct for the purpose of disclosing
information concerning the operations of persons
within the holding company system which may
materially affect the operations, management or
financial condition of the insurer.
Section 288. Every holding company and every
controlled person within a holding company
system shall be subject to examination by order
of the Commissioner if he has cause to believe
that the operations of such persons may
materially affect the operations, management or
financial condition of any controlled insurer with
the system and that he is unable to obtain
relevant information from such controlled insurer.
The grounds relied upon by the Commissioner for
such examination shall be stated in his order,
which order shall be subject to judicial review
only at the instance of the person sought to be
examined. Such examination shall be confined to
matters specified in the order. The cost of such
examination shall be assessed against the person
examined and no portion thereof shall thereafter
be reimbursed to it directly or indirectly by the
controlled insurer.
Section 289. The Commissioner shall keep the
contents of each report made pursuant to this
title and any information obtained by him in
connection therewith confidential and shall not
make the same public without the prior written
consent of the controlled insurer to which it
pertains unless the Commissioner after notice
and an opportunity to be heard shall determine
that the interests of policyholders, stockholders
or the public will be served by the publication
thereof. In any action or proceeding by the
Commissioner against the person examined or
any other person within the same holding
company system a report of such examination
published by him shall be admissible as evidence
of the facts stated therein.
Section 290. Transactions within a holding
company system to which a controlled insurer is
a party shall be subject to the following:
(a) The terms shall be fair and equitable;
(b) charges or fees for services performed
shall be reasonable;
(c) expenses incurred and payments
received shall be allocated to the insurer
on an equitable basis in conformity with
customary insurance accounting
practices consistently applied.
The books, accounts and records of each party to
all such transactions shall be maintained as to
clearly and accurately disclose the nature and
details of the transactions including such
accounting information as is necessary to support
the reasonableness of the charges or fees to the
respective parties.
Section 291. The prior written approval of the
Commissioner shall be required for the following
transactions between a controlled insurer and
any person in its holding company system: sales,
purchases, exchanges, loans or extensions of
credit, or investments, involving five per centum
or more of the insurer's admitted assets as of the
thirty-first day of December next preceding.
Section 292. The following transactions between
a controlled insurer and any person in its holding
company system may not be entered into unless
the insurer has notified the Commissioner in
writing of its intention to enter into any such
transaction at least thirty days prior thereto, or
such shorter period as he may permit, and he has
not disapproved it within such period:
 (a) sales, purchases, exchanges, loans or
extensions of credit, or investments,
involving more than one-half of one per
centum but less than five per centum of
the insurer's admitted assets as of the
thirty-first day of December next
preceding;
(b) reinsurance treaties or agreements;
(c) rendering of services on a regular or
systematic basis; or
(c) any material transaction, specified by
regulation, which the Commissioner
determines may adversely affect the
interest of the insurer's policyholders or
stockholders or of the public.
Nothing herein contained shall be deemed to
authorize or permit any transaction which, in the
case of a non-controlled insurer, would be
otherwise contrary to law.
Section 293. The Commissioner, in reviewing
transactions pursuant to sections two hundred
ninety-one and two hundred ninety-two, shall
consider whether the transactions comply with
the standard set forth in section two hundred
ninety and whether they may adversely affect the
interests of policyholders. This section shall not
apply to transactions subject to other sections of
this Code which impose notice or approval
requirements greater than those prescribed by
this title.
Section 294. (1) No person, other than an
authorized insurer, shall acquire control of any
domestic insurer, whether by purchase of its
securities or otherwise, except (a) after twenty
days written notice to its insurer or such shorter
period as the Commissioner may permit, of its
intention to acquire control, and (b) with the prior
written approval of the Commissioner.
(2) The Commissioner shall disapprove
the acquisition of control of a domestic
insurer if he determines, after notice and
an opportunity to be heard, that such
action is reasonably necessary to protect
the interest of the people of this country.
The following shall be the only factors to
be considered by him in reaching the
foregoing determination: (a) the financial
condition of the acquiring person or and
the insurer; (b) the trustworthiness of the
acquiring person or any of its officers or
directors; (c) a plan for the proper and
effective conduct of the insurer's
operations; (d) the source of the funds or
assets for the acquisition; (e) the fairness
of any exchange of stock, assets, cash or
other consideration for the stock or
assets to be received; (f) whether the
effect of the acquisition may be
substantially to lessen competition in any
line of commerce in insurance or to tend
to create a monopoly therein; and (g)
whether the acquisition is likely to be
hazardous or prejudicial to the insurer's
policyholders or stockholders.
(3) The following conditions affecting any
controlled insurer, regardless of when
such control has been acquired, are
violations of this title: (a) the controlling
person or any of its officers or directors
have demonstrated untrustworthiness;
and (b) the effect of retention of control
may be substantially to lessen
competition in any line of commerce in
insurance in this country or to tend to
create a monopoly therein. If, after notice
and an opportunity to be heard, the
Commissioner determines that any of the
foregoing violations exists, he shall
reduce his findings to writing and shall
issue an order based thereon and cause
the same to be served upon the insurer
and upon all persons affected thereby
directing any person found to be in
violation thereof to take appropriate
action to cure such violation. Upon the
failure of any such person to comply with
such order, section two hundred ninety-
eight shall become applicable.
(4) The Commissioner may require the
submission of such information as he
deems necessary to determine whether
any acquisition or retention of control
complies with this title and may require,
as a condition of approval of such
acquisition or retention of control, that all
or any portion of such information be
disclosed to the insurer's stockholders.
(5) Unless subject to registration under
section two hundred eighty-six or unless
acquisition of its control is subject to
paragraphs one and two hereof, every
authorized insurer shall, on or before the
first day of July, nineteen hundred
seventy-five, or within thirty days after
any event requiring notice hereunder,
whichever is later, notify the
Commissioner in writing of the identity of
any person whom the insurer then knows
or has reason to believe controls or has
taken any action, other than preliminary
negotiations or discussion, to acquire
control of the insurer.
Section 295. (1) Notwithstanding the control of
an authorized insurer by any person, the officers
and directors of the insurer shall not thereby be
relieved of any obligation or liability to which they
would otherwise be subject by law, and the
insurer shall be managed so as to assure its
separate operating identity consistent with this
title.
(2) Nothing herein shall preclude an
authorized insurer from having or sharing
a common management or cooperative
or joint use of personnel, property or
 services with one or more other persons
under arrangements meeting the
standards of section two hundred ninety.
Section 296. To the extent that any information
or material is set forth in forms or other matter
on file with any government agency or in a
registration form filed with the Commissioner by
another person within the same holding company
system, the controlled insurer may comply with
the registration or reporting requirements of this
title by referring in its registration form or report
to such other filed matter and attaching a copy
thereof certified by the insurer as a true and
complete copy, to such registration form or report
or, if such other filed matter is on file with the
Commissioner, incorporating such matter by
reference.
Section 297. No holding company or controlled
person shall directly or indirectly or through
another person do or cause to be done for or in
behalf of the controlled insurer any act intended
to affect the insurance operations of the insurer
which, if done by the insurer, would violate any
provision of this Code.
Section 298. In addition to any other penalty
provided by law, the Commissioner may, upon
the willful failure of any person within a holding
company system to comply with this title or any
regulation or order promulgated hereunder:
(a) proceed under title fourteen or title
fifteen, Chapter III, of this Code with
respect to insurer within the holding
company system; or
(b) revoke or refuse to renew the
authority to do business in this country of
an insurer within the holding company
system or refuse to issue such authority
to any other insurer in the system; or
(c) direct that, in addition to any other
penalty provided by law, such person
forfeit to the people of this country a sum
not exceeding five hundred pesos for a
first violation and two thousand five
hundred pesos for any subsequent
violation. An additional sum not
exceeding two thousand five hundred
pesos shall be imposed for each month
during which any such violation shall
continue.
Chapter IV
SALES AGENCIES AND TECHNICAL SERVICES
Title 1
INSURANCE AGENTS AND INSURANCE
BROKERS
Section 299. No insurance company doing
business in the Philippines, nor any agent thereof,
shall pay any commission or other compensation
to any person for services in obtaining insurance,
unless such person shall have first procured from
the Commissioner a license to act as an
insurance agent of such company or as an
insurance broker as hereinafter provided.
No person shall act as an insurance agent or as
an insurance broker in the solicitation or
procurement of applications for insurance, or
receive for services in obtaining insurance, any
commission or other compensation from any
insurance company doing business in the
Philippines, or any agent thereof, without first
procuring a license to act from the Commissioner,
which must be renewed annually on the first day
of January, or within six months thereafter. Such
license shall be issued by the Commissioner only
upon the written application of the person
desiring it, such application if for a license to act
as insurance agent, being approved and
countersigned by the company such person
desires to represent, and shall be upon a form
prescribed by the Commissioner giving such
information as he may require, and upon
payment of the corresponding fee hereinafter
prescribed. The Commissioner shall satisfy
himself as to competence and trustworthiness of
the applicant and shall have the right to refuse to
issue or renew and to suspend or revoke any such
license in his discretion. No such license shall be
valid after the thirtieth day of June of the year
following its issuance unless it is renewed. (As
amended by Presidential Decree No. 1455)
Section 300. Any person who for compensation
solicits or obtains insurance on behalf of any
insurance company or transmits for a person
other than himself an application for a policy or
contract of insurance to or from such company or
offers or assumes to act in the negotiating of
such insurance shall be an insurance agent within
the intent of this section and shall thereby
become liable to all the duties, requirements,
liabilities and penalties to which an insurance
agent is subject.
Section 301. Any person who for any
compensation, commission or other thing of
value acts or aids in any manner in soliciting,
negotiating or procuring the making of any
insurance contract or in placing risk or taking out
insurance, on behalf of an insured other than
himself, shall be an insurance broker within the
intent of this Code, and shall thereby become
liable to all the duties, requirements, liabilities
and penalties to which an insurance broker is
subject.
Section 302. Every applicant for an insurance
broker's license shall file with the application and
shall thereafter maintain in force while so
licensed, a bond in favor of the people of the
Republic of the Philippines executed by a
company authorized to become surety upon
official recognizances, stipulations, bonds and
undertakings. The bond shall be in such amount
as may be fixed by the Commissioner, but in no
case less than one hundred thousand pesos, and
shall be conditioned upon full accounting and due
payment to the person entitled thereto of funds
coming into the broker's possession through
insurance transactions under license. The bond
shall remain in force until released by the
Commissioner, or until cancelled by the surety.
Without prejudice to any liability previously
incurred thereunder, the surety may cancel the
bond on thirty days advance written notice to
both the broker and the Commissioner.
Upon approval of the application, the applicant
must also file two errors and omissions
(professional liability or professional indemnity)
policies issued separately by two insurance
companies authorized to do business in the
Philippines, satisfactory to the Commissioner to
indemnify the applicant against any claim or
claims for breach of duty as insurance broker
which may be made against him by reason of any
negligent act, error or omission, whenever or
wherever committed or alleged to have been
committed, on the part of the applicant or any
person who has been, is now, or may hereafter
during the subsistence of the policies be
employed by the said applicant in his capacity as
insurance broker, provided that the filing of any
claim or claims under one of such policies shall
preclude the filing of the said claim or claims
under the other policy. The said policies shall be
in such amounts as may be prescribed by the
Insurance Commissioner, depending upon the
size or amount of the broking business of the
applicant, but in no case shall the amount of each
of such policies be less than five hundred
thousand pesos. (As amended by Presidential
Decree No. 1455)
Section 303. The Commissioner shall, in order to
determine the competence of every applicant to
have the kind of license applied for, require such
applicant to submit to a written examination and
to pass the same to the satisfaction of the
Commissioner. Such examination shall be held at
such times and places as the Commissioner shall
from time to time determine.
Section 304. An applicant for the written
examination mentioned in the preceding section
must be of good moral character and must not
have been convicted of any crime involving moral
turpitude. He must satisfactorily show to the
Commissioner that he has been trained in the
kind of insurance contemplated in the license
applied for.
Such examination may be waived if it is shown to
the satisfaction of the Commissioner that the
applicant has undergone extensive education
and/or training in insurance.
Section 305. An application for the issuance or
renewal of a license to act as an insurance agent
or insurance broker may be refused, or such
license, if already issued or renewed, shall be
suspended or revoked if the Commissioner finds
that the applicant for, or holder of, such license:
(a) has willfully violated any provision of
this Code; or
(b) has intentionally made a material
misstatement in the application to qualify
for such license; or
(c) has obtained or attempted to obtain a
license by fraud or misrepresentation; or
(d) has been guilty of fraudulent or
dishonest practices; or
(e) has misappropriated or converted to
his own use or illegally withheld moneys
required to be held in a fiduciary
capacity;
(f) has not demonstrated trustworthiness
and competence to transact business as
an insurance agent or insurance broker in
such manner as to safeguard the public;
or
(g) has materially misrepresented the
terms and conditions of policies or
contracts of insurance which he seeks to
sell or has sold; or
(h) has failed to pass the written
examination prescribed, if not otherwise
exempt from taking the same.
In addition to the foregoing causes, no license to
act as insurance agent or insurance broker shall
be renewed if the holder thereof has not been
actively engaged as such agent or broker in
accordance with such rules as the Commissioner
may prescribe. (As amended by Presidential
Decree No. 1814)
Section 306. The premium, or any portion
thereof, which an insurance agent or insurance
broker collects from an insured and which is to be
paid to an insurance company because of the
assumption of liability through the issuance of
policies or contracts of insurance, shall be held by
the agent or broker in a fiduciary capacity and
shall not be misappropriated or converted to his
own use or illegally withheld by the agent or
broker.
Any insurance company which delivers to an
insurance agent or insurance broker a policy or
contract of insurance shall be deemed to have
authorized such agent or broker to receive on its
behalf payment of any premium which is due on
such policy or contract of insurance at the time of
its issuance or delivery or which becomes due
thereon.
Section 307. Any provision of existing laws to
the contrary notwithstanding, no person shall,
within the Philippines, sell or offer for sale a
variable contract or do or perform any act or
thing in the sale, negotiation, making or
consummating of any variable contract other
than for himself unless such person shall have a
valid and current license from the Commissioner
authorizing such person to act as a variable
contract agent. No such license shall be issued
unless and until the Commissioner is satisfied,
after examination that such person is by training,
knowledge, ability and character qualified to act
as such agent. Any such license may be
withdrawn and cancelled by the Commissioner
after notice and hearing, if he shall find that the
holder thereof does not then have the
qualifications required for the issuance of such
license.
Section 308. It shall be unlawful for any person,
company or corporation in the Philippines to act
as general agent of any insurance company
unless he is empowered by a written power of
attorney duly executed by such insurance
company, and registered with the Commissioner
to receive notices, summons and legal processes
for and in behalf of the insurance company
concerned in connection with actions or other
legal proceedings against said insurance
company. It shall be the duty of said general
agent to notify the Commissioner of his post
office address in the Philippines, or any change
thereof. Notices, summons, or processes of any
kind sent by registered mail to the last registered
address of such general agent of the company
concerned or to the Commissioner shall be
sufficient service and deemed as if served on the
insurance company itself.
Section 309. Except as otherwise provided by
law or treaty, it shall be unlawful for any person,
partnership, association or corporation in the
Philippines, for himself or itself, or for some other
person, partnership, association or corporation,
either to procure, receive or forward applications
of insurance in, or to issue or to deliver or accept
policies or contracts of insurance of or for, any
insurance company or companies not authorized
to transact business in the Philippines, covering
risks, life or nonlife, situated in the Philippines;
and any such person, partnership, association or
corporation violating the provisions of this section
shall be deemed guilty of a penal offense, and
upon conviction thereof, shall for each such
offense be punished by a fine of ten thousand
pesos, or imprisonment of six months, or both at
the discretion of the court; Provided, That the
provisions of this section shall not apply to
reinsurance.
Title 2 Section 313. No person shall act as resident
REINSURANCE BROKERS
Section 310. Except as provided in the next
succeeding title, no person shall act as
reinsurance broker in the Philippines unless he is
authorized as such by the Commissioner.
A reinsurance broker is one who, for
compensation, not being a duly authorized agent,
employee or officer of an insurer in which any
reinsurance is effected, act or aids in any manner
in negotiating contracts of reinsurance, or placing
risks of effecting reinsurance, for any insurance
company authorized to do business in the
Philippines.
Section 311. Upon application and payment of
the corresponding fee hereinafter prescribed, and
the filing of two errors and omissions
(professional liability or professional indemnity)
policies hereinafter described, a person may, if
found qualified, be issued a license to act as
reinsurance broker by the Commissioner. No such
license shall be valid after the thirtieth day of
June of the year following its issuance unless it is
renewed. (As amended by Presidential Decree No.
1455)
The errors and omissions (professional liability or
professional indemnity) policies mentioned above
shall indemnify the applicant against any claim or
claims for breach of duty as reinsurance broker
which may be made against him by reason of any
negligent act, error or omission, whenever or
wherever committed or alleged to have been
committed, on the part of the applicant or any
person who has been, is now, or may hereafter
during the subsistence of the policies be
employed by the said applicant in his capacity as
reinsurance broker; Provided, That the filing of
any claim or claims under one of such policies
shall preclude the filing of the said claim or
claims under the other policy. The said policies
shall be issued separately by two insurance
companies authorized to do business in the
Philippines and shall be in such amounts as may
be prescribed by the Insurance Commissioner,
depending upon the size or amount of the
broking business of the applicant, but in no case
shall the amount of each of such policies be less
than five hundred thousand pesos. (As amended
by Presidential Decree No. 1455)
Section 312. The Commissioner may recall,
suspend or revoke the license granted to a
reinsurance broker for violation of any existing
law, rule and regulation, or any provision of this
Code after due notice and hearing.
Title 3
RESIDENT AGENTS
agent, as hereinafter defined, unless he is
registered as such with the Commissioner.
Section 314. The term "resident agent", as used
in this title, is one duly appointed by a foreign
insurer or broker not authorized to do business in
the Philippines to receive in its behalf notices,
summons and legal processes in connection with
actions or other legal proceedings against such
foreign insurer or broker.
Section 315. The application for a certificate of
registration as resident agent filed with the
Commissioner must be accompanied with: (a) a
copy of the power of attorney, duly notarized and
authenticated by the Philippine Consul in the
place where such foreign insurer or broker is
domiciled, empowering the applicant to act as
resident agent and to receive notices, summons
and legal processes for and in behalf of such
foreign insurer or broker in connection with any
action or legal proceeding against such foreign
insurer or broker; and (b) a copy of the
corresponding certificate issued by the Board of
Investments as required under Section 4 of
Republic Act No. 5455, if such foreign insurer or
broker is not otherwise exempt from such
requirement.
Section 316. It shall be the duty of such resident
agent to notify immediately the Commissioner of
any change of his office address.
Section 317. A certificate of registration issued
to a resident agent shall expire on the thirtieth
day of June of the year following its issuance
unless it is renewed.
The Commissioner may, after due notice and
hearing, recall or cancel the certificate of
registration issued to a resident agent for
violation of any existing law, rule or regulation, or
any provision of this Code. (As amended by
Presidential Decree No. 1455).
Title 4 examination for underwriters, shall be barred
NON-LIFE COMPANY UNDERWRITER
Section 318. No person shall act, and no
company shall employ any person, as non-life
company underwriter, whose duty and
responsibility it shall be to select, evaluate and
accept risks for, and to determine the terms and
conditions, including those pertaining to amounts
of retentions, under which such risks are to be
accepted by the company, unless such
underwriter is registered as such with the
Commissioner.
Section 319. Every non-life insurance company
doing business in the Philippines must maintain
at all times a register of risks accepted and a
claims register for each line of risks engaged in
by such non-life insurance company with such
entries therein as are now or as may hereafter be
required by the Commissioner, and it shall be the
responsibility of the underwriter on the particular
line or risk involved to see to it that the said
registers are well maintained and kept, and that
all entries therein are properly and correctly
recorded. Such registers shall be open to
inspection and examination of duly authorized
representative of the Commissioner at all times
during business hours.
Section 320. No person shall be registered with
the Commissioner, unless such person shall be at
least twenty-one years of age on the date of such
registration; a resident of the Philippines; of good
moral character and with no conviction of any
crime involving moral turpitude; has had at the
time such registration is made at least two years
of underwriting work in the particular line or risk
involved; and has passed such qualifying written
examination that the Commissioner shall conduct
at such time and in such place as he may decide
to hold for applicants desiring to act as
underwriters.
Such examination shall not be required of any
person who has served as non-life company
underwriter for a period of at least five years, if
the Commissioner is satisfied of the applicant's
competence as shown by the results of his
underwriting work in the non-life insurance
company or companies that employed him in that
capacity. The minimum underwriting experience
herein required may be reduced or waived if it is
shown to the satisfaction of the Commissioner
that the non-life company underwriter has
undergone extensive education and/or training in
insurance.
Section 321. Any applicant who misrepresents
or omits any material fact in his application for
registration as a non-life company underwriter, or
commits any dishonest act in taking or in
connection with the qualifying written
from being registered as such non-life company
underwriter and, if already registered, his
registration shall be cancelled and the certificate
of registration issued in his favor shall be recalled
immediately by the Commissioner.
In the event that the certificate of authority of a
non-life insurance company to transact business
is suspended or revoked due to business failure
arising largely from the imprudent and injudicious
acceptance of risks by the underwriter
concerned, the registration of such underwriter
shall likewise be cancelled and his certificate of
registration shall be recalled by the
Commissioner, and no similar certificate shall
thereafter be issued in his favor.
Section 322. No certificate of registration issued
to an underwriter shall be valid after the thirtieth
day of June of the year following its issuance
unless it is renewed.
The Commissioner may, after due notice and
hearing, also suspend or cancel such certificate
for violation of existing laws, rules and
regulations or of any provisions of this Code. (As
amended by Presidential Decree No. 1455)
Title 5 at such times, and in such places as he may
ADJUSTERS
Section 323. No person, partnership,
association, or corporation shall act as an
adjuster, as hereinafter defined, unless
authorized so to act by virtue of a license issued
or renewed by the Commissioner pursuant to the
provisions of this Code; Provided, That in the case
of a natural person, he must be a Filipino citizen
and in the case of a partnership, association or
corporation, at least sixty per centum of its
capital must be owned by citizens of the
Philippines.
Section 324. An adjuster may be an
independent adjuster or a public adjuster.
The term "independent adjuster" means any
person, partnership, association or corporation
which, for money, commission or any other thing
of value, acts for or on behalf of an insurer in the
adjusting of claims arising under insurance
contracts or policies issued by such insurer.
The term "public adjuster" means any person,
partnership, association or corporation which, for
money, commission or any other thing of value,
acts on behalf of an insured in negotiating for, or
effecting, the settlement of a claim or claims of
the said insured arising under insurance contracts
or policies, or which advertises for or solicits
employment as an adjuster of such claims.
Section 325. For every line of insurance claim
adjustment, adjusters shall be licensed either as
independent adjusters or as public adjusters. No
adjuster shall act on behalf of an insurer unless
said adjuster is licensed as an independent
adjuster; and no adjuster shall act on behalf of an
insured unless said adjuster is licensed as a
public adjuster: Provided, however, That when a
firm or person has been licensed as public
adjuster, he shall not be granted another license
as independent adjuster and vice versa.
No license, however, shall be required of any
company adjuster who is a salaried employee of
an insurance company for the adjustment of
claims filed under policies issued by such
insurance company.
Section 326. Such license or any renewal
thereof may be issued by the Commissioner upon
written application filed by the person interested
on the form or forms prescribed by the
Commissioner, which shall contain such
information as he may require, and upon
payment of the corresponding fee hereinafter
prescribed.
Section 327. The Commissioner shall conduct,
decide to hold, written examinations to determine
the competence and ability of applicants desiring
to act as adjuster of insurance claims.
Section 328. Every adjuster's license issued
hereunder shall be valid until after the thirtieth
day of June of the year following the issuance of
such license unless it is renewed. (As amended
by Presidential Decree No. 1455)
Section 329. Nothing contained in this title shall
apply to any duly licensed attorney-at-law who
acts or aids in adjusting insurance claims as an
incident to the practice of his profession and who
does not advertise himself as an adjuster.
Section 330. The Commissioner may suspend or
revoke any adjuster's license if, after giving
notice and hearing to the adjuster concerned, the
Commissioner finds that the said adjuster (1) has
violated any provision of this Code and of the
circulars, rulings and instructions of the
Commissioner or has violated any law in the
course of his dealings as an adjuster; or (2) has
made a material misstatement in the application
for such license; or (3) has been guilty of
fraudulent or dishonest practices; or (4) has
demonstrated his incompetence or
untrustworthiness to act as adjuster; or (5) has
made patently unjust valuation of loss; or (6) has
failed to make a report of the adjustment he
proposed within sixty days from the date of the
filing of the claim by the insured with the insurer,
unless prevented so to do by reasons beyond his
control; or has refused to allow an examination
into his affairs or method of doing business as
hereinafter provided.
Section 331. Every adjuster shall submit to the
Commissioner a quarterly report of all losses
which are the subject of adjustment effected by
him during each month in the form prescribed by
the Commissioner. The report shall be filed within
one month after the end of each quarter.
Section 332. Every adjuster shall keep his or its
books, records, reports, accounts, and vouchers
in such manner that the Commissioner or his duly
authorized representatives may readily verify the
quarterly reports of the said adjuster and
ascertain whether the said adjuster has complied
with the provisions of law or regulations
obligatory upon him or whether the method of
doing business of the said adjuster has been fair,
just and honest.
Section 333. The Commissioner shall, at least
once a year and whenever he considers the
public interest so demands, cause an
examination to be made into the affairs and
method of doing business of every adjuster.
Section 334. Any violation of any provision of
this title shall be punished by a fine of not more
than ten thousand pesos, or by imprisonment in
the discretion of the court; Provided, That, in case
of a partnership, association or corporation, the
said penalty shall be imposed upon the partner,
president, manager, managing director, director
or person in charge of its business or responsible
for the violation.
Title
ACTUARIES
Section 335. No life insurance company shall be
licensed to do business in the Philippines nor
shall any life insurance company doing business
in the Philippines be allowed to continue doing
such business unless they shall engage the
services of an actuary duly accredited with the
Commissioner who shall, during his tenure of
office, be directly responsible for the direction
and supervision of all actuarial work connected
with or that may be involved in the business of
the insurance company.
Section 336. Any person may be officially
accredited by the Commissioner to act as any
actuary in any life insurance company or in any
mutual benefit association authorized to do
business in the Philippines upon application
therefor and the payment of the corresponding
fee hereinafter prescribed, Provided that: (1) he is
a fellow of good standing of the Acturial Society
of the Philippines at the time of his appointment
and remains in such good standing during the
tenure of his engagement; or (2) in the case of
one who is not a fellow of the Acturial Society of
the Philippines, he meets all the requirements of
the said Society for accreditation as a fellow of
the Society, and has been given permission by
the pertinent government authorities in the
Philippines to render services in the Philippines,
in the event that he is not a citizen of the
Philippines.
No certificate of registration issued under this
title shall be valid after the thirtieth day of June of
the year following its issuance unless it is
renewed. (As amended by Presidential Decree No.
1455)
Section 337. The following documents, which
are from time to time submitted to the
Commissioner by a life insurance company
authorized to do business in the Philippines, shall
be duly certified by an accredited actuary
employed by such company:
1. Policy reserves and net due and
deferred premiums.
2. Statements of bases and net
premiums, loading for gross premiums,
and on non-forfeiture values and
reserves, when applying for approval of
gross premiums, reserves and non-
forfeiture values.
3. Policies of insurance under any plan
submitted to the Commissioner as
required by law.
4. Annual statements and valuation
reports submitted to the Commissioner as
required by law.
5. Financial projection showing the
probable income and outgo and reserve
6 requirements, enumerating the acturial
assumptions and bases of projections.
6. Valuation of annuity funds or
retirement plans.
Any life insurance company authorized to do
business in the Philippines may employ any
person who is not officially accredited under
either of the qualifications for any kind of acturial
work, provided that he shall not, at any time,
have the authority to certify to the correctness of
the foregoing documents.
Section 338. No accredited actuary shall serve
more than one client or employer at the same
time. However, one already in the employ of an
insurance company may be allowed by the
Commissioner to serve a mutual benefit
association or any other insurance company,
provided the following conditions are first
complied with: (a) that the request to engage his
services by the other employer is in writing; (b)
that his present employer acquiesced to it in
writing; and (c) that he furnishes the
Commissioner with copies of said request and
acquiescence.
Title 7
RATING ORGANIZATION AND RATE MAKING
Section 339. Every organization which now
exists or which may hereafter be formed for the
purpose of making rates to be used by more than
one insurance company authorized to do
business in the Philippines shall be known as a
"rating organization." The term "rate" as used in
this title shall generally mean the ratio of the
premium to the amount insured and shall include,
as the context may require, either the
consideration to be paid or charged for insurance
contracts, including surety bonds, or the
elements and factors forming the basis for the
determination or application of the same, or both.
Section 340. Every rating organization which
now exists or which may hereafter be formed
shall be subject to the provisions of this title.
Section 341. No rating organization hereafter
formed shall commence rate-making operations
until it shall have obtained a license from the
Commissioner. Before obtaining such license,
such rating organization shall file with the
Commissioner a notice of its intention to
commence rate-making operations, a copy of its
constitution, articles of agreement or association,
or of incorporation, and its by-laws, a list of
insurance companies that have agreed to
become members or subscribers, and such other
information concerning such rating organization
and its operations as may be required by the
Commissioner. If the Commissioner finds that the
organization has complied with the provisions of
law and that it has a sufficient number of
members or subscribers and is otherwise
qualified to function as a rating organization, the
Commissioner may issue a license to such rating
organization authorizing it to make rates for the
kinds of insurance or subdivisions thereof as may
be specified in such license. No license issued to
a rating organization shall be valid after the
thirtieth day of June of the year following its
issuance unless it is renewed. No rating
organization which now exists and is not licensed
pursuant to this section shall continue rate-
making operations until it shall have obtained
from the Commissioner a license which he may
issue if satisfied that such organization is
complying with the provisions of this title. Every
rating organization shall notify the Commissioner
promptly of every change in (1) its constitution,
its articles of agreement or association or its
certificate of incorporation, and its by-laws rules
and regulations governing the conduct of its
business, and (2) its list of members and
subscribers.
A "member" means an insurer who participates in
or is entitled to participate in the management of
a rating organization.
A "subscriber" means an insurer which is
furnished at its request with rates and rating
manuals by a rating organization of which it is not
a member. (As amended by Presidential Decree
No. 1455)
Section 342. Each rating organization shall
furnish its rating service without discrimination to
all of its members and subscribers, and shall,
subject to reasonable rules and regulations,
permit any insurance company doing business in
the Philippines, not admitted to membership, to
become a subscriber to its rating services for any
kind of insurance or subdivisions thereof. Notice
of proposed changes in such rules and
regulations shall be given to subscribers. The
reasonableness of any rule or regulation in its
application to subscribers, or the refusal of any
rating organization to admit an insurance
company as a subscriber, shall, at the request of
any subscriber or any such insurance company,
be reviewed by the Commissioner at a hearing
held upon at least ten days' written notice to
such rating organization and to such subscriber
or insurance company. The Commissioner may,
after such hearing, issue an appropriate order.
Section 343. No rating organization or any other
association shall refuse to do business with, or
prohibit or prevent the payment of commissions
to, any person licensed as an insurance broker
pursuant to the provisions of title one of this
chapter.
Section 344. Rating organization shall be
subject to examination by the Commissioner, as
often as he may deem such examination
expedient, pursuant to the provisions of this Code
applicable to the examination of insurance
companies. He shall cause such an examination
of each rating organization to be made at least
once in every five years.
Section 345. The Commissioner may suspend or
revoke the license of any rating organization
which fails to comply with his order within the
time limited by such order, or any extension
thereof which he may grant. The Commissioner
may determine when a suspension of license
shall become effective and it shall remain in
effect for the period fixed by him, unless he
modifies or rescinds such suspension.
Section 346. Any rating organization may
subscribe for or purchase acturial, technical or
other services, and such services shall be
available to all members and subscribers without
discrimination.
Section 347. Any rating organization may
provide for the examination of policies, daily
reports, binders, renewal certificates,
endorsements or other evidences of insurance, or
the cancellation thereof, and may make
reasonable rules governing their submission.
Such rules shall contain a provision that in the
event an insurance company does not within
sixty days furnish satisfactory evidence to the
rating organization of the correction of any error
or omission previously called to its attention by
the rating organization, it shall be the duty of the
rating organization to notify the Commissioner
thereof. All information so submitted for
examination shall be confidential.
Section 348. Cooperation among rating
organizations or among rating organizations and
insurers in rate making or in other matters within
the scope of this title is hereby authorized,
provided the filings resulting from such
cooperation are subject to all provisions of this
title which are applicable to filings generally. The
Commissioner may review such cooperative
activities and practices and if he finds that any
such activity or practice is unfair or unreasonable
or otherwise inconsistent with the provisions of
this title, he may issue a written order specifying
in what respects such activity or practice is unfair
or unreasonable or otherwise inconsistent with
the provisions of this title, and requiring the
discontinuance of such activity or practice.
Section 349. Every rating organization and
every insurance company which makes and files
its own rates, shall make rates for all risks rated
by such organization or insurance company in
accordance with the following provisions:
(a) Basic classification, manual,
minimum, class, or schedule rates or
rating plans, shall be made and adopted
for all such risks. Any departure from
such rates shall be in accordance with
schedules, rating plans and rules filed
with the Commissioner;
(b) Rates shall be reasonable and
adequate for the class of risks to which
they apply;
(c) No rate shall discriminate unfairly
between risks involving essentially the
same hazards and expense elements or
between risks in the application of like
charges and credits;
(d) Consideration shall be given to the
past and prospective loss experience,
including the conflagration and
catastrophe hazards, if any, to all factors
reasonably attributable to the class of
risks, to a reasonable profit, to
commissions paid during the most recent
annual period and to past and
prospective other expenses. In case of
fire insurance rates, consideration shall
be given to the experience of the fire
insurance business during a period of not
less than five years next preceding the
year in which the review is made.
(e) Risk may be grouped by classifications
for the establishment of rates and
minimum premiums. Classification rates
may be modified to produce rates for
individual risks in accordance with rating
plans which establish standards for
measuring variations in hazards or
expense provisions, or both. Such
standards may measure any difference
among risks that can be demonstrated to
have a probable effect upon losses or
expenses.
Section 350. No rating organization and no
insurance company which makes and files its own
rates shall make or promulgate any rate or
schedule of rates which is to be applied to any
fire risk on the condition that the whole amount
of insurance on any risk or any specified part
thereof shall be placed with the members of or
subscribers to such rating organization or with
such insurer.
Section 351. Every insurance company doing
business in the Philippines shall annually file with
the rating organization of which it is a member or
subscriber, or with such other agency as the
Commissioner may designate, a statistical report
showing a classification schedule of its premiums
and losses on all kinds or types of insurance
business to which section three hundred forty-
nine is applicable, and such other information as
the Commissioner may deem necessary or
expedient for the administration of the provisions
of this title.
Section 352. Every non-life rating organization
and every non-life insurance company doing
business in the Philippines shall file with the
Commissioner, except as to risks which by
general custom of the business are not written
according to manual rates or rating plans, every
rate manual, schedule of rates, classification of
risks, rating plan, and every other rating rule and
every modification of any of the foregoing which
it proposes to use. An insurance company may
satisfy its obligation to make such filings for any
kind or type of insurance by becoming a member
of or subscriber to a rating organization which
makes such filings for such kind or type of
insurance, and by authorizing the Commissioner
to accept such filings of the rating organization
on behalf of such insurance company.
Section 353. Every manual or schedule of rates
and every rating plan filed as provided in the
preceding section shall state or clearly indicate
the character and extent of the coverage to
which any such rate or any modification thereof
will be applied.
Section 354. The Commissioner shall review
filings as soon as reasonably possible after they
have been made in order to determine whether
they meet the requirements of this title. When a
filing is not accompanied by the information upon
which the insurance company supports such
filing, and the Commissioner does not have
sufficient information to determine whether such
filing meets the requirements of this title, he shall
require such insurance company to furnish the
information upon which it supports such filing.
The information furnished in support of a filing
may include: (1) the experience or judgment of
the insurance company or rating organization
making the filing, (2) its interpretation of any
statistical data it relies upon, (3) the experience
of other insurance companies or rating
organization, or (4) any other relevant factors.
Section 355. If the Commissioner finds that any
rate filings theretofore filed with him do not
comply with the provisions of this title or that
they provide rates or rules which are inadequate,
excessive, unfairly discriminatory or otherwise
unreasonable, he may order the same withdrawn
and at the expiration of sixty days thereafter the
same shall be deemed no longer on file. Before
making any such finding and order, the
Commissioner shall give notice, not less than ten
days in advance, and a hearing, to the rating
organization, or to the insurer, which filed the
same. Such order shall not affect any contract or
policy made or issued prior to the expiration of
such sixty day period.
Section 356. No member or subscriber of a
rating organization, and no insurance company
doing business in the Philippines, or agent,
employee or other representative of such
company, and no insurance broker shall charge or
demand a rate or receive a premium which
deviates from the rates, rating plans,
classifications, schedules, rules and standards,
made and last filed by a rating organization or by
or on behalf of the insurance company, or shall
issue or make any policy or contract involving
violation of such rate filings.
Section 357. Notwithstanding any other
provisions of this title, upon the written
application of the insurer, stating his reasons
therefor, filed with and approved by the
Commissioner, a rate in excess of that provided
by a filing otherwise applicable may be used on
any specific risk.
Section 358. Whenever the Commissioner shall
determine, after notice and a hearing, that the
rates charged or filed on any class of risks are
excessive, discriminatory, inadequate or
unreasonable, he shall order that such rates be
appropriately adjusted. For the purpose of
applying the provisions of this section, the
Commissioner may from time to time approve
reasonable classifications of risks for any or all
such classes, having due regard to the past and
prospective loss experience, including
conflagration or catastrophe hazards, if any, to all
other relevant factors and to a reasonable profit.
Section 359. Nothing contained in this title shall
be construed as requiring any insurer to become
a member of or subscriber to any rating
organization.
Section 360. Agreements may be made among
insurance companies with respect to the
equitable apportionment among them of
insurance which may be afforded applicants who
are in good faith entitled to but are unable to
procure such insurance through ordinary methods
and such insurance companies may agree among
themselves on the use of reasonable rates and
modifications for such insurance, such
agreements and rate modifications to be subject
to the approval of the Commissioner; Provided,
however, That the provisions of this section shall
not be deemed to apply to workmen's
compensation insurance.
Section 361. No insurance company doing
business in the Philippines or any agent thereof,
no insurance broker, and no employee or other
representative of any such insurance company,
agent, or broker, shall make, procure or negotiate
any contract of insurance or agreement as to
policy contract, other than is plainly expressed in
the policy or other written contract issued or to
be issued as evidence thereof, or shall directly or
indirectly, by giving or sharing a commission or in
any manner whatsoever, pay or allow or offer to
pay or allow to the insured or to any employee of
such insured, either as an inducement to the
making of such insurance or after such insurance
has been effected, any rebate from the premium
which is specified in the policy, or any special
favor or advantage in the dividends or other
benefits to accrue thereon, or shall give or offer
to give any valuable consideration or inducement
of any kind, directly or indirectly, which is not
specified in such policy or contract of insurance;
nor shall any such company, or any agent
thereof, as to any policy or contract of insurance
issued, make any discrimination against any
Filipino in the sense that he is given less
advantageous rates, dividends or other policy
conditions or privileges than are accorded to
other nationals because of his race.
Section 362. No insurance company doing
business in the Philippines, and no officer,
director, or agent thereof, and no insurance
broker or any other person, partnership or
corporation shall issue or circulate or cause or
permit to be issued or circulated any literature,
illustration, circular or statement of any sort
misrepresenting the terms of any policy issued by
any insurance company of the benefits or
advantages promised thereby, or any misleading
estimate of the dividends or share of surplus to
be received thereon, or shall use any name or
title of any policy or class of policies
misrepresenting the true nature thereof; nor shall
any such company or agent thereof, or any other
person, partnership or corporation make any
misleading representation or incomplete
comparison of policies to any person insured in
such company for the purpose of inducing or
tending to induce such person to lapse, forfeit, or
surrender his said insurance.
Section 363. If the Commissioner, after notice
and hearing, finds that any insurance company,
rating organization, agent, broker or other person
has violated any of the provisions of this title, it
shall order the payment of a fine not to exceed
five hundred pesos for each such offense, and
shall immediately revoke the license issued to
such insurance company, rating organization,
agent, or broker. The issuance, procurement or
negotiation of a single policy or contract of
insurance shall be deemed a separate offense.
Title 8 Security Fund, Life or Non-Life Account, as the
PROVISION COMMON TO AGENTS, BROKERS,
AND ADJUSTERS
Section 364. A license issued to a partnership,
association or corporation to act as an insurance
agent, general agent, insurance broker,
reinsurance broker, or adjuster shall authorize
only the individual named in the license who shall
qualify therefor as though an individual licensee.
The Commissioner shall charge, and the licensee
shall pay, a full additional license fee as to each
respective individual so named in such license in
excess of one.
Licenses and certificates of registration issued
under the provisions of this chapter may be
renewed by the filing of notices of intention on
forms to be prescribed by the Commissioner and
payment of the fees therefor. (As amended by
Presidential Decree No. 1455)
Chapter V
SECURITY FUND
Section 365. There is hereby created a fund to
be known as the "Security Fund" which shall be
used in the payment of allowed claims against an
insurance company authorized to transact
business in the Philippines remaining unpaid by
reason of the solvency of such company. The said
Fund may also be used to reinsure the policy of
the insolvent insurer in any solvent insurer
authorized to do business in the Philippines as
provided in section two hundred forty-nine. In the
event of national emergency or calamity, the
Fund may likewise be used to pay insured claims
which otherwise would not be compensable
under the provisions of the policy. No payment
from the Security Fund shall, however, be made
to any person who owns or controls ten per
centum or more of the voting shares of stock of
the insolvent insurer and no payment on any one
claim shall exceed twenty thousand pesos.
Section 366. Such Fund shall consist of all
payments made to the Fund by insurance
companies authorized to do business in the
Philippines. Payments made by life insurance
companies shall be treated separately from those
made by non-life insurance companies and the
corresponding fund shall be called "Life Account"
and "Non-Life Account", respectively, and shall be
held and administered as such by the
Commissioner in accordance with the provisions
of this title. The "Life Account" shall be utilized
exclusively for disbursements that refer to life
insurance companies, while the "Non-Life
Account" shall be utilized exclusively for
disbursements that refer to non-life insurance
companies.
Section 367. All insurance companies doing
business in the Philippines shall contribute to the
case may be, on or before the fifteenth day of
June, nineteen hundred and seventy-five, the
aggregate amount of five million pesos for each
Account. The contributions of the life insurance
companies and of the non-life insurance
companies shall be in direct proportion to the
ratio between a particular life insurance company
or a particular non-life insurance company's net
worth and the aggregate net worth of all life
insurance companies or all non-life insurance
companies, as the case may be, as shown in their
latest financial statements approved by the
Commissioner. This proportion applied to the five
million pesos shall be the contribution of a
particular company to the corresponding Account
of the Security Fund.
The amount of five million pesos in each Account
shall be in the form of a revolving trust fund. The
respective contributions of the companies shall
remain as admitted assets in their books and any
disbursement therefrom shall be deducted
proportionately from the contributions of each
company which will be allowed as deductions for
income tax purposes. Any earnings of the Fund
shall be turned over to the contributing
companies in proportion to their contributions.
In the case of disbursements of funds from the
Fund as provided in the foregoing paragraph, the
life and non-life companies, as the case may be,
shall replenish the amount disbursed in direct
proportion to the individual company's net worth
and the aggregate net worth of the life or non-life
companies, as the case may be. However, in no
case shall the Fund exceed the aggregate amount
of ten million pesos, or five million pesos for each
Account.
Should the Fund, Life of Non-Life Account, as the
case may be, be inadequate for a disbursement
as provided for, then the Life or Non-Life
companies, as the case may be, shall contribute
to the Fund their respective shares in the
proportion previously mentioned.
Section 368. The Commissioner may adopt,
amend, and enforce all reasonable rules and
regulations necessary for the proper
administration of the Fund and of the Accounts. In
the event any insurer shall fail to make any
payment required by this title, or that any
payment made is incorrect, he shall have full
authority to examine all the books and records of
the insurer for the purpose of ascertaining the
facts and shall determine the correct amount to
be paid and may proceed in any court of
competent jurisdiction to recover for the benefit
of the Fund or of the Account concerned any sum
shown to be due upon such examination and
determination. Any insurer which fails to make
any payment to the Fund or to the Account
concerned when due, shall thereby forfeit to said
Fund or Account concerned a penalty of five per
centum of the amount determined to be due as
provided by this title, plus one per centum of
such amount for each month of delay or fraction
thereof, after the expiration of the first month of
such delay, but the Commissioner, if satisfied
that the delay was excusable, may remit all or
any part of such penalty. The Commissioner, in
his discretion, may suspend or revoke the
certificate of authority to do business in the
Philippines of any insurance company which shall
fail to comply with this title or to pay any penalty
imposed in accordance therewith.
Section 369. The Accounts created by this title
shall be separate and apart from each other and
from any other fund. The Treasurer of the
Philippines shall be the custodian of the Life
Account and Non-Life Account of the Security
Fund; and all disbursements from any Account
shall be made by the Treasurer of the Philippines
upon vouchers signed by the Commissioner or his
deputy, as hereinafter provided. The moneys of
said Account may be invested by the
Commissioner only in bonds or other evidences of
debt of the government of the Philippines or its
political subdivisions or instrumentalities. The
Commissioner may sell any of the securities in
which an Account is in vested, if advisable, for its
proper administration or in the best interest of
such Account.
Section 370. Payments from either the Life
Insurance Account or Non-Life Account, as the
case may be, shall be made by the Treasurer of
the Philippines to the Commissioner, upon the
authority of appropriate certificate filed with him
by the Commissioner acting in such capacity.
Section 371. The Commissioner may, in his
discretion, designate or appoint a duly authorized
representative or representatives to appear and
defend before any court or other body or official
having jurisdiction any or all actions or
proceedings against principals or assureds on
insurance policies or contracts issued to them
where the insurer has become insolvent or unable
to meet its insurance obligations. The
Commissioner shall have, as of the date of
insolvency of such insurer or as of the date of its
inability meet its insurance obligations, only the
rights which such insurer would have had if it had
not become insolvent or unable to meet its
insurance obligations. For the purpose of this title
the Commissioner shall have power to employ
such counsel, clerks and assistants as he may
deem necessary.
Section 372. The expense of administering an
Account shall be paid out of the Account
concerned. The Commissioner shall serve as
administrator of the Fund and of the Accounts
without additional compensation, but may be
allowed and paid from the Account concerned
expenses incurred in the performance of his
duties in connection with said Account. The
compensation of those persons employed
payable from the Account concerned. The
Commissioner shall include in his annual report to
the Secretary of Finance a statement of the
expenses of administration of the Fund and of the
Life Account and Non-Life Account for the
preceding year.
Chapter VI
COMPULSORY MOTOR VEHICLE LIABILITY
INSURANCE
Section 373. For purposes of this chapter:
(a) "Motor Vehicle" is any vehicle as
defined in section three, paragraph (a) of
Republic Act Numbered Four Thousand
One Hundred Thirty-Six, Otherwise known
as the "Land Transportation and Traffic
Code."
(b) "Passenger" is any fare paying person
being transported and conveyed in and
by a motor vehicle for transportation of
passengers for compensation, including
persons expressly authorized by law or by
the vehicle's operator or his agents to
ride without fare.
(c) "Third-Party" is any person other than
a passenger as defined in this section and
shall also exclude a member of the
household, or a member of the family
within the second degree of
consanguinity or affinity, of a motor
vehicle owner or land transportation
operator, as likewise defined herein, or
his employee in respect of death, bodily
injury, or damage to property arising out
of and in the course of employment. (As
amended by Presidential Decree No. 1814
and 1981)
(d) "Owner" or "Motor vehicle owner"
means the actual legal owner of a motor
vehicle, in whose name such vehicle is
duly registered with the Land
Transportation Commission;
(e) "Land transportation operator" means
the owner or owners of motor vehicles for
transportation of passengers for
compensation, including school buses;
(f) "Insurance policy" or "Policy" refers to
a contract of insurance against passenger
and thirty-party liability for death or
bodily injuries and damaged to property
arising from motor vehicle accidents. (As
amended by Presidential Decree No. 1455
and 1814)
Section 374. It shall be unlawful for any land
transportation operator or owner of a motor
vehicle to operate the same in the public
highways unless there is in force in relation
thereto a policy of insurance or guaranty in cash
or surety bond issued in accordance with the
provisions of this chapter to indemnify the death,
bodily injury, and/or damage to property of a
third-party or passenger, as the case may be,
arising from the use thereof. (As amended by
Presidential Decree No. 1455 and 1814)
Section 375. The Commissioner shall furnish the
Land Transportation Commissioner with a list of
insurance companies authorized to issue the
policy of insurance or surety bond required by
this chapter. (As amended by Presidential Decree
No. 1814)
Section 376. The Land Transportation
Commission shall not allow the registration or
renewal of registration of any motor vehicle
without first requiring from the land
transportation operator or motor vehicle owner
concerned the presentation and filing of a
substantiating documentation in a form approved
by the Commissioner evidencing that the policy
of insurance or guaranty in cash or surety bond
required by this chapter is in effect. (As amended
by Presidential Decree No. 1455)
Section 377. Every land transportation operator
and every owner of a motor vehicle shall, before
applying for the registration or renewal of
registration of any motor vehicle, at his option,
either secure an insurance policy or surety bond
issued by any insurance company authorized by
the Commissioner or make a cash deposit in such
amount as herein required as limit of liability for
purposes specified in section three hundred
seventy-four.
(1) In the case of a land transportation
operator the insurance guaranty in cash
or surety bond shall cover liability for
death or bodily injuries of third-parties
and/or passengers arising out of the use
of such vehicle in the amount not less
than twelve thousand pesos per
passenger or third party and an amount,
for each of such categories, in any one
accident of not less than that set forth in
the following scale
(a) Motor vehicles with an
authorized capacity of twenty-six
or more passengers: Fifty
thousand pesos;
(b) Motor vehicles with an
authorized capacity of from
twelve to twenty-five passengers:
Forty thousand pesos;
(c) Motor vehicles with an
authorized capacity of from six to
eleven passengers: Thirty
thousand pesos;
(d) Motor vehicles with an
authorized capacity of five or less
passengers: Five thousand pesos
multiplied by the authorized
capacity.
Provided, however, That such cash
deposit made to, or surety bond posted
with, the Commissioner shall be resorted
to by him in cases of accidents the
indemnities for which to third-parties
and/or passengers are not settled
accordingly by the land transportation
operator and, in that event, the said cash
deposit shall be replenished or such
surety bond shall be restored with sixty
days after impairment or expiry, as the
case may be, by such land transportation
operator, otherwise, he shall secure the
insurance policy required by this chapter.
The aforesaid cash deposit may be
invested by the Commissioner in readily
marketable government bonds and/or
securities.
(2) In the case of an owner of a motor
vehicle, the insurance or guaranty in cash
or surety bond shall cover liability for
death or injury to third parties in an
amount not less than that set forth in the
following scale in any one accident:
The Commissioner may, if warranted, set forth
schedule of indemnities for the payment of claims
for death or bodily injuries with the coverages set
forth herein. (As amended by Presidential Decree
No. 1455 and 1814)
Section 378. Any claim for death or injury to any
passenger or third party pursuant to the
provisions of this chapter shall be paid without
the necessity of proving fault or negligence of
any kind; Provided, That for purposes of this
section
(i) The total indemnity in respect of any
person shall not exceed five thousand
pesos;
(ii) The following proofs of loss, when
submitted under oath, shall be sufficient
evidence to substantiate the claim:
(a) Police report of accident and
(b) Death certificate and evidence
sufficient to establish the proper
payee or
(c) Medical report and evidence of
medical or hospital disbursement
in respect of which refund is
claimed;
(iii) Claim may be made against one
motor vehicle only. In the case of an
occupant of a vehicle, claim shall lie
against the insurer of the vehicle in which
the occupant is riding, mounting or
dismounting from. In any other case,
claim shall lie against the insurer of the
directly offending vehicle. In all cases, the
right of the party paying the claim to
recover against the owner of the vehicle
responsible for the accident shall be
maintained.
Section 379. No land transportation operator or
owner of motor vehicle shall be unreasonably
denied the policy of insurance or surety bond
required by this chapter by the insurance
companies authorized to issue the same,
otherwise, the Land Transportation Commission
shall require from said land transportation
operator or owner of the vehicle, in lieu of a
policy of insurance or surety bond, a certificate
that a cash deposit has been made with the
Commissioner in such amount required as limits
of indemnity in section three hundred seventy-
seven to answer for the passenger and/or third-
party liability of such land transportation operator
or owner of the vehicle.
No insurance company may issue the policy of
insurance or surety bond required under this
chapter unless so authorized under existing laws.
The authority to engage in the casualty and/or
surety lines of business of an insurance company
that refuses to issue or renew, without just cause,
the insurance policy or surety bond therein
required shall be withdrawn immediately. (As
amended by Presidential Decree No. 1455 and
1814)
Section 380. No cancellation of the policy shall
be valid unless written notice thereof is given to
the land transportation operator or owner of the
vehicle and to the Land Transportation
Commission at least fifteen days prior to the
intended effective date thereof.
Upon receipt of such notice, the Land
Transportation Commission, unless it receives
evidence of a new valid insurance or guaranty in
cash or surety bond as prescribed in this chapter,
or an endorsement of revival of the cancelled
one, shall order the immediate confiscation of the
plates of the motor vehicle covered by such
cancelled policy. The same may be re-issued only
upon presentation of a new insurance policy or
that a guaranty in cash or surety band has been
made or posted with the Commissioner and
which meets the requirements of this chapter, or
an endorsement or revival of the cancelled one.
(As amended by Presidential Decree No. 1455)
Section 381. If the cancellation of the policy or
surety bond is contemplated by the land
transportation operator or owner of the vehicle,
he shall, before the policy or surety bond ceases
to be effective, secure a similar policy of
insurance or surety bond to replace the policy or
surety bond to be cancelled or make a cash
deposit in sufficient amount with the
Commissioner and without any gap, file the
required documentation with the Land
Transportation Commission, and notify the
insurance company concerned of the cancellation
of its policy or surety bond. (As amended by
Presidential Decree No. 1455)
Section 382. In case of change of ownership of a
motor vehicle, or change of the engine of an
insured vehicle, there shall be no need of issuing
a new policy until the next date of registration or
renewal of registration of such vehicle, and
provided that the insurance company shall agree
to continue the policy, such change of ownership
or such change of the engine shall be indicated in
a corresponding endorsement by the insurance
company concerned, and a signed duplicate of
such endorsement shall, within a reasonable
time, be filed with the Land Transportation
Commission.
Section 383. In the settlement and payment of
claims, the indemnity shall not be availed of by
any accident victim or claimant as an instrument
of enrichment by reason of an accident, but as an
assistance or restitution insofar as can fairly be
ascertained.
Section 384. Any person having any claim upon
the policy issued pursuant to this chapter shall,
without any unnecessary delay, present to the
insurance company concerned a written notice of
claim setting forth the amount of his loss, and/or
the nature, extent and duration of the injuries
sustained as certified by a duly licensed
physician. Notice of claim must be filed within six
months from date of the accident, otherwise, the
claim shall be deemed waived. Action or suit for
recovery of damage due to loss or injury must be
brought, in proper cases, with the Commissioner
or the Courts within one year from date of
accident, otherwise, the claimant's right of action
shall prescribe. (As amended by Presidential
Decree 1814)
Section 385. The insurance company concerned
shall forthwith ascertain the truth and extent of
the claim and make payment within five working
days after reaching an agreement. If no
agreement is reached, the insurance company
shall pay only the "no-fault" indemnity provided
in section three hundred seventy-eight without
prejudice to the claimant from pursuing his claim
further, in which case, he shall not be required or
compelled by the insurance company to execute
any quit claim or document releasing it from
liability under the policy of insurance or surety
bond issued. (As amended by Presidential Decree
No. 1455)
In case of any dispute in the enforcement of the
provisions of any policy issued pursuant to this
chapter, the adjudication of such dispute shall be
within the original and exclusive jurisdiction of
the Commissioner, subject to the limitations
provided in section four hundred sixteen.
Section 386. It shall be unlawful for a land
transportation operator or owner of motor vehicle
to require his or its drivers or other employees to
contribute in the payment of premiums.
Section 387. No government office or agency
having the duty of implementing the provisions of
this chapter nor any official or employee thereof
shall act as agent in procuring the insurance
policy or surety bond provided for herein. The
commission of an agent procuring the said policy
or bond shall in no case exceed ten per centum of
the amount of the premiums therefor.
Section 388. Any land transportation operator or
owner of motor vehicle or any other person
violating any of the provisions of the preceding
sections shall be punished by a fine of not less
than five hundred pesos but not more than one
thousand pesos and/or imprisonment for not
more than six months. The violation of section
three hundred seventy-seven by a land
transportation operator shall be a sufficient cause
for the revocation of the certificate of public
convenience issued by the Board of
Transportation covering the vehicle concerned.
Section 389. Whenever any violation of the
provisions of this chapter is committed by a
corporation or association, or by a government
office or entity, the executive officer or officers of
said corporation, association or government
office or entity who shall have knowingly
permitted, or failed to prevent, said violation shall
be held liable as principals.
Chapter VII
MUTUAL BENEFIT ASSOCIATIONS AND
TRUSTS FOR CHARITABLE USES
Title 1
MUTUAL BENEFIT ASSOCIATIONS
Section 390. Any society, association or
corporation, without capital stock, formed or
organized not for profit but mainly for the
purpose of paying sick benefits to members, or of
furnishing financial support to members while out
of employment, or of paying to relatives of
deceased members of fixed or any sum of
money, irrespective of whether such aim or
purpose is carried out by means of fixed dues or
assessments collected regularly from the
members, or of providing, by the issuance of
certificates of insurance, payment of its members
of accident or life insurance benefits out of such
fixed and regular dues or assessments, but in no
case shall include any society, association, or
corporation with such mutual benefit features
and which shall be carried out purely from
voluntary contributions collected not regularly
and or no fixed amount from whomsoever may
contribute, shall be known as a mutual benefit
association within the intent of this Code.
Any society, association, or corporation
principally organized as labor union shall be
governed by the Labor Code notwithstanding any
mutual benefit feature provisions in its charter as
incident to its organization.
In no case shall a mutual benefit association be
organized and authorized to transact business as
a charitable or benevolent organization, and
whenever it has this feature as incident to its
existence, the corresponding charter provision
shall be revised to conform with the provision of
this section. Mutual benefit association, already
licensed to transact business as such on the date
this Code becomes effective, having charitable or
benevolent feature shall abandon such incidental
purpose upon effectivity of this Code if they
desire to continue operating as such mutual
benefit associations. (As amended by Presidential
Decree No. 1455)
Section 391. A mutual benefit association,
before it may transact as such, must first secure
a license from the Commissioner. The application
for such license shall be filed with the
Commissioner together with certified true copies
of the articles of incorporation or the constitution
and by-laws of the association, and all
amendments thereto, and such other documents
or testimonies as the Commissioner may require.
No license shall be granted to a mutual benefit
association until the Commissioner shall have
been satisfied by such examination as may make
and such evidence as he may require that the
association is qualified under existing laws to
operate and transact business as such. The
Commissioner may refuse to issue a license to
any mutual benefit association if, in his judgment,
such refusal will best promote the interest of the
members of such association and of the people of
this country. Any license issued shall expire on
the last day of June of the year following its
issuance and, upon proper application, may be
renewed if the association is continuing to comply
with existing laws, rules and regulations, orders,
instructions, rulings and decisions of the
Commissioner. Every association receiving any
such license shall be subject to the supervision of
the Commissioner; Provided, That no such license
shall be granted to any such association if such
association has no actuary.
All mutual benefit association existing and
licensed as such under the provisions of Article
Eight, Chapter Forty-One of the Revised
Administrative Code, as amended by Act No.
3612, shall, upon effectivity of this Code,
surrender their respective licenses to the
Commissioner and apply for new licenses under
the provisions of this code if they still desire to
continue operating as such mutual benefit
associations.
Section 392. No mutual benefit association shall
be issued a license to operate as such unless it
has constituted and established a Guaranty Fund
by depositing with the Commissioner an initial
minimum amount of ten thousand pesos in cash,
or in government securities with a total value
equal to such amount, to answer for any valid
benefit claim of any of its members.
All moneys received by the Commissioner for this
purpose must be deposited by him in interest-
bearing deposits with any bank or banks
authorized to transact business in the Philippines
for the account of the particular association
constituting the Guaranty Fund.
Any accrual to such fund, be it interest earned or
dividend additions on moneys or securities so
deposited, may, with the prior approval of the
Commissioner, be withdrawn by the association if
there is no pending benefit claim against it,
including interest thereon or dividend additions
thereto.
The Commissioner, prior to or after licensing a
mutual benefit association, may require such
association to increase its Guaranty Fund from
the initial minimum amount required to an
amount equal to at least ten per centum of its
assets, if such assets exceed one hundred
thousand pesos, but in no case shall such
increase exceed the maximum amount of capital
investment required of a domestic insurance
company under section two hundred and three of
this Code. (As amended by Presidential Decree
No. 1455)
Section 393. Every mutual benefit association
licensed to do business as such shall issue
membership certificates to its members
specifying the benefits to which such members
are entitled.
Such certificates, together with the articles of
incorporation of the association or its constitution
and by-laws, and all existing laws as may be
pertinent shall constitute the agreement, as of
the date of its issuance, between the association
and the member.
The membership certificate shall be in a form
previously approved by the Commissioner.
Section 394. A mutual benefit association may,
by reinsurance agreement, cede in whole or in
part any individual risk or risks under certificates
of insurance issued by it, only to a life insurance
company authorized to transact business or to a
professional reinsurer authorized to accept life
risks in the Philippines; Provided, That copy of the
draft of such reinsurance agreement shall be
submitted to the Commissioner for his approval.
The association may take credit for the reserves
on such ceded risks to the extent reinsured.
Section 395. The constitution or by-laws of a
mutual benefit association must distinctly state
the purpose for which dues and/or assessments
are made and collected and the portion thereof
which may be used for expenses.
Death benefit and other relief funds shall be
created and used exclusively for paying benefits
due the members under their respective
membership certificates. A general fund shall
likewise be created and used for expenses of
administration of the association.
Section 396. Every outstanding membership
certificate must have, after three full years of
being continuously in force, an equity value
equivalent to at least fifty per centum of the total
membership dues collected thereon.
Section 397. Every mutual benefit association
must accumulate and maintain, out of the
periodic dues collected from its members,
sufficient reserves for the payment of claims or
obligations for which it shall hold funds in
securities satisfactory to the Commissioner
consisting of bonds of the Government of the
Philippines, or any of its political subdivisions and
instrumentalities, or in such other good securities
as may be approved by the Commissioner.
The reserve liability shall be established in
accordance with acturial procedures and shall be
approved by the Commissioner.
The articles of incorporation or the constitution
and by-laws of a mutual benefit association must
provide that if its reserve as to all or any class of
certificates becomes impaired, its board of
directors or trustees may require that there shall
be paid by the members to the association the
amount of the members' equitable proportion of
such deficiency as ascertained by said board and
that if the payment be not made it shall stand as
an indebtedness against the membership
certificates of the defaulting members and draw
interest not to exceed five per centum per annum
compounded annually.
Section 398. A mutual benefit association may
invest such portion of its funds as shall not be
required to meet pending claims and other
obligations in any of the classes of investments or
types of securities in which life insurance
companies doing business in the Philippines may
invest.
It may also grant loans to members on the
security of a pledge or chattel mortgage of
personal properties of the borrowers, or in the
absence thereof, on the security of the
membership certificate of the borrowing
members, in which event such loan shall become
a first lien on the proceed thereof.
Section 399. The Commissioner or any of his
duly designated representatives, shall have the
power of visitation, audit and examination into
the affairs, financial condition, and methods of
doing business of all mutual benefit associations,
and he shall cause such examination to be made
at least once every two years or whenever it may
be deemed proper and necessary. Free access to
the books, records and documents of the
association shall be accorded to the
Commissioner, to his representatives, in such
manner that the Commissioner or his
representatives may readily verify or determine
the true affairs, financial condition, and method
of doing business of such association. In the
course of such examination, the Commissioner or
his duly designated representatives shall have
authority to administer oaths and take testimony
or other evidence on any matter relating to the
affairs of the association.
All minutes of the proceedings of the board of
directors or trustees of the association, and those
of the regular or special meetings of the
members, shall be take, and a copy thereof, in
English or in Pilipino, shall be submitted to the
Commissioner's representatives or examiners in
the course of such examination.
A copy of the findings of such examination,
together with the recommendations of the
Commissioner, shall be furnished the association
for its information and compliance, and the same
shall be taken up immediately in the meetings of
the board of directors or trustees and of the
members of the association.
Section 400. Every mutual benefit association
shall, annually on or before the thirtieth day of
April of each year, render to the Commissioner an
annual statement in such form and details as
may be prescribed by the Commissioner, signed
and sworn to by the president, secretary,
treasurer, and actuary of the association, showing
the exact condition of its affairs on the preceding
thirty-first day of December.
Section 401. No money, aid or benefit to be
paid, provided or tendered by any mutual benefit
association, shall be liable to attachment,
garnishment, or other process, or be seized,
taken, appropriated, or applied by any legal or
equitable process to pay any debt of liability of a
member or beneficiary, or any other person who
may have a right thereunder, either before or
after payment.
Section 402. Any member of a mutual benefit
association shall have the right at all times to
change the beneficiary or beneficiaries or add
another beneficiary or other beneficiaries in
accordance with the rules and regulations of the
association unless he has expressly waived this
right in the membership certificate. Every
association may, under such rules as it may
adopt, limit the scope of beneficiaries and
provide that no beneficiary shall have or obtain
any vested interest in the proceeds of any
certificate until the certificate has become due
and payable under the terms of the membership
certificate.
Section 403. Any chapter affiliate independently
licensed as a mutual benefit association may
consolidate or merge with any other similar
chapter affiliate or with the mother association.
Section 404. Any mutual benefit association
may be converted into and licensed as a mutual
life insurance company by complying with the
requirements of the pertinent provisions of this
Code and submitting the specific plan for such
conversion to the Commissioner for his approval.
Such plan, as approved, shall then be submitted
to the members either in the regular meeting or
in a special meeting called for the purpose for
their adoption. The affirmative vote of at least
two-thirds of all the members shall be necessary
in order to consider such plan as adopted.
No such conversion shall take effect unless and
until approved by the Commissioner.
Section 405. No mutual benefit association shall
be dissolved without first notifying the
Commissioner and furnishing him with a certified
copy of the resolution authorizing the dissolution,
duly adopted by the affirmative vote of two-thirds
of the members at a meeting called for that
purpose, the financial statements as of the date
of the resolution, and such other papers or
documents as may be required by the
Commissioner.
No dissolution shall proceed until and unless
approved by the Commissioner and all
proceedings in connection therewith shall be
witnessed and attested by his duly designated
representative.
No mutual benefit association shall be officially
declared as dissolved until after the
Commissioner so certifies that all outstanding
claims against the association have been duly
settled and liquidated.
Section 406. The Commissioner shall after
notice and hearing, have the power either to
suspend or revoke the licensed issued to a
mutual benefit association if he finds that the
association has:
(a) failed to comply with any provision of
this Code;
 (b) failed to comply with any other law or
regulation obligatory upon it;
(c) failed to comply with any order, ruling,
instruction, requirement, or
recommendation of the Commissioner;
(d) exceeded its power to the prejudice of
its members;
(e) conducted its business fraudulently or
hazardously;
(f) rendered its affairs and condition to
one of insolvency; or
(g) failed to carry out its aims and
purposes for which it was organized due
to any cause.
After receipt of the order from the Commissioner
suspending or revoking the license, the
association must immediately exert efforts to
remove such cause or causes which brought
about the order, and, upon proper showing, may
apply with the Commissioner for the lifting of the
order and restoration or revival of the license so
revoked or suspended.
Section 407. For failure to remove such cause or
causes which brought about the suspension or
revocation of the license of a mutual benefit
association, the Commissioner shall apply under
this Code for an order from the proper court to
liquidate such association.
The provisions of titles fourteen and fifteen,
chapter three, pertaining to the appointment of a
conservator and proceedings upon insolvency of
an insurance company, shall, insofar as
practicable, apply to mutual benefit associations.
Section 408. To secure the enforcement of any
provision under this title, the Commissioner may
issue such rules, rulings, instructions, orders and
circulars, subject to the approval of the Secretary
of Finance.
Section 409. The violation of any provision of
this title shall subject the person violating or the
officer of the association responsible therefor to a
fine of not exceeding one thousand pesos, or
imprisonment of not exceeding three years, or
both such fine and imprisonment, at the
discretion of the court.
Title 2 sale of variable contracts as defined in section
TRUSTS FOR CHARITABLE USES
Section 410. The term "trust for charitable
uses", within the intent of this Code, shall include,
all the real or personal properties or funds, as
well as those acquired with the fruits or income
therefrom or in exchange or substitution thereof,
given to or received by any person, corporation,
association, foundation, or entity, except the
National Government, it instrumentalities or
political subdivisions, for charitable, benevolent,
educational, pious, religious, or other uses for the
benefit of the public at large or a particular
portion thereof or for the benefit of an indefinite
number of persons.
Section 411. The term "trustee" shall include
any individual, corporation, association,
foundation, or entity, except the National
Government, its instrumentalities or political
subdivisions, in charge of, or acting for, or
concerned with the administration of, the trust
referred to in the section immediately preceding
and with the proper application of trust property.
Section 412. The term "trust property" shall
include all real or personal properties or funds
pertaining to the trust as well as those acquired
with the fruits or income therefrom or in
exchange or substitution thereof.
Section 413. All trustees shall, before entering
in the performance of the duties of their trust,
obtain a certificate of registration from the
Commissioner.
Trustees who are already discharging the duties
of their trust on the date this Code becomes
effective may continue as such, subject to the
provisions of this Code.
All provisions of this Code governing mutual
benefit associations and such other provisions
herein, whenever practicable and necessary, shall
be applicable to trusts for charitable uses.
Chapter VIII
THE INSURANCE COMMISSIONER
Title 1
ADMINISTRATIVE AND ADJUDICATORY
POWERS
Section 414. The Insurance Commissioner shall
have the duty to see that all laws relating to
insurance, insurance companies and other
insurance matters, mutual benefit associations,
and trusts for charitable uses are faithfully
executed and to perform the duties imposed
upon him by this Code, and shall, notwithstanding
any existing laws to the contrary, have sole and
exclusive authority to regulate the issuance and
two hundred thirty-two and to provide for the
licensing of persons selling such contracts, and to
issue such reasonable rules and regulations
governing the same.
The Commissioner may issue such ruling,
instructions, circulars, orders and decision as he
may deem necessary to secure the enforcement
of the provisions of this Code, subject to the
approval of the Secretary of Finance. Except as
otherwise specified, decisions made by the
Commissioner shall be appealable to the
Secretary of Finance.
Section 415. In addition to the administrative
sanctions provided elsewhere in this Code, the
Insurance Commissioner is hereby authorized, at
his discretion, to impose upon the insurance
companies, their directors and/or officers and/or
agents, for any willful failure or refusal to comply
with, or violation of any provision of this Code, or
any order, instruction, regulation, or ruling of the
Insurance Commissioner, or any commission or
irregularities, and/or conducting business in an
unsafe or unsound manner as may be determined
by the Insurance Commissioner, the following:
(a) fines not in excess of five hundred
pesos a day; and
(b) suspension, or after due hearing,
removal of directors and/or officers
and/or agents.
Section 416. The Commissioner shall have the
power to adjudicate claims and complaints
involving any loss, damage or liability for which in
insurer may be answerable under any kind of
policy or contract of insurance, or for which such
insurer may be liable under a contract of
suretyship, or for which a reinsurer may be sued
under any contract of reinsurance it may have
entered into; or for which a mutual benefit
association may be held liable under the
membership certificates it has issued to its
members, where the amount of any such loss,
damage or liability, excluding interest, cost and
attorney's fees, being claimed or sued upon any
kind of insurance, bond, reinsurance contract, or
membership certificate does not exceed in any
single claim one hundred thousand pesos.
The insurer or surety may, in the same action file
a counterclaim against the insured or the obligee.
The insurer or surety may also file a cross-claim
against a party for any claim arising out of the
transaction or occurrence that is the subject
matter of the original action or of a counterclaim
therein.
With leave of the Commissioner, an insurer or
surety may file a third-party complaint against its
reinsurers for indemnification, contribution,
subrogation or any other relief, in respect of the
transaction that is the subject matter of the
original action filed with the Commissioner.
The party filing an action pursuant to the
provisions of this section thereby submits his
person to the jurisdiction of the Commissioner.
The Commissioner shall acquire jurisdiction over
the person of the impleaded party or parties in
accordance with and pursuant to the provisions of
the Rules of Court.
The authority to adjudicate granted to the
Commissioner under this section shall be
concurrent with that of the civil courts, but the
filing of a complaint with the Commissioner shall
preclude the civil courts from taking cognizance
of a suit involving the same subject matter.
Any decision, order or ruling rendered by the
Commissioner after a hearing shall have the force
and effect of a judgment. Any party may appeal
from a final order, ruling or decision of the
Commissioner by filing with the Commissioner
within thirty days from receipt of copy of such
order, ruling or decision a notice of appeal and
with the Supreme Court twelve printed or
mimeographed copies of a petition for certiorari
or review of such order, ruling or decision, as the
case may be. A copy of the petition shall be
served upon the Commissioner and upon the
adverse party, and proof of service thereof
attached to the original of the petition.
As soon as a decision, order or ruling has become
final and executory, the Commissioner shall motu
propio or on motion of the interested party, issue
a writ of execution required the sheriff or the
proper officer to whom it is directed to execute
said decision, order or award, pursuant to Rule
thirty-nine of the Rules of Court.
For the purpose of any proceeding under this
section, the Commissioner, or any officer thereof
designated by him, empowered to administer
oaths and affirmation, subpoena witnesses,
compel their attendance, take evidence, and
require the production of any books, papers,
documents, or contracts or other records which
are relevant or material to the inquiry. In case of
contumacy by, or refusal to obey a subpoena
issued to any person, the Commissioner may
invoke the aid of any court of first instance within
the jurisdiction of which such proceeding is
carried on, where such person resides or carries
on his own business, in requiring the attendance
and testimony of witnesses and the production of
books, papers, documents, contracts or other
records. And such court may issue an order
requiring such person to appear before the
Commissioner, or officer designated by the
Commissioner, there to produce records, if so
ordered or to give testimony touching the matter
in question. Any failure to obey such order of the
court may be published by such court as a
contempt thereof.
A full and complete record shall be kept of all
proceedings had before the commissioner, or the
officers thereof designated by him, and all
testimony shall be taken down and transcribed by
a stenographer appointed by the Commissioner.
A transcribed copy of the evidence and
proceeding, or any specific part thereof, of any
hearing taken by a stenographer appointed by
the Commissioner, being certified by such
stenographer to be a true and correct transcript
of the testimony on this hearing of a particular
witness, or of a specific proof thereof, carefully
compared by him from his original notes, and to
be a correct statement of evidence and
proceeding had in such hearing so purporting to
be taken and subscribed, may be received as
evidence by the Commissioner and by any court
with the same effect as if such stenographer were
present and testified to the facts so certified. (As
amended by Presidential Decree No. 1455)
Title 2 collected by the Commissioner for each
FEES AND OTHER SOURCES OF FUNDS
Section 417. (1) For the issuance or renewal of
certificates of authority, licenses and certificates
of registration, pursuant to pertinent provisions of
this Code, the Commissioner shall collect and
receive fees which shall be not less than the
following:
For each certificate of authority issued to an
insurance company doing business in the
Philippines, two hundred pesos.
For each special certificate of authority
issued to a servicing insurance company,
one hundred pesos.
For each license issued to a general agent
of an insurance company, fifty pesos.
For each license issued to an insurance
agent, twenty-five pesos.
For each license issued to an agent of
variable contract policy, twenty-five pesos.
For each license issued to an insurance
broker, one hundred pesos.
For each license issued to an reinsurance
broker, one hundred pesos.
For each license issued to an insurance
adjuster, one hundred pesos.
For each certificate of registration issued to
an actuary, fifty pesos.
For each certificate of registration issued to
a resident agent, fifty pesos.
For each license issued to a rating
organization, one hundred pesos.
For each certificate of registration issued to
a non-life company underwriter, fifty pesos.
For each license issued to a mutual benefit
association, ten pesos.
For each certificate of registration issued to
a trust for charitable uses, ten pesos.
All certificates of authority and all other
licenses, as well as all certificates of
registration, issued to any person,
partnership, association or corporation
under the pertinent provisions of this
Code for which no expiration date has
been prescribed, shall expire on the last
day of June of each year and shall be
renewed annually upon application
therefor and payment of the
corresponding fee, if the licensee or
holder of such license or certificate is
continuing to comply with all the
applicable provisions of existing laws, and
of rules, instructions, orders and
decisions of the Commissioner.
(2) For the filing of the annual statement
referred to in section two hundred
twenty-three, the Commissioner shall
collect and receive from the insurance
company so filing a fee of five hundred
pesos; Provided, That a fine of one
hundred pesos shall be imposed and
week of delay, or any fraction thereof, in
the filing of the annual statement.
For the filing of annual statement referred to
in section four hundred, the Commissioner
shall collect and receive from the mutual
benefit association so filing a fee of ten
pesos; Provided, That a fine of ten pesos
shall be imposed and collected by the
Commissioner for each week of delay, or
any fraction thereof, in the filing of the
annual statement.
(3) For the examination prescribed in
section two hundred forty-six, the
Commissioner shall collect and receive fees
according to the amount of its total assets,
in the case of a domestic company, or of its
assets in the Philippines, in the case of a
foreign company, as follows:
(a) Two million pesos or more but
less than four million pesos, Four
hundred pesos;
(b) Four million pesos or more but
less than six million pesos, Eight
hundred pesos;
(c) Six million pesos or more but
less than eight million pesos, One
thousand two hundred pesos;
(d) Eight million pesos or more but
less than ten million pesos, One
thousand six hundred pesos;
(e) Ten million pesos or more, Two
thousand pesos;
Provided, That if the said examination is
made in places outside the Metropolitan
Manila area, besides these fees, the
Commissioner shall require of the company
examined the payment of the actual and
necessary travelling and subsistence
expenses of the examiner or examiners
concerned.
For the examination prescribed in section
three hundred ninety-nine, the
Commissioner shall collect and receive a
minimum fee of one hundred pesos from the
mutual benefit association examined;
Provided, That if such association has total
assets of more than one hundred thousand
pesos, an additional fee of ten pesos for
every fifty thousand pesos in excess thereof
shall be imposed; Provided, Further, That
such fee shall not exceed two thousand
pesos.
 (4) For the filing of an application to
withdraw from the Philippines under title
eighteen, the Commissioner shall collect
and receive from the foreign company so
withdrawing a fee of one thousand pesos.
(5) The Commissioner may fix and collect
fees or charges for documents, transcripts,
or other materials which may be furnished
by him not in excess of reasonable cost. (As
amended by Presidential Decree No. 1455)
Section 418. If the total expenses of the Insurance
Commissioner for every fiscal year exceed the
aggregate amount of the fees collected under the
pertinent provisions of this Code, the excess shall be
charged against the Insurance Fund, which shall
hereafter be created out of the proceeds of taxes on
insurance premiums mentioned in section two
hundred fifty-five of the National Internal Revenue
Code, as amended; Provided, however, That pending
the creation of said Insurance Fund, the provisions of
section two, three and four of RA 275, shall continue
to remain in force and effect.
MISCELLANEOUS PROVISIONS
Section 419. Any person, company or corporation
subject to the supervision and control of the
Commissioner who violates any provision of this
Code, for which no penalty is provided, shall be
deemed guilty of a penal offense, and upon
conviction be punished by a fine not exceeding ten
thousand pesos or imprisonment of six months, or
both, at the discretion of the court.
If the offense is committed by a company or
corporation, the officers, directors, or other persons
responsible for its operation, management, or
administration, unless it can be proved that they
have taken no part in the commission of the offense,
shall likewise be guilty of a penal offense, and upon
conviction be punished by a fine not exceeding ten
thousand pesos or imprisonment of six months, or
both, at the discretion of the court.
Section 420. All criminal actions for the violation of
any of the provisions of this Code shall prescribed
after three years from the discovery of such
violation: Provided, That such actions shall in any
event prescribe after ten years from the commission
of such violation.
Section 421. Any person, partnership, association
or corporation heretofore authorized, licensed or
registered by the Insurance Commissioner shall be
deemed to have been authorized, licensed or
registered under the provisions of this Code and
shall be governed by the provisions thereof:
Provided, however, That where any such person,
partnership, association or corporation is affected by
the new requirements of this Code, said person,
partnership association or corporation shall, unless
otherwise herein provided, be given a period of one
year from the effectivity of this Code within which to
comply with the same.
Section 422. Except as expressly provided by this
Code, all laws or parts thereof inconsistent with any
provision of this Code shall be deemed repealed.
Section 423. Should any provisions of this Code or
any part thereof be declared invalid, the other
provisions, so far as they are separable from the
invalid ones, shall remain in force.
Section 424. This Code shall take effect
immediately.
DONE in the City of Manila, this 18th day of
December, in the year of Our Lord, nineteen
hundred and seventy-four.
BATAS PAMBANSA BLG. 68
THE CORPORATION CODE OF THE
PHILIPPINES
TITLE I - GENERAL PROVISIONS DEFINITIONS
AND CLASSIFICATIONS
Section 1. Title of the Code. - This Code shall be
known as "The Corporation Code of the
Philippines." (n)
Section 2. Corporation defined. - A corporation is
an artificial being created by operation of law,
having the right of succession and the powers,
attributes and properties expressly authorized by
law or incident to its existence. (2)
Section 3. Classes of corporations. -
Corporations formed or organized under this
Code may be stock or non-stock corporations.
Corporations which have capital stock divided
into shares and are authorized to distribute to the
holders of such shares dividends or allotments of
the surplus profits on the basis of the shares held
are stock corporations. All other corporations are
non-stock corporations. (3a)
Section 4. Corporations created by special laws
or charters. - Corporations created by special
laws or charters shall be governed primarily by
the provisions of the special law or charter
creating them or applicable to them,
supplemented by the provisions of this Code,
insofar as they are applicable. (n)
Section 5. Corporators and incorporators,
stockholders and members. - Corporators are
those who compose a corporation, whether as
stockholders or as members. Incorporators are
those stockholders or members mentioned in the
articles of incorporation as originally forming and
composing the corporation and who are
signatories thereof.
Corporators in a stock corporation are called
stockholders or shareholders. Corporators in a
non-stock corporation are called members. (4a)
Section 6. Classification of shares. - The shares
of stock of stock corporations may be divided into
classes or series of shares, or both, any of which
classes or series of shares may have such rights,
privileges or restrictions as may be stated in the
articles of incorporation: Provided, That no share
may be deprived of voting rights except those
classified and issued as "preferred" or
"redeemable" shares, unless otherwise provided
in this Code: Provided, further, That there shall
always be a class or series of shares which have
complete voting rights. Any or all of the shares or
series of shares may have a par value or have no
par value as may be provided for in the articles of
incorporation: Provided, however, That banks,
trust companies, insurance companies, public
utilities, and building and loan associations shall
not be permitted to issue no-par value shares of
stock.
Preferred shares of stock issued by any
corporation may be given preference in the
distribution of the assets of the corporation in
case of liquidation and in the distribution of
dividends, or such other preferences as may be
stated in the articles of incorporation which are
not violative of the provisions of this Code:
Provided, That preferred shares of stock may be
issued only with a stated par value. The board of
directors, where authorized in the articles of
incorporation, may fix the terms and conditions of
preferred shares of stock or any series thereof:
Provided, That such terms and conditions shall be
effective upon the filing of a certificate thereof
with the Securities and Exchange Commission.
Shares of capital stock issued without par value
shall be deemed fully paid and non-assessable
and the holder of such shares shall not be liable
to the corporation or to its creditors in respect
thereto: Provided; That shares without par value
may not be issued for a consideration less than
the value of five (P5.00) pesos per share:
Provided, further, That the entire consideration
received by the corporation for its no-par value
shares shall be treated as capital and shall not be
available for distribution as dividends.
A corporation may, furthermore, classify its
shares for the purpose of insuring compliance
with constitutional or legal requirements.
Except as otherwise provided in the articles of
incorporation and stated in the certificate of
stock, each share shall be equal in all respects to
every other share.
Where the articles of incorporation provide for
non-voting shares in the cases allowed by this
Code, the holders of such shares shall
nevertheless be entitled to vote on the following
matters:
1. Amendment of the articles of
incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage,
pledge or other disposition of all or
substantially all of the corporate property;
4. Incurring, creating or increasing
bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the
corporation with another corporation or
other corporations;
7. Investment of corporate funds in
another corporation or business in
accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding
paragraph, the vote necessary to approve a
particular corporate act as provided in this Code
shall be deemed to refer only to stocks with
voting rights. (5a)
Section 7. Founders' shares. - Founders' shares
classified as such in the articles of incorporation
may be given certain rights and privileges not
enjoyed by the owners of other stocks, provided
that where the exclusive right to vote and be
voted for in the election of directors is granted, it
must be for a limited period not to exceed five (5)
years subject to the approval of the Securities
and Exchange Commission. The five-year period
shall commence from the date of the aforesaid
approval by the Securities and Exchange
Commission. (n)
Section 8. Redeemable shares. - Redeemable
shares may be issued by the corporation when
expressly so provided in the articles of
incorporation. They may be purchased or taken
up by the corporation upon the expiration of a
fixed period, regardless of the existence of
unrestricted retained earnings in the books of the
corporation, and upon such other terms and
conditions as may be stated in the articles of
incorporation, which terms and conditions must
also be stated in the certificate of stock
representing said shares. (n)
Section 9. Treasury shares. - Treasury shares are
shares of stock which have been issued and fully
paid for, but subsequently reacquired by the
issuing corporation by purchase, redemption,
donation or through some other lawful means.
Such shares may again be disposed of for a
reasonable price fixed by the board of directors.
(n)
TITLE II - INCORPORATION AND
ORGANIZATION OF PRIVATE CORPORATIONS
Section 10. Number and qualifications of
incorporators. - Any number of natural persons
not less than five (5) but not more than fifteen
(15), all of legal age and a majority of whom are
residents of the Philippines, may form a private
corporation for any lawful purpose or purposes.
Each of the incorporators of s stock corporation
must own or be a subscriber to at least one (1)
share of the capital stock of the corporation. (6a)
Section 11. Corporate term. - A corporation shall
exist for a period not exceeding fifty (50) years
from the date of incorporation unless sooner
dissolved or unless said period is extended. The
corporate term as originally stated in the articles
of incorporation may be extended for periods not
exceeding fifty (50) years in any single instance
by an amendment of the articles of incorporation,
in accordance with this Code; Provided, That no
extension can be made earlier than five (5) years
prior to the original or subsequent expiry date(s)
unless there are justifiable reasons for an earlier
extension as may be determined by the
Securities and Exchange Commission. (6)
Section 12. Minimum capital stock required of
stock corporations. - Stock corporations
incorporated under this Code shall not be
required to have any minimum authorized capital
stock except as otherwise specifically provided
for by special law, and subject to the provisions of
the following section.
Section 13. Amount of capital stock to be
subscribed and paid for the purposes of
incorporation. - At least twenty-five percent
(25%) of the authorized capital stock as stated in
the articles of incorporation must be subscribed
at the time of incorporation, and at least twenty-
five (25%) per cent of the total subscription must
be paid upon subscription, the balance to be
payable on a date or dates fixed in the contract
of subscription without need of call, or in the
absence of a fixed date or dates, upon call for
payment by the board of directors: Provided,
however, That in no case shall the paid-up capital
be less than five Thousand (P5,000.00) pesos. (n)
Section 14. Contents of the articles of
incorporation. - All corporations organized under
this code shall file with the Securities and
Exchange Commission articles of incorporation in
any of the official languages duly signed and
acknowledged by all of the incorporators,
containing substantially the following matters,
except as otherwise prescribed by this Code or by
special law:
1. The name of the corporation;
2. The specific purpose or purposes for
which the corporation is being
incorporated. Where a corporation has
more than one stated purpose, the
articles of incorporation shall state which
is the primary purpose and which is/are
the secondary purpose or purposes:
Provided, That a non-stock corporation
may not include a purpose which would
change or contradict its nature as such;
3. The place where the principal office of
the corporation is to be located, which
must be within the Philippines;
4. The term for which the corporation is to
exist;
5. The names, nationalities and
residences of the incorporators;
6. The number of directors or trustees,
which shall not be less than five (5) nor
more than fifteen (15);
7. The names, nationalities and
residences of persons who shall act as
directors or trustees until the first regular
directors or trustees are duly elected and
qualified in accordance with this Code;
8. If it be a stock corporation, the amount
of its authorized capital stock in lawful
money of the Philippines, the number of
shares into which it is divided, and in case
the share are par value shares, the par
value of each, the names, nationalities
and residences of the original subscribers,
and the amount subscribed and paid by
each on his subscription, and if some or
all of the shares are without par value,
such fact must be stated;
9. If it be a non-stock corporation, the
amount of its capital, the names,
nationalities and residences of the
contributors and the amount contributed
by each; and
10. Such other matters as are not
inconsistent with law and which the
incorporators may deem necessary and
convenient.
The Securities and Exchange Commission shall
not accept the articles of incorporation of any
stock corporation unless accompanied by a sworn
statement of the Treasurer elected by the
subscribers showing that at least twenty-five
(25%) percent of the authorized capital stock of
the corporation has been subscribed, and at least
twenty-five (25%) of the total subscription has
been fully paid to him in actual cash and/or in
property the fair valuation of which is equal to at
least twenty-five (25%) percent of the said
subscription, such paid-up capital being not less
than five thousand (P5,000.00) pesos.
Section 15. Forms of Articles of Incorporation. -
Unless otherwise prescribed by special law,
articles of incorporation of all domestic
corporations shall comply substantially with the
following form:
ARTICLES OF INCORPORATION OF
__________________________
(Name of Corporation)
KNOW ALL MEN BY THESE PRESENTS:
The undersigned incorporators, all of legal age
and a majority of whom are residents of the
Philippines, have this day voluntarily agreed to
form a (stock) (non-stock) corporation under the
laws of the Republic of the Philippines;
AND WE HEREBY CERTIFY:
FIRST: That the name of said corporation shall be
"_____________________, INC. or CORPORATION";
SECOND: That the purpose or purposes for which of _________________ (P____________) PESOS each,
such corporation is incorporated are: (If there is and of which _________________ shares are without
more than one purpose, indicate primary and par value.
secondary purposes);
EIGHTH: That at least twenty five (25%) per cent
THIRD: That the principal office of the corporation of the authorized capital stock above stated has
is located in the City/Municipality of been subscribed as follows:
________________________, Province of
Name of Subscriber Nationality No of Shares
_______________________, Philippines;
Amount
FOURTH: That the term for which said corporation
Subscribed Subscribed
is to exist is _____________ years from and after
the date of issuance of the certificate of _________________ __________ ____________
incorporation; ____________
FIFTH: That the names, nationalities and _________________ __________ ____________
residences of the incorporators of the corporation ____________
are as follows:
_________________ __________ ____________
NAME NATIONALITY RESIDENCE ____________
___________________ ___________________ _________________ __________ ____________
___________________ ____________
___________________ ___________________ _________________ __________ ____________
___________________ ____________
___________________ ___________________ NINTH: That the above-named subscribers have
___________________ paid at least twenty-five (25%) percent of the
total subscription as follows:
___________________ ___________________
___________________ Name of Subscriber Amount Subscribed Total
Paid-In
___________________ ___________________
___________________ _________________ ___________________
_______________
SIXTH: That the number of directors or trustees of
the corporation shall be _______; and the names, _________________ ___________________
nationalities and residences of the first directors _______________
or trustees of the corporation are as follows:
_________________ ___________________
NAME NATIONALITY RESIDENCE _______________
___________________ ___________________ _________________ ___________________
___________________ _______________
___________________ ___________________ _________________ ___________________
___________________ _______________
___________________ ___________________ (Modify Nos. 8 and 9 if shares are with no par
___________________ value. In case the corporation is non-stock, Nos.
7, 8 and 9 of the above articles may be modified
___________________ ___________________
accordingly, and it is sufficient if the articles state
___________________
the amount of capital or money contributed or
___________________ ___________________ donated by specified persons, stating the names,
___________________ nationalities and residences of the contributors or
donors and the respective amount given by
SEVENTH: That the authorized capital stock of the each.)
corporation is ______________________
(P___________) PESOS in lawful money of the TENTH: That _____________________ has been
Philippines, divided into __________ shares with elected by the subscribers as Treasurer of the
the par value of ____________________ Corporation to act as such until his successor is
(P_____________) Pesos per share. duly elected and qualified in accordance with the
by-laws, and that as such Treasurer, he has been
(In case all the share are without par value): authorized to receive for and in the name and for
That the capital stock of the corporation is the benefit of the corporation, all subscription (or
______________ shares without par value. (In case fees) or contributions or donations paid or given
some shares have par value and some are by the subscribers or members.
without par value): That the capital stock of said ELEVENTH: (Corporations which will engage in
corporation consists of _____________ shares of any business or activity reserved for Filipino
which ______________ shares are of the par value citizens shall provide the following):
"No transfer of stock or interest which shall Book No. ________;
reduce the ownership of Filipino citizens to less
Series of 19____ (7a)
than the required percentage of the capital stock
as provided by existing laws shall be allowed or Section 16. Amendment of Articles of
permitted to be recorded in the proper books of Incorporation. - Unless otherwise prescribed by
the corporation and this restriction shall be this Code or by special law, and for legitimate
indicated in all stock certificates issued by the purposes, any provision or matter stated in the
corporation." articles of incorporation may be amended by a
majority vote of the board of directors or trustees
IN WITNESS WHEREOF, we have hereunto signed
and the vote or written assent of the stockholders
these Articles of Incorporation, this __________ day
representing at least two-thirds (2/3) of the
of ________________, 19 ______ in the
outstanding capital stock, without prejudice to
City/Municipality of ____________________, Province
the appraisal right of dissenting stockholders in
of ________________________, Republic of the
accordance with the provisions of this Code, or
Philippines.
the vote or written assent of at least two-thirds
_______________________ _______________________ (2/3) of the members if it be a non-stock
corporation.
_______________________ _______________________
The original and amended articles together shall
________________________________ contain all provisions required by law to be set
(Names and signatures of the incorporators) out in the articles of incorporation. Such articles,
as amended shall be indicated by underscoring
SIGNED IN THE PRESENCE OF: the change or changes made, and a copy thereof
_______________________ _______________________ duly certified under oath by the corporate
secretary and a majority of the directors or
(Notarial Acknowledgment) trustees stating the fact that said amendment or
amendments have been duly approved by the
TREASURER'S AFFIDAVIT
required vote of the stockholders or members,
REPUBLIC OF THE PHILIPPINES ) shall be submitted to the Securities and
Exchange Commission.
CITY/MUNICIPALITY OF ) S.S.
The amendments shall take effect upon their
PROVINCE OF ) approval by the Securities and Exchange
I, ____________________, being duly sworn, depose Commission or from the date of filing with the
and say: said Commission if not acted upon within six (6)
months from the date of filing for a cause not
That I have been elected by the subscribers of attributable to the corporation.
the corporation as Treasurer thereof, to act as
such until my successor has been duly elected Section 17. Grounds when articles of
and qualified in accordance with the by-laws of incorporation or amendment may be rejected or
the corporation, and that as such Treasurer, I disapproved. - The Securities and Exchange
hereby certify under oath that at least 25% of the Commission may reject the articles of
authorized capital stock of the corporation has incorporation or disapprove any amendment
been subscribed and at least 25% of the total thereto if the same is not in compliance with the
subscription has been paid, and received by me, requirements of this Code: Provided, That the
in cash or property, in the amount of not less Commission shall give the incorporators a
than P5,000.00, in accordance with the reasonable time within which to correct or modify
Corporation Code. the objectionable portions of the articles or
amendment. The following are grounds for such
____________________ rejection or disapproval:
(Signature of Treasurer) 1. That the articles of
SUBSCRIBED AND SWORN to before me, a Notary incorporation or any amendment
Public, for and in the City/Municipality of thereto is not substantially in
___________________ Province of accordance with the form
_____________________, this _______ day of prescribed herein;
___________, 19 _____; by __________________ with 2. That the purpose or purposes
Res. Cert. No. ___________ issued at of the corporation are patently
_______________________ on ____________, 19 ______ unconstitutional, illegal, immoral,
NOTARY PUBLIC or contrary to government rules
and regulations;
My commission expires on
3. That the Treasurer's Affidavit
_________, 19 _____ concerning the amount of capital
stock subscribed and/or paid is
Doc. No. _________;
false;
Page No. _________;
 4. That the percentage of
ownership of the capital stock to
be owned by citizens of the
Philippines has not been complied
with as required by existing laws
or the Constitution.
No articles of incorporation or amendment to
articles of incorporation of banks, banking and
quasi-banking institutions, building and loan
associations, trust companies and other financial
intermediaries, insurance companies, public
utilities, educational institutions, and other
corporations governed by special laws shall be
accepted or approved by the Commission unless
accompanied by a favorable recommendation of
the appropriate government agency to the effect
that such articles or amendment is in accordance
with law. (n)
Section 18. Corporate name. - No corporate
name may be allowed by the Securities and
Exchange Commission if the proposed name is
identical or deceptively or confusingly similar to
that of any existing corporation or to any other
name already protected by law or is patently
deceptive, confusing or contrary to existing laws.
When a change in the corporate name is
approved, the Commission shall issue an
amended certificate of incorporation under the
amended name. (n)
Section 19. Commencement of corporate
existence. - A private corporation formed or
organized under this Code commences to have
corporate existence and juridical personality and
is deemed incorporated from the date the
Securities and Exchange Commission issues a
certificate of incorporation under its official seal;
and thereupon the incorporators,
stockholders/members and their successors shall
constitute a body politic and corporate under the
name stated in the articles of incorporation for
the period of time mentioned therein, unless said
period is extended or the corporation is sooner
dissolved in accordance with law. (n)
Section 20. De facto corporations. - The due
incorporation of any corporation claiming in good
faith to be a corporation under this Code, and its
right to exercise corporate powers, shall not be
inquired into collaterally in any private suit to
which such corporation may be a party. Such
inquiry may be made by the Solicitor General in a
quo warranto proceeding. (n)
Section 21. Corporation by estoppel. - All
persons who assume to act as a corporation
knowing it to be without authority to do so shall
be liable as general partners for all debts,
liabilities and damages incurred or arising as a
result thereof: Provided, however, That when any
such ostensible corporation is sued on any
transaction entered by it as a corporation or on
any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate
personality.
On who assumes an obligation to an ostensible
corporation as such, cannot resist performance
thereof on the ground that there was in fact no
corporation. (n)
Section 22. Effects on non-use of corporate
charter and continuous inoperation of a
corporation. - If a corporation does not formally
organize and commence the transaction of its
business or the construction of its works within
two (2) years from the date of its incorporation,
its corporate powers cease and the corporation
shall be deemed dissolved. However, if a
corporation has commenced the transaction of its
business but subsequently becomes continuously
inoperative for a period of at least five (5) years,
the same shall be a ground for the suspension or
revocation of its corporate franchise or certificate
of incorporation. (19a)
This provision shall not apply if the failure to
organize, commence the transaction of its
businesses or the construction of its works, or to
continuously operate is due to causes beyond the
control of the corporation as may be determined
by the Securities and Exchange Commission.
TITLE III - BOARD OF DIRECTORS/TRUSTEES
AND OFFICERS
Section 23. The board of directors or trustees. -
Unless otherwise provided in this Code, the
corporate powers of all corporations formed
under this Code shall be exercised, all business
conducted and all property of such corporations
controlled and held by the board of directors or
trustees to be elected from among the holders of
stocks, or where there is no stock, from among
the members of the corporation, who shall hold
office for one (1) year until their successors are
elected and qualified. (28a)
Every director must own at least one (1) share of
the capital stock of the corporation of which he is
a director, which share shall stand in his name on
the books of the corporation. Any director who
ceases to be the owner of at least one (1) share
of the capital stock of the corporation of which he
is a director shall thereby cease to be a director.
Trustees of non-stock corporations must be
members thereof. A majority of the directors or
trustees of all corporations organized under this
Code must be residents of the Philippines.
Section 24. Election of directors or trustees. - At
all elections of directors or trustees, there must
be present, either in person or by representative
authorized to act by written proxy, the owners of
a majority of the outstanding capital stock, or if
there be no capital stock, a majority of the
members entitled to vote. The election must be
by ballot if requested by any voting stockholder
or member. In stock corporations, every
stockholder entitled to vote shall have the right
to vote in person or by proxy the number of
shares of stock standing, at the time fixed in the
by-laws, in his own name on the stock books of
the corporation, or where the by-laws are silent,
at the time of the election; and said stockholder
may vote such number of shares for as many
persons as there are directors to be elected or he
may cumulate said shares and give one
candidate as many votes as the number of
directors to be elected multiplied by the number
of his shares shall equal, or he may distribute
them on the same principle among as many
candidates as he shall see fit: Provided, That the
total number of votes cast by him shall not
exceed the number of shares owned by him as
shown in the books of the corporation multiplied
by the whole number of directors to be elected:
Provided, however, That no delinquent stock shall
be voted. Unless otherwise provided in the
articles of incorporation or in the by-laws,
members of corporations which have no capital
stock may cast as many votes as there are
trustees to be elected but may not cast more
than one vote for one candidate. Candidates
receiving the highest number of votes shall be
declared elected. Any meeting of the
stockholders or members called for an election
may adjourn from day to day or from time to time
but not sine die or indefinitely if, for any reason,
no election is held, or if there are not present or
represented by proxy, at the meeting, the owners
of a majority of the outstanding capital stock, or if
there be no capital stock, a majority of the
member entitled to vote. (31a)
Section 25. Corporate officers, quorum. -
Immediately after their election, the directors of a
corporation must formally organize by the
election of a president, who shall be a director, a
treasurer who may or may not be a director, a
secretary who shall be a resident and citizen of
the Philippines, and such other officers as may be
provided for in the by-laws. Any two (2) or more
positions may be held concurrently by the same
person, except that no one shall act as president
and secretary or as president and treasurer at the
same time.
The directors or trustees and officers to be
elected shall perform the duties enjoined on them
by law and the by-laws of the corporation. Unless
the articles of incorporation or the by-laws
provide for a greater majority, a majority of the
number of directors or trustees as fixed in the
articles of incorporation shall constitute a quorum
for the transaction of corporate business, and
every decision of at least a majority of the
directors or trustees present at a meeting at
which there is a quorum shall be valid as a
corporate act, except for the election of officers
which shall require the vote of a majority of all
the members of the board.
Directors or trustees cannot attend or vote by
proxy at board meetings. (33a)
Section 26. Report of election of directors,
trustees and officers. - Within thirty (30) days
after the election of the directors, trustees and
officers of the corporation, the secretary, or any
other officer of the corporation, shall submit to
the Securities and Exchange Commission, the
names, nationalities and residences of the
directors, trustees, and officers elected. Should a
director, trustee or officer die, resign or in any
manner cease to hold office, his heirs in case of
his death, the secretary, or any other officer of
the corporation, or the director, trustee or officer
himself, shall immediately report such fact to the
Securities and Exchange Commission. (n)
Section 27. Disqualification of directors,
trustees or officers. - No person convicted by final
judgment of an offense punishable by
imprisonment for a period exceeding six (6)
years, or a violation of this Code committed
within five (5) years prior to the date of his
election or appointment, shall qualify as a
director, trustee or officer of any corporation. (n)
Section 28. Removal of directors or trustees. -
Any director or trustee of a corporation may be
removed from office by a vote of the stockholders
holding or representing at least two-thirds (2/3) of
the outstanding capital stock, or if the
corporation be a non-stock corporation, by a vote
of at least two-thirds (2/3) of the members
entitled to vote: Provided, That such removal
shall take place either at a regular meeting of the
corporation or at a special meeting called for the
purpose, and in either case, after previous notice
to stockholders or members of the corporation of
the intention to propose such removal at the
meeting. A special meeting of the stockholders or
members of a corporation for the purpose of
removal of directors or trustees, or any of them,
must be called by the secretary on order of the
president or on the written demand of the
stockholders representing or holding at least a
majority of the outstanding capital stock, or, if it
be a non-stock corporation, on the written
demand of a majority of the members entitled to
vote. Should the secretary fail or refuse to call
the special meeting upon such demand or fail or
refuse to give the notice, or if there is no
secretary, the call for the meeting may be
addressed directly to the stockholders or
members by any stockholder or member of the
corporation signing the demand. Notice of the
time and place of such meeting, as well as of the
intention to propose such removal, must be given
by publication or by written notice prescribed in
this Code. Removal may be with or without cause:
Provided, That removal without cause may not be
used to deprive minority stockholders or
members of the right of representation to which
they may be entitled under Section 24 of this
Code. (n)
Section 29. Vacancies in the office of director or
trustee. - Any vacancy occurring in the board of
directors or trustees other than by removal by the
stockholders or members or by expiration of
term, may be filled by the vote of at least a
majority of the remaining directors or trustees, if
still constituting a quorum; otherwise, said
vacancies must be filled by the stockholders in a
regular or special meeting called for that
purpose. A director or trustee so elected to fill a
vacancy shall be elected only or the unexpired
term of his predecessor in office.
Any directorship or trusteeship to be filled by
reason of an increase in the number of directors
or trustees shall be filled only by an election at a
regular or at a special meeting of stockholders or
members duly called for the purpose, or in the
same meeting authorizing the increase of
directors or trustees if so stated in the notice of
the meeting. (n)
Section 30. Compensation of directors. - In the
absence of any provision in the by-laws fixing
their compensation, the directors shall not
receive any compensation, as such directors,
except for reasonable per diems: Provided,
however, That any such compensation other than
per diems may be granted to directors by the
vote of the stockholders representing at least a
majority of the outstanding capital stock at a
regular or special stockholders' meeting. In no
case shall the total yearly compensation of
directors, as such directors, exceed ten (10%)
percent of the net income before income tax of
the corporation during the preceding year. (n)
Section 31. Liability of directors, trustees or
officers. - Directors or trustees who wilfully and
knowingly vote for or assent to patently unlawful
acts of the corporation or who are guilty of gross
negligence or bad faith in directing the affairs of
the corporation or acquire any personal or
pecuniary interest in conflict with their duty as
such directors or trustees shall be liable jointly
and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or
members and other persons.
When a director, trustee or officer attempts to
acquire or acquires, in violation of his duty, any
interest adverse to the corporation in respect of
any matter which has been reposed in him in
confidence, as to which equity imposes a
disability upon him to deal in his own behalf, he
shall be liable as a trustee for the corporation and
must account for the profits which otherwise
would have accrued to the corporation. (n)
Section 32. Dealings of directors, trustees or
officers with the corporation. - A contract of the
corporation with one or more of its directors or
trustees or officers is voidable, at the option of
such corporation, unless all the following
conditions are present:
1. That the presence of such director or
trustee in the board meeting in which the
contract was approved was not necessary
to constitute a quorum for such meeting;
2. That the vote of such director or
trustee was not necessary for the
approval of the contract;
3. That the contract is fair and reasonable
under the circumstances; and
4. That in case of an officer, the contract
has been previously authorized by the
board of directors.
Where any of the first two conditions set forth in
the preceding paragraph is absent, in the case of
a contract with a director or trustee, such
contract may be ratified by the vote of the
stockholders representing at least two-thirds (2/3)
of the outstanding capital stock or of at least two-
thirds (2/3) of the members in a meeting called
for the purpose: Provided, That full disclosure of
the adverse interest of the directors or trustees
involved is made at such meeting: Provided,
however, That the contract is fair and reasonable
under the circumstances. (n)
Section 33. Contracts between corporations
with interlocking directors. - Except in cases of
fraud, and provided the contract is fair and
reasonable under the circumstances, a contract
between two or more corporations having
interlocking directors shall not be invalidated on
that ground alone: Provided, That if the interest of
the interlocking director in one corporation is
substantial and his interest in the other
corporation or corporations is merely nominal, he
shall be subject to the provisions of the preceding
section insofar as the latter corporation or
corporations are concerned.
Stockholdings exceeding twenty (20%) percent of
the outstanding capital stock shall be considered
substantial for purposes of interlocking directors.
(n)
Section 34. Disloyalty of a director. - Where a
director, by virtue of his office, acquires for
himself a business opportunity which should
belong to the corporation, thereby obtaining
profits to the prejudice of such corporation, he
must account to the latter for all such profits by
refunding the same, unless his act has been
ratified by a vote of the stockholders owning or
representing at least two-thirds (2/3) of the
outstanding capital stock. This provision shall be
applicable, notwithstanding the fact that the
director risked his own funds in the venture. (n)
Section 35. Executive committee. - The by-laws
of a corporation may create an executive
committee, composed of not less than three
members of the board, to be appointed by the
board. Said committee may act, by majority vote
of all its members, on such specific matters
within the competence of the board, as may be
delegated to it in the by-laws or on a majority
vote of the board, except with respect to: (1)
approval of any action for which shareholders'
approval is also required; (2) the filing of
vacancies in the board; (3) the amendment or
repeal of by-laws or the adoption of new by-laws;
(4) the amendment or repeal of any resolution of
the board which by its express terms is not so
amendable or repealable; and (5) a distribution of
cash dividends to the shareholders.
TITLE IV - POWERS OF CORPORATIONS
Section 36. Corporate powers and capacity. -
Every corporation incorporated under this Code
has the power and capacity:
1. To sue and be sued in its corporate
name;
2. Of succession by its corporate name for
the period of time stated in the articles of
incorporation and the certificate of
incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in
accordance with the provisions of this
Code;
5. To adopt by-laws, not contrary to law,
morals, or public policy, and to amend or
repeal the same in accordance with this
Code;
6. In case of stock corporations, to issue
or sell stocks to subscribers and to sell
stocks to subscribers and to sell treasury
stocks in accordance with the provisions
of this Code; and to admit members to
the corporation if it be a non-stock
corporation;
7. To purchase, receive, take or grant,
hold, convey, sell, lease, pledge,
mortgage and otherwise deal with such
real and personal property, including
securities and bonds of other
corporations, as the transaction of the
lawful business of the corporation may
reasonably and necessarily require,
subject to the limitations prescribed by
law and the Constitution;
8. To enter into merger or consolidation
with other corporations as provided in this
Code;
9. To make reasonable donations,
including those for the public welfare or
for hospital, charitable, cultural, scientific,
civic, or similar purposes: Provided, That
no corporation, domestic or foreign, shall
give donations in aid of any political party
or candidate or for purposes of partisan
political activity;
10. To establish pension, retirement, and
other plans for the benefit of its directors,
trustees, officers and employees; and
11. To exercise such other powers as may
be essential or necessary to carry out its
purpose or purposes as stated in the
articles of incorporation. (13a)
Section 37. Power to extend or shorten
corporate term. - A private corporation may
extend or shorten its term as stated in the
articles of incorporation when approved by a
majority vote of the board of directors or trustees
and ratified at a meeting by the stockholders
representing at least two-thirds (2/3) of the
outstanding capital stock or by at least two-thirds
(2/3) of the members in case of non-stock
corporations. Written notice of the proposed
action and of the time and place of the meeting
shall be addressed to each stockholder or
member at his place of residence as shown on
the books of the corporation and deposited to the
addressee in the post office with postage prepaid,
or served personally: Provided, That in case of
extension of corporate term, any dissenting
stockholder may exercise his appraisal right
under the conditions provided in this code. (n)
Section 38. Power to increase or decrease
capital stock; incur, create or increase bonded
indebtedness. - No corporation shall increase or
decrease its capital stock or incur, create or
increase any bonded indebtedness unless
approved by a majority vote of the board of
directors and, at a stockholder's meeting duly
called for the purpose, two-thirds (2/3) of the
outstanding capital stock shall favor the increase
or diminution of the capital stock, or the
incurring, creating or increasing of any bonded
indebtedness. Written notice of the proposed
increase or diminution of the capital stock or of
the incurring, creating, or increasing of any
bonded indebtedness and of the time and place
of the stockholder's meeting at which the
proposed increase or diminution of the capital
stock or the incurring or increasing of any bonded
indebtedness is to be considered, must be
addressed to each stockholder at his place of
residence as shown on the books of the
corporation and deposited to the addressee in the
post office with postage prepaid, or served
personally.
A certificate in duplicate must be signed by a
majority of the directors of the corporation and
countersigned by the chairman and the secretary
of the stockholders' meeting, setting forth:
(1) That the requirements of this section
have been complied with;
(2) The amount of the increase or
diminution of the capital stock;
(3) If an increase of the capital stock, the
amount of capital stock or number of
shares of no-par stock thereof actually
subscribed, the names, nationalities and
residences of the persons subscribing, the
amount of capital stock or number of no-
par stock subscribed by each, and the
amount paid by each on his subscription
in cash or property, or the amount of
capital stock or number of shares of no-
par stock allotted to each stock-holder if
such increase is for the purpose of
making effective stock dividend therefor
authorized;
(4) Any bonded indebtedness to be
incurred, created or increased;
 (5) The actual indebtedness of the
corporation on the day of the meeting;
(6) The amount of stock represented at
the meeting; and
(7) The vote authorizing the increase or
diminution of the capital stock, or the
incurring, creating or increasing of any
bonded indebtedness.
Any increase or decrease in the capital stock or
the incurring, creating or increasing of any
bonded indebtedness shall require prior approval
of the Securities and Exchange Commission.
One of the duplicate certificates shall be kept on
file in the office of the corporation and the other
shall be filed with the Securities and Exchange
Commission and attached to the original articles
of incorporation. From and after approval by the
Securities and Exchange Commission and the
issuance by the Commission of its certificate of
filing, the capital stock shall stand increased or
decreased and the incurring, creating or
increasing of any bonded indebtedness
authorized, as the certificate of filing may
declare: Provided, That the Securities and
Exchange Commission shall not accept for filing
any certificate of increase of capital stock unless
accompanied by the sworn statement of the
treasurer of the corporation lawfully holding office
at the time of the filing of the certificate, showing
that at least twenty-five (25%) percent of such
increased capital stock has been subscribed and
that at least twenty-five (25%) percent of the
amount subscribed has been paid either in actual
cash to the corporation or that there has been
transferred to the corporation property the
valuation of which is equal to twenty-five (25%)
percent of the subscription: Provided, further,
That no decrease of the capital stock shall be
approved by the Commission if its effect shall
prejudice the rights of corporate creditors.
Non-stock corporations may incur or create
bonded indebtedness, or increase the same, with
the approval by a majority vote of the board of
trustees and of at least two-thirds (2/3) of the
members in a meeting duly called for the
purpose.
Bonds issued by a corporation shall be registered
with the Securities and Exchange Commission,
which shall have the authority to determine the
sufficiency of the terms thereof. (17a)
Section 39. Power to deny pre-emptive right. -
All stockholders of a stock corporation shall enjoy
pre-emptive right to subscribe to all issues or
disposition of shares of any class, in proportion to
their respective shareholdings, unless such right
is denied by the articles of incorporation or an
amendment thereto: Provided, That such pre-
emptive right shall not extend to shares to be
issued in compliance with laws requiring stock
offerings or minimum stock ownership by the
public; or to shares to be issued in good faith with
the approval of the stockholders representing
two-thirds (2/3) of the outstanding capital stock,
in exchange for property needed for corporate
purposes or in payment of a previously
contracted debt.
Section 40. Sale or other disposition of assets. -
Subject to the provisions of existing laws on
illegal combinations and monopolies, a
corporation may, by a majority vote of its board
of directors or trustees, sell, lease, exchange,
mortgage, pledge or otherwise dispose of all or
substantially all of its property and assets,
including its goodwill, upon such terms and
conditions and for such consideration, which may
be money, stocks, bonds or other instruments for
the payment of money or other property or
consideration, as its board of directors or trustees
may deem expedient, when authorized by the
vote of the stockholders representing at least
two-thirds (2/3) of the outstanding capital stock,
or in case of non-stock corporation, by the vote of
at least to two-thirds (2/3) of the members, in a
stockholder's or member's meeting duly called
for the purpose. Written notice of the proposed
action and of the time and place of the meeting
shall be addressed to each stockholder or
member at his place of residence as shown on
the books of the corporation and deposited to the
addressee in the post office with postage prepaid,
or served personally: Provided, That any
dissenting stockholder may exercise his appraisal
right under the conditions provided in this Code.
A sale or other disposition shall be deemed to
cover substantially all the corporate property and
assets if thereby the corporation would be
rendered incapable of continuing the business or
accomplishing the purpose for which it was
incorporated.
After such authorization or approval by the
stockholders or members, the board of directors
or trustees may, nevertheless, in its discretion,
abandon such sale, lease, exchange, mortgage,
pledge or other disposition of property and
assets, subject to the rights of third parties under
any contract relating thereto, without further
action or approval by the stockholders or
members.
Nothing in this section is intended to restrict the
power of any corporation, without the
authorization by the stockholders or members, to
sell, lease, exchange, mortgage, pledge or
otherwise dispose of any of its property and
assets if the same is necessary in the usual and
regular course of business of said corporation or
if the proceeds of the sale or other disposition of
such property and assets be appropriated for the
conduct of its remaining business.
In non-stock corporations where there are no
members with voting rights, the vote of at least a
majority of the trustees in office will be sufficient
authorization for the corporation to enter into any
transaction authorized by this section.
Section 41. Power to acquire own shares. - A
stock corporation shall have the power to
purchase or acquire its own shares for a
legitimate corporate purpose or purposes,
including but not limited to the following cases:
Provided, That the corporation has unrestricted
retained earnings in its books to cover the shares
to be purchased or acquired:
1. To eliminate fractional shares arising out of
stock dividends;
2. To collect or compromise an indebtedness to
the corporation, arising out of unpaid
subscription, in a delinquency sale, and to
purchase delinquent shares sold during said sale;
and
3. To pay dissenting or withdrawing stockholders
entitled to payment for their shares under the
provisions of this Code. (a)
Section 42. Power to invest corporate funds in
another corporation or business or for any other
purpose. - Subject to the provisions of this Code,
a private corporation may invest its funds in any
other corporation or business or for any purpose
other than the primary purpose for which it was
organized when approved by a majority of the
board of directors or trustees and ratified by the
stockholders representing at least two-thirds (2/3)
of the outstanding capital stock, or by at least
two thirds (2/3) of the members in the case of
non-stock corporations, at a stockholder's or
member's meeting duly called for the purpose.
Written notice of the proposed investment and
the time and place of the meeting shall be
addressed to each stockholder or member at his
place of residence as shown on the books of the
corporation and deposited to the addressee in the
post office with postage prepaid, or served
personally: Provided, That any dissenting
stockholder shall have appraisal right as provided
in this Code: Provided, however, That where the
investment by the corporation is reasonably
necessary to accomplish its primary purpose as
stated in the articles of incorporation, the
approval of the stockholders or members shall
not be necessary. (17 1/2a)
Section 43. Power to declare dividends. - The
board of directors of a stock corporation may
declare dividends out of the unrestricted retained
earnings which shall be payable in cash, in
property, or in stock to all stockholders on the
basis of outstanding stock held by them:
Provided, That any cash dividends due on
delinquent stock shall first be applied to the
unpaid balance on the subscription plus costs and
expenses, while stock dividends shall be withheld
from the delinquent stockholder until his unpaid
subscription is fully paid: Provided, further, That
no stock dividend shall be issued without the
approval of stockholders representing not less
than two-thirds (2/3) of the outstanding capital
stock at a regular or special meeting duly called
for the purpose. (16a)
Stock corporations are prohibited from retaining
surplus profits in excess of one hundred (100%)
percent of their paid-in capital stock, except: (1)
when justified by definite corporate expansion
projects or programs approved by the board of
directors; or (2) when the corporation is
prohibited under any loan agreement with any
financial institution or creditor, whether local or
foreign, from declaring dividends without its/his
consent, and such consent has not yet been
secured; or (3) when it can be clearly shown that
such retention is necessary under special
circumstances obtaining in the corporation, such
as when there is need for special reserve for
probable contingencies. (n)
Section 44. Power to enter into management
contract. - No corporation shall conclude a
management contract with another corporation
unless such contract shall have been approved by
the board of directors and by stockholders
owning at least the majority of the outstanding
capital stock, or by at least a majority of the
members in the case of a non-stock corporation,
of both the managing and the managed
corporation, at a meeting duly called for the
purpose: Provided, That (1) where a stockholder
or stockholders representing the same interest of
both the managing and the managed
corporations own or control more than one-third
(1/3) of the total outstanding capital stock
entitled to vote of the managing corporation; or
(2) where a majority of the members of the board
of directors of the managing corporation also
constitute a majority of the members of the board
of directors of the managed corporation, then the
management contract must be approved by the
stockholders of the managed corporation owning
at least two-thirds (2/3) of the total outstanding
capital stock entitled to vote, or by at least two-
thirds (2/3) of the members in the case of a non-
stock corporation. No management contract shall
be entered into for a period longer than five years
for any one term.
The provisions of the next preceding paragraph
shall apply to any contract whereby a corporation
undertakes to manage or operate all or
substantially all of the business of another
corporation, whether such contracts are called
service contracts, operating agreements or
otherwise: Provided, however, That such service
contracts or operating agreements which relate
to the exploration, development, exploitation or
utilization of natural resources may be entered
into for such periods as may be provided by the
pertinent laws or regulations. (n)
Section 45. Ultra vires acts of corporations. - No
corporation under this Code shall possess or
exercise any corporate powers except those
conferred by this Code or by its articles of
incorporation and except such as are necessary
or incidental to the exercise of the powers so
conferred. (n)
TITLE V - BY LAWS
Section 46. Adoption of by-laws. - Every
corporation formed under this Code must, within
one (1) month after receipt of official notice of the
issuance of its certificate of incorporation by the
Securities and Exchange Commission, adopt a
code of by-laws for its government not
inconsistent with this Code. For the adoption of
by-laws by the corporation the affirmative vote of
the stockholders representing at least a majority
of the outstanding capital stock, or of at least a
majority of the members in case of non-stock
corporations, shall be necessary. The by-laws
shall be signed by the stockholders or members
voting for them and shall be kept in the principal
office of the corporation, subject to the inspection
of the stockholders or members during office
hours. A copy thereof, duly certified to by a
majority of the directors or trustees
countersigned by the secretary of the
corporation, shall be filed with the Securities and
Exchange Commission which shall be attached to
the original articles of incorporation.
Notwithstanding the provisions of the preceding
paragraph, by-laws may be adopted and filed
prior to incorporation; in such case, such by-laws
shall be approved and signed by all the
incorporators and submitted to the Securities and
Exchange Commission, together with the articles
of incorporation.
In all cases, by-laws shall be effective only upon
the issuance by the Securities and Exchange
Commission of a certification that the by-laws are
not inconsistent with this Code.
The Securities and Exchange Commission shall
not accept for filing the by-laws or any
amendment thereto of any bank, banking
institution, building and loan association, trust
company, insurance company, public utility,
educational institution or other special
corporations governed by special laws, unless
accompanied by a certificate of the appropriate
government agency to the effect that such by-
laws or amendments are in accordance with law.
(20a)
Section 47. Contents of by-laws. - Subject to the
provisions of the Constitution, this Code, other
special laws, and the articles of incorporation, a
private corporation may provide in its by-laws for:
1. The time, place and manner of calling and
conducting regular or special meetings of the
directors or trustees;
2. The time and manner of calling and conducting
regular or special meetings of the stockholders or
members;
3. The required quorum in meetings of
stockholders or members and the manner of
voting therein;
4. The form for proxies of stockholders and
members and the manner of voting them;
5. The qualifications, duties and compensation of
directors or trustees, officers and employees;
6. The time for holding the annual election of
directors of trustees and the mode or manner of
giving notice thereof;
7. The manner of election or appointment and the
term of office of all officers other than directors or
trustees;
8. The penalties for violation of the by-laws;
9. In the case of stock corporations, the manner
of issuing stock certificates; and
10. Such other matters as may be necessary for
the proper or convenient transaction of its
corporate business and affairs. (21a)
Section 48. Amendments to by-laws. - The board
of directors or trustees, by a majority vote
thereof, and the owners of at least a majority of
the outstanding capital stock, or at least a
majority of the members of a non-stock
corporation, at a regular or special meeting duly
called for the purpose, may amend or repeal any
by-laws or adopt new by-laws. The owners of two-
thirds (2/3) of the outstanding capital stock or
two-thirds (2/3) of the members in a non-stock
corporation may delegate to the board of
directors or trustees the power to amend or
repeal any by-laws or adopt new by-laws:
Provided, That any power delegated to the board
of directors or trustees to amend or repeal any
by-laws or adopt new by-laws shall be considered
as revoked whenever stockholders owning or
representing a majority of the outstanding capital
stock or a majority of the members in non-stock
corporations, shall so vote at a regular or special
meeting.
Whenever any amendment or new by-laws are
adopted, such amendment or new by-laws shall
be attached to the original by-laws in the office of
the corporation, and a copy thereof, duly certified
under oath by the corporate secretary and a
majority of the directors or trustees, shall be filed
with the Securities and Exchange Commission the
same to be attached to the original articles of
incorporation and original by-laws.
The amended or new by-laws shall only be
effective upon the issuance by the Securities and
Exchange Commission of a certification that the
same are not inconsistent with this Code. (22a
and 23a)
TITLE VI - MEETINGS
Section 49. Kinds of meetings. - Meetings of
directors, trustees, stockholders, or members
may be regular or special. (n)
Section 50. Regular and special meetings of
stockholders or members. - Regular meetings of
stockholders or members shall be held annually
on a date fixed in the by-laws, or if not so fixed,
on any date in April of every year as determined
by the board of directors or trustees: Provided,
That written notice of regular meetings shall be
sent to all stockholders or members of record at
least two (2) weeks prior to the meeting, unless a
different period is required by the by-laws.
Special meetings of stockholders or members
shall be held at any time deemed necessary or as
provided in the by-laws: Provided, however, That
at least one (1) week written notice shall be sent
to all stockholders or members, unless otherwise
provided in the by-laws.
Notice of any meeting may be waived, expressly
or impliedly, by any stockholder or member.
Whenever, for any cause, there is no person
authorized to call a meeting, the Securities and
Exchange Commission, upon petition of a
stockholder or member on a showing of good
cause therefor, may issue an order to the
petitioning stockholder or member directing him
to call a meeting of the corporation by giving
proper notice required by this Code or by the by-
laws. The petitioning stockholder or member shall
preside thereat until at least a majority of the
stockholders or members present have chosen
one of their number as presiding officer. (24, 26)
Section 51. Place and time of meetings of
stockholders of members. - Stockholder's or
member's meetings, whether regular or special,
shall be held in the city or municipality where the
principal office of the corporation is located, and
if practicable in the principal office of the
corporation: Provided, That Metro Manila shall, for
purposes of this section, be considered a city or
municipality.
Notice of meetings shall be in writing, and the
time and place thereof stated therein.
All proceedings had and any business transacted
at any meeting of the stockholders or members,
if within the powers or authority of the
corporation, shall be valid even if the meeting be
improperly held or called, provided all the
stockholders or members of the corporation are
present or duly represented at the meeting. (24
and 25)
Section 52. Quorum in meetings. - Unless
otherwise provided for in this Code or in the by-
laws, a quorum shall consist of the stockholders
representing a majority of the outstanding capital
stock or a majority of the members in the case of
non-stock corporations. (n)
Section 53. Regular and special meetings of
directors or trustees. - Regular meetings of the
board of directors or trustees of every corporation
shall be held monthly, unless the by-laws provide
otherwise.
Special meetings of the board of directors or
trustees may be held at any time upon the call of
the president or as provided in the by-laws.
Meetings of directors or trustees of corporations
may be held anywhere in or outside of the
Philippines, unless the by-laws provide otherwise.
Notice of regular or special meetings stating the
date, time and place of the meeting must be sent
to every director or trustee at least one (1) day
prior to the scheduled meeting, unless otherwise
provided by the by-laws. A director or trustee
may waive this requirement, either expressly or
impliedly. (n)
Section 54. Who shall preside at meetings. - The
president shall preside at all meetings of the
directors or trustee as well as of the stockholders
or members, unless the by-laws provide
otherwise. (n)
Section 55. Right to vote of pledgors,
mortgagors, and administrators. - In case of
pledged or mortgaged shares in stock
corporations, the pledgor or mortgagor shall have
the right to attend and vote at meetings of
stockholders, unless the pledgee or mortgagee is
expressly given by the pledgor or mortgagor such
right in writing which is recorded on the
appropriate corporate books. (n)
Executors, administrators, receivers, and other
legal representatives duly appointed by the court
may attend and vote in behalf of the stockholders
or members without need of any written proxy.
(27a)
Section 56. Voting in case of joint ownership of
stock. - In case of shares of stock owned jointly
by two or more persons, in order to vote the
same, the consent of all the co-owners shall be
necessary, unless there is a written proxy, signed
by all the co-owners, authorizing one or some of
them or any other person to vote such share or
shares: Provided, That when the shares are
owned in an "and/or" capacity by the holders
thereof, any one of the joint owners can vote said
shares or appoint a proxy therefor. (n)
Section 57. Voting right for treasury shares. -
Treasury shares shall have no voting right as long
as such shares remain in the Treasury. (n)
Section 58. Proxies. - Stockholders and
members may vote in person or by proxy in all
meetings of stockholders or members. Proxies
shall in writing, signed by the stockholder or
member and filed before the scheduled meeting
with the corporate secretary. Unless otherwise
provided in the proxy, it shall be valid only for the
meeting for which it is intended. No proxy shall
be valid and effective for a period longer than
five (5) years at any one time. (n)
Section 59. Voting trusts. - One or more
stockholders of a stock corporation may create a
voting trust for the purpose of conferring upon a
trustee or trustees the right to vote and other
rights pertaining to the shares for a period not
exceeding five (5) years at any time: Provided,
That in the case of a voting trust specifically
required as a condition in a loan agreement, said
voting trust may be for a period exceeding five
(5) years but shall automatically expire upon full
payment of the loan. A voting trust agreement
must be in writing and notarized, and shall
specify the terms and conditions thereof. A
certified copy of such agreement shall be filed
with the corporation and with the Securities and
Exchange Commission; otherwise, said
agreement is ineffective and unenforceable. The
certificate or certificates of stock covered by the
voting trust agreement shall be cancelled and
new ones shall be issued in the name of the
trustee or trustees stating that they are issued
pursuant to said agreement. In the books of the
corporation, it shall be noted that the transfer in
the name of the trustee or trustees is made
pursuant to said voting trust agreement.
The trustee or trustees shall execute and deliver
to the transferors voting trust certificates, which
shall be transferable in the same manner and
with the same effect as certificates of stock.
The voting trust agreement filed with the
corporation shall be subject to examination by
any stockholder of the corporation in the same
manner as any other corporate book or record:
Provided, That both the transferor and the trustee
or trustees may exercise the right of inspection of
all corporate books and records in accordance
with the provisions of this Code.
Any other stockholder may transfer his shares to
the same trustee or trustees upon the terms and
conditions stated in the voting trust agreement,
and thereupon shall be bound by all the
provisions of said agreement.
No voting trust agreement shall be entered into
for the purpose of circumventing the law against
monopolies and illegal combinations in restraint
of trade or used for purposes of fraud.
Unless expressly renewed, all rights granted in a
voting trust agreement shall automatically expire
at the end of the agreed period, and the voting
trust certificates as well as the certificates of
stock in the name of the trustee or trustees shall
thereby be deemed cancelled and new
certificates of stock shall be reissued in the name
of the transferors.
The voting trustee or trustees may vote by proxy
unless the agreement provides otherwise. (36a)
TITLE VII - STOCKS AND STOCKHOLDERS
Section 60. Subscription contract. - Any contract
for the acquisition of unissued stock in an existing
corporation or a corporation still to be formed
shall be deemed a subscription within the
meaning of this Title, notwithstanding the fact
that the parties refer to it as a purchase or some
other contract. (n)
Section 61. Pre-incorporation subscription. - A
subscription for shares of stock of a corporation
still to be formed shall be irrevocable for a period
of at least six (6) months from the date of
subscription, unless all of the other subscribers
consent to the revocation, or unless the
incorporation of said corporation fails to
materialize within said period or within a longer
period as may be stipulated in the contract of
subscription: Provided, That no pre-incorporation
subscription may be revoked after the submission
of the articles of incorporation to the Securities
and Exchange Commission. (n)
Section 62. Consideration for stocks. - Stocks
shall not be issued for a consideration less than
the par or issued price thereof. Consideration for
the issuance of stock may be any or a
combination of any two or more of the following:
1. Actual cash paid to the corporation;
2. Property, tangible or intangible,
actually received by the corporation and
necessary or convenient for its use and
lawful purposes at a fair valuation equal
to the par or issued value of the stock
issued;
3. Labor performed for or services
actually rendered to the corporation;
4. Previously incurred indebtedness of the
corporation;
5. Amounts transferred from unrestricted
retained earnings to stated capital; and
6. Outstanding shares exchanged for
stocks in the event of reclassification or
conversion.
Where the consideration is other than actual
cash, or consists of intangible property such as
patents of copyrights, the valuation thereof shall
initially be determined by the incorporators or the
board of directors, subject to approval by the
Securities and Exchange Commission.
Shares of stock shall not be issued in exchange
for promissory notes or future service.
The same considerations provided for in this
section, insofar as they may be applicable, may
be used for the issuance of bonds by the
corporation.
The issued price of no-par value shares may be
fixed in the articles of incorporation or by the
board of directors pursuant to authority conferred
upon it by the articles of incorporation or the by-
laws, or in the absence thereof, by the
stockholders representing at least a majority of
the outstanding capital stock at a meeting duly
called for the purpose. (5 and 16)
Section 63. Certificate of stock and transfer of
shares. - The capital stock of stock corporations
shall be divided into shares for which certificates
signed by the president or vice president,
countersigned by the secretary or assistant
secretary, and sealed with the seal of the
corporation shall be issued in accordance with
the by-laws. Shares of stock so issued are
personal property and may be transferred by
delivery of the certificate or certificates indorsed
by the owner or his attorney-in-fact or other
person legally authorized to make the transfer.
No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded
in the books of the corporation showing the
names of the parties to the transaction, the date
of the transfer, the number of the certificate or
certificates and the number of shares transferred.
No shares of stock against which the corporation
holds any unpaid claim shall be transferable in
the books of the corporation. (35)
Section 64. Issuance of stock certificates. - No
certificate of stock shall be issued to a subscriber
until the full amount of his subscription together
with interest and expenses (in case of delinquent
shares), if any is due, has been paid. (37)
Section 65. Liability of directors for watered
stocks. - Any director or officer of a corporation
consenting to the issuance of stocks for a
consideration less than its par or issued value or
for a consideration in any form other than cash,
valued in excess of its fair value, or who, having
knowledge thereof, does not forthwith express his
objection in writing and file the same with the
corporate secretary, shall be solidarily, liable with
the stockholder concerned to the corporation and
its creditors for the difference between the fair
value received at the time of issuance of the
stock and the par or issued value of the same. (n)
Section 66. Interest on unpaid subscriptions. -
Subscribers for stock shall pay to the corporation
interest on all unpaid subscriptions from the date
of subscription, if so required by, and at the rate
of interest fixed in the by-laws. If no rate of
interest is fixed in the by-laws, such rate shall be
deemed to be the legal rate. (37)
Section 67. Payment of balance of subscription.
- Subject to the provisions of the contract of
subscription, the board of directors of any stock
corporation may at any time declare due and
payable to the corporation unpaid subscriptions
to the capital stock and may collect the same or
such percentage thereof, in either case with
accrued interest, if any, as it may deem
necessary.
Payment of any unpaid subscription or any
percentage thereof, together with the interest
accrued, if any, shall be made on the date
specified in the contract of subscription or on the
date stated in the call made by the board. Failure
to pay on such date shall render the entire
balance due and payable and shall make the
stockholder liable for interest at the legal rate on
such balance, unless a different rate of interest is
provided in the by-laws, computed from such
date until full payment. If within thirty (30) days
from the said date no payment is made, all stocks
covered by said subscription shall thereupon
become delinquent and shall be subject to sale as
hereinafter provided, unless the board of
directors orders otherwise. (38)
Section 68. Delinquency sale. - The board of
directors may, by resolution, order the sale of
delinquent stock and shall specifically state the
amount due on each subscription plus all accrued
interest, and the date, time and place of the sale
which shall not be less than thirty (30) days nor
more than sixty (60) days from the date the
stocks become delinquent.
Notice of said sale, with a copy of the resolution,
shall be sent to every delinquent stockholder
either personally or by registered mail. The same
shall furthermore be published once a week for
two (2) consecutive weeks in a newspaper of
general circulation in the province or city where
the principal office of the corporation is located.
Unless the delinquent stockholder pays to the
corporation, on or before the date specified for
the sale of the delinquent stock, the balance due
on his subscription, plus accrued interest, costs of
advertisement and expenses of sale, or unless
the board of directors otherwise orders, said
delinquent stock shall be sold at public auction to
such bidder who shall offer to pay the full amount
of the balance on the subscription together with
accrued interest, costs of advertisement and
expenses of sale, for the smallest number of
shares or fraction of a share. The stock so
purchased shall be transferred to such purchaser
in the books of the corporation and a certificate
for such stock shall be issued in his favor. The
remaining shares, if any, shall be credited in favor
of the delinquent stockholder who shall likewise
be entitled to the issuance of a certificate of
stock covering such shares.
Should there be no bidder at the public auction
who offers to pay the full amount of the balance
on the subscription together with accrued
interest, costs of advertisement and expenses of
sale, for the smallest number of shares or fraction
of a share, the corporation may, subject to the
provisions of this Code, bid for the same, and the
total amount due shall be credited as paid in full
in the books of the corporation. Title to all the
shares of stock covered by the subscription shall
be vested in the corporation as treasury shares
and may be disposed of by said corporation in
accordance with the provisions of this Code. (39a-
46a)
Section 69. When sale may be questioned. - No
action to recover delinquent stock sold can be
sustained upon the ground of irregularity or
defect in the notice of sale, or in the sale itself of
the delinquent stock, unless the party seeking to
maintain such action first pays or tenders to the
party holding the stock the sum for which the
same was sold, with interest from the date of sale
at the legal rate; and no such action shall be
maintained unless it is commenced by the filing
of a complaint within six (6) months from the
date of sale. (47a)
Section 70. Court action to recover unpaid
subscription. - Nothing in this Code shall prevent
the corporation from collecting by action in a
court of proper jurisdiction the amount due on
any unpaid subscription, with accrued interest,
costs and expenses. (49a)
Section 71. Effect of delinquency. - No
delinquent stock shall be voted for or be entitled
to vote or to representation at any stockholder's
meeting, nor shall the holder thereof be entitled
to any of the rights of a stockholder except the
right to dividends in accordance with the
provisions of this Code, until and unless he pays
the amount due on his subscription with accrued
interest, and the costs and expenses of
advertisement, if any. (50a)
Section 72. Rights of unpaid shares. - Holders of
subscribed shares not fully paid which are not
delinquent shall have all the rights of a
stockholder. (n)
Section 73. Lost or destroyed certificates. - The
following procedure shall be followed for the
issuance by a corporation of new certificates of
stock in lieu of those which have been lost, stolen
or destroyed:
1. The registered owner of a certificate of
stock in a corporation or his legal
representative shall file with the
corporation an affidavit in triplicate
setting forth, if possible, the
circumstances as to how the certificate
was lost, stolen or destroyed, the number
of shares represented by such certificate,
the serial number of the certificate and
the name of the corporation which issued
the same. He shall also submit such other
information and evidence which he may
deem necessary;
2. After verifying the affidavit and other
information and evidence with the books
of the corporation, said corporation shall
publish a notice in a newspaper of
general circulation published in the place
where the corporation has its principal
office, once a week for three (3)
consecutive weeks at the expense of the
registered owner of the certificate of
stock which has been lost, stolen or
destroyed. The notice shall state the
name of said corporation, the name of the
registered owner and the serial number of
said certificate, and the number of shares
represented by such certificate, and that
after the expiration of one (1) year from
the date of the last publication, if no
contest has been presented to said
corporation regarding said certificate of
stock, the right to make such contest
shall be barred and said corporation shall
cancel in its books the certificate of stock
which has been lost, stolen or destroyed
and issue in lieu thereof new certificate of
stock, unless the registered owner files a
bond or other security in lieu thereof as
may be required, effective for a period of
one (1) year, for such amount and in such
form and with such sureties as may be
satisfactory to the board of directors, in
which case a new certificate may be
issued even before the expiration of the
one (1) year period provided herein:
Provided, That if a contest has been
presented to said corporation or if an
action is pending in court regarding the
ownership of said certificate of stock
which has been lost, stolen or destroyed,
the issuance of the new certificate of
stock in lieu thereof shall be suspended
until the final decision by the court
regarding the ownership of said
certificate of stock which has been lost,
stolen or destroyed.
Except in case of fraud, bad faith, or
negligence on the part of the corporation
and its officers, no action may be brought
against any corporation which shall have
issued certificate of stock in lieu of those
lost, stolen or destroyed pursuant to the
procedure above-described. (R.A. 201a)
TITLE VIII - CORPORATE BOOKS AND
RECORDS
Section 74. Books to be kept; stock transfer
agent. - Every corporation shall keep and
carefully preserve at its principal office a record
of all business transactions and minutes of all
meetings of stockholders or members, or of the
board of directors or trustees, in which shall be
set forth in detail the time and place of holding
the meeting, how authorized, the notice given,
whether the meeting was regular or special, if
special its object, those present and absent, and
every act done or ordered done at the meeting.
Upon the demand of any director, trustee,
stockholder or member, the time when any
director, trustee, stockholder or member entered
or left the meeting must be noted in the minutes;
and on a similar demand, the yeas and nays must
be taken on any motion or proposition, and a
record thereof carefully made. The protest of any
director, trustee, stockholder or member on any
action or proposed action must be recorded in full
on his demand.
The records of all business transactions of the
corporation and the minutes of any meetings
shall be open to inspection by any director,
trustee, stockholder or member of the
corporation at reasonable hours on business days
and he may demand, in writing, for a copy of
excerpts from said records or minutes, at his
expense.
Any officer or agent of the corporation who shall
refuse to allow any director, trustees, stockholder
or member of the corporation to examine and
copy excerpts from its records or minutes, in
accordance with the provisions of this Code, shall
be liable to such director, trustee, stockholder or
member for damages, and in addition, shall be
guilty of an offense which shall be punishable
under Section 144 of this Code: Provided, That if
such refusal is made pursuant to a resolution or
order of the board of directors or trustees, the
liability under this section for such action shall be
imposed upon the directors or trustees who voted
for such refusal: and Provided, further, That it
shall be a defense to any action under this
section that the person demanding to examine
and copy excerpts from the corporation's records
and minutes has improperly used any information
secured through any prior examination of the
records or minutes of such corporation or of any
other corporation, or was not acting in good faith
or for a legitimate purpose in making his demand.
Stock corporations must also keep a book to be
known as the "stock and transfer book", in which
must be kept a record of all stocks in the names
of the stockholders alphabetically arranged; the
installments paid and unpaid on all stock for
which subscription has been made, and the date
of payment of any installment; a statement of
every alienation, sale or transfer of stock made,
the date thereof, and by and to whom made; and
such other entries as the by-laws may prescribe.
The stock and transfer book shall be kept in the
principal office of the corporation or in the office
of its stock transfer agent and shall be open for
inspection by any director or stockholder of the
corporation at reasonable hours on business
days.
No stock transfer agent or one engaged
principally in the business of registering transfers
of stocks in behalf of a stock corporation shall be
allowed to operate in the Philippines unless he
secures a license from the Securities and
Exchange Commission and pays a fee as may be
fixed by the Commission, which shall be
renewable annually: Provided, That a stock
corporation is not precluded from performing or
making transfer of its own stocks, in which case
all the rules and regulations imposed on stock
transfer agents, except the payment of a license
fee herein provided, shall be applicable. (51a and
32a; P.B. No. 268.)
Section 75. Right to financial statements. -
Within ten (10) days from receipt of a written
request of any stockholder or member, the
corporation shall furnish to him its most recent
financial statement, which shall include a balance
sheet as of the end of the last taxable year and a
profit or loss statement for said taxable year,
showing in reasonable detail its assets and
liabilities and the result of its operations.
At the regular meeting of stockholders or
members, the board of directors or trustees shall
present to such stockholders or members a
financial report of the operations of the
corporation for the preceding year, which shall
include financial statements, duly signed and
certified by an independent certified public
accountant.
However, if the paid-up capital of the corporation
is less than P50,000.00, the financial statements
may be certified under oath by the treasurer or
any responsible officer of the corporation. (n)
TITLE IX - MERGER AND CONSOLIDATION
Section 76. Plan or merger of consolidation. -
Two or more corporations may merge into a
single corporation which shall be one of the
constituent corporations or may consolidate into
a new single corporation which shall be the
consolidated corporation.
The board of directors or trustees of each
corporation, party to the merger or consolidation,
shall approve a plan of merger or consolidation
setting forth the following:
1. The names of the corporations
proposing to merge or consolidate,
hereinafter referred to as the constituent
corporations;
2. The terms of the merger or
consolidation and the mode of carrying
the same into effect;
3. A statement of the changes, if any, in
the articles of incorporation of the
surviving corporation in case of merger;
and, with respect to the consolidated
corporation in case of consolidation, all
the statements required to be set forth in
the articles of incorporation for
corporations organized under this Code;
and
4. Such other provisions with respect to
the proposed merger or consolidation as
are deemed necessary or desirable. (n)
Section 77. Stockholder's or member's
approval. - Upon approval by majority vote of
each of the board of directors or trustees of the
constituent corporations of the plan of merger or
consolidation, the same shall be submitted for
approval by the stockholders or members of each
of such corporations at separate corporate
meetings duly called for the purpose. Notice of
such meetings shall be given to all stockholders
or members of the respective corporations, at
least two (2) weeks prior to the date of the
meeting, either personally or by registered mail.
Said notice shall state the purpose of the meeting
and shall include a copy or a summary of the plan
of merger or consolidation. The affirmative vote
of stockholders representing at least two-thirds
(2/3) of the outstanding capital stock of each
corporation in the case of stock corporations or at
least two-thirds (2/3) of the members in the case
of non-stock corporations shall be necessary for
the approval of such plan. Any dissenting
stockholder in stock corporations may exercise
his appraisal right in accordance with the Code:
Provided, That if after the approval by the
stockholders of such plan, the board of directors
decides to abandon the plan, the appraisal right
shall be extinguished.
Any amendment to the plan of merger or
consolidation may be made, provided such
amendment is approved by majority vote of the
respective boards of directors or trustees of all
the constituent corporations and ratified by the
affirmative vote of stockholders representing at
least two-thirds (2/3) of the outstanding capital
stock or of two-thirds (2/3) of the members of
each of the constituent corporations. Such plan,
together with any amendment, shall be
considered as the agreement of merger or
consolidation. (n)
Section 78. Articles of merger or consolidation. -
After the approval by the stockholders or
members as required by the preceding section,
articles of merger or articles of consolidation shall
be executed by each of the constituent
corporations, to be signed by the president or
vice-president and certified by the secretary or
assistant secretary of each corporation setting
forth:
1. The plan of the merger or the plan of
consolidation;
2. As to stock corporations, the number of
shares outstanding, or in the case of non-
stock corporations, the number of
members; and
3. As to each corporation, the number of
shares or members voting for and against
such plan, respectively. (n)
Section 79. Effectivity of merger or
consolidation. - The articles of merger or of
consolidation, signed and certified as herein
above required, shall be submitted to the
Securities and Exchange Commission in
quadruplicate for its approval: Provided, That in
the case of merger or consolidation of banks or
banking institutions, building and loan
associations, trust companies, insurance
companies, public utilities, educational
institutions and other special corporations
governed by special laws, the favorable
recommendation of the appropriate government
agency shall first be obtained. If the Commission
is satisfied that the merger or consolidation of the
corporations concerned is not inconsistent with
the provisions of this Code and existing laws, it
shall issue a certificate of merger or of
consolidation, at which time the merger or
consolidation shall be effective.
If, upon investigation, the Securities and
Exchange Commission has reason to believe that
the proposed merger or consolidation is contrary
to or inconsistent with the provisions of this Code
or existing laws, it shall set a hearing to give the
corporations concerned the opportunity to be
heard. Written notice of the date, time and place
of hearing shall be given to each constituent
corporation at least two (2) weeks before said
hearing. The Commission shall thereafter proceed
as provided in this Code. (n)
Section 80. Effects of merger or consolidation. -
The merger or consolidation shall have the
following effects:
1. The constituent corporations shall
become a single corporation which, in
case of merger, shall be the surviving
corporation designated in the plan of
merger; and, in case of consolidation,
shall be the consolidated corporation
designated in the plan of consolidation;
2. The separate existence of the
constituent corporations shall cease,
except that of the surviving or the
consolidated corporation;
3. The surviving or the consolidated
corporation shall possess all the rights,
privileges, immunities and powers and
shall be subject to all the duties and
liabilities of a corporation organized under
this Code;
4. The surviving or the consolidated
corporation shall thereupon and
thereafter possess all the rights,
privileges, immunities and franchises of
each of the constituent corporations; and
all property, real or personal, and all
receivables due on whatever account,
including subscriptions to shares and
other choses in action, and all and every
other interest of, or belonging to, or due
to each constituent corporation, shall be
deemed transferred to and vested in such
surviving or consolidated corporation
without further act or deed; and
5. The surviving or consolidated
corporation shall be responsible and liable
for all the liabilities and obligations of
each of the constituent corporations in
the same manner as if such surviving or
consolidated corporation had itself
incurred such liabilities or obligations; and
any pending claim, action or proceeding
brought by or against any of such
constituent corporations may be
prosecuted by or against the surviving or
consolidated corporation. The rights of
creditors or liens upon the property of any
of such constituent corporations shall not
be impaired by such merger or
consolidation. (n)
TITLE X - APPRAISAL RIGHT
Section 81. Instances of appraisal right. - Any
stockholder of a corporation shall have the right
to dissent and demand payment of the fair value
of his shares in the following instances:
1. In case any amendment to the articles
of incorporation has the effect of
changing or restricting the rights of any
stockholder or class of shares, or of
authorizing preferences in any respect
superior to those of outstanding shares of
 any class, or of extending or shortening
the term of corporate existence;
2. In case of sale, lease, exchange,
transfer, mortgage, pledge or other
disposition of all or substantially all of the
corporate property and assets as
provided in the Code; and
3. In case of merger or consolidation. (n)
Section 82. How right is exercised. - The
appraisal right may be exercised by any
stockholder who shall have voted against the
proposed corporate action, by making a written
demand on the corporation within thirty (30) days
after the date on which the vote was taken for
payment of the fair value of his shares: Provided,
That failure to make the demand within such
period shall be deemed a waiver of the appraisal
right. If the proposed corporate action is
implemented or affected, the corporation shall
pay to such stockholder, upon surrender of the
certificate or certificates of stock representing his
shares, the fair value thereof as of the day prior
to the date on which the vote was taken,
excluding any appreciation or depreciation in
anticipation of such corporate action.
If within a period of sixty (60) days from the date
the corporate action was approved by the
stockholders, the withdrawing stockholder and
the corporation cannot agree on the fair value of
the shares, it shall be determined and appraised
by three (3) disinterested persons, one of whom
shall be named by the stockholder, another by
the corporation, and the third by the two thus
chosen. The findings of the majority of the
appraisers shall be final, and their award shall be
paid by the corporation within thirty (30) days
after such award is made: Provided, That no
payment shall be made to any dissenting
stockholder unless the corporation has
unrestricted retained earnings in its books to
cover such payment: and Provided, further, That
upon payment by the corporation of the agreed
or awarded price, the stockholder shall forthwith
transfer his shares to the corporation. (n)
Section 83. Effect of demand and termination of
right. - From the time of demand for payment of
the fair value of a stockholder's shares until
either the abandonment of the corporate action
involved or the purchase of the said shares by the
corporation, all rights accruing to such shares,
including voting and dividend rights, shall be
suspended in accordance with the provisions of
this Code, except the right of such stockholder to
receive payment of the fair value thereof:
Provided, That if the dissenting stockholder is not
paid the value of his shares within 30 days after
the award, his voting and dividend rights shall
immediately be restored. (n)
Section 84. When right to payment ceases. - No
demand for payment under this Title may be
withdrawn unless the corporation consents
thereto. If, however, such demand for payment is
withdrawn with the consent of the corporation, or
if the proposed corporate action is abandoned or
rescinded by the corporation or disapproved by
the Securities and Exchange Commission where
such approval is necessary, or if the Securities
and Exchange Commission determines that such
stockholder is not entitled to the appraisal right,
then the right of said stockholder to be paid the
fair value of his shares shall cease, his status as a
stockholder shall thereupon be restored, and all
dividend distributions which would have accrued
on his shares shall be paid to him. (n)
Section 85. Who bears costs of appraisal. - The
costs and expenses of appraisal shall be borne by
the corporation, unless the fair value ascertained
by the appraisers is approximately the same as
the price which the corporation may have offered
to pay the stockholder, in which case they shall
be borne by the latter. In the case of an action to
recover such fair value, all costs and expenses
shall be assessed against the corporation, unless
the refusal of the stockholder to receive payment
was unjustified. (n)
Section 86. Notation on certificates; rights of
transferee. - Within ten (10) days after
demanding payment for his shares, a dissenting
stockholder shall submit the certificates of stock
representing his shares to the corporation for
notation thereon that such shares are dissenting
shares. His failure to do so shall, at the option of
the corporation, terminate his rights under this
Title. If shares represented by the certificates
bearing such notation are transferred, and the
certificates consequently cancelled, the rights of
the transferor as a dissenting stockholder under
this Title shall cease and the transferee shall
have all the rights of a regular stockholder; and
all dividend distributions which would have
accrued on such shares shall be paid to the
transferee. (n)
TITLE XI - NON-STOCK CORPORATIONS
Section 87. Definition. - For the purposes of this
Code, a non-stock corporation is one where no
part of its income is distributable as dividends to
its members, trustees, or officers, subject to the
provisions of this Code on dissolution: Provided,
That any profit which a non-stock corporation
may obtain as an incident to its operations shall,
whenever necessary or proper, be used for the
furtherance of the purpose or purposes for which
the corporation was organized, subject to the
provisions of this Title.
The provisions governing stock corporation, when
pertinent, shall be applicable to non-stock
corporations, except as may be covered by
specific provisions of this Title. (n)
Section 88. Purposes. - Non-stock corporations
may be formed or organized for charitable,
religious, educational, professional, cultural,
fraternal, literary, scientific, social, civic service,
or similar purposes, like trade, industry,
agricultural and like chambers, or any
combination thereof, subject to the special
provisions of this Title governing particular
classes of non-stock corporations. (n)
CHAPTER I may provide that the members of a non-stock
MEMBERS
Section 89. Right to vote. - The right of the
members of any class or classes to vote may be
limited, broadened or denied to the extent
specified in the articles of incorporation or the by-
laws. Unless so limited, broadened or denied,
each member, regardless of class, shall be
entitled to one vote.
Unless otherwise provided in the articles of
incorporation or the by-laws, a member may vote
by proxy in accordance with the provisions of this
Code. (n)
Voting by mail or other similar means by
members of non-stock corporations may be
authorized by the by-laws of non-stock
corporations with the approval of, and under such
conditions which may be prescribed by, the
Securities and Exchange Commission.
Section 90. Non-transferability of membership. -
Membership in a non-stock corporation and all
rights arising therefrom are personal and non-
transferable, unless the articles of incorporation
or the by-laws otherwise provide. (n)
Section 91. Termination of membership. -
Membership shall be terminated in the manner
and for the causes provided in the articles of
incorporation or the by-laws. Termination of
membership shall have the effect of
extinguishing all rights of a member in the
corporation or in its property, unless otherwise
provided in the articles of incorporation or the by-
laws. (n)
CHAPTER II
TRUSTEES AND OFFICES
Section 92. Election and term of trustees. -
Unless otherwise provided in the articles of
incorporation or the by-laws, the board of
trustees of non-stock corporations, which may be
more than fifteen (15) in number as may be fixed
in their articles of incorporation or by-laws, shall,
as soon as organized, so classify themselves that
the term of office of one-third (1/3) of their
number shall expire every year; and subsequent
elections of trustees comprising one-third (1/3) of
the board of trustees shall be held annually and
trustees so elected shall have a term of three (3)
years. Trustees thereafter elected to fill vacancies
occurring before the expiration of a particular
term shall hold office only for the unexpired
period.
No person shall be elected as trustee unless he is
a member of the corporation.
Unless otherwise provided in the articles of
incorporation or the by-laws, officers of a non-
stock corporation may be directly elected by the
members. (n)
Section 93. Place of meetings. - The by-laws
corporation may hold their regular or special
meetings at any place even outside the place
where the principal office of the corporation is
located: Provided, That proper notice is sent to all
members indicating the date, time and place of
the meeting: and Provided, further, That the
place of meeting shall be within the Philippines.
(n)
CHAPTER III
DISTRIBUTION OF ASSETS IN NON-STOCK
CORPORATIONS
Section 94. Rules of distribution. - In case
dissolution of a non-stock corporation in
accordance with the provisions of this Code, its
assets shall be applied and distributed as follows:
1. All liabilities and obligations of the
corporation shall be paid, satisfied and
discharged, or adequate provision shall
be made therefore;
2. Assets held by the corporation upon a
condition requiring return, transfer or
conveyance, and which condition occurs
by reason of the dissolution, shall be
returned, transferred or conveyed in
accordance with such requirements;
3. Assets received and held by the
corporation subject to limitations
permitting their use only for charitable,
religious, benevolent, educational or
similar purposes, but not held upon a
condition requiring return, transfer or
conveyance by reason of the dissolution,
shall be transferred or conveyed to one or
more corporations, societies or
organizations engaged in activities in the
Philippines substantially similar to those
of the dissolving corporation according to
a plan of distribution adopted pursuant to
this Chapter;
4. Assets other than those mentioned in
the preceding paragraphs, if any, shall be
distributed in accordance with the
provisions of the articles of incorporation
or the by-laws, to the extent that the
articles of incorporation or the by-laws,
determine the distributive rights of
members, or any class or classes of
members, or provide for distribution; and
5. In any other case, assets may be
distributed to such persons, societies,
organizations or corporations, whether or
not organized for profit, as may be
specified in a plan of distribution adopted
pursuant to this Chapter. (n)
Section 95. Plan of distribution of assets. - A
plan providing for the distribution of assets, not
inconsistent with the provisions of this Title, may
be adopted by a non-stock corporation in the
process of dissolution in the following manner:
The board of trustees shall, by majority vote,
adopt a resolution recommending a plan of
distribution and directing the submission thereof
to a vote at a regular or special meeting of
members having voting rights. Written notice
setting forth the proposed plan of distribution or a
summary thereof and the date, time and place of
such meeting shall be given to each member
entitled to vote, within the time and in the
manner provided in this Code for the giving of
notice of meetings to members. Such plan of
distribution shall be adopted upon approval of at
least two-thirds (2/3) of the members having
voting rights present or represented by proxy at
such meeting. (n)
TITLE XII - CLOSE CORPORATIONS
Section 96. Definition and applicability of Title. -
A close corporation, within the meaning of this
Code, is one whose articles of incorporation
provide that: (1) All the corporation's issued stock
of all classes, exclusive of treasury shares, shall
be held of record by not more than a specified
number of persons, not exceeding twenty (20);
(2) all the issued stock of all classes shall be
subject to one or more specified restrictions on
transfer permitted by this Title; and (3) The
corporation shall not list in any stock exchange or
make any public offering of any of its stock of any
class. Notwithstanding the foregoing, a shares. - Restrictions on the right to transfer
corporation shall not be deemed a close
corporation when at least two-thirds (2/3) of its
voting stock or voting rights is owned or
controlled by another corporation which is not a
close corporation within the meaning of this
Code.
Any corporation may be incorporated as a close
corporation, except mining or oil companies,
stock exchanges, banks, insurance companies,
public utilities, educational institutions and
corporations declared to be vested with public
interest in accordance with the provisions of this
Code.
The provisions of this Title shall primarily govern
close corporations: Provided, That the provisions
of other Titles of this Code shall apply suppletorily
except insofar as this Title otherwise provides.
Section 97. Articles of incorporation. - The
articles of incorporation of a close corporation
may provide:
1. For a classification of shares or rights
and the qualifications for owning or
holding the same and restrictions on their
transfers as may be stated therein,
subject to the provisions of the following
section;
2. For a classification of directors into one
or more classes, each of whom may be
voted for and elected solely by a
particular class of stock; and
3. For a greater quorum or voting
requirements in meetings of stockholders
or directors than those provided in this
Code.
The articles of incorporation of a close
corporation may provide that the business of the
corporation shall be managed by the
stockholders of the corporation rather than by a
board of directors. So long as this provision
continues in effect:
1. No meeting of stockholders need be
called to elect directors;
2. Unless the context clearly requires
otherwise, the stockholders of the
corporation shall be deemed to be
directors for the purpose of applying the
provisions of this Code; and
3. The stockholders of the corporation
shall be subject to all liabilities of
directors.
The articles of incorporation may likewise
provide that all officers or employees or
that specified officers or employees shall
be elected or appointed by the
stockholders, instead of by the board of
directors.
Section 98. Validity of restrictions on transfer of
shares must appear in the articles of
incorporation and in the by-laws as well as in the
certificate of stock; otherwise, the same shall not
be binding on any purchaser thereof in good
faith. Said restrictions shall not be more onerous
than granting the existing stockholders or the
corporation the option to purchase the shares of
the transferring stockholder with such reasonable
terms, conditions or period stated therein. If upon
the expiration of said period, the existing
stockholders or the corporation fails to exercise
the option to purchase, the transferring
stockholder may sell his shares to any third
person.
Section 99. Effects of issuance or transfer of
stock in breach of qualifying conditions. -
1. If stock of a close corporation is issued
or transferred to any person who is not
entitled under any provision of the
articles of incorporation to be a holder of
record of its stock, and if the certificate
for such stock conspicuously shows the
qualifications of the persons entitled to be
holders of record thereof, such person is
conclusively presumed to have notice of
the fact of his ineligibility to be a
stockholder.
2. If the articles of incorporation of a close
corporation states the number of persons,
 not exceeding twenty (20), who are incorporation, irrespective of where the
entitled to be holders of record of its provisions of such agreements are
stock, and if the certificate for such stock contained, except those required by this
conspicuously states such number, and if Title to be embodied in said articles of
the issuance or transfer of stock to any incorporation.
person would cause the stock to be held
2. An agreement between two or more
by more than such number of persons,
stockholders, if in writing and signed by
the person to whom such stock is issued
the parties thereto, may provide that in
or transferred is conclusively presumed to
exercising any voting rights, the shares
have notice of this fact.
held by them shall be voted as therein
3. If a stock certificate of any close provided, or as they may agree, or as
corporation conspicuously shows a determined in accordance with a
restriction on transfer of stock of the procedure agreed upon by them.
corporation, the transferee of the stock is
3. No provision in any written agreement
conclusively presumed to have notice of
signed by the stockholders, relating to
the fact that he has acquired stock in
any phase of the corporate affairs, shall
violation of the restriction, if such
be invalidated as between the parties on
acquisition violates the restriction.
the ground that its effect is to make them
4. Whenever any person to whom stock of partners among themselves.
a close corporation has been issued or
4. A written agreement among some or
transferred has, or is conclusively
all of the stockholders in a close
presumed under this section to have,
corporation shall not be invalidated on
notice either (a) that he is a person not
the ground that it so relates to the
eligible to be a holder of stock of the
conduct of the business and affairs of the
corporation, or (b) that transfer of stock
corporation as to restrict or interfere with
to him would cause the stock of the
the discretion or powers of the board of
corporation to be held by more than the
directors: Provided, That such agreement
number of persons permitted by its
shall impose on the stockholders who are
articles of incorporation to hold stock of
parties thereto the liabilities for
the corporation, or (c) that the transfer of
managerial acts imposed by this Code on
stock is in violation of a restriction on
directors.
transfer of stock, the corporation may, at
its option, refuse to register the transfer 5. To the extent that the stockholders are
of stock in the name of the transferee. actively engaged in the management or
operation of the business and affairs of a
5. The provisions of subsection (4) shall
close corporation, the stockholders shall
not be applicable if the transfer of stock,
be held to strict fiduciary duties to each
though contrary to subsections (1), (2) or
other and among themselves. Said
(3), has been consented to by all the
stockholders shall be personally liable for
stockholders of the close corporation, or if
corporate torts unless the corporation has
the close corporation has amended its
obtained reasonably adequate liability
articles of incorporation in accordance
insurance.
with this Title.
Section 101. When board meeting is
6. The term "transfer", as used in this
unnecessary or improperly held. - Unless the by-
section, is not limited to a transfer for
laws provide otherwise, any action by the
value.
directors of a close corporation without a meeting
7. The provisions of this section shall not shall nevertheless be deemed valid if:
impair any right which the transferee may
1. Before or after such action is taken,
have to rescind the transfer or to recover
written consent thereto is signed by all
under any applicable warranty, express or
the directors; or
implied.
2. All the stockholders have actual or
Section 100. Agreements by stockholders. -
implied knowledge of the action and
1. Agreements by and among make no prompt objection thereto in
stockholders executed before the writing; or
formation and organization of a close
3. The directors are accustomed to take
corporation, signed by all stockholders,
informal action with the express or
shall survive the incorporation of such
implied acquiescence of all the
corporation and shall continue to be valid
stockholders; or
and binding between and among such
stockholders, if such be their intent, to 4. All the directors have express or
the extent that such agreements are not implied knowledge of the action in
inconsistent with the articles of
 question and none of them makes prompt
objection thereto in writing.
If a director's meeting is held without proper call
or notice, an action taken therein within the
corporate powers is deemed ratified by a director
who failed to attend, unless he promptly files his
written objection with the secretary of the
corporation after having knowledge thereof.
Section 102. Pre-emptive right in close
corporations. - The pre-emptive right of
stockholders in close corporations shall extend to
all stock to be issued, including reissuance of
treasury shares, whether for money, property or
personal services, or in payment of corporate
debts, unless the articles of incorporation provide
otherwise.
Section 103. Amendment of articles of
incorporation. - Any amendment to the articles of
incorporation which seeks to delete or remove
any provision required by this Title to be
contained in the articles of incorporation or to
reduce a quorum or voting requirement stated in
said articles of incorporation shall not be valid or
effective unless approved by the affirmative vote
of at least two-thirds (2/3) of the outstanding
capital stock, whether with or without voting
rights, or of such greater proportion of shares as
may be specifically provided in the articles of
incorporation for amending, deleting or removing
any of the aforesaid provisions, at a meeting duly
called for the purpose.
Section 104. Deadlocks. - Notwithstanding any
contrary provision in the articles of incorporation
or by-laws or agreement of stockholders of a
close corporation, if the directors or stockholders
are so divided respecting the management of the
corporation's business and affairs that the votes
required for any corporate action cannot be
obtained, with the consequence that the business
and affairs of the corporation can no longer be
conducted to the advantage of the stockholders
generally, the Securities and Exchange
Commission, upon written petition by any
stockholder, shall have the power to arbitrate the
dispute. In the exercise of such power, the
Commission shall have authority to make such
order as it deems appropriate, including an order:
(1) cancelling or altering any provision contained
in the articles of incorporation, by-laws, or any
stockholder's agreement; (2) cancelling, altering
or enjoining any resolution or act of the
corporation or its board of directors, stockholders,
or officers; (3) directing or prohibiting any act of
the corporation or its board of directors,
stockholders, officers, or other persons party to
the action; (4) requiring the purchase at their fair
value of shares of any stockholder, either by the
corporation regardless of the availability of
unrestricted retained earnings in its books, or by
the other stockholders; (5) appointing a
provisional director; (6) dissolving the
corporation; or (7) granting such other relief as
the circumstances may warrant.
A provisional director shall be an impartial person
who is neither a stockholder nor a creditor of the
corporation or of any subsidiary or affiliate of the
corporation, and whose further qualifications, if
any, may be determined by the Commission. A
provisional director is not a receiver of the
corporation and does not have the title and
powers of a custodian or receiver. A provisional
director shall have all the rights and powers of a
duly elected director of the corporation, including
the right to notice of and to vote at meetings of
directors, until such time as he shall be removed
by order of the Commission or by all the
stockholders. His compensation shall be
determined by agreement between him and the
corporation subject to approval of the
Commission, which may fix his compensation in
the absence of agreement or in the event of
disagreement between the provisional director
and the corporation.
Section 105. Withdrawal of stockholder or
dissolution of corporation. - In addition and
without prejudice to other rights and remedies
available to a stockholder under this Title, any
stockholder of a close corporation may, for any
reason, compel the said corporation to purchase
his shares at their fair value, which shall not be
less than their par or issued value, when the
corporation has sufficient assets in its books to
cover its debts and liabilities exclusive of capital
stock: Provided, That any stockholder of a close
corporation may, by written petition to the
Securities and Exchange Commission, compel the
dissolution of such corporation whenever any of
acts of the directors, officers or those in control of
the corporation is illegal, or fraudulent, or
dishonest, or oppressive or unfairly prejudicial to
the corporation or any stockholder, or whenever
corporate assets are being misapplied or wasted.
TITLE XIII - SPECIAL CORPORATIONS
CHAPTER I
EDUCATIONAL CORPORATIONS
Section 106. Incorporation. - Educational
corporations shall be governed by special laws
and by the general provisions of this Code. (n)
Section 107. Pre-requisites to incorporation. -
Except upon favorable recommendation of the
Ministry of Education and Culture, the Securities
and Exchange Commission shall not accept or
approve the articles of incorporation and by-laws
of any educational institution. (168a)
Section 108. Board of trustees. - Trustees of
educational institutions organized as non-stock
corporations shall not be less than five (5) nor
more than fifteen (15): Provided, however, That
the number of trustees shall be in multiples of
five (5).
Unless otherwise provided in the articles of
incorporation on the by-laws, the board of
trustees of incorporated schools, colleges, or
other institutions of learning shall, as soon as
organized, so classify themselves that the term of
office of one-fifth (1/5) of their number shall
expire every year. Trustees thereafter elected to
fill vacancies, occurring before the expiration of a
particular term, shall hold office only for the
unexpired period. Trustees elected thereafter to
fill vacancies caused by expiration of term shall
hold office for five (5) years. A majority of the
trustees shall constitute a quorum for the
transaction of business. The powers and authority
of trustees shall be defined in the by-laws.
For institutions organized as stock corporations,
the number and term of directors shall be
governed by the provisions on stock corporations.
(169a)
CHAPTER II
RELIGIOUS CORPORATIONS
Section 109. Classes of religious corporations. -
Religious corporations may be incorporated by
one or more persons. Such corporations may be
classified into corporations sole and religious
societies.
Religious corporations shall be governed by this
Chapter and by the general provisions on non-
stock corporations insofar as they may be
applicable. (n)
Section 110. Corporation sole. - For the purpose
of administering and managing, as trustee, the
affairs, property and temporalities of any religious
denomination, sect or church, a corporation sole
may be formed by the chief archbishop, bishop,
priest, minister, rabbi or other presiding elder of
such religious denomination, sect or church.
(154a)
Section 111. Articles of incorporation. - In order
to become a corporation sole, the chief
archbishop, bishop, priest, minister, rabbi or
presiding elder of any religious denomination,
sect or church must file with the Securities and
Exchange Commission articles of incorporation
setting forth the following:
1. That he is the chief archbishop, bishop,
priest, minister, rabbi or presiding elder of
his religious denomination, sect or church
and that he desires to become a
corporation sole;
2. That the rules, regulations and
discipline of his religious denomination,
sect or church are not inconsistent with
his becoming a corporation sole and do
not forbid it;
3. That as such chief archbishop, bishop,
priest, minister, rabbi or presiding elder,
he is charged with the administration of
the temporalities and the management of
the affairs, estate and properties of his
religious denomination, sect or church
within his territorial jurisdiction,
describing such territorial jurisdiction;
4. The manner in which any vacancy
occurring in the office of chief archbishop,
bishop, priest, minister, rabbi of presiding
elder is required to be filled, according to
the rules, regulations or discipline of the
religious denomination, sect or church to
which he belongs; and
5. The place where the principal office of
the corporation sole is to be established
and located, which place must be within
the Philippines.
The articles of incorporation may include any
other provision not contrary to law for the
regulation of the affairs of the corporation. (n)
Section 112. Submission of the articles of
incorporation. - The articles of incorporation must
be verified, before filing, by affidavit or
affirmation of the chief archbishop, bishop, priest,
minister, rabbi or presiding elder, as the case
may be, and accompanied by a copy of the
commission, certificate of election or letter of
appointment of such chief archbishop, bishop,
priest, minister, rabbi or presiding elder, duly
certified to be correct by any notary public.
From and after the filing with the Securities and
Exchange Commission of the said articles of
incorporation, verified by affidavit or affirmation,
and accompanied by the documents mentioned
in the preceding paragraph, such chief
archbishop, bishop, priest, minister, rabbi or
presiding elder shall become a corporation sole
and all temporalities, estate and properties of the
religious denomination, sect or church theretofore
administered or managed by him as such chief
archbishop, bishop, priest, minister, rabbi or
presiding elder shall be held in trust by him as a
corporation sole, for the use, purpose, behalf and
sole benefit of his religious denomination, sect or
church, including hospitals, schools, colleges,
orphan asylums, parsonages and cemeteries
thereof. (n)
Section 113. Acquisition and alienation of
property. - Any corporation sole may purchase
and hold real estate and personal property for its
church, charitable, benevolent or educational
purposes, and may receive bequests or gifts for
such purposes. Such corporation may sell or
mortgage real property held by it by obtaining an
order for that purpose from the Court of First
Instance of the province where the property is
situated upon proof made to the satisfaction of
the court that notice of the application for leave
to sell or mortgage has been given by publication
or otherwise in such manner and for such time as
said court may have directed, and that it is to the
interest of the corporation that leave to sell or
mortgage should be granted. The application for
leave to sell or mortgage must be made by
petition, duly verified, by the chief archbishop,
bishop, priest, minister, rabbi or presiding elder
acting as corporation sole, and may be opposed
by any member of the religious denomination,
sect or church represented by the corporation
sole: Provided, That in cases where the rules,
regulations and discipline of the religious
denomination, sect or church, religious society or
order concerned represented by such corporation
sole regulate the method of acquiring, holding,
selling and mortgaging real estate and personal
property, such rules, regulations and discipline
shall control, and the intervention of the courts
shall not be necessary. (159a)
Section 114. Filling of vacancies. - The
successors in office of any chief archbishop,
bishop, priest, minister, rabbi or presiding elder in
a corporation sole shall become the corporation
sole on their accession to office and shall be
permitted to transact business as such on the
filing with the Securities and Exchange
Commission of a copy of their commission,
certificate of election, or letters of appointment,
duly certified by any notary public.
During any vacancy in the office of chief
archbishop, bishop, priest, minister, rabbi or
presiding elder of any religious denomination,
sect or church incorporated as a corporation sole,
the person or persons authorized and empowered
by the rules, regulations or discipline of the
religious denomination, sect or church
represented by the corporation sole to administer
the temporalities and manage the affairs, estate
and properties of the corporation sole during the
vacancy shall exercise all the powers and
authority of the corporation sole during such
vacancy. (158a)
Section 115. Dissolution. - A corporation sole
may be dissolved and its affairs settled
voluntarily by submitting to the Securities and
Exchange Commission a verified declaration of
dissolution.
The declaration of dissolution shall set forth:
1. The name of the corporation;
2. The reason for dissolution and winding
up;
3. The authorization for the dissolution of
the corporation by the particular religious
denomination, sect or church;
4. The names and addresses of the
persons who are to supervise the winding
up of the affairs of the corporation.
Upon approval of such declaration of dissolution
by the Securities and Exchange Commission, the
corporation shall cease to carry on its operations
except for the purpose of winding up its affairs.
(n)
Section 116. Religious societies. - Any religious
society or religious order, or any diocese, synod,
or district organization of any religious
denomination, sect or church, unless forbidden
by the constitution, rules, regulations, or
discipline of the religious denomination, sect or
church of which it is a part, or by competent
authority, may, upon written consent and/or by
an affirmative vote at a meeting called for the
purpose of at least two-thirds (2/3) of its
membership, incorporate for the administration
of its temporalities or for the management of its
affairs, properties and estate by filing with the
Securities and Exchange Commission, articles of
incorporation verified by the affidavit of the
presiding elder, secretary, or clerk or other
member of such religious society or religious
order, or diocese, synod, or district organization
of the religious denomination, sect or church,
setting forth the following:
1. That the religious society or religious
order, or diocese, synod, or district
organization is a religious organization of
a religious denomination, sect or church;
2. That at least two-thirds (2/3) of its
membership have given their written
consent or have voted to incorporate, at a
duly convened meeting of the body;
3. That the incorporation of the religious
society or religious order, or diocese,
synod, or district organization desiring to
incorporate is not forbidden by competent
authority or by the constitution, rules,
regulations or discipline of the religious
denomination, sect, or church of which it
forms a part;
4. That the religious society or religious
order, or diocese, synod, or district
organization desires to incorporate for the
administration of its affairs, properties
and estate;
5. The place where the principal office of
the corporation is to be established and
located, which place must be within the
Philippines; and
1. The names, nationalities, and
residences of the trustees elected
by the religious society or
religious order, or the diocese,
synod, or district organization to
serve for the first year or such
other period as may be prescribed
by the laws of the religious
society or religious order, or of
the diocese, synod, or district
organization, the board of
trustees to be not less than five
(5) nor more than fifteen (15).
(160a)
TITLE XIV - DISSOLUTION
Section 117. Methods of dissolution. - A
corporation formed or organized under the
provisions of this Code may be dissolved
voluntarily or involuntarily. (n)
Section 118. Voluntary dissolution where no
creditors are affected. - If dissolution of a
corporation does not prejudice the rights of any
creditor having a claim against it, the dissolution
may be effected by majority vote of the board of
directors or trustees, and by a resolution duly
adopted by the affirmative vote of the
stockholders owning at least two-thirds (2/3) of
the outstanding capital stock or of at least two-
thirds (2/3) of the members of a meeting to be
held upon call of the directors or trustees after
publication of the notice of time, place and object
of the meeting for three (3) consecutive weeks in
a newspaper published in the place where the
principal office of said corporation is located; and
if no newspaper is published in such place, then
in a newspaper of general circulation in the
Philippines, after sending such notice to each
stockholder or member either by registered mail
or by personal delivery at least thirty (30) days
prior to said meeting. A copy of the resolution
authorizing the dissolution shall be certified by a
majority of the board of directors or trustees and
countersigned by the secretary of the
corporation. The Securities and Exchange
Commission shall thereupon issue the certificate
of dissolution. (62a)
Section 119. Voluntary dissolution where
creditors are affected. - Where the dissolution of
a corporation may prejudice the rights of any
creditor, the petition for dissolution shall be filed
with the Securities and Exchange Commission.
The petition shall be signed by a majority of its
board of directors or trustees or other officers
having the management of its affairs, verified by
its president or secretary or one of its directors or
trustees, and shall set forth all claims and
demands against it, and that its dissolution was
resolved upon by the affirmative vote of the
stockholders representing at least two-thirds (2/3)
of the outstanding capital stock or by at least
two-thirds (2/3) of the members at a meeting of
its stockholders or members called for that
purpose.
If the petition is sufficient in form and substance,
the Commission shall, by an order reciting the
purpose of the petition, fix a date on or before
which objections thereto may be filed by any
person, which date shall not be less than thirty
(30) days nor more than sixty (60) days after the
entry of the order. Before such date, a copy of the
order shall be published at least once a week for
three (3) consecutive weeks in a newspaper of
general circulation published in the municipality
or city where the principal office of the
corporation is situated, or if there be no such
newspaper, then in a newspaper of general
circulation in the Philippines, and a similar copy
shall be posted for three (3) consecutive weeks in
three (3) public places in such municipality or
city.
Upon five (5) day's notice, given after the date on
which the right to file objections as fixed in the
order has expired, the Commission shall proceed
to hear the petition and try any issue made by
the objections filed; and if no such objection is
sufficient, and the material allegations of the
petition are true, it shall render judgment
dissolving the corporation and directing such
disposition of its assets as justice requires, and
may appoint a receiver to collect such assets and
pay the debts of the corporation. (Rule 104, RCa)
Section 120. Dissolution by shortening
corporate term. - A voluntary dissolution may be
effected by amending the articles of
incorporation to shorten the corporate term
pursuant to the provisions of this Code. A copy of
the amended articles of incorporation shall be
submitted to the Securities and Exchange
Commission in accordance with this Code. Upon
approval of the amended articles of incorporation
of the expiration of the shortened term, as the
case may be, the corporation shall be deemed
dissolved without any further proceedings,
subject to the provisions of this Code on
liquidation. (n)
Section 121. Involuntary dissolution. - A
corporation may be dissolved by the Securities
and Exchange Commission upon filing of a
verified complaint and after proper notice and
hearing on the grounds provided by existing laws,
rules and regulations. (n)
Section 122. Corporate liquidation. - Every
corporation whose charter expires by its own
limitation or is annulled by forfeiture or
otherwise, or whose corporate existence for other
purposes is terminated in any other manner, shall
nevertheless be continued as a body corporate
for three (3) years after the time when it would
have been so dissolved, for the purpose of
prosecuting and defending suits by or against it
and enabling it to settle and close its affairs, to
dispose of and convey its property and to
distribute its assets, but not for the purpose of
continuing the business for which it was
established.
At any time during said three (3) years, the
corporation is authorized and empowered to
convey all of its property to trustees for the
benefit of stockholders, members, creditors, and
other persons in interest. From and after any such
conveyance by the corporation of its property in
trust for the benefit of its stockholders, members,
creditors and others in interest, all interest which
the corporation had in the property terminates,
the legal interest vests in the trustees, and the
beneficial interest in the stockholders, members,
creditors or other persons in interest.
Upon the winding up of the corporate affairs, any
asset distributable to any creditor or stockholder
or member who is unknown or cannot be found
shall be escheated to the city or municipality
where such assets are located.
Except by decrease of capital stock and as
otherwise allowed by this Code, no corporation
shall distribute any of its assets or property
except upon lawful dissolution and after payment
of all its debts and liabilities. (77a, 89a, 16a)
TITLE XV - FOREIGN CORPORATIONS
Section 123. Definition and rights of foreign
corporations. - For the purposes of this Code, a
foreign corporation is one formed, organized or
existing under any laws other than those of the
Philippines and whose laws allow Filipino citizens
and corporations to do business in its own
country or state. It shall have the right to transact
business in the Philippines after it shall have
obtained a license to transact business in this
country in accordance with this Code and a
certificate of authority from the appropriate
government agency. (n)
Section 124. Application to existing foreign
corporations. - Every foreign corporation which on
the date of the effectivity of this Code is
authorized to do business in the Philippines under
a license therefore issued to it, shall continue to
have such authority under the terms and
condition of its license, subject to the provisions
of this Code and other special laws. (n)
Section 125. Application for a license. - A
foreign corporation applying for a license to
transact business in the Philippines shall submit
to the Securities and Exchange Commission a
copy of its articles of incorporation and by-laws,
certified in accordance with law, and their
translation to an official language of the
Philippines, if necessary. The application shall be
under oath and, unless already stated in its
articles of incorporation, shall specifically set
forth the following:
1. The date and term of incorporation;
2. The address, including the street
number, of the principal office of the
corporation in the country or state of
incorporation;
3. The name and address of its resident
agent authorized to accept summons and
process in all legal proceedings and,
pending the establishment of a local
office, all notices affecting the
corporation;
4. The place in the Philippines where the
corporation intends to operate;
5. The specific purpose or purposes which
the corporation intends to pursue in the
transaction of its business in the
Philippines: Provided, That said purpose
or purposes are those specifically stated
in the certificate of authority issued by
the appropriate government agency;
6. The names and addresses of the
present directors and officers of the
corporation;
7. A statement of its authorized capital
stock and the aggregate number of
shares which the corporation has
authority to issue, itemized by classes,
par value of shares, shares without par
value, and series, if any;
8. A statement of its outstanding capital
stock and the aggregate number of
shares which the corporation has issued,
itemized by classes, par value of shares,
shares without par value, and series, if
any;
9. A statement of the amount actually
paid in; and
10. Such additional information as may be
necessary or appropriate in order to
enable the Securities and Exchange
Commission to determine whether such
corporation is entitled to a license to
transact business in the Philippines, and
to determine and assess the fees
payable.
Attached to the application for license shall be a
duly executed certificate under oath by the
authorized official or officials of the jurisdiction of
its incorporation, attesting to the fact that the
laws of the country or state of the applicant allow
Filipino citizens and corporations to do business
therein, and that the applicant is an existing
corporation in good standing. If such certificate is
in a foreign language, a translation thereof in
English under oath of the translator shall be
attached thereto.
The application for a license to transact business
in the Philippines shall likewise be accompanied
by a statement under oath of the president or
any other person authorized by the corporation,
showing to the satisfaction of the Securities and
Exchange Commission and other governmental
agency in the proper cases that the applicant is
solvent and in sound financial condition, and
setting forth the assets and liabilities of the
corporation as of the date not exceeding one (1)
year immediately prior to the filing of the
application.
Foreign banking, financial and insurance
corporations shall, in addition to the above
requirements, comply with the provisions of
existing laws applicable to them. In the case of all
other foreign corporations, no application for
license to transact business in the Philippines
shall be accepted by the Securities and Exchange
Commission without previous authority from the
appropriate government agency, whenever
required by law. (68a)
Section 126. Issuance of a license. - If the
Securities and Exchange Commission is satisfied
that the applicant has complied with all the
requirements of this Code and other special laws,
rules and regulations, the Commission shall issue
a license to the applicant to transact business in
the Philippines for the purpose or purposes
specified in such license. Upon issuance of the
license, such foreign corporation may commence
to transact business in the Philippines and
continue to do so for as long as it retains its
authority to act as a corporation under the laws
of the country or state of its incorporation, unless
such license is sooner surrendered, revoked,
suspended or annulled in accordance with this
Code or other special laws.
Within sixty (60) days after the issuance of the
license to transact business in the Philippines, the
license, except foreign banking or insurance
corporation, shall deposit with the Securities and
Exchange Commission for the benefit of present
and future creditors of the licensee in the
Philippines, securities satisfactory to the
Securities and Exchange Commission, consisting
of bonds or other evidence of indebtedness of the
Government of the Philippines, its political
subdivisions and instrumentalities, or of
government-owned or controlled corporations
and entities, shares of stock in "registered
enterprises" as this term is defined in Republic
Act No. 5186, shares of stock in domestic
corporations registered in the stock exchange, or
shares of stock in domestic insurance companies
and banks, or any combination of these kinds of
securities, with an actual market value of at least
one hundred thousand (P100,000.) pesos;
Provided, however, That within six (6) months
after each fiscal year of the licensee, the
Securities and Exchange Commission shall
require the licensee to deposit additional
securities equivalent in actual market value to
two (2%) percent of the amount by which the
licensee's gross income for that fiscal year
exceeds five million (P5,000,000.00) pesos. The
Securities and Exchange Commission shall also
require deposit of additional securities if the
actual market value of the securities on deposit
has decreased by at least ten (10%) percent of
their actual market value at the time they were
deposited. The Securities and Exchange
Commission may at its discretion release part of
the additional securities deposited with it if the
gross income of the licensee has decreased, or if
the actual market value of the total securities on
deposit has increased, by more than ten (10%)
percent of the actual market value of the
securities at the time they were deposited. The
Securities and Exchange Commission may, from
time to time, allow the licensee to substitute
other securities for those already on deposit as
long as the licensee is solvent. Such licensee
shall be entitled to collect the interest or
dividends on the securities deposited. In the
event the licensee ceases to do business in the
Philippines, the securities deposited as aforesaid
shall be returned, upon the licensee's application
therefor and upon proof to the satisfaction of the
Securities and Exchange Commission that the
licensee has no liability to Philippine residents,
including the Government of the Republic of the
Philippines. (n)
Section 127. Who may be a resident agent. - A
resident agent may be either an individual
residing in the Philippines or a domestic
corporation lawfully transacting business in the
Philippines: Provided, That in the case of an
individual, he must be of good moral character
and of sound financial standing. (n)
Section 128. Resident agent; service of process.
- The Securities and Exchange Commission shall
require as a condition precedent to the issuance
of the license to transact business in the
Philippines by any foreign corporation that such
corporation file with the Securities and Exchange
Commission a written power of attorney
designating some person who must be a resident
of the Philippines, on whom any summons and
other legal processes may be served in all actions
or other legal proceedings against such
corporation, and consenting that service upon
such resident agent shall be admitted and held as
valid as if served upon the duly authorized
officers of the foreign corporation at its home
office. Any such foreign corporation shall likewise
execute and file with the Securities and Exchange
Commission an agreement or stipulation,
executed by the proper authorities of said
corporation, in form and substance as follows:
"The (name of foreign corporation) does hereby
stipulate and agree, in consideration of its being
granted by the Securities and Exchange
Commission a license to transact business in the
Philippines, that if at any time said corporation
shall cease to transact business in the
Philippines, or shall be without any resident agent
in the Philippines on whom any summons or other
legal processes may be served, then in any action
or proceeding arising out of any business or
transaction which occurred in the Philippines,
service of any summons or other legal process
may be made upon the Securities and Exchange
Commission and that such service shall have the
same force and effect as if made upon the duly-
authorized officers of the corporation at its home
office."
Whenever such service of summons or other
process shall be made upon the Securities and
Exchange Commission, the Commission shall,
within ten (10) days thereafter, transmit by mail a
copy of such summons or other legal process to
the corporation at its home or principal office.
The sending of such copy by the Commission
shall be necessary part of and shall complete
such service. All expenses incurred by the
Commission for such service shall be paid in
advance by the party at whose instance the
service is made.
In case of a change of address of the resident
agent, it shall be his or its duty to immediately
notify in writing the Securities and Exchange
Commission of the new address. (72a; and n)
Section 129. Law applicable. - Any foreign
corporation lawfully doing business in the
Philippines shall be bound by all laws, rules and
regulations applicable to domestic corporations of
the same class, except such only as provide for
the creation, formation, organization
dissolution of corporations or those which fix the
relations, liabilities, responsibilities, or duties of
stockholders, members, or officers
corporations to each other or to the corporation.
(73a)
Section 130. Amendments to articles of
incorporation or by-laws of foreign corporations. -
Whenever the articles of incorporation or by-laws
of a foreign corporation authorized to transact
business in the Philippines are amended, such
foreign corporation shall, within sixty (60) days
after the amendment becomes effective, file with
the Securities and Exchange Commission, and in
the proper cases with the appropriate
government agency, a duly authenticated copy of
the articles of incorporation or by-laws, as
amended, indicating clearly in capital letters or
by underscoring the change or changes made,
duly certified by the authorized official or officials
of the country or state of incorporation. The filing
thereof shall not of itself enlarge or alter the
purpose or purposes for which such corporation is
authorized to transact business in the Philippines.
(n)
Section 131. Amended license. - A foreign
corporation authorized to transact business in the
Philippines shall obtain an amended license in the
event it changes its corporate name, or desires to
pursue in the Philippines other or additional
purposes, by submitting an application therefor
to the Securities and Exchange Commission,
favorably endorsed by the appropriate
government agency in the proper cases. (n)
Section 132. Merger or consolidation involving a
foreign corporation licensed in the Philippines. -
One or more foreign corporations authorized to
transact business in the Philippines may merge or
consolidate with any domestic corporation or
corporations if such is permitted under Philippine
laws and by the law of its incorporation: Provided,
That the requirements on merger or consolidation
as provided in this Code are followed.
Whenever a foreign corporation authorized to
transact business in the Philippines shall be a
party to a merger or consolidation in its home
country or state as permitted by the law of its
incorporation, such foreign corporation shall,
within sixty (60) days after such merger or
consolidation becomes effective, file with the
Securities and Exchange Commission, and in
proper cases with the appropriate government
agency, a copy of the articles of merger or
consolidation duly authenticated by the proper
official or officials of the country or state under
the laws of which merger or consolidation was
effected: Provided, however, That if the absorbed
corporation is the foreign corporation doing
business in the Philippines, the latter shall at the
same time file a petition for withdrawal of its
license in accordance with this Title. (n)
Section 133. Doing business without a license. -
or
No foreign corporation transacting business in the
Philippines without a license, or its successors or
assigns, shall be permitted to maintain or
of
intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines;
but such corporation may be sued or proceeded
against before Philippine courts or administrative
tribunals on any valid cause of action recognized
under Philippine laws. (69a)
Section 134. Revocation of license. - Without
prejudice to other grounds provided by special
laws, the license of a foreign corporation to
transact business in the Philippines may be
revoked or suspended by the Securities and
Exchange Commission upon any of the following
grounds:
1. Failure to file its annual report or pay
any fees as required by this Code;
2. Failure to appoint and maintain a
resident agent in the Philippines as
required by this Title;
3. Failure, after change of its resident
agent or of his address, to submit to the
Securities and Exchange Commission a
statement of such change as required by
this Title;
4. Failure to submit to the Securities and
Exchange Commission an authenticated
copy of any amendment to its articles of
incorporation or by-laws or of any articles
of merger or consolidation within the time
prescribed by this Title;
5. A misrepresentation of any material
matter in any application, report, affidavit
or other document submitted by such
corporation pursuant to this Title;
6. Failure to pay any and all taxes,
imposts, assessments or penalties, if any,
lawfully due to the Philippine Government
or any of its agencies or political
subdivisions;
7. Transacting business in the Philippines
outside of the purpose or purposes for
which such corporation is authorized
under its license;
8. Transacting business in the Philippines
as agent of or acting for and in behalf of
any foreign corporation or entity not duly
licensed to do business in the Philippines;
or
9. Any other ground as would render it
unfit to transact business in the
Philippines. (n)
Section 135. Issuance of certificate of
revocation. - Upon the revocation of any such
license to transact business in the Philippines, the
Securities and Exchange Commission shall issue
a corresponding certificate of revocation,
furnishing a copy thereof to the appropriate
government agency in the proper cases.
The Securities and Exchange Commission shall
also mail to the corporation at its registered office
in the Philippines a notice of such revocation
accompanied by a copy of the certificate of
revocation. (n)
Section 136. Withdrawal of foreign corporations.
- Subject to existing laws and regulations, a
foreign corporation licensed to transact business
in the Philippines may be allowed to withdraw
from the Philippines by filing a petition for
withdrawal of license. No certificate of withdrawal
shall be issued by the Securities and Exchange
Commission unless all the following requirements
are met;
1. All claims which have accrued in the
Philippines have been paid, compromised
or settled;
2. All taxes, imposts, assessments, and
penalties, if any, lawfully due to the
Philippine Government or any of its
agencies or political subdivisions have
been paid; and
3. The petition for withdrawal of license
has been published once a week for three
(3) consecutive weeks in a newspaper of
general circulation in the Philippines.
TITLE XVI - MISCELLANEOUS PROVISIONS
Section 137. Outstanding capital stock defined.
- The term "outstanding capital stock", as used in
this Code, means the total shares of stock issued
under binding subscription agreements to
subscribers or stockholders, whether or not fully
or partially paid, except treasury shares. (n)
Section 138. Designation of governing boards. -
The provisions of specific provisions of this Code
to the contrary notwithstanding, non-stock or
special corporations may, through their articles of
incorporation or their by-laws, designate their
governing boards by any name other than as
board of trustees. (n)
Section 139. Incorporation and other fees. - The
Securities and Exchange Commission is hereby
authorized to collect and receive fees as
authorized by law or by rules and regulations
promulgated by the Commission. (n)
Section 140. Stock ownership in certain
corporations. - Pursuant to the duties specified by
Article XIV of the Constitution, the National
Economic and Development Authority shall, from
time to time, make a determination of whether
the corporate vehicle has been used by any
corporation or by business or industry to frustrate
the provisions thereof or of applicable laws, and
shall submit to the Batasang Pambansa,
whenever deemed necessary, a report of its
findings, including recommendations for their
prevention or correction.
Maximum limits may be set by the Batasang
Pambansa for stockholdings in corporations
declared by it to be vested with a public interest
pursuant to the provisions of this section,
belonging to individuals or groups of individuals
related to each other by consanguinity or affinity
or by close business interests, or whenever it is
necessary to achieve national objectives, prevent
illegal monopolies or combinations in restraint or
trade, or to implement national economic policies
declared in laws, rules and regulations designed
to promote the general welfare and foster
economic development.
In recommending to the Batasang Pambansa
corporations, businesses or industries to be
declared vested with a public interest and in
formulating proposals for limitations on stock
ownership, the National Economic and
Development Authority shall consider the type
and nature of the industry, the size of the
enterprise, the economies of scale, the
geographic location, the extent of Filipino
ownership, the labor intensity of the activity, the
export potential, as well as other factors which
are germane to the realization and promotion of
business and industry.
Section 141. Annual report or corporations. -
Every corporation, domestic or foreign, lawfully
doing business in the Philippines shall submit to
the Securities and Exchange Commission an
annual report of its operations, together with a
financial statement of its assets and liabilities,
certified by any independent certified public
accountant in appropriate cases, covering the
preceding fiscal year and such other
requirements as the Securities and Exchange
Commission may require. Such report shall be
submitted within such period as may be
prescribed by the Securities and Exchange
Commission. (n)
Section 142. Confidential nature of examination
results. - All interrogatories propounded by the
Securities and Exchange Commission and the
answers thereto, as well as the results of any
examination made by the Commission or by any
other official authorized by law to make an
examination of the operations, books and records
of any corporation, shall be kept strictly
confidential, except insofar as the law may
require the same to be made public or where
such interrogatories, answers or results are
necessary to be presented as evidence before
any court. (n)
Section 143. Rule-making power of the
Securities and Exchange Commission. - The
Securities and Exchange Commission shall have
the power and authority to implement the
provisions of this Code, and to promulgate rules
and regulations reasonably necessary to enable it
to perform its duties hereunder, particularly in
the prevention of fraud and abuses on the part of
the controlling stockholders, members, directors,
trustees or officers. (n)
Section 144. Violations of the Code. - Violations
of any of the provisions of this Code or its
amendments not otherwise specifically penalized
therein shall be punished by a fine of not less
than one thousand (P1,000.00) pesos but not REPUBLIC ACT NO. 8799
more than ten thousand (P10,000.00) pesos or by
imprisonment for not less than thirty (30) days THE SECURITIES REGULATION CODE
but not more than five (5) years, or both, in the Be it enacted by the Senate and the House of
discretion of the court. If the violation is Representative of the Philippines in the Congress
committed by a corporation, the same may, after assembled:
notice and hearing, be dissolved in appropriate
proceedings before the Securities and Exchange CHAPTER I
Commission: Provided, That such dissolution shall TITLE AND DEFINITIONS
not preclude the institution of appropriate action
Section 1. Title. - This shall be known as "The
against the director, trustee or officer of the
Securities Regulation Code"
corporation responsible for said violation:
Provided, further, That nothing in this section Section 2. Declaration of State Policy. – The
shall be construed to repeal the other causes for State shall establish a socially conscious, free
dissolution of a corporation provided in this Code. market that regulates itself, encourage the widest
(190 1/2 a) participation of ownership in enterprises,
enhance the democratization of wealth, promote
Section 145. Amendment or repeal. - No right or
the development of the capital market, protect
remedy in favor of or against any corporation, its
investors, ensure full and fair disclosure about
stockholders, members, directors, trustees, or
securities, minimize if not totally eliminate insider
officers, nor any liability incurred by any such
trading and other fraudulent or manipulative
corporation, stockholders, members, directors,
devices and practices which create distortions in
trustees, or officers, shall be removed or impaired
the free market. To achieve these ends, this
either by the subsequent dissolution of said
Securities Regulation Code is hereby enacted.
corporation or by any subsequent amendment or
repeal of this Code or of any part thereof. (n) Section 3. Definition of Terms. - 3.1. "Securities"
are shares, participation or interests in a
Section 146. Repealing clause. - Except as
corporation or in a commercial enterprise or
expressly provided by this Code, all laws or parts
profit-making venture and evidenced by a
thereof inconsistent with any provision of this
certificate, contract, instruments, whether written
Code shall be deemed repealed. (n)
or electronic in character. It includes:
Section 147. Separability of provisions. - Should
(a) Shares of stocks, bonds, debentures,
any provision of this Code or any part thereof be
notes evidences of indebtedness, asset-
declared invalid or unconstitutional, the other
backed securities;
provisions, so far as they are separable, shall
remain in force. (n) (b) Investment contracts, certificates of
interest or participation in a profit sharing
Section 148. Applicability to existing
agreement, certifies of deposit for a
corporations. - All corporations lawfully existing
future subscription;
and doing business in the Philippines on the date
of the effectivity of this Code and heretofore (c) Fractional undivided interests in oil,
authorized, licensed or registered by the gas or other mineral rights;
Securities and Exchange Commission, shall be
deemed to have been authorized, licensed or (d) Derivatives like option and warrants;
registered under the provisions of this Code, (e) Certificates of assignments,
subject to the terms and conditions of its license, certificates of participation, trust
and shall be governed by the provisions hereof: certificates, voting trust certificates or
Provided, That if any such corporation is affected similar instruments
by the new requirements of this Code, said
corporation shall, unless otherwise herein (f) Proprietary or nonproprietary
provided, be given a period of not more than two membership certificates in corporations;
(2) years from the effectivity of this Code within and
which to comply with the same. (n) (g) Other instruments as may in the
Section 149. Effectivity. - This Code shall take future be determined by the Commission.
effect immediately upon its approval. 3.2. "Issuer" is the originator, maker, obligor, or
Approved, May 1, 1980 creator of the security.
3.3. "Broker" is a person engaged in the business
of buying and selling securities for the account of
others.
3.4. "Dealer" means many person who buys sells
securities for his/her own account in the ordinary
course of business.
3.5. "Associated person of a broker or dealer" is
an employee therefor whom, directly exercises
control of supervisory authority, but does not
include a salesman, or an agent or a person
whose functions are solely clerical or ministerial.
3.6. "Clearing Agency" is any person who acts as
intermediary in making deliveries upon payment
effect settlement in securities transactions.
3.7. "Exchange" is an organized market place or
facility that brings together buyers and sellers
and executes trade of securities and/or
commodities.
3.8. "Insider" means (a) the issuer; (b) a director
or officer (or any person performing similar
functions) of, or a person controlling the issuer;
gives or gave him access to material information
about the issuer or the security that is not
generally available to the public; (d) A
government employee, director, or officer of an
exchange, clearing agency and/or self-regulatory
organization who has access to material
information about an issuer or a security that is
not generally available to the public; or (e) a
person who learns such information by a
communication from any forgoing insiders.
3.9. "Pre-need plans" are contracts which provide
for the performance of future services of or the
payment of future monetary considerations at the
time actual need, for which plan holders pay in
cash or installment at stated prices, with or
without interest or insurance coverage and
includes life, pension, education, interment, and
other plans which the Commission may from time
to time approve.
3.10. "Promoter" is a person who, acting alone or
with others, takes initiative in founding and
organizing the business or enterprise of the
issuer and receives consideration therefor.
3.11. "Prospectus" is the document made by or
an behalf of an issuer, underwriter or dealer to
sell or offer securities for sale to the public
through registration statement filed with the
Commission.
3.12. "Registration statement" is the application
for the registration of securities required to be
filed with the Commission.
3.13. "Salesman" is a natural person, employed
as such as an agent, by a dealer, issuer or broker
to buy and sell securities.
3.14. "Uncertificated security" is a security
evidenced by electronic or similar records.
3.15. "Underwriter" is a person who guarantees
on a firm commitment and/or declared best effort
basis the distribution and sale of securities of any
kind by another company.
CHAPTER II
SECURITIES AND EXCHANGE COMMISSION
Section 4. Administrative Agency. – 4.1. This
Code shall be administered by the Security and
Exchange Commission (hereinafter referred to as
the "Commission") as a Collegial body, composed
of a chairperson and (4) Commissioners,
appointed by the President for a term of (7) seven
years each and who shall serves as such until
their successor shall have been appointed and
qualified. A Commissioner appointed to fill a
vacancy occurring prior to the expiration of the
term for which his/her predecessor was
appointed, shall serve only for the unexpired
portion of their terms under Presidential Decree
No. 902-A. Unless the context indicates
otherwise, the term "Commissioner" includes the
Chairperson.
4.2. The Commissioners must be natural-born
citizens of the Philippines, at least forty (40)
years of age for the Chairperson and at least
thirty-five (35) years of age for the
Commissioners, of good moral character, or
unquestionable integrity, of known probity and
patriotism, and with recognized competence in
social and economic disciplines: Provided, That
the majority of Commissioners, including the
Chairperson, shall be members of the Philippine
Bar.
4.3. The chairperson is chief executive officer of
the Commission. The Chairperson shall execute
and administer the policies, decisions, orders and
resolutions approved by the Commission and
shall have the general executive direction and
supervision of the work and operation of the
Commission and it’s members, bodies, boards,
offices, personnel and all its administrative
business.
4.4. The salary of the Chairperson and the
Commissioners shall be fixed by the President of
the Philippines based on the objective
classification system, at a sum comparable to the
members of the Monetary Board and
commensurate importance and responsibilities
attached to the position.
4.5. The Commission shall hold meetings at least
once a week for the conduct of business or as
often as may be necessary upon the call of the
Chairperson or upon the request of (3)
Commissioners. The notice of the meeting shall
be given to all Commissioners and the presence
of three (3) Commissioners shall constitute a
quorum. In the absence of the Chairperson, the
most senior Commissioner shall act as presiding
officer of the meeting.
4.6. The Commission may, for purposes of
efficiency, delegate any of its functions to any
department of office of the Commission, an
individual Commissioner or staff member of the
Commission except its review or appellate
authority and its power to adopt, alter and
supplement any rule or regulation.
The commission may review upon its own
initiative or upon the petition of any interested
party any action of any department or office,
individual Commissioner, or staff member of the
Commission.
Section 5. Powers and Functions of the
Commission.– 5.1. The commission shall act with
transparency and shall have the powers and
functions provided by this code, Presidential
Decree No. 902-A, the Corporation Code, the
Investment Houses law, the Financing Company
Act and other existing laws. Pursuant thereto the
Commission shall have, among others, the
following powers and functions:
(a) Have jurisdiction and supervision over
all corporations, partnership or
associations who are the grantees of
primary franchises and/or a license or a
permit issued by the Government;
(b) Formulate policies and
recommendations on issues concerning
the securities market, advise Congress
and other government agencies on all
aspect of the securities market and
propose legislation and amendments
thereto;
(c) Approve, reject, suspend, revoke or
require amendments to registration
statements, and registration and licensing
applications;
(d) Regulate, investigate or supervise the
activities of persons to ensure
compliance;
(e) Supervise, monitor, suspend or take
over the activities of exchanges, clearing
agencies and other SROs;
(f) Impose sanctions for the violation of
laws and rules, regulations and orders,
and issued pursuant thereto;
(g) Prepare, approve, amend or repeal
rules, regulations and orders, and issue
opinions and provide guidance on and
supervise compliance with such rules,
regulation and orders;
(h) Enlist the aid and support of and/or
deputized any and all enforcement
agencies of the Government, civil or
military as well as any private institution,
corporation, firm, association or person in
the implementation of its powers and
function under its Code;
(i) Issue cease and desist orders to
prevent fraud or injury to the investing
public;
(j) Punish for the contempt of the
Commission, both direct and indirect, in
accordance with the pertinent provisions
of and penalties prescribed by the Rules
of Court;
(k) Compel the officers of any registered
corporation or association to call
meetings of stockholders or members
thereof under its supervision;
(l) Issue subpoena duces tecum and
summon witnesses to appear in any
proceedings of the Commission and in
appropriate cases, order the examination,
search and seizure of all documents,
papers, files and records, tax returns and
books of accounts of any entity or person
under investigation as may be necessary
for the proper disposition of the cases
before it, subject to the provisions of
existing laws;
(m) Suspend, or revoke, after proper
notice and hearing the franchise or
certificate of registration of corporations,
partnership or associations, upon any of
the grounds provided by law; and
(n) Exercise such other powers as may be
provided by law as well as those which
may be implied from, or which are
necessary or incidental to the carrying
out of, the express powers granted the
Commission to achieve the objectives and
purposes of these laws.
5.2. The Commission’s jurisdiction over all cases
enumerated under section 5 of Presidential
Decree No. 902-A is hereby transferred to the
Courts of general jurisdiction or the appropriate
Regional Trial Court: Provided, That the Supreme
Court in the exercise of its authority may
designate the Regional Trial Court branches that
shall exercise jurisdiction over the cases. The
Commission shall retain jurisdiction over pending
cases involving intra-corporate disputes
submitted for final resolution which should be
resolved within one (1) year from the enactment
of this Code. The Commission shall retain
jurisdiction over pending suspension of
payment/rehabilitation cases filed as of 30 June
2000 until finally disposed.
Section 6. Indemnification and Responsibilities
of Commissioners.– 6.1. The Commission shall
indemnify each Commissioner and other officials
of the Commission, including personnel
performing supervision and examination
functions for all cost and expenses reasonably
incurred by such persons in connection with any
civil or criminal actions, suits or proceedings to
be liable for gross negligence or misconduct. In
the event of settlement or compromise,
indemnification shall be provided only in
connection with such matters covered by the
settlement as to which the Commission is advised
by external counsel that the persons to be
indemnified did not commit any gross negligence
or misconduct. The costs and expenses incurred
in defending the aforementioned action, suit or
proceeding may be paid by the Commission in
advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking
by or on behalf of the Commissioner, officer or
employee to repay the amount advanced should
it ultimately be determined by the Commission
that he/she is not entitled to be indemnified as
provided in this subsection.
6.2. The Commissioners, officers and employees
of the Commission who willfully violate this Code
or who are guilty of negligence, abuse or acts of
malfeasance or fail to exercise extraordinary
diligence in the performance of their duties shall
be held liable for any loss or injury suffered by
the Commission or other institutions such as a
result of such violation, negligence, abuse, or
malfeasance, or failure to exercise extraordinary
diligence. Similar responsibility shall apply to the
Commissioners, officers and employees of the
Commission for (1) the disclosure of any
information, discussion or resolution of the
Commission of a confidential nature, or about the
confidential operations of the Commission unless
the disclosure is in connection with the
performance of official functions with the
Commission or prior authorization of the
Commissioners; or (2) the use of such information
for personal gain or to the detriment of the
government, the Commission or third parties:
Provided, however, That any data or information
required to be submitted to the President and/or
Congress or its appropriate committee, or to be
published under the provisions of this Code shall
not be considered confidential.
Section 7. Reorganization. – 7.1. To achieve the
goals of this Code, consistent with the Civil
Service laws, the Commission is hereby
authorized to provide for its reorganization, to
streamline its structure and operations, upgrade
its human resource component and enable it to
more efficiently and effectively perform its
functions and exercise its power under this Code.
7.2. All positions of the Commissions shall be
governed by a compensation and position
classification system and qualification standards
approved by the Commission based on
comprehensive job analysis and audit of actual
duties and personal responsibilities. The
compensation plan shall be comparable with the
prevailing compensation plan in the Bangko
Sentral ng Pilipinas and other government
financial institutions and shall be subject to
periodic review by the Commission no more than
once every two (2) years without prejudice to
yearly merit review or increases based on
productivity and efficiency. The Commission shall,
therefore, be exempt from laws, rules, and
regulations on compensation, position
classification and qualifications standards. The
Commission shall, however, endeavor to make its
system conform as closely as possible with the
principles under the Compensation and Position
Classification Act of 1989 (Republic Act. 6758, as
amended).
CHAPTER III
REGISTRATION OF SECURITIES
Section 8. Requirement of Registration of
Securities.– 8.1. Securities shall not be sold or
offered for sale or distribution within the
Philippines, without a registration statement duly
filed with and approved by the Commission. Prior
to such sale, information on the securities, in
such form and with such substance as the
Commission may prescribe, shall be made
available to each prospective purchaser.
8.2. The Commission may conditionally approve
the registration statement under such terms as it
may deem necessary.
8.3. The Commission may specify the terms and
conditions under which any written
communication, including any summary
prospectus, shall be deemed not to constitute an
offer for sale under this Section.
8.4. A record of the registration of securities shall
be kept in Register Securities in which shall be
recorded orders entered by the Commission with
respect such securities. Such register and all
documents or information with the respect to the
securities registered therein shall be open to
public inspection at reasonable hours on business
days.
8.5. The Commission may audit the financial
statements, assets and other information of firm
applying for registration of its securities
whenever it deems the same necessary to insure
full disclosure or to protect the interest of the
investors and the public in general.
Section 9. Exempt Securities. – 9.1. The
requirement of registration under Subsection 8.1
shall not as a general rule apply to any of the
following classes of securities:
(a) Any security issued or guaranteed by
the Government of the Philippines, or by
any political subdivision or agency
thereof, or by any person controlled or
supervised by, and acting as an
instrumentality of said Government.
(b) Any security issued or guaranteed by
the government of any country with
which the Philippines maintains
diplomatic relations, or by any state,
province or political subdivision thereof
on the basis of reciprocity: Provided, That
the Commission may require compliance
with the form and content for disclosures
the Commission may prescribe.
(c) Certificates issued by a receiver or by
a trustee in bankruptcy duly approved by
the proper adjudicatory body.
 (d) Any security or its derivatives the sale
or transfer of which, by law, is under the
supervision and regulation of the Office of
the Insurance Commission, Housing and
Land Use Rule Regulatory Board, or the
Bureau of Internal Revenue.
(e) Any security issued by a bank except
its own shares of stock.
9.2. The Commission may, by rule or regulation
after public hearing, add to the foregoing any
class of securities if it finds that the enforcement
of this Code with respect to such securities is not
necessary in the public interest and for the
protection of investors.
Section 10. Exempt Transactions. – 10.1. The
requirement of registration under Subsection 8.1
shall not apply to the sale of any security in any
of the following transactions:
(a) At any judicial sale, or sale by an
executor, administrator, guardian or
receiver or trustee in insolvency or
bankruptcy.
(b) By or for the account of a pledge
holder, or mortgagee or any of a pledge
lien holder selling of offering for sale or
delivery in the ordinary course of
business and not for the purpose of
avoiding the provision of this Code, to
liquidate a bonafide debt, a security
pledged in good faith as security for such
debt.
(c) An isolated transaction in which any
security is sold, offered for sale,
subscription or delivery by the owner
therefore, or by his representative for the
owner’s account, such sale or offer for
sale or offer for sale, subscription or
delivery not being made in the course of
repeated and successive transaction of a
like character by such owner, or on his
account by such representative and such
owner or representative not being the
underwriter of such security.
(d) The distribution by a corporation
actively engaged in the business
authorized by its articles of incorporation,
of securities to its stockholders or other
security holders as a stock dividend or
other distribution out of surplus.
(e) The sale of capital stock of a
corporation to its own stockholders
exclusively, where no commission or
other remuneration is paid or given
directly or indirectly in connection with
the sale of such capital stock.
(f) The issuance of bonds or notes
secured by mortgage upon real estate or
tangible personal property, when the
entire mortgage together with all the
bonds or notes secured thereby are sold
to a single purchaser at a single sale.
(g) The issue and delivery of any security
in exchange for any other security of the
same issuer pursuant to a right of
conversion entitling the holder of the
security surrendered in exchange to make
such conversion: Provided, That the
security so surrendered has been
registered under this Code or was, when
sold, exempt from the provision of this
Code, and that the security issued and
delivered in exchange, if sold at the
conversion price, would at the time of
such conversion fall within the class of
securities entitled to registration under
this Code. Upon such conversion the par
value of the security surrendered in such
exchange shall be deemed the price at
which the securities issued and delivered
in such exchange are sold.
(h) Broker’s transaction, executed upon
customer’s orders, on any registered
Exchange or other trading market.
(i) Subscriptions for shares of the capitals
stocks of a corporation prior to the
incorporation thereof or in pursuance of
an increase in its authorized capital
stocks under the Corporation Code, when
no expense is incurred, or no commission,
compensation or remuneration is paid or
given in connection with the sale or
disposition of such securities, and only
when the purpose for soliciting, giving or
taking of such subscription is to comply
with the requirements of such law as to
the percentage of the capital stock of a
corporation which should be subscribed
before it can be registered and duly
incorporated, or its authorized, capital
increase.
(j) The exchange of securities by the
issuer with the existing security holders
exclusively, where no commission or
other remuneration is paid or given
directly or indirectly for soliciting such
exchange.
(k) The sale of securities by an issuer to
fewer than twenty (20) persons in the
Philippines during any twelve-month
period.
(l) The sale of securities to any number of
the following qualified buyers:
(i) Bank;
(ii) Registered investment house;
(iii) Insurance company;
(iv) Pension fund or retirement
plan maintained by the
Government of the Philippines or
 any political subdivision thereof or
manage by a bank or other
persons authorized by the Bangko
Sentral to engage in trust
functions;
(v) Investment company or;
(vi) Such other person as the
Commission may rule by
determine as qualified buyers, on
the basis of such factors as
financial sophistication, net worth,
knowledge, and experience in
financial and business matters, or
amount of assets under
management.
10.2. The Commission may exempt other
transactions, if it finds that the requirements of
registration under this Code is not necessary in
the public interest or for the protection of the
investors such as by the reason of the small
amount involved or the limited character of the
public offering.
10.3. Any person applying for an exemption
under this Section, shall file with the Commission
a notice identifying the exemption relied upon on
such form and at such time as the Commission by
the rule may prescribe and with such notice shall
pay to the Commission fee equivalent to one-
tenth (1/10) of one percent (1%) of the maximum
value aggregate price or issued value of the
securities.
Section 11. Commodity Futures Contracts. - No
person shall offer, sell or enter into commodity
futures contracts except in accordance with the
rules, regulations and orders the Commission
may prescribe in the public interest. The
Commission shall promulgate rules and
regulations involving commodity futures
contracts to protect investors to ensure the
development of a fair and transparent
commodities market.
Section 12. Procedure of Registration Securities.
- 12.1. All securities required to be registered
under Subsection 8. I shall be registered through
the filing by the issuer in the main office of the
Commission, of a sworn registration statement
with the respect to such securities, in such form
and containing such information and document
as the Commission prescribe. The registration
statement shall include any prospectus required
or permitted to be delivered under Subsections
8.2, 8.3, and 8.4.
12.2. In promulgating rules governing the content
of any registration statement (including any
prospectus made a part thereof or annex
thereto), the Commission may require the
registration statement to contain such
information or documents as it may, by rule,
prescribe. It may dispense with any such
requirements, or may require additional
information or documents, including written
information from an expert, depending on the
necessity thereof or their applicability to the class
of securities sought to be registered.
12.3. The information required for the registration
of any kind, and all securities, shall include,
among others, the effect of the securities issue
on ownership, on the mix of ownership, especially
foreign and local ownership.
12.4. The registration statement shall be signed
by the issuer’s executive officer, its principal
operating officer, its principal financial officer, its
comptroller, its principal accounting officer, its
corporate secretary, or persons performing
similar functions accompanied by a duly verified
resolution of the board of directors of the issuer
corporation. The written consent of the expert
named as having certified any part of the
registration statement or any document used in
connection therewith shall also be filed. Where
the registration statement shares to be sold by
selling shareholders, a written certification by
such selling shareholders as to the accuracy of
any part of the registration statement contributed
to by such selling shareholders shall be filed.
12.5. (a) Upon filing of the registration statement,
the issuer shall pay to the Commission a fee of
not more than one-tenth (1/10) of one per
centum (1%) of the maximum aggregate price at
which such securities are proposed to be offered.
The Commission shall prescribe by the rule
diminishing fees in inverse proportion the value
of the aggregate price of the offering.
(b) Notice of the filing of the registration
statement shall be immediately published
by the issuer, at its own expense, in two
(2) newspapers of general circulation in
the Philippines, once a week for two (2)
consecutive weeks, or in such other
manner as the Commission by the rule
shall prescribe, reciting that a registration
statement for the sale of such securities
has been filed, and that aforesaid
registration statement, as well as the
papers attached thereto are open to
inspection at the Commission during
business hours, and copies thereof,
photostatic or otherwise, shall be
furnished to interested parties at such
reasonable charge as the Commission
may prescribe.
12.6. Within forty-five (45) days after the date of
filing of the registration statement, or by such
later date to which the issuer has consented, the
Commission shall declare the registration
statement effective or rejected, unless the
applicant is allowed to amend the registration
statement as provided in Section 14 hereof. The
Commission shall enter an order declaring the
registration statement to be effective if it finds
that the registration statement together with all
the other papers and documents attached
thereto, is on its face complete and that the
requirements have been complied with. The
Commission may impose such terms and
conditions as may be necessary or appropriate
for the protection of the investors.
12.7. Upon affectivity of the registration
statement, the issuer shall state under oath in
every prospectus that all registration
requirements have been met and that all
information are true and correct as represented
by the issuer or the one making the statement.
Any untrue statement of fact or omission to state
a material fact required to be stated herein or
necessary to make the statement therein not
misleading shall constitute fraud.
Section 13. Rejection and Revocation of
Registration of Securities. – 13.1. The
Commission may reject a registration statement
and refuse registration of the security there-
under, or revoke the affectivity of a registration
statement and the registration of the security
there-under after the due notice and hearing by
issuing an order to such effect, setting forth its
finding in respect thereto, if it finds that:
(a) The issuer:
(i) Has been judicially declared
insolvent;
(ii) Has violated any of the
provision of this Code, the rules
promulgate pursuant thereto, or
any order of the Commission of
which the issuer has notice in
connection with the offering for
which a registration statement
has been filed
(iii) Has been or is engaged or is
about to engage in fraudulent
transactions;
(iv) Has made any false or
misleading representation of
material facts in any prospectus
concerning the issuer or its
securities;
(v) Has failed to comply with any
requirements that the
Commission may impose as a
condition for registration of the
security for which the registration
statement has been filed; or
(b) The registration statement is on its
face incomplete or inaccurate in any
material respect or includes any untrue
statements of a material fact required to
be stated therein or necessary to make
the statement therein not misleading; or
(c) The issuer, any officer, director or
controlling person performing similar
functions, or any under writer has been
convicted, by a competent judicial or
administrative body, upon plea of guilty,
or otherwise, of an offense involving
moral turpitude and /or fraud or is
enjoined or restrained by the Commission
or other competent or administrative
body for violations of securities,
commodities, and other related laws.
For the purposes of this subsection, the term
"competent judicial or administrative body" shall
include a foreign court of competent jurisdiction
as provided for under Rules of Court.
13.2. The Commission may compel the
production of all the books and papers of such
issuer, and may administer oaths to, and
examine the officers of such the issuer or any
other person connected therewith as to its
business and affairs.
13.3. If any issuer shall refuse to permit an
examination to be made by the Commission, its
refusal shall be ground for the refusal or
revocation of the registration of its securities.
13.4. If the Commission deems its necessary, it
may issue an order suspending the offer and sale
of the securities pending any investigation. The
order shall state the grounds for taking such
action, but such order of suspension although
binding upon the persons notified thereof, shall
be deemed confidential, and shall not be
published. Upon the issuance of the suspension
order, no further offer or sale of such security
shall be made until the same is lifted or set aside
by the Commission. Otherwise, such sale shall be
void.
13.5. Notice of issuance of such order shall be
given to the issuer and every dealer and broker
who shall have notified the Commission of an
intention to sell such security.
13.6. A registration statement may be withdrawn
by the issuer only with the consent of the
Commission.
Section 14. Amendment to the Registration
Statement. – 14.1. If a registration statement is
on its face incomplete or inaccurate in any
material respect, the Commission shall issue an
order directing the amendment of the registration
statement. Upon compliance with such order, the
amended registration statement shall become
effective in accordance with the procedure
mentioned in Subsection 12.6 hereof.
14.2. An amendment filed prior to the effective
date of the registration statement shall
recommence the forty-five (45) day period within
which the Commission shall act on a registration
statement. An amendment filed after the
effective date of the registration statement shall
become effective only upon such date as
determined by the Commission.
14.3. If any change occurs in the facts set forth in
a registration statement, the issuer shall file an
amendment thereto setting forth the change.
14.4. If, at any time, the Commission finds that
the registration statement contains any false
statement or omits to state any fact required to
be stated therein or necessary to make the
statements therein not misleading, the
Commission may conduct an examination, and,
after due notice and hearing, issue an order
suspending the affectivity registration statement.
If the statement is duly amended, the suspension
order may be lifted.
14.5. In making such examination the
Commission or any officer or officers designated
by it may administer oaths and affirmations and
shall have access to, and may demand the
production of, any books, records or documents
relevant to the examination. Failure of the issuer,
underwriter, or any other person to cooperate, or
his obstruction or refusal to undergo an
examination, shall be a ground for the issuance of
a suspension order.
Section 15. Suspension of Registration. - 15.1. If
at any time, the information contained in the
registration statement filed is or has become
misleading, incorrect, inadequate or incomplete
in any material respect, or the sale or offering for
sale of the security registered thereunder may
work or tend to work a fraud, the Commission
may require from the issuer such further
information as may in its judgement be necessary
to enable the Commission to ascertain whether
the registration of such security should be
revoked on any ground specified in this Code. The
Commission may also suspend the right to sell
and offer for the sale such security pending
further investigation, by entering an order
specifying the grounds for such action, and by
notifying the issuer, underwriter, dealer or broker
known as participating in such offering.
15.2. The refusal to furnish information required
by the Commission may be a ground for the
issuance of an order of suspension pursuant to
Subsection 15.1. Upon the issuance of any such
order and notification to the issuer, underwriter,
dealer or broken know as participating in such
offering, no further offer or sale of any such
security shall be made until the same is lifted or
set aside by the Commission. Otherwise such sale
shall be void.
15.3. Upon issuance of an order of suspension,
the Commission shall conduct a hearing. If the
Commission determines that the sale of any
security should be revoked is shall issue an order
prohibiting sale of such security.
15.4. Until the issuance of a final order, the
suspension of the right to sell, though binding
upon the persons notified there of, shall be
deemed confidential, and shall not be published,
unless it shall appear that the order of suspension
has been violated after notice. If, however, the
Commission finds that the sale of the security will
neither be fraudulent nor result in fraud, it shall
forthwith issue an order revoking the order of
suspension, and such security shall be restored to
its status as a registered security as of the date
of such order of suspension.
CHAPTER IV
REGULATION OF PRE-NEED PLANS
Section 16. Pre-Need Plans. – No person shall
sell or offer for sale to the public any pre-need
plan except in accordance with rules and
regulations which the Commission shall prescribe.
Such rules shall regulate the sale of pre-need
plans by, among other things, requiring the
registration of pre-need plans, licensing persons
involved in the sale of pre- need plans, requiring
disclosures to prospective plan holders,
prescribing advertising guidelines, providing for
uniform accounting system, reports and recording
keeping with respect to such plans, imposing
capital, bonding and other financial responsibility,
and establishing trust funds for the payment of
benefits under such plans.
CHAPTER V
REPORTORIAL REQUIREMENTS
Section 17. Periodic and Other Reports of Issuer.
17.1. Every issuer satisfying the requirements in
Subsection 17.2 hereof shall file with the
Commission:
(a) Within one hundred thirty-five (135)
days, after the end of the issuer’s fiscal
year, or such other time as the
Commission may prescribe, an annual
report which shall include, among others,
a balance sheet, profit and loss statement
and statement of cash flows, for such last
fiscal year, certified public accountant, an
a management discussion and analysis of
results of operation; and
(b) Such other periodical reports for
interim fiscal periods and current reports
on significant developments of the issuer
as the Commission may prescribe as
necessary to keep current information on
the operation of the business and
financial condition of the issuer.
17.2. The reportorial requirements of Subsection
17.1 shall apply to the following:
(a) An issuer which has sold a class of its
securities pursuant to a registration under
section 12 hereof: Provided however, That
the obligation of such issuer to file reports
shall be suspended for any fiscal year
after the year such registration became
effective if such issuer, as of the first day
of any such fiscal year, has less than one
hundred (100) holder of such class
securities or such other number as the
Commission shall prescribe and it notifies
the Commission of such;
(b) An issuer with a class of securities
listed for trading on an Exchange; and
 (c) An issuer with assets of at least Fifty
million pesos (50,000,000.00) or such
other amount as the Commission shall
prescribe, and having two hundred (200)
or more holder each holding at least one
hundred (100) share of a class of its
equity securities: Provided, however, That
the obligation of such issuer to file report
shall be terminate ninety (90) days after
notification to the Commission by the
issuer that the number of its holders
holding at least one hundred (100) share
reduced to less than one hundred (100).
17.3. Every issuer of a security listed for trading
on an Exchange a copy of any report filed with
the Commission under Subsection 17.1. hereof.
17.4. All reports (including financial statements)
required to be filed with the Commission pursuant
to Subsection 17.1 hereof shall be in such form,
contain such information and be filed at such
times as the Commission shall prescribe, and
shall be in lieu of any periodical or current reports
or financial statements otherwise required to be
filed under the Commission shall prescribe.
17.5. Every issuer which has a class of equity
securities satisfying any of the requirements in
Subsection 17.2 shall furnish to each holder of
such equity security an annual report in such
form and containing such information as the
Commission shall prescribe.
17.6. Within such period as the Commission may
prescribe preceding the annual meeting of the
holders of any equity security of a class entitled
to vote at such meeting , the issuer shall transmit
to such holders an annual report in conformity
with subsection 17.5.
Section 18. Reports by five per centum (5%)
Holders of Equity Securities. – 18.1. In every case
in which an issuer satisfies the requirements of
Subsection 17.2 hereof any person who acquires
directly or indirectly the beneficial ownership of
more than five of per centum (5%) of such class
or in excess of such lesser per centum as the
Commission by rule may prescribe, shall, within
ten (10) days after such acquisition or such
reasonable time as fixed by the Commission,
submit to the issuer of the securities, to the
Exchange where the security is traded, and to the
Commission a sworn statement containing the
following information and such order information
as the Commission may require in the public
interest or for the protection of investors.
(a) The personal background, identity,
residence, and citizenship of, and the
nature of such beneficial ownership by,
such person and all other person by
whom or on whose behalf the purchases
are effected; in the event the beneficial
owner is a juridical person, the of
business of the beneficial owner shall also
be reported;
(b) If the purpose of the purchases or
prospective purchases is to acquire
control of the business of the issuer of the
securities, any plans or proposals which
such persons may have that will effect a
major change in its business or corporate
structure;
(c) The number of shares of such security
which are beneficially owned, and the
number of shares concerning which there
is a right to acquire, directly or indirectly,
by; (i) such person, and (ii) each
associate of such person, giving the
background, identity, residence, and
citizenship of each such associate; and
(d) Information as to any contracts,
arrangements, or understanding with any
person with respect to any securities of
the issuer including but not limited to
transfer, joint ventures, loan or option
arrangements, puts or call guarantees or
division of losses or profits, or proxies
naming the persons with whom such
contracts, arrangements, or
understanding have been entered into,
and giving the details thereof.
18.2. If any change occurs in the facts set forth in
the statements, an amendment shall be
transmitted to the issuer, the Exchange and the
Commission.
18.3. The Commission, may permit any person to
file in lieu of the statement required by
subsection 17.1 hereof, a notice stating the name
of such person, the shares of any equity
securities subject to Subsection 17.1 which are
owned by him, the date of their acquisition and
such other information as the commission may
specify, if it appears to the commission that such
securities were acquired by such person in the
ordinary course of his business and were not
acquired for the purpose of and do not have the
effect of changing or influencing the control of
the issuer nor in connection with any transaction
having such purpose or effect.
CHAPTER VI
PROTECTION OF SHAREHOLDERS INTERESTS
Section 19. Tender Offers. – Any person or group
of persons acting in concert who intends to
acquire at least 15% of any class of any equity
security of a listed corporation of any class of any
equity security of a corporation with assets of at
least fifty million pesos (50,000,000.00) and
having two hundred(200) or more stockholders at
least one hundred shares each or who intends to
acquire at least thirty percent(30%) of such
equity over a period of twelve months(12) shall
make a tender offer to stockholders by filling with
the Commission a declaration to that effect; and
furnish the issuer, a statement containing such of
the information required in Section 17 of this
Code as the Commission may prescribe. Such
person or group of persons shall publish all
request or invitations or tender offer or
requesting such tender offers subsequent to the
initial solicitation or request shall contain such
information as the Commission may prescribe,
and shall be filed with the Commission and sent
to the issuer not alter than the time copies of
such materials are first published or sent or given
to security holders.
(a) Any solicitation or recommendation to
the holders of such a security to accept or
reject a tender offer or request or
invitation for tenders shall be made in
accordance with such rules and
regulations as may be prescribe.
(b) Securities deposited pursuant to a
tender offer or request or invitation for
tenders may be withdrawn by or on
behalf of the depositor at any time
throughout the period that tender offer
remains open and if the securities
deposited have not been previously
accepted for payment, and at any time
after sixty (60) days from the date of the
original tender offer to request or
invitation, except as the Commission may
otherwise prescribe.
(c) Where the securities offered exceed
that which person or group of persons is
bound or willing to take up and pay for,
the securities that are subject of the
tender offers shall be taken up us nearly
as may be pro data, disregarding
fractions, according to the number of
securities deposited to each depositor.
The provision of this subject shall also
apply to securities deposited within ten
(10) days after notice of increase in the
consideration offered to security holders,
as described in paragraph (e) of this
subsection, is first published or sent or
given to security holders.
(d) Where any person varies the terms of
a tender offer or request or invitation for
tenders before the expiration thereof by
increasing the consideration offered to
holders of such securities, such person
shall pay the increased consideration to
each security holder whose securities are
taken up and paid for whether or not such
securities have been taken up by such
person before the variation of the tender
offer or request or invitation.
19.2. It shall be lawful for any person to make
any untrue statement of a material fact or omit to
state any material fact necessary in order to
make the statements made in the light of the
circumstances under which they are made, not
mis-leading, or to engaged to any fraudulent,
deceptive or manipulative acts or practices, in
connection with any tender offer or request or
invitation for tenders, or any solicitation for any
security holders in opposition to or in favor of any
such favor of any such offer, request, or
invitation. The Commission shall, for the purposes
of this subsection, define and prescribe means
reasonably designed to prevent, such acts and
practices as are fraudulent, deceptive and
manipulative.
Section 20. Proxy solicitations. - 20.1. Proxies
must be issued and proxy solicitation must be
made in accordance with rules and regulations to
be issued by the Commission;
20.2. Proxies must be in writing, signed by the
stockholder or his duly authorized representative
and file before the scheduled meeting with the
corporate secretary.
20.3. Unless otherwise provided in the proxy, it
shall be valid only for the meeting for which it is
intended. No proxy shall be valid only for the
meting for which it is intended. No proxy shall be
valid and effective for a period longer than five
(5) years at one time.
20.4. No broker or dealer shall give any proxy,
consent or any authorization, in respect of any
security carried for the account of the customer,
to a person other than the customer, without
written authorization of such customer.
20.5. A broker or dealer who holds or acquire the
proxy for at least ten percent (10%) or such
percentage as the commission may prescribe of
the outstanding share of such issuer, shall submit
a report identifying the beneficial owner of ten
days after such acquisition, for its own account or
customer, to the issuer of security, to the
exchange where the security is traded and to the
Commission.
Section 21. Fees of Tender Offers and Certain
Proxy Solicitations. – At the time of filling with the
Commission of any statement required under
Section 19 for any tender offer or Section 72.2 for
issuer purchases, or Section 20 for proxy or
consent solicitation, The Commission may require
that the person making such filing pay a fee of
not more than one-tenth (1/10)(1%) of;
21.1. The propose aggregate purchase price in
the case of a transaction under Section 20 or
72.2; or
21.2. The proposed payment in cash, and ion
value of any securities or property to be
transferred in the acquisition, merger or
consolidating, or the cash and value of any
securities proposed to be received upon the sale
disposition of such assets in the case of a
solicitation under Section 20. The Commission
shall prescribe by rule diminishing fees in inverse
proportion to the value of the aggregate price of
the offering.
Section 22. Internal Record Keeping and
Accounting Control. - Every issuer which has a
class of securities that satisfies the requirements
of Subsection 17.2 shall:
22.1. Device and maintain a system of internal
accounting controls sufficient to provide
reasonable assurance that: (a) Transactions and
access to assets are pursuant to management
authorization; (b) Financial statements are
provided in conformity with generally accepted
accounting principles that are adopted by the
Accounting standards council and the rules
promulgated by the Commission with the regard
to the preparation of the financial statements;
and (c) Recorded assets are compared with
existing assets at reasonable intervals and
differences are reconciled.
Section 23. Transactions of Directors officers
and Principal Stockholders. – 23.1. Every person
who is directly or indirectly the beneficial owner
of more than ten per centum (10%) of any class
of any equity security which satisfies the
requirements of subsection 17.2, or who is a
director or an officer of the issuer of such
security, shall file, at the time either such
requirement is first satisfied or after ten days
after he becomes such a beneficial owner,
director, or officer, a statement form the
Commission and, if such security is listed for
trading on an exchange, also with the exchange
of the amount of all the equity security of such
issuer of which he is the beneficial owner, and
within ten days after the close of each calendar
month thereafter, if there has been a change in
such ownership at the close of the calendar
month and such changes in his ownership as
have occurred during such calendar month.
23.2. For the purpose of preventing the unfair use
of information which may have been obtained by
such beneficial owner, director or officer by
reason of his relationship to the issuer, any profit
realized by him from any purchase or sale, or any
sale or purchase, of any equity security of such
issuer within any period of less than (6) months
unless such security was acquired in good faith in
connection with a debt previously contracted,
shall inure to and be recoverable by the issuer,
irrespective of any intention of holding the
security purchased or of not repurchasing the
security sold for a period exceeding six (6)
months. Suit to recover such profit may be
instituted before the Regional Trial Court by the
issuer, or by the owner of any security of the
issuer in the name and in behalf of the issuer if
the issuer shall fail or refuse to bring such suit
within sixty (60) days after request or shall fail
diligently to prosecute the same thereafter, but
not such shall be brought more than two years
after the date such profit was realized. This
Subsection shall not be construed to cover any
transaction were such beneficial owner was not
such both time of the owner or the sale, or the
sale of purchase, of the security involved, or any
transaction or transactions which the Commission
by rules and regulations may exempt as not
comprehended within the purpose of this
subsection.
23.3. It shall be unlawful for any such beneficial
owner, director or officer, directly or indirectly, to
sell any equity security of such issuer if the
person selling the principal: (a) Does not own the
security sold: or (b) If owning the security, does
not deliver not deliver it against such sale within
20 days thereafter, or does not within five days
after such sale deposit in the mails or the unusual
channels of transportation; but no person shall be
deemed to have violated this subsection if he
proves not withstanding the exercise of good faith
he was unable to make such delivery in such
time, or that to do so would cause undue
inconvenience or expense.
23.4. The provisions of subsection 23.2 shall not
apply to any purchase and sale, or sale and
purchase, and the provisions of Subsection 23.3
shall not apply to any sale, of an equity security
not then or thereafter held by him and an
investment account, by a dealer in the ordinary
course of his business and incident to the
establishment or maintenance by him of a
primary or secondary market, otherwise than on
an Exchange, for such security. The Commission
may, by such rules and regulations as it deems
necessary or appropriate in the public interest,
define and prescribe terms and conditions with
respect to securities held in an investment
account and transactions made in the ordinary
course of business and incident to the
establishment or maintenance of a primary or
secondary market.
CHAPTER VII
PROHIBITIONS AND FRAUD, MANIPULATION
AND INSIDER TRADING
Section 24. Manipulation of Security Prices;
Devices and Practices. – 24.1 It shall be unlawful
for any person acting for himself or through a
dealer or broker, directly or indirectly:
(a) To create a false or misleading
appearance of active trading in any listed
security traded in an Exchange of any
other trading market (hereafter referred
to purposes of this Chapter as
"Exchange"):
(i) By effecting any transaction in
such security which involves no
change in the beneficial
ownership thereof;
(ii) By entering an order or orders
for the purchase or sale of such
security with the knowledge that
a simultaneous order or orders of
substantially the same size, time
and price, for the sale or purchase
of any such security, has or will
be entered by or for the same or
different parties; or
(iii) By performing similar act
where there is no change in
beneficial ownership.
 (b) To affect, alone or with others, a
securities or transactions in securities
that: (I) Raises their price to induce the
purchase of a security, whether of the
same or a different class of the same
issuer or of controlling, controlled, or
commonly controlled company by others;
or (iii) Creates active trading to induce
such a purchase or sale through
manipulative devices such as marking the
close, painting the tape, squeezing the
float, hype and dump, boiler room
operations and such other similar
devices.
(c) To circulate or disseminate information
that the price of any security listed in an
Exchange will or is likely to rise or fall
because of manipulative market
operations of any one or more persons
conducted for the purpose of raising or
depressing the price of the security for
the purpose of inducing the purpose of
sale of such security.
(d) To make false or misleading statement
with respect to any material fact, which
he knew or had reasonable ground to
believe was so false or misleading, for the
purpose of inducing the purchase or sale
of any security listed or traded in an
Exchange.
(e) To effect, either alone or others, any
series of transactions for the purchase
and/or sale of any security traded in an
Exchange for the purpose of pegging,
fixing or stabilizing the price of such
security; unless otherwise allowed by this
Code or by rules of the Commission.
24.2. No person shall use or employ, in
connection with the purchase or sale of any
security any manipulative or deceptive device or
contrivance. Neither shall any short sale be
effected nor any stop-loss order be executed in
connection with the purchase or sale of any
security except in accordance with such rules and
regulations as the Commission may prescribe as
necessary or appropriate in the public interest for
the protection of investors.
24.3. The foregoing provisions notwithstanding,
the Commission, having due regard to the public
interest and the protection of investors, may, by
rules and regulations, allow certain acts or
transactions that may otherwise be prohibited
under this Section.
Section 25. Regulation of Option Trading. – No
member of an Exchange shall, directly or
indirectly endorse or guarantee the performance
of any put, call, straddle, option or privilege in
relation to any security registered on a securities
exchange. The terms "put", "call", "straddle",
"option", or "privilege" shall not include any
registered warrant, right or convertible security.
Section 26. Fraudulent Transactions. – It shall be
unlawful for any person, directly or indirectly, in
connection with the purchase or sale of any
securities to:
26.1. Employ any device, scheme, or artifice to
defraud;
26.2. Obtain money or property by means of any
untrue statement of a material fact of any
omission to state a material fact necessary in
order to make the statements made, in the light
of the circumstances under which they were
made, not misleading; or
26.3. Engage in any act, transaction, practice or
course of business which operates or would
operate as a fraud or deceit upon any person.
Section 27. Insider’s Duty to Disclose When
Trading. – 27.1. It shall be unlawful for an insider
to sell or buy a security of the issuer, while in
possession of material information with respect to
the issuer or the security that is not generally
available to the public, unless: (a) The insider
proves that the information was not gained from
such relationship; or (b) If the other party selling
to or buying from the insider (or his agent) is
identified, the insider proves: (I) that he disclosed
the information to the other party, or (ii) that he
had reason to believe that the other party
otherwise is also in possession of the information.
A purchase or sale of a security of the issuer
made by an insider defined in Subsection 3.8, or
such insider’s spouse or relatives by affinity or
consanguinity within the second degree,
legitimate or common-law, shall be presumed to
have been effected while in possession of
material nonpublic information if transacted after
such information came into existence but prior to
dissemination of such information to the public
and the lapse of a reasonable time for market to
absorb such information: Provided, however, That
this presumption shall be rebutted upon a
showing by the purchaser or seller that he was
aware of the material nonpublic information at
the time of the purchase or sale.
27.2. For purposes of this Section, information is
"material nonpublic" if: (a) It has not been
generally disclosed to the public and would likely
affect the market price of the security after being
disseminated to the public and the lapse of a
reasonable time for the market to absorb the
information; or (b) would be considered by a
reasonable person important under the
circumstances in determining his course of action
whether to buy, sell or hold a security.
27.3. It shall be unlawful for any insider to
communicate material nonpublic information
about the issuer or the security to any person
who, by virtue of the communication, becomes an
insider as defined in Subsection 3.8, where the
insider communicating the information knows or
has reason to believe that such person will likely
buy or sell a security of the issuer whole in
possession of such information.
27.4. (a) It shall be unlawful where a tender offer
has commenced or is about to commence for:
(i) Any person (other than the tender
offeror) who is in possession of material
nonpublic information relating to such
tender offer, to buy or sell the securities
of the issuer that are sought or to be
sought by such tender offer if such person
knows or has reason to believe that the
information is nonpublic and has been
acquired directly or indirectly from the
tender offeror, those acting on its behalf,
the issuer of the securities sought or to
be sought by such tender offer, or any
insider of such issuer; and
(ii) Any tender offeror, those acting on its
behalf, the issuer of the securities sought
or to be sought by such tender offer, and
any insider of such issuer to communicate
material nonpublic information relating to
the tender offer to any other person
where such communication is likely to
result in a violation of Subsection 27.4 (a)
(I).
(b) For purposes of this subsection the term
"securities of the issuer sought or to be sought by
such tender offer" shall include any securities
convertible or exchangeable into such securities
or any options or rights in any of the foregoing
securities.
CHAPTER VIII
REGULATION OF SECURITIES MARKET
PROFESSIONALS
Section 28. Registration of Brokers, Dealers,
Salesmen and Associated Persons. – 28.1. No
person shall engage in the business of buying or
selling securities in the Philippine as a broker or
dealer, or act as a salesman, or an associated
person of any broker or dealer unless registered
as such with the Commission.
28.2. No registered broker or dealer shall employ
any salesman or any associated person, and no
issuer shall employ any salesman, who is not
registered as such with the Commission.
28.3. The Commission, by rule or order, may
conditionally or unconditionally exempt from
subsection 28.1 and 28.2 any broker, dealer,
salesman, associated person of any broker or
dealer, or any class of the foregoing, as it deems
consistent with the public interest and the
protection of investors.
28.4. The Commission shall promulgate rules and
regulation prescribing the qualifications for
registration of each category of applicant, which
shall, among other things, require as a condition
for registration that:
(a) If a natural person, the applicant
satisfactorily pass a written examination
as to his proficiency and knowledge in the
area of activity for which registration is
sought;
(b) In the case of a broker or dealer, the
applicant satisfy a minimum net capital
as prescribed by the Commission, and
provide a bond or other security as the
Commission may prescribe to secure
compliance with the provisions of this
Code; and
(c) If located outside of the Philippines,
the applicant files a written consent to
service of process upon the Commission
pursuant to Section 65 hereof.
28.5. A broker or dealer may apply for
registration by filing with the Commission a
written application in such forms and containing
such information and documents concerning such
broker or dealer as the Commission by rule shall
prescribe.
28.6. Registration of a salesman or of an
associated person of a registered broker or dealer
may be made upon written application filed with
the Commission by such salesman or associated
person. The application shall be separately
signed and certified by the registered broker or
dealer to which such salesman or associated
person is to become affiliated, or by the issuer in
the case of a salesman employed appointed or
authorized solely by such issuer. The application
shall be in such form and contain such
information and documents concerning the
salesman or associated person as the
Commission by rule shall prescribe. For purposes
of this Section, a salesman shall not include any
employee of an issuer whose compensation is not
determined directly or indirectly on sales of
securities if the issuer.
28.7. Applications filed pursuant to Subsections
28.5 and 28.6 shall be accompanied by a
registration fee in such reasonable amount
prescribed by the Commission.
28.8. Within thirty (30) days after the filing of any
application under this Section, the Commission
shall by order: (a) Grant registrations if it
determines that the requirements of this Section
and the qualifications for registrations set forth in
its rules and regulations have been satisfied ; or
(b) Deny said registration.
28.9. The names and addresses of all persons
approved for the registration as brokers, dealers,
associated persons or salesman and all orders of
the Commission with respect thereto shall be
recorded in a Register of Securities Market
Professionals kept in the office of the Commission
which shall be open to public inspection.
28.10. Every person registered pursuant to this
Section shall file with the Commission, in such
form as the Commission shall prescribe,
information necessary to keep the application for
registration current and accurate, including in the
case of a broker or dealer changes in salesmen,
associated persons and owners thereof.
28.11. Every person registered pursuant to this
Selection shall pay to the Commission an annual
fee at such time and in such reasonable amount
as the Commission shall prescribe. Upon notice
by the Commission that such annual fee has not
been paid as required, the registration of such
person shall be suspended until payment has
been made.
28.12. The registration of a salesman or
associated person shall be automatically
terminated upon the cessation of his affiliation
with said registered broker or dealer or with an
issuer in the case of a salesman employed,
appointed or authorized by such issuer. Promptly
following any such cessation of affiliation, the
registered broker or dealer, issuer as the case
may be, shall file with the Commission a notice of
separation of such salesman or associated
person.
Section 29. Revocation, Refusal or Suspension
of Registration of Brokers, Dealers, Salesmen and
Associated Persons. – 29.1. Registration under
Section 28 of this Code may be refused , or any
registration granted thereunder may be revoked,
suspended, or limitations placed thereon, by the
Commission if, after due notice and hearing the
Commission determines the application or
registrant.
(a) Has willfully violated any provision of
this Code, any rule, regulation or order
made hereunder, or any other law
administered by the Commission, or in
the case of a registered broker, dealer or
associated persons has failed to
supervise, with a view to preventing such
violation, another person who commits
such violation;
(b) Has willfully made or caused to be
made a materially false or misleading
statement in any application for
registration or report filed with the
Commission or a self-regulatory
organization, or has willfully omitted to
state any material fact that is required to
be stated therein;
(c) Has failed to satisfy the qualifications
or requirements for registration
prescribed under Section 28 and the rules
and regulations of the Commission
promulgated thereunder;
(d) Has been convicted, by a competent
judicial or administrative body of an
offense involving moral turpitude, fraud,
embezzlement, counterfeiting, theft,
estafa, misappropriation, forgery, bribery,
false oath, or perjury, or of a violation of
securities, commodities, banking, real
state or insurance laws;
(e) Is enjoined or restrained by a
competent judicial or administrative body
from engaging in securities, commodities,
banking, real state or insurance activities
or from willfully violating laws governing
such activities;
(f) Is subject to an order of a competent
judicial or administrative body refusing,
revoking or suspending any registration,
licensed or other permit under this Code,
the rules and regulations promulgated
thereunder, any other law administered
by the Commission;
(g) Is subject to an order of a self-
regulatory organization suspending or
expelling him from membership or
participating therein or from association
with a member or participant thereof;
(h) Has been found by a competent
judicial or administrative body to have
willfully violated any provisions of
securities, commodities, banking, real
state or insurance laws, or has willfully
aided, abetted, counseled, commanded,
induced or procured such violation; or
(i) Has been judicially declared insolvent.
For purposes of this subsection, the term
"competent judicial or administrative body" shall
include a foreign court of competent jurisdiction
and a foreign financial regulator.
29.2. (a) In case of charges against a salesman or
associated person, notice thereof shall also be
given the broker, dealer or issuer employing such
salesman or associated person.
(b) Pending the hearing, the Commission
shall have the power to order the
suspensions of such broker’s, dealers,
associated person’s or salesman’s
registration: Provided, That such order
shall state the cause for such suspension.
Until the entry of a final order, the
suspension of such registration, though
binding upon the persons notified thereof,
shall be deemed confidential, and shall
not be published, unless it shall appear
that the order of suspension has been
violated after notice.
29.3. The orders of the Commission refusing,
revoking, suspending or placing limitations on a
registration as herein above provided, together
with its findings, shall be entered in the Register
of Securities Market Professionals. The
suspension or revocation of the registration of a
dealer or broker shall also automatically suspend
the registration of all salesmen and associated
persons affiliated with such broker or dealer. The
order of the Commission refusing, revoking,
suspending or placing limitations on a registration
as herein above provided, together with its
findings, shall be entered in the Register of
Securities Market Professionals. The suspension
or revocation of the registration of a dealer or
broker shall also automatically suspend the
registration of a dealer or broker shall also
automatically suspend the registration of all
salesmen and associated persons affiliated with
such broker or dealer.
29.4. It shall be sufficient cause for refusal,
revocation or suspension of a broker’s or dealer’s
registrations, if any associated person thereof or
any juridical entity controlled by such associated
person has committed any act or omission or is
subject to any disability enumerated in
paragraphs (a) through (i) of Subsection 29. I
hereof.
Section 30. Transactions and Responsibility of
Brokers and Dealers. – 30.1 No brokers or dealer
shall deal in or otherwise buy or sell, for its own
account or for its own account or for the account
of customers, securities listed on an Exchange
issued by any corporation where any
stockholders, director, associated person or
salesman, or authorized clerk of said broker or
dealer and all the relatives of the foregoing within
the fourth civil degree of consanguinity or affinity,
is at the same time holding office in said issuer
corporation as a director, president, vice-
president, manager, treasurer, comptroller,
secretary or any office trust and responsibility, or
is a controlling of the issuer.
30.2. No broker or dealer shall effect any
transaction in securities or induce or attempt to
induce the purchase or sale of any security
except in compliance with such rules and
regulations as the Commission shall prescribe to
ensure fair and honest dealings in securities and
provide financial safeguards and other standards
for the operations of brokers and dealers,
including the establishments of minimum net
capital requirements, the acceptance of custody
and use of securities of customers, and the
carrying and use of deposits and credit balances
of customers.
Section 31. Development of Securities Market
Professionals. – The Commission in joint
undertaking with self regulatory organizations,
organizations and associations of finance
professionals as well as private educational and
research institute shall undertake or
facilitate/organize continuing training,
conferences/seminars, updating programs,
research and developments as well as technology
transfer at the latest and advance trends in
issuance and trading of securities, derivatives,
commodity trades and other financial
instruments, as well as securities markets of
other countries.
CHAPTER IX
EXCHANGES AND OTHER SECURITIES
TRADING MARKETS
Section 32. Prohibition on Use of Unregistered
Exchange; Regulation of Over-the-Counter
Markets. –32.1. No broker, dealer, salesman,
associated person of a broker or dealer, or
Exchange, directly or indirectly shall make use of
any facility of an Exchange in the Philippines to
effect any transaction in a security, or to report
such transaction, unless such Exchange is
registered as such under Section 33 of this Code.
32.2. (a) No broker, dealer, salesman or
associated person of a broker or dealer, singly or
in concert with any other person, shall make,
create or operate, or enable another to make,
create or operate, any trading market, otherwise
than on a registered Exchange, for the buying
and selling of any security, except in accordance
with rules and regulations the Commission may
prescribe.
(b) The Commission may promulgate
rules and regulations governing
transactions by brokers, dealers,
salesmen or associated persons of a
broker or dealer, over any facilities of
such trading market and may require
such market to be administered by a self-
regulatory organization determined by
the Commission as capable of insuring
the protection of investors comparable to
that provided in the case of a registered
Exchange. Such self-regulatory
organization must provide a centralized
marketplace for trading and must satisfy
requirements comparable to those
prescribed for registration of Exchanges
in Section 33 of this Code.
Section 33. Registration of Exchanges. – 33.1.
Any Exchange may be registered as such with the
Commission under the terms and conditions
hereinafter provided in this Section and Section
40 hereof, by filing an application for registration
in such form and containing such information and
supporting documents as the Commission by rule
shall prescribe, including the following:
(a) An undertaking to comply and enforce
by its members with the provisions of this
Code, its implementing rules and
regulations and the rules of the
Exchange;
(b) The organizational charts of the
Exchange, rules of procedure, and a list of
its officers and members;
(c) Copies of the rules of the Exchange;
and
(d) An undertaking that in the event a
member firm becomes insolvent or when
the Exchange shall have found that the
financial condition of its member firm has
so deteriorated that it cannot readily
meet the demands of its customers for
the delivery of securities and/or payment
of sales proceeds, the Exchange shall,
upon order of the Commission, take over
the operation of the insolvent member
firm and immediately proceed to settle
 the member firm’s liabilities to
customers.
33.2. Registrations of an Exchange shall be
granted upon compliance with the following
provisions:
(a) That the applicant is organized as a
stock corporation: Provided, That any
registered Exchange existing prior to the
effectivity of this Code shall within one (1)
year reorganize as a stock corporation
pursuant to a demutualization plan
approved by the Commission;
(b) That the applicant is engaged solely in
the business of operating an exchange:
Provided, however, That the Commission
may adopt rules, regulations or issue an
order, upon application, exempting an
Exchange organized as a stock
corporation and owned and controlled by
another juridical person from the
restriction.
(c) Where the Exchange is organized as a
stock corporation, that no person may
beneficially own or control, directly or
indirectly, more than five percent (5%) of
the voting rights of the Exchange and no
industry or business group may
beneficially own or control, directly or
indirectly, more than twenty percent
(20%) of the voting rights of the
Exchange: Provided, however, That the
Commission may adopt rules, regulations
or issue an order, upon application from
this prohibition where it finds that such
ownership or control will not negatively
impact on the exchange’s ability to
effectively operate in the public interest.
(d) The expulsion, suspension, or
disciplining of a member and persons
associated with a member for conduct or
proceeding inconsistent with just and
equitable principles of fair trade, and for
violations of provisions of this Code, or
any other Act administered by the
Commission, the rules, regulations and
orders thereunder, or the rules of the
Exchange;’
(e) A fair procedure for the disciplining of
members and persons associated with
members, the denial of membership to
any person seeking to be a member, the
barring of any person from association
with a member, and the prohibition or
limitation of any person from association
with member, and the prohibition or
limitation of any person from access to
services offered by the Exchange;
(f) That the brokers in the board of the
Exchange shall comprise of not more than
forty-nine percent (49%) of such board
and shall proportionately represent the
its Exchange membership in terms of
volume/value or trade and paid up
capital, and that any natural person
associated with a juridical entity that is a
member for this purpose; Provide, That
any registered Exchange existing prior to
the affectivity of this Code shall
immediately comply with this
requirement;
(g) For the board of the Exchange to
include in its composition (1) the
president of the Exchange, and (ii) no less
than fifty one percent (51%) of the
remaining members of the board to be
comprised of three (3) independent
directors and persons who represent the
interests of issuers, investors, and other
market participants, who are not
associated with any broker or dealer or
member of the Exchange for a period of
two (2) years prior to his/her
appointment. No officer or employee of a
member, its subsidiaries or affiliates or
related interests shall become an
independent director: Provided, however,
That the Commission may by rule,
regulation, or order upon application,
permit the exchange organized as a stock
corporation to use a different governance
structure: Provided, further, That the
Commission is satisfied that the Exchange
is acting in the public interest and is able
to effectively operate as a self-regulatory
organization under this Code: Provided,
finally, That any registered exchange
existing prior to the affectivity of this
Code shall immediately comply with this
requirement.
(h) The president and other management
of the Exchange to consist only of
persons who are not members and are
not associated in any capacity, directly or
indirectly with any broker or dealer or
member or listed company of the
Exchange: Provided, That the Exchange
may only appoint, and a person may only
serve, as an officer of the exchange if
such person has not been a member or
affiliated with any broker, dealer, or
member of the Exchange for a period of
at least two (2) years prior to such
appointment;
(i) The transparency of transactions on
the Exchange;
(j) The equitable allocation of reasonable
dues, fees, and other charges among
members and issuers and other persons
using any facility or system which the
Exchange operates or controls;
(k) Prevention of fraudulent and
manipulative acts and practices,
promotion of just and equitable principles
 of trade, and, in general, protection of
investors and the public interest; and
(l) The transparent, prompt and accurate
clearance and settlement of transactions
effected on the Exchange.
33.3. If the Commission finds that the applicant
Exchange is capable of complying and enforcing
compliance by its members, and persons
associated with such members, with the
provisions of this Code, and the rules of the
Exchange, and that the rules of Exchange are
fair, just and adequate, the Commission shall
cause such Exchange to be registered. If, after
notice due and hearing, the Commission finds
otherwise, the application shall be denied.
33.4. Within ninety (90) days after the filing of
the application the Commission may issue an
order either granting or denying registration as
an Exchange, unless the Exchange applying for
registration shall withdraw its application or shall
consent to the Commission’s deferring action on
its application for a stated longer period after the
date of filing. The filing with the Commission of
an application for registration by an Exchange
shall be deemed to have taken place upon the
receipt thereof. Amendments to an application
may be made upon such terms as the
Commission may prescribe.
33.5. Upon the registration of an Exchange, it is
shall pay a fee in such amount and within such
period as the Commission may fix.
33.6. Upon appropriate application in accordance
with the rules and regulations of the Commission
and upon such terms as the Commission may
deemed necessary for the protection of investors,
an exchange may withdraw its registration or
suspend its operations or resume the same.
Section 34. Segregation and Limitation of
functions of Members, Broker and Dealers. - 34.1.
It shall be unlawful for any member-broker of an
Exchange to effect any transaction on such
Exchange for its own account, the account of an
associated person, or an account with the respect
to which it or an associated person thereof
exercises the investment discretion: Provided,
however, That this Section shall not make
unlawful-
(a) Any transaction by a member-broker
acting in the capacity of a market maker;
(b) Any transaction reasonably necessary
to carry on an odd-lot transactions;
(c) Any transaction to offset a transaction
made in error; and
(d) Any other transaction of a similar
nature as may be defined by the
Commission.
34.2. In all instances where the member-broker
effects a transaction on an Exchange for its own
account or the account of an associated person
or an account with the respect to which it
exercises investment discretion, it shall disclose
to such customer at or before the completion of
the transaction it is acting for its own account:
Provided, further, That this fact shall be reflected
in the order ticket and the confirmation slip.
34.3. Any member-broker who violates the
provisions of this Section shall be subject to the
administrative sanctions provided in Section 54 of
this Code.
Section 35. Additional Fees of Exchanges. – In
addition to the registration fee prescribed in
Section 33 of this Code, every Exchange shall pay
to the Commission, on a semestral basis on or
before the tenth day of the end of the end of
every semester of the calendar year, a fee in
such an amount as the Commission shall
prescribe, but not more than one-hundredth of
one per centum (1%) of the aggregate amount of
the sales of securities transacted on such
Exchange during the preceding calendar year for
the privilege of doing business, during the
preceding calendar year or any part thereof.
Section 36. Powers with Respect to Exchanges
and Other Trading Market. – 36.1. The
Commission is authorized, if in its opinion such
action is necessary or appropriate for the
protection of investors and the public interest so
requires, summarily to suspend trading in any
listed security on any Exchange or other trading
market for a period not exceeding thirty (30) days
but not exceeding ninety (90) days: Provided,
however, That the Commission promptly
following the issuance of the order of suspension,
shall notify the affected issuer of the reasons for
such suspension and provide such issuer with an
opportunity for hearing to determine whether the
suspension should be lifted.
36.2. Wherever two (2) or more Exchanges or
other trading markets exist, the Commission may
require and enforce uniformity of trading
regulations in and/or between or among said
Exchanges or other trading markets.
36.3. In addition to the existing Philippine Stock
Exchange, the Commission shall have the
authority to determine the number, size and
location of stock Exchanges, other trading
markets and commodity Exchanges and other
similar organizations in the light of national or
regional requirements for such activities with the
view to promote, enhance, protect, conserve or
rationalize investment.
36.4. The Commission, having due regard to the
public interest, the protection of investors, the
safeguarding of securities and funds, and
maintenance of fair competition among brokers,
dealers, clearing agencies, and transfer agents,
shall promulgate rules and regulations for the
prompt and accurate clearance and settlement of
securities transactions.
36.5. (a) The Commission may establish or
facilitate the establishment of trust funds which
shall be contributed by Exchanges, brokers,
dealers, underwriters, transfer agents, salesmen
and other persons transacting in securities, as
the Commission may require, for the purpose of
compensating investors for the extraordinary
losses or damage they may suffer due to
business failure or fraud or mismanagement of
the persons with whom they transact, under such
rules and regulations as the Commission may
from time to time prescribe or approve in the
public interest.
(b) The Commission may, having due
regard to the public interest or the
protection of investors, regulate,
supervise, examine, suspend or otherwise
discontinue such and other similar funds
under such rules and regulations which
the Commission may promulgate, and
which may include taking custody and
management of the fund itself as well as
investments in and disbursements from
the funds under such forms of control and
supervision by the Commission as it may
from time to time require. The authority
granted to the Commission under this
subsection shall also apply to all funds
established for the protection of
investors, whether established by the
Commission or otherwise.
Section 37. Registration of Innovative and Other
Trading Markets. – The Commission, having due
regard for national economic development, shall
encourage competitiveness in the market by
promulgating within six (6) months upon the
enactment of this Code, rules for the registration
and licensing of innovative and other trading
markets or Exchanges covering, but not limited
to, the issuance and trading of innovative
securities, securities of small, medium, growth
and venture enterprises, and technology-based
ventures pursuant to Section 33 of this Code.
Section 38. Independent Directors. – Any
corporation with a class of equity securities listed
for trading on an Exchange or with assets in
excess of Fifty million pesos (P50,000,000.00) and
having two hundred (200) or more holders, at
least of two hundred (200) of which are holding at
least one hundred (100) shares of a class of its
equity securities or which has sold a class of
equity securities to the public pursuant to an
effective registration statement in compliance
with Section 12 hereof shall have at least two (2)
independent directors or such independent
directors shall constitute at least twenty percent
(20%) of the members of such board whichever is
the lesser. For this purpose, an "independent
director" shall mean a person other than an
officer or employee of the corporation, its parent
or subsidiaries, or any other individual having a
relationship with the corporation, which would
interfere with the exercise of independent
judgement in carrying out the responsibilities of a
director.
CHAPTER X
REGISTRATION, RESPONSIBILITIES AND
OVERSIGHT OF SELF-REGULATORY
ORGANIZATIONS
Section 39. Associations of Securities Brokers,
and Dealers, and Other Securities Related
Organizations. – 39.1. The Commission shall have
the power to register as a self-regulatory
organization, or otherwise grant licenses, and to
regulate, supervise, examine, suspend or
otherwise discontinue, as a condition for the
operation of organizations whose operations are
related to or connected with the securities market
such as but not limited to associations of brokers
and dealers, transfer agents, custodians, fiscal
and paying agents, computer services, news
disseminating services, proxy solicitors, statistical
agencies, securities rating agencies, and
securities information processor which are
engaged in business of: (a) Collecting,
processing, or preparing for distribution or
publication, or assisting, participating in, or
coordinating the distribution or publication of,
information with respect to transactions in or
quotations for any security; or (b) Distributing or
publishing, whether by means of a ticker tape, a
communications network, a terminal display
device, or otherwise, on a current and continuing
basis, information with respect to such
transactions or quotations. The Commission may
prescribe rules and regulations which are
necessary or appropriate in the public interest or
for the protection of investors to govern self-
regulatory organizations and other organizations
licensed or regulated pursuant to the authority
granted in Subsection 39.1 including the
requirement of cooperation within and among,
and electronic integration of the records of, all
participants in the securities market to ensure
transparency and facilitate exchange of
information.
39.2. An association of brokers and dealers may
be registered as a securities association pursuant
to Subsection 39.3 by filing with the Commission
an application for registration in such form as the
Commission, by rule, may prescribe containing
the rules of the association and such other
information and documents as the Commission,
by rule, may prescribe as necessary or
appropriate in the public interest or for the
protection of investors.
39.3. An association of brokers and dealers shall
not be registered as a securities association
unless the Commission determines that:
(a) The association is so organized and
has the capacity to be able to carry out
the purposes of this Code and to comply
with, and to enforce compliance by its
members and persons associated with its
members, with the provisions of this
Code, the rules and regulations (vii) That a fair procedure for the
thereunder, and the rules of the disciplining of members and
association. persons associated with
members, the denial of
(b) The rules of the association, membership to any person
notwithstanding anything in the seeking membership therein, the
Corporation Code to the contrary, provide barring of any person from
that: becoming associated with a
(i) Any registered broker or dealer member thereof, and the
may become a member of the prohibition or limitation by the
association; association of any person with
respect to access to services
(ii) There exist a fair offered by the association or a
representation of its members to member thereof.
serve on the Board of Directors of
the association and in the 39.4. (a) A registered securities association shall
administration of its affairs, and deny membership to any person who is not a
that may any natural person registered broker or dealer.
associated with a juridical entity (b) A registered securities association
that is a member shall himself be may deny membership to, or condition
deemed to be a member for this the membership of, a registered broker or
purpose; dealer if such broker or dealer:
(iii) The Board of Directors of the (i) Does not meet the standards of
association includes in its financial responsibility,
composition: operational capability, training,
(a) The president of the experience or competence that
association and are prescribe by the rules of the
association; or
(b) Person who represent
the interests of the issuer (ii) Has engaged, and there is a
and public investors and reasonable likelihood it will again
are not associated with engage, in acts or practices
any broker or dealer or inconsistent with just and
member of the equitable principles of fair trade.
association; that the (c) A registered securities association
president and other may deny membership to a registered
management of the broker or dealer not engage in a type of
association not be a business in which the rules of the
member or associated association require members to be
with any broker, dealer or engaged: Provided, however, That no
member of the registered securities association may
association; deny membership to a registered broker
(iv) For the equitable allocation of or dealer by reason of the amount of
reasonable dues, fees, and other business done by the broker or dealer.
charges among member and A registered securities association may
issuers and other persons using examine and verify the qualifications of
any facility or system which the an applicant to become a member in
association operates or controls; accordance with procedure established by
(v) For the prevention of the rules of the association.
fraudulent and manipulative acts (d) A registered securities association
and practices, the promotion of may bar a salesman or person associated
just and equitable principles of with a broker or dealer from being
trade, and, in general, the employed by a member or set conditions
protection of investors and the for the employment of a salesman or
public interest; associated if such person:
(vi) That its members and persons (i) Does not meet the standards of
associated with its members shall training, experience, or
be appropriately disciplined for competence that are prescribe by
violation of any provision of this the rules of the association; or
Code, the rules and regulations
thereunder, or the rules of the (ii) Has engage, and there is a
association; reasonable likelihood he will again
engage, in acts or practices
 inconsistent with just and
equitable principles of fair trade.
A registered securities association may examine
and verify the qualifications of an applicant to
become a salesman or associated person
employed by a member in accordance with the
procedures establish by the rules of the
association. A registered association also may
require a salesman or associated person
employed by a member to be registered with the
association in accordance with the procedures
prescribed in the rules of the association.
39.5. In any proceeding by a registered securities
association to determine whether a person shall
be denied membership, or barred from
association with a member, the association shall
provide notice to the person under review of the
specific grounds being considered for denial,
afford him an opportunity to defend against the
allegations, and keep a record of the proceedings.
A determination by the association to deny
membership shall be supported by a statement
setting forth the specific grounds on which the
denial is based.
Section 40. Powers with Respect to Self-
Regulatory Organizations. - 40.1. Upon the filing
of an application for registration as an Exchange
under Section 33, a registered securities
association under Section 39, a registered
clearing agency under Section 42, or other self-
regulatory organization under this Section, the
Commission shall have ninety (90) days within
which to either grant registration should be
denied. In the event proceedings are instituted,
the Commission shall have two hundred seventy
(270) days within which to conclude such
proceedings at which time it shall, by order, grant
or deny such registration.
40.2. Every self-regulatory organization shall
comply with the provision of this Code, the rules
and regulations thereunder, and its own rules,
and enforce compliance therewith,
notwithstanding any provisions of the Corporation
Code to the contrary, by its members, persons
associated with its members of its participants.
40.3. (a) Each self-regulatory organization shall
submit to the Commission for prior approval any
proposed rule or amendment thereto, together
with a concise statement of the reason and effect
of the proposed amendment
(b) Within sixty (60) days after
submission of a proposed amendment,
the Commission shall, by order, approve
the proposed amendment. Otherwise, the
same may be made effective by the self-
regulatory organization.
(c) In the event of an emergency
requiring action for the protection of
investors, the maintenance of fair and
orderly markets, or the safeguarding of
securities and funds, a self-regulatory
organization may put a proposed
amendment into effect summarily;
Provided however, That the copy of the
same shall be immediately submitted to
the Commission.
40.4. The Commission is further authorized, if
after making appropriate request in writing to a
self-regulatory organization that such
organization effect on its own behalf specified
changes in its rules and practices and, after due
to notice and hearing it determines that such
changes have not been effected, and that such
changes are not necessary, by the rule or
regulation or by order, may alter, abrogate or
supplement the rules of such self-regulatory
organization in so far as necessary or appropriate
to effect such changes in respect of such matters
as:
(a) Safeguards in respect of the financial
responsibility of members and adequate
provision against the evasion of financial
responsibility through the use of
corporate forms or special partnerships;
(b) The supervision of trading practices;
(c) The listing or striking from listing of
any security;
(d) Hours of trading;
(e) The manner, methods, and place of
soliciting business;
(f) Fictitious accounts;
(g) The time and method of making
settlements, payments, and deliveries,
and of closing accounts;
(h) The transparency of securities
transactions and prices;
(i) The fixing of reasonable rates of fees,
interest, listing and other charges, but not
rates of commission;
(j) Minimum units of trading;
(k) Odd-lot purchases and sales;
(l) Minimum deposits on margin accounts;
and
(m) The supervision, auditing and
disciplining of members or participants.
40.5. The Commission, after due notice and
hearing, is authorized, in the public interest and
to protect investors:
(a) To suspend for a period not exceeding
twelve (12) months or to revoke the
registration of a self-regulatory
organization, or to censure or impose
limitations on the activities, functions,
and operations of such self-organization,
if the Commission finds that such a self-
regulatory organization has willfully
violated or is unable to comply with any
 provision of this Code or of the rules and
regulations thereunder, or its own or has
failed to enforce compliance therewith by
a member of, person associated with a
member, or a participant in such self-
regulatory organization;
(b) To expel from a self-regulatory
organization any member thereof or any
participant therein who is subject to an
order of the Commission under Section 29
of this Code or is found to have willfully
violated any provision of this Code or
suspend for a period not exceeding
twelve (12) months for violation of any
provision of this Code or any other laws
administered by the Commission, or rules
and regulations thereunder, or effected,
directly or indirectly, any transaction for
any person who, such member or
participant had reason to believe, was
violating in respect of such transaction
any of such provisions; and
(c) To remove from the office or censure
any officer or director of a self-regulatory
organization if it finds that such officer or
director has violated any provision of this
Code, any other law administered by the
Commission, the rules or regulations
thereunder, or the rules of such self-
regulatory organization, abused his
authority, without reasonable justification
or excuse has failed to enforce
compliance with any of such provisions.
40.6. (a) A self-regulatory organization is
authorized to discipline a member of or
participant in such self-regulatory organization, or
any person associated with a member, including
the suspension or expulsion of such member or
participant, and the suspension or bar from being
associated with a member, if such person has
engage in acts or practices inconsistent with just
and equitable principles of fair trade or in willful
violation of any provision of the Code, any other
law administered by the Commission, the rules or
regulations thereunder, or the rules of the self-
regulatory organization. In any disciplinary
proceeding by a self-regulatory organization
(other than a summary proceeding pursuant to
paragraph (b) of this subsection) the self-
regulatory organization shall bring specific
charges, provide notice to the person charged,
afford the person charged with an opportunity to
defend against the charges, and keep a record of
the proceedings. A determination to impose a
disciplinary sanction shall be supported by a
written statement of the offenses, a summary of
the evidence presented and a statement of the
sanction imposed.
(b) A self-regulatory organization may
summarily: (I) Suspend a member,
participant or person associated with a
member who has been or is expelled or
suspended from any other self-regulatory
organization; or (ii) Suspend a member
who the self-regulatory organization finds
to be in such financial or operating
difficulty that the member or participant
cannot be permitted to continue to do
business as a member with safety to
investors, creditors, other members,
participants or the self-regulatory
organization: Provided, That the self-
regulatory organization immediately
notifies the Commission of the action
taken. Any person aggrieved by a
summary action pursuant to this
paragraph shall be promptly afforded an
opportunity for a hearing by the
association in accordance with the
provisions of paragraph (a) of this
subsection. The Commission, by order,
may stay a summary action on its own
motion or upon application by any person
aggrieved thereby, if the Commission
determines summarily or after due notice
and hearing (which hearing may consist
solely of the submission of affidavits or
presentation of oral arguments) that a
stay is consistent with the public interest
and the protection of investors.
40.7. A self-regulatory organization shall promptly
notify the Commission of any disciplinary
sanction on any member thereof or participant
therein, any denial of membership or
participation in such organization, or the
imposition of any disciplinary sanction on a
person associated with a member or a bar of
such person from becoming so associated. Within
thirty (30) days after such notice, any aggrieved
person may appeal to the Commission from, or
the Commission from, or the Commission on its
own motion within such period, may institute
review of, the decision of the self-regulatory
organization, at the conclusion of which, after due
notice and hearing (which may consist solely of
review of the record before the self-regulatory
organization), the Commission shall affirm,
modify or set aside the sanction. In such
proceeding the Commission shall determine
whether the aggrieved person has engaged or
omitted to engage in the acts and practices as
found by the self-regulatory organization,
whether such acts and practices constitute willful
violations of this Code, any other law
administered by the Commission, the rules or
regulations thereunder, or the rules of the self-
regulatory organization as specified by such
organization, whether such provisions were
applied in a manner consistent with the purposes
of this Code, and whether, with due regard for the
public interest and the protection of investors the
sanction is excessive or oppressive.
40.8. The powers of the Commission under this
Section shall apply to organized exchanges and
registered clearing agencies.
CHAPTER XI
ACQUISITION AND TRANSFER OF
SECURITIES AND SETTLEMENT OF
TRANSACTION IN SECURITIES
Section 41. Prohibition on Use of Unregistered
Clearing Agency. – It shall be unlawful for any
broker, dealer, salesman, associated person of a
broker or dealer, or clearing agency, directly or
indirectly, to make use of any facility of a clearing
agency in Philippines to make deliveries in
connection with transaction in securities or to
reduce the number of settlements of securities
transactions or to allocate securities settlement
responsibilities or to provide for the central
handling of securities so that transfers, loans and
pledges and similar transaction can be made by
bookkeeping entry or otherwise to facilitate the
settlement of securities transactions without
physical delivery of securities certificates, unless
such clearing agency is registered as such under
Section 42 of this Code or is exempted from such
registration upon application by the clearing
agency because, in the opinion of the
Commission, by reason of the limited volume of
transactions which are settled using the clearing
agency, it is not practicable and not necessary or
appropriate in the public interest or for the
protection of investors to require such
registration.
Section 42. Registration of Clearing Agencies. -
42.1. Any clearing agency may be registered as
such with the Commission under the terms and
conditions hereinafter provided in this Section, by
filing an application for registration in such form
and containing such information and supporting
documents as the Commission by rule shall
prescribe, including the following:
(a) An undertaking to comply and enforce
compliance by its participants with the
provisions of this Code, and any
amendments thereto, and the
implementing rules or regulations made
or to be made thereunder, and the
clearing agency’s rules;
(b) The organizational charts of the
Exchange, its rules of procedure, and list
of its officers and participants;
(c) Copies of the clearing agency’s rules.
42.2. No registration of a clearing agency shall be
granted unless the rules of the clearing agency
include provision for:
(a) The expulsions, suspension, or
disciplining of a participant for violations
of this Code, or any other Act
administered by the Commission, the
rules, regulations, and orders thereunder,
or the clearing agency’s rules;
(b) A fair procedure for the disciplining of
participants, the denial of participation
rights to any person seeking to be a
participant, and the prohibition or
limitation of any person from access to
services offered by the clearing agency;
(c) The equitable allocation of reasonable
dues, fees, and other charges among
participants;
(d) Prevention of fraudulent and
manipulative acts and practices,
promotion of just and equitable principles
of trade, and, in general, protection of
investors and the public interest;
(e) The transparent, prompt and accurate
clearance and settlement of transactions
in securities handled by the clearing
agency; and
(f) The establishment and oversight of a
fund to guarantee the prompt and
accurate clearance and settlement of
transaction executed on an exchange,
including a requirement that members
each contribute an amount based on their
and a relevant percentage of the daily
exposure of the (4) largest trading
brokers which adequately reflects trading
risks undertaken or pursuant to another
formula set forth in Commission rules or
regulations or order, upon application:
Provided, however, That a clearing
agency engaged in the business of
securities depository shall be exempt
from this requirement.
42.3. In the case of an application filed pursuant
to this section, the Commission shall grant
registration if it is finds That the requirements of
this code and the rules and regulations
thereunder with respect to the applicant have
been satisfied, and shall deny registration if it
does not make such finding.
42.4. Upon appropriate application in accordance
with the rules and regulations of the Commission
and upon such terms as the Commission may
deem necessary for the protection of investors, a
clearing agency may withdraw its registration or
suspend its operation or resume the same.
Section 43. Uncertificated Securities. –
Notwithstanding Section 63 of the Corporation
Code of the Philippines: 43.1. A corporation
whose securities are registered pursuant to this
Code or listed on securities exchange may:
(a) If so resolved by its Board of Directors
and agreed by a shareholder, investor or
securities intermediary, issue shares to,
or record the transfer of some or all its
shares into the name of said
shareholders, investors or, securities
intermediary in the form of uncertified
securities. The use of uncertified
securities in these circumstances shall be
without prejudice to the rights of the
securities intermediary subsequently to
require the corporation to issue a
 certificate in respect of any shares
recorded in its name; and
(b) If so provided in its articles of
incorporation and by-laws, issue all of the
shares of a particular class in the form of
Uncertificated securities and subject to a
condition that investors may not require
the corporation to issue a certificate in
respect of any shares recorded in their
name.
43.2. The Commission by rule may allow other
corporations to provide in their articles of
incorporation and by-laws for the use of
uncertificated securities.
43.3. Transfers of securities, including an
uncertificated securities, may be validly made
and consummated by appropriate book-entries in
the securities intermediaries, or in the stock and
transfer book held by the corporation or the stock
transfer agent and such bookkeeping entries shall
be binding on the parties to the transfer. A
transfer under this subsection has the effect of
the delivery of a security in bearer form or duly
indorsed in blank representing the quantity or
amount of security or right transferred, including
the unrestricted negotiability of that security by
reason of such delivery. However, transfer of
uncertificated shares shall only be valid, so far as
the corporation is concerned, when a transfer is
recorded in the books of the corporation so as to
show the names of the parties to the transfer and
the number of shares transferred.
However, nothing in this Code shall compliance
by banking and other institutions under the
supervision of the Bangko Sentral ng Pilipinas and
their stockholders with the applicable ceilings on
shareholding prescribed under pertinent banking
laws and regulations.
Section 44. Evidentiary Value of Clearing
Agency Record. – The official records and book
entries of a clearing agency shall constitute the
best evidence of such transactions between
clearing agency shall constitute the best between
clearing agency and its participants’ or members’
clients to prove their rights, title and entitlement
with respect to the book-entry security holdings
of the participants or members held on behalf of
the clients. However, the corporation shall not be
bound by the foregoing transactions unless the
corporate secretary is duly notified in such
manner as the Commission may provide.
Section 45. Pledging a Security or Interest
Therein. – In addition to other methods
recognized by law, a pledge of, including an
uncertificated security, is properly constituted
and the instrument proving the right pledged
shall be considered delivered to the creditor
under Articles 2093 and 2095 of the Civil Code if
a securities intermediary indicates by book entry
that such security has been credited to a
specially designated pledge account in favor of
the pledgee. A pledge under this subsection has
the effect of the delivery of a security in bearer
form or duly indorsed in blank representing the
quantity or amount of such security or right
pledged. In the case of a registered clearing
agency, the procedures by which, and the exact
time at which, such book-entries are created shall
be governed by the registered clearing agency’s
rules. However, the corporation shall not be
bound by the foregoing transactions unless the
corporate secretary is duly notified in such
manner as the Commission may provide.
Section 46. Issuer’s Responsibility for Wrongful
Transfer to Registered Clearing Agency. - The
registration of a transfer of a security into the
name of and by a registered clearing agency or
its name of or by a registered clearing agency or
its nominee shall be final and conclusive unless
the clearing agency had notice of an adverse
claim before the registration was made. The
above provisions which the claimant may have
against the issuer for wrongful registration in
such circumstances.
Section 47. Power of the Commission With
Respect to Securities Ownership. – The
Commission is authorize, having due regard to
the public interest and the protection of
investors, to promulgate rules and regulations
which:
47.1. Validate the transfer of securities by book-
entries rather than the delivery of physical
certificates;
47.2. Establish when a person acquires a security
or an interest therein and when delivery of a
security to a purchaser occurs;
47.3. Establish which records constitute the best
evidence of a person’s interests in a security and
the effect of any errors in electronic records of
ownership;
47.4. Codify the rights of investors who choose to
hold their securities indirectly through a
registered clearing agency and/ or other
securities intermediaries;
47.5. Codify the duties of securities
intermediaries (including clearing agencies) who
hold securities on behalf of investors; and
47.6 Give first priority to any claims of a
registered clearing agency against a participant
arising from a failure by the participant to meet
its obligations under the clearing agency’s rules
in respect of the clearing and settlement of
transactions in securities, in a dissolution of the
participant, and any such rules and regulation
shall bind the issuers of the securities, investors
in the securities, any third parties with interests
in the securities, and the creditors of a participant
of a registered clearing agency.
CHAPTER XII
MARGIN AND CREDIT
Section 48. Margin Requirements. – 48.1. For
the purpose of preventing the excessive use of
credit for the purchase or carrying of securities,
the Commission, in accordance with the credit
and monetary policies that may be promulgated
from time to time by the Monetary Board of the
Bangko Sentral ng Pilipinas, shall prescribed rules
and regulations with respect to the amount of
credit that may be extended on any security. For
the extension of credit, such rules and regulations
shall be based upon the following standard:
An amount not greater than the whichever is the
higher of –
(a) Sixty-five per centum (65%) of the
current market price of the security, or
(b) One hundred per centum (100%) of
the lowest market price of the security
during the preceding thirty-six (36)
calendar months, but not more than
seventy-five per centum (75%) of the
current market price.
However, the Monetary Board may increase or
decrease the above percentages, in order to
achieve the objectives of the Government with
due regard for promotion of the economy and
prevention of the use of excessive credit.
Such rules and regulations may make appropriate
provision with respect to the carrying of
undermargined accounts for limited periods and
under specified conditions; the withdrawal of
funds or securities; the transfer of accounts from
one lender to another; special or different margin
requirements for delayed deliveries, short sales,
arbitrage transactions, and securities to which
letter (b) of the second paragraph of this
subsection does not apply; the methods to be
used in calculating loans, and margins and
market prices; and similar administrative
adjustments and details.
48.2. No member of an Exchange or broker or
dealer shall, directly or indirectly, extend or
maintain credit is extended and maintain credit
or arrange for the extension or maintenance of
credit to or for any customer:
(a) On any security unless such credit is
extended and maintained in accordance
with the rules and regulations which the
Commission shall prescribe under this
Section including rules setting credit in
relation to net capital of such member,
broker or dealer; and
(b) Without collateral or any collateral
other than securities, except (I) to
maintain a credit initially extended in
conformity with rules and regulations of
the Commission and (ii) in cases where
the extension or maintenance of credit is
not for the purpose of purchasing or
carrying securities or of evading or
circumventing the provisions of
paragraph (a) of this subsection.
48.3 Any person not subject to Subsection 48.2
hereof shall extend or maintain credit or arrange
for the extension or maintenance of credit for the
purpose of purchasing or carrying any security,
only in accordance with such rules and
regulations as the Commission shall prescribe to
prevent the excessive use of credit for the
purchasing or carrying of or trading in securities
in circumvention of the other provisions of this
Section.. Such rules and regulations may impose
upon all loans made for the purpose of
purchasing or carrying securities limitations
similar to those imposed upon members, brokers,
or dealers by Subsection 48.2 and the rules and
regulations thereunder. This subsection and the
rules and regulations thereunder shall not apply:
(a) To a credit extension made by a
person not in the ordinary course of
business; (b) to a loan to a dealer to aid
in the financing of the distribution of
securities to customers not through the
medium of an Exchange; or (c) To such
other credit extension as the Commission
shall exempt from the operation of this
subsection and the rules and regulations
thereunder upon specified terms and
conditions for stated period.
Section 49. Restrictions on Borrowings by
Members, Brokers, and Dealers. – It shall be
unlawful for any registered broker or dealer, or
member of an Exchange, directly or indirectly;
49.1. To permit in the ordinary course of business
as a broker or dealer his aggregate indebtedness
including customers’ credit balances, to exceed
such percentage of the net capital (exclusive of
fixed assets and value of Exchange membership)
employed in the business, but not exceeding in
any case to thousand percentum (2,000%), as
the Commission may be rules and regulations
prescribe as necessary or appropriate in the
public interest or for the protection of investors.
49.2. To pledge, mortgage, or otherwise
encumber or arrange for the pledge, mortgage,
or encumbrance of any security carried for the
account of any customer under circumstances:
(a) That will permit the commingling of his
securities, without his written consent, with the
securities of any customer; (b) That will permit
such securities to be commingled with the
securities of any person other than a bona fide
customer; or (c) that will permit such securities to
be pledged, mortgaged or encumbered, or
subjected to any lien or claim of the pledgee, for
a sum in excess of the aggregate indebtedness of
such customers in respect of such securities.
However, the Commission, having due regard to
the protection of investors, may, by rules and
regulations, allow certain transactions that may
otherwise be prohibited under this subsection.
49.3. To lend or arrange for the lending of any
security carried for the account of any customer
without the written consent of such customer or
in contravention of such rules and regulations as
the Commission shall prescribe.
Section 50. Enforcement of Margin Requirement
and Restrictions on Borrowing. – To prevent
indirect violations of the margin requirements
under Section 48, the broker or dealer shall
require the customer in non-margin transactions
to pay the price of the security purchased for his
account within such period as the Commission
may prescribe, which shall in no case exceed the
prescribed settlement date. Otherwise, the broker
shall sell the security purchased starting on the
next trading day but not beyond ten (10) trading
days following the last day for the customer to
pay such purchase price, unless such sale cannot
be effected within said period for justifiable
reasons. The sale shall be without prejudice to
the right of the broker or dealer to recover any
deficiency from the customer. To prevent indirect
violation of the restrictions on borrowing under
Section 49, the broker shall, unless otherwise
directed by the customer, pay the net sales price
of the securities sold for a customer within the
same period as above prescribed by the
Commission: Provided, That the customer shall
be required to deliver the instruments evidencing
the securities as a condition for such payment
upon demand by the broker.
CHAPTER XIII
GENERAL PROVISIONS
Section 51. Liabilities of Controlling Persons,
Aider and Abettor and Other Secondary Liability.
51.1. Every person who, by or through stock
ownership, agency, or otherwise, or in connection
with an agreement or understanding with one or
more other persons, controls any person liable
under this Code or the rules or regulations of the
Commission thereunder, shall also be liable
jointly and severally with and to the same extent
as such controlled persons to any person to
whom such controlled person is liable, unless the
controlling person proves that, despite the
exercise of due diligence on his part, he has no
knowledge of the existence of the facts by reason
of which the liability of the controlled person is
alleged to exist.
51.2. It shall be unlawful for any person, directly,
or indirectly, to do any act or thing which it would
be unlawful for such person to do under the
provisions of this Code or any rule or regulation
thereunder.
51.2. It shall be unlawful for any director or officer
of, or any owner of any securities issued by, any
issuer required to file any document, report or
other information under this Code or any rule or
regulation of the Commission thereunder, without
just cause, to hinder, delay or obstruct the
making or filing of any such document, report, or
information.
51.3. It shall be unlawful for any person to aid,
abet, counsel, command, induce or procure any
violation of this Code, or any rule, regulation or
order of the Commission thereunder.
52.4. Every person who substantially assists the
act or omission of any person primarily liable
under Sections 57, 58, 59 and 60 of this Code,
with knowledge or in reckless disregard that such
act or omission is wrongful, shall be jointly and
severally liable as an aider and abettor for
damages resulting from the conduct of the
person primarily liable: Provided, however, That
an aider and abettor shall be liable only to the
extent of his relative contribution in causing such
damages in comparison to that of the person
primarily liable, or the extent to which the aider
and abettor was unjustly enriched thereby,
whichever is greater.
Section 52. Accounts and Records, Reports,
Examination of Exchanges, members, and Others.
– 52.1. Every registered Exchange, broker or
dealer, transfer agent, clearing agency, securities
association, and other self-regulatory
organization, and every other person required to
register under this Code, shall make, keep and
preserve for such periods, records, furnish such
copies thereof, and make such reports, as the
Commission by its rules and regulations may
prescribe. Such accounts, correspondence,
memoranda, papers, books, and other records
shall be subject at any time to such reasonable
periodic, special or other examinations by
representatives of the Commission as the
Commission may deem necessary or appropriate
in the public interest of for the protection of
investors.
52.2. Any brother, dealer or other person
extending credit, who is subject to the rules and
regulations prescribed by the Commission
pursuant to this Code, shall make such reports to
the Commission as may be necessary or
appropriate to enable it to perform the functions
conferred upon it by this Code.
52.3. For purposes of this Section, the term
"records refers to accounts, correspondence,
memoranda, tapes, discs, papers, books and
other documents or transcribed information of
any type, whether written or electronic in
character.
Section 53. Investigations, Injunctions and
Prosecution of Offenses. 53.1. The Commission
may, in its discretion, make such investigations
as it deems necessary to determine whether any
person has violated or is about to violate any
provision of this Code, any rule, regulation or
order thereunder, or any rule of an Exchange,
registered securities association, clearing agency,
other self-regulatory organization, and may
require or permit any person to file with it a
statement in writing, under oath or otherwise, as
the Commission shall determine, as to all facts
and circumstances concerning the matter to be
investigated. The Commission may publish
information concerning any such violations, and
to investigate any fact, condition, practice or
matter which it may deem necessary or proper to
aid in the enforcement of the provisions of this
Code, in the prescribing of rules and regulations
thereunder, or in securing information to serve as
a basis for recommending further legislation
concerning the matters to which this Code
relates: Provided, however, That any person
requested or subpoenaed to produce documents
or testify in any investigation shall simultaneously
be notified in writing of the purpose of such
investigation: Provided, further, That all criminal
complaints for violations of this Code, and the
implementing rules and regulations enforced or
administered by the Commission shall be referred
to the Department of Justice for preliminary
investigation and prosecution before the proper
court: Provided, furthermore, That in instances
where the law allows independent civil or criminal
proceedings of violations arising from the same
act, the Commission shall take appropriate action
to implement the same: provided, finally, That
the investigation, prosecution, and trial of such
cases shall be given priority.
53.2. For the purpose of any such investigation,
or any other proceeding under this Code, the
Commission or any officer designated by it is
empowered to administer oaths and affirmations,
subpoena witnesses, compel attendance, take
evidence, require the production of any book,
paper, correspondence, memorandum, or other
record which the Commission deems relevant or
material to the inquiry, and to perform such other
acts necessary in the conduct of such
investigation or proceedings.
53.3. Whenever it shall appear to the Commission
that any person has engaged or is about to
engage in any act or practice constituting a
violation of any provision of this Code, any rule,
regulation or order thereunder, or any rule of an
Exchange, registered securities association,
clearing agency or other self-regulatory
organization, it may issue an order to such
person to desist from committing such act or
practice: Provided, however, That the
Commission shall not charge any person with
violation of the rules of an Exchange or other self-
regulatory organization unless it appears to the
Commission that such Exchange or other self-
regulatory organization is unable or unwilling to
take action against such person. After finding that
such person has engaged in any such act or
practice and that there is a reasonable likelihood
of continuing, further or future violations by such
person, the Commission may issue ex-parte a
cease and desist order for a maximum period of
ten (10) days, enjoining the violation and
compelling compliance with such provision. The
Commission may transmit such evidence as may
be available concerning any violation of any
provision of this Code, or any rule, regulation or
order thereunder, to the Department of Justice,
which may institute the appropriate criminal
proceedings under this Code.
53.4. Any person who, within his power but
without cause, fails or refuses to comply with any
lawful order, decision or subpoena issued by the
Commission under Subsection 53.2 or Subsection
53.3 or Section 64 of this Code, shall after due
notice and hearing, be guilty of contempt of the
Commission. Such person shall be fined in such
reasonable amount as the Commission may
determine, or when such failure or refusal is a
clear and open defiance of the Commission’s
order, decision or subpoena, shall be detained
under an arrest order issued by the Commission,
until such order, decision or subpoena is complied
with.
Section 54. Administrative Sanctions. – 54.1. If,
after due notice and hearing, the Commission
finds that: (a) There is a violation of this Code, its
rule, or its orders; (b) Any registered broker or
dealer, associated person thereof has failed
reasonably to supervise, with a view to
preventing violations, another person subject to
supervision who commits any such violation; (c)
Any registrant or other person has, in a
registration statement or in other reports,
applications, accounts, records or documents
required by law or rules to be filed with the
Commission, made any untrue statement of a
material fact, or omitted to state any material
fact required to be stated their or necessary to
make the statements therein not misleading; or,
in the case of an underwriter, has failed to
conduct an inquiry with reasonable diligence to
insure that a registration statement is accurate
and complete in all material respects; or (d) Any
person has refused to permit any lawful
examinations into its affairs, it shall, in its
discretion, and subject only to the limitations
hereinafter prescribed, impose any or all of the
following sanctions as may be appropriate in light
of the facts and circumstances:
(i) Suspension, or revocation of any
registration for the offering of securities;
(ii) A fine of no less than Ten thousand
pesos (P10,000.00) nor more than One
million pesos (P1,000,000.00) plus not
more than Two thousand pesos
(P2,000.00) for each day of continuing
violation;
(iii) In the case of a violation of Sections
19.2, 20, 24, 26 and 27, disqualification
from being an officer, member of the
Board of Directors, or person performing
similar functions, of an issuer required to
file reports under Section 17 of this Code
or any other act, rule or regulation
administered by the Commission;
(iv) In the case of a violation of Section
34, a fine of no more than three (3) times
the profit gained or loss avoided as result
of the purchase, sale or communication
proscribed by such Section, and
 (v) Other penalties within the power of
the Commission to impose.
54.2. The imposition of the foregoing
administrative sanctions shall be without
prejudice to the filing of criminal charges against
the individuals responsible for the violation.
54.3. The Commission shall have the power to
issue writs of execution to enforce the provisions
of the Section and to enforce payment of the fees
and other dues collectible under this Code.
Section 55. Settlement Offers. – 55.1. At any
time, during an investigation or proceeding under
this Code, parties being investigated and/or
charged may propose in writing an offer of
settlement with the Commission.
55.2. Upon receipt of such offer of settlement, the
Commission may consider the offer based on
timing, the nature of the investigation or
proceeding, and the public interest.
55.3. The Commission may only agree to a
settlement offer based on its findings that such
settlement is in the public interest. Any
agreement to settle shall have no legal effect
until publicly disclosed. Such decision may be
made without a determination of guilt on the part
of the person making the offer.
55.4. The Commission shall adopt rules and
procedures governing the filing, review,
withdrawal, form of rejection and acceptance of
such offers.
Section 56. Civil Liabilities on Account of False
Registration Statement. 56.1. Any person
acquiring a security, the registration statement of
which or any part thereof contains on its
effectivity an untrue statement of a material fact
or omits to state a material fact required to be
stated therein or necessary to make such
statements not misleading, and who suffers
damage, may sue and recover damages from the
following enumerated persons, unless it is proved
that at the time of such acquisition he knew of
such untrue statement or omission:
(a) The issuer and every person who
signed the registration statement:
(b) Every person who was a director of, or
any other person performing similar
functions, or a partner in, the issuer at
the time of the filing of the registration
statement or any part, supplement or
amendment thereof with respect to which
his liability is asserted;
(c) Every person who is named in the
registration statement as being or about
to become a director of, or a person
performing similar functions, or a partner
in, the issuer and whose written consent
thereto is filed with the registration
statement;
(d) Every auditor or auditing firm named
as having certified any financial
statements used in connection with the
registration statement or prospectus.
(e) Every person who, with his written
consent, which shall be filed with the
registration statement, has been named
as having prepared or certified any part
of the registration statement, or as
having prepared or certified any report or
valuation which is used in connection with
the registration statement, with respect
to the statement, report, or valuation,
which purports to have been prepared or
certified by him.
(f) Every selling shareholder who
contributed to and certified as to the
accuracy of a portion of the registration
statement, with respect to that portion of
the registration statement which purports
to have been contributed by him.
(g) Every underwriter with respect to such
security.
56.2. If the person who acquired the security did
so after the issuer has made generally available
to its security holders an income statement
covering a period of at least twelve (12) months
beginning from the effective date of the
registration statement, then the right of recovery
under this subsection shall be conditioned on
proof that such person acquired the security
relying upon such untrue statement in the
registration statement or relying upon the
registration statement and not knowing of such
income statement, but such reliance may be
established without proof of the reading of the
registration statement by such person.
Section 57. Civil Liabilities Arising in Connection
With Prospectus, Communications and Reports.
57.1. Any person who:
(a) Offers to sell or sells a security in
violation of Chapter III, or
(b) Offers to sell or sells a security,
whether or not exempted by the
provisions of this Code, by the use of any
means or instruments of transportation or
communication, by means of a
prospectus or other written or oral
communication, which includes an untrue
statement of a material fact or omits to
state a material fact necessary in order to
make the statements, in the light of the
circumstances under which they were
made, not misleading (the purchaser not
knowing of such untruth or omission), and
who shall fail in the burden of proof that
he did not know, and in the exercise of
reasonable care could not have known, of
such untruth or omission, shall be liable
to the person purchasing such security
from him, who may sue to recover the
 consideration paid for such security with
interest thereon, less the amount of any
income received thereon, upon the tender
of such security, or for damages if he no
longer owns the security.
57.2. Any person who shall make or cause to be
made any statement in any report, or document
filed pursuant to this Code or any rule or
regulation thereunder, which statement as at the
time and in the light of the circumstances under
which it was made false or misleading with
respect to any material fact, shall be liable to any
person who, not knowing that such statement
was false or misleading, and relying upon such
statement shall have purchased or sold a security
at a price which was affected by such statement,
for damages caused by such reliance, unless the
person sued shall prove that he acted in good
faith and had no knowledge that such statement
was false or misleading.
Section 58. Civil Liability of Fraud in Connection
with Securities Transactions. – Any person who
engages in any act or transaction in violation of
Sections 19.2, 20 or 26, or any rule or regulation
of the Commission thereunder, shall be liable to
any other person who purchases or sells any
security, grants or refuses to grant any proxy,
consent or authorization, or accepts or declines
an invitation for tender of a security, as the case
may be, for the damages sustained by such other
person as a result of such act or transaction.
Section 59. Civil Liability for Manipulation of
Security Prices. – Any person who willfully
participates in any act or transaction in violation
of Section 24 shall be liable to any person who
shall purchase or sell any security at a price
which was affected by such act or transaction,
and the person so injured may sue to recover the
damages sustained as a result of such act or
transaction.
Section 60. Civil Liability with Respect to
Commodity Futures Contracts and Pre-need
Plans. – 60.1. Any person who engages in any act
or transactions in willful violation of any rule or
regulation promulgated by the Commission under
Section 11 or 16, which the Commission
denominates at the time of issuance as intended
to prohibit fraud in the offer and sale of pre-need
plans or to prohibit fraud, manipulation, fictitious
transactions, undue speculation, or other unfair
or abusive practices with respect to commodity
future contracts, shall be liable to any other
person sustaining damages as a result of such act
or transaction.
60.2. As to each such rule or regulation so
denominated, the Commission by rule shall
prescribe the elements of proof required for
recovery and any limitations on the amount of
damages that may be imposed.
Section 61. Civil Liability on Account of Insider
Trading. – 61.1. Any insider who violates
Subsection 27.1 and any person in the case of a
tender offer who violates Subsection 27.4 (a)(I),
or any rule or regulation thereunder, by
purchasing or selling a security while in
possession of material information not generally
available to the public, shall be liable in a suit
brought by any investor who, contemporaneously
with the purchase or sale of securities that is the
subject of the violation, purchased or sold
securities of the same class unless such insider,
or such person in the case of a tender offer,
proves that such investor knew the information or
would have purchased or sold at the same price
regardless of disclosure of the information to him.
61.2. An insider who violates Subsection 27.3 or
any person in the case of a tender offer who
violates Subsection 27.4 (a), or any rule or
regulation thereunder, by communicating
material nonpublic information, shall be jointly
and severally liable under Subsection 61.1 with,
and to the same extent as, the insider, or person
in the case of a tender offer, to whom the
communication was directed and who is liable
under Subsection 61.1 by reason of his purchase
or sale of a security.
Section 62. Limitation of Actions. – 62.1. No
action shall be maintained to enforce any liability
created under Section 56 or 57 of this Code
unless brought within two (2) years after the
discovery of the untrue statement or the
omission, or, if the action is to enforce a liability
created under Subsection 57.1 (a), unless,
brought within two (2) yeas after the violation
upon which it is based. In no event shall an such
action be brought to enforce a liability created
under Section 56 or Subsection 57.1 (a) more
than five (5) years after the security was bona
fide offered to the public, or under Subsection
57.1 (b0 more than five (5) years after the sale.
62.2. No action shall be maintained to enforce
any liability created under any other provision of
this Code unless brought within two (20 years
after the discovery of the facts constituting the
cause of action and within five (5) years after
such cause of action accrued.
Section 63. Amount of Damages to be Awarded.
– 63.1. All suits to recover damages pursuant to
Sections 56, 57, 58, 59, 60 and 61 shall be
brought before the Regional Trial Court, which
shall have exclusive jurisdiction to hear and
decide such suits. The Court is hereby authorized
to award damages in an amount not exceeding
triple the amount of the transaction plus actual
damages.
Exemplary damages may also be awarded in
cases of bad faith, fraud, malevolence or
wantonness in the violation of this Code or the
rules and regulations promulgated thereunder.
The Court is also authorized to award attorney’s
fees not exceeding thirty percentum (30%) of the
award.
63.2. The persons specified in Sections 56, 57, the expenses for which shall be advanced by the
58, 59, 60 and 61 hereof shall be jointly and party at whose instance it is made, shall
severally liable for the payment of damages. complete such service.
However, any person who becomes liable for the
Section 66. Revelation of Information Filed with
payment of such damages may recover
the Commission. – 66.1. All information filed with
contribution from any other person who, if sued
the commission in compliance with the
separately, would have been liable to make the
requirements of this Code shall be made
same payment, unless the former was guilty of
available to any member of the general public,
fraudulent representation and the latter was not.
upon request, in the premises and during regular
63.3. Notwithstanding any provision of law to the office hours of the Commission, except as set
contrary, all persons, including the issuer, held forth in this Section.
liable under the provisions of Sections 56, 57, 58,
66.2. Nothing in this Code shall be construed to
59, 60 and 61 shall contribute equally to the total
require, or to authorize the Commission to
liability adjudged herein. In no case shall the
require, the revealing of trade secrets or
principal stockholders, directors and other
processes in any application, report, or document
officers of the issuer or persons occupying similar
filed with the Commission.
positions therein, recover their contribution to the
liability from the issuer. However, the right of the 66.3. Any person filing any such application,
issuer to recover from the guilty parties the report or document may make written objection
amount it has contributed under this Section shall to the public disclosure of information contained
not be prejudiced. therein, stating the grounds for such objection,
and the Commission may hear objections as it
Section 64. Cease and Desist Order. – 64.1. The
deems necessary. The Commission may, in such
Commission, after proper investigation or
cases, make available to the public the
verification, motu proprio or upon verified
information contained in any such application,
complaint by any aggrieved party, may issue a
report, or document only when a disclosure of
cease and desist order without the necessity of a
such information is required in the public interest
prior hearing if in its judgment the act or practice,
or for the protection of investors; and copies of
unless restrained, will operate as a fraud on
information so made available may be furnished
investors or is otherwise likely to cause grave or
to any person having a legitimate interest therein
irreparable injury or prejudice to the investing
at such reasonable charge and under such
public.
reasonable limitations as the Commission may
64.2. Until the Commission issue a cease and prescribe.
desist order, the fact that an investigation has
66.4. It shall be unlawful for any member, officer,
been initiated or that a complaint has been filed,
or employee of the Commission to disclose to any
including the contents of the complaint, shall be
person other than a member, officer or employee
confidential. Upon issuance of a cease and desist
of the Commission or to use for personal benefit,
order, the Commission shall make public such
any information contained in any application,
order and a copy thereof shall be immediately
report, or document filed with the Commission
furnished to each person subject to the order.
which is not made available to the public
64.3. Any person against whom a cease and pursuant to Subsection 66.3.
desist order was issued may, within five (5) days
66.5. Notwithstanding anything in Subsection
from receipt of the order, file a formal request for
66.4 to the contrary, on request from a foreign
a lifting thereof. Said request shall be set for
enforcement authority of any country whose laws
hearing by the Commission not later than fifteen
grant reciprocal assistance as herein provided,
(15) days from its filing and the resolution thereof
the Commission may provide assistance in
shall be made not later than ten (10) days from
accordance with this subsection, including the
the termination of the hearing. If the Commission
disclosure of any information filed with or
fails to resolve the request within the time herein
transmitted to the Commission. If the requesting
prescribed, the cease and desist order shall
authority states that it is conducting an
automatically be lifted.
investigation which it deems necessary to
Section 65. Substituted Service Upon the determine whether any person has violated, is
Commission. – Service of summons or other violating, or is about to violate any laws relating
process shall be made upon the Commission in to securities or commodities matters that the
actions or legal proceedings against an issuer or requesting authority administers or enforces.
any person liable under this Code who is not Such assistance may be provided without regard
domiciled in the Philippines. Upon receipt by the to whether the facts stated in the request would
Commission of such summons, the Commission also constitute a violation of law of the
shall within ten (10) days thereafter, transmit by Philippines.
registered mail a copy of such summons and the
Section 67. Effect of action of Commission and
complaint or other legal process to such issuer or
Unlawful Representations with Respect Thereto. –
person at his last known address or principal
67.1. No action or failure to act by the
office. The sending thereof by the Commission,
Commission in the administration of this Code
shall be construed to mean that the Commission
has in any way passed upon the merits of or
given approval to any security or any
transactions or transactions therein, nor shall
such action or failure to act with regard to any
statement or report filed with or examined by the
Commission pursuant to this Code or the rules
and regulations thereunder to be deemed a
finding by the Commission that such statements
or report is true and accurate on its face or that it
is not false or misleading. It shall be unlawful to
make, or cause to be made, to any prospective
purchaser or seller or a security any
representation that any such action or failure to
act by the Commission is to be so construed or
has such effect.
67.2. Nothing contained in Subsection 67.1 shall,
however, be construed as an exemption from
liability of an employee or officer of the
Commission for any nonfeasance, misfeasance or
malfeasance in the discharge of his official duties.
Section 68. Special Accounting Rules. – The
Commission shall have the authority to make,
amend, and rescind such accounting rules and
regulations as may be necessary to carry out the
provisions of this Code, including rules and
regulations as may be necessary to carry out the
provisions of this Code, including rules and
regulations governing registration statements
and prospectuses for various classes of securities
and issuers, and defining accounting, technical
and trade terms used in this Code. Among other
things, the Commission may prescribe the form
or forms in which required information shall be
set forth, the items or details to be shown in the
balance sheet and income statement, and the
methods to be followed in the preparation of
accounts, appraisal or valuation of assets and
liabilities, determination of depreciation and
depletion, differentiation of recurring and non-
recurring income, differentiation of investment
and operating income, and in the preparation,
where the Commission deems it necessary or
desirable of consolidated balance sheets or
income accounts of any person directly or
indirectly controlling or controlled by the issuer,
or any person under direct or indirect common
control with the issuer.
Section 69. Effect on Existing Law. – The rights
and remedies provided by this Code shall be in
addition to any and all order rights and remedies
that may now exist. However, except as provided
in Section 56 and 63 hereof, no person permitted
to maintain a suit for damages under the
provisions of this Code shall recover, through
satisfaction of judgment in one or more actions, a
total amount in excess of his actual damages on
account of the act complained of: Provided, That
exemplary damages may be awarded in cases of
bad faith, fraud, malevolence or wantonness in
the violation of this Code or the rules and
regulations promulgated thereunder.
Section 70. Judicial Review of Commission
Orders. – Any person aggrieved by an order of the
Commission may appeal the order to the Court of
Appeals by petition for review in accordance with
the pertinent provisions of the Rules of Court.
Section 71. Validity of Contracts. – 71.1. Any
condition, stipulation, provision binding any
person to waive compliance with any provision of
this Code or of any rule or regulation thereunder,
or of any rule of an Exchange required thereby,
as well as the waiver itself, shall be void.
71.2. Every contract made in violation of any
provision of this Code or of any rule or regulation
thereunder, and every contract, including any
contract for listing a security or an Exchange
heretofore or hereafter made, the performance of
which involves the violation of, or the
continuance of any relationship or practice in
violation of, any provision of this Code, or any
rule or regulation thereunder, shall be void:
(a) As regards the rights of any person
who, in violation of any such provision,
rule or regulation, shall have made or
engaged in the performance of any such
contract, and
(b) As regards the rights of any person
who, not being a party to such contract,
shall have acquired any right thereunder
with actual knowledge of the facts by
reason of which the making or
performance of such contract was in
violation of any such provision, rule or
regulation.
71.3. Nothing in this Code shall be construed:
(a) To affect the validity of any loan or
extension of credit made or of any lien
created prior or subsequent to the
effectivity of this Code, unless at the time
of the making of such loan or extension of
credit or the creating of such lien, the
person making such loan or extension of
credit or acquiring such lien shall have
actual knowledge of the facts by reason
of which the making of such loan or
extension of credit or the acquisition of
such lien is a violation of the provisions of
this Code or any rules or regulations
thereunder, or
(b) To afford a defense to the collection of
any debt, obligation or the enforcement
of any lien by any person who shall have
acquired such debt, obligation or lien in
good faith for value and without actual
knowledge of the violation of any
provision of this Code or any rule or
regulation thereunder affecting the
legality of such debt, obligation or lien.
Section 72. Rules and Regulations; Effectivity. –
72.1. This Code shall be self-executory. To effect
the provisions and purposes of this Code, the
Commission may issue, amend, and rescind such
rules and regulations and orders necessary or
appropriate, including rules and regulations
defining accounting, technical, and trade terms
used in this Code, and prescribing the form or
forms in which information required in
registration statements, applications, and reports
to the Commission shall be set forth. For
purposes of its rules or regulations, the
Commission may classify persons, securities, and
other matters within its jurisdiction, prescribe
different requirements for different classes of
persons, securities, or matters, and by rule or
order, conditionally or unconditionally exempt
any person, security, or transaction, or class or
classes of persons, securities or transactions,
from any or all provisions of this Code.
Failure on the part of the Commission to issue
rules and regulations shall not in any manner
affect the self-executory nature of this Code.
72.2. The Commission shall promulgate rules and
regulations providing for reporting, disclosure and
the prevention of fraudulent, deceptive or
manipulative practices in connection with the
purchase by an issuer, by tender offer or
otherwise, of and equity security of a class issued
by it that satisfies the requirements of Subsection
17.2. such rules and regulations may require such
issuer to provide holders of equity securities of
such dates with such information relating to the
reasons for such purchase, the source of funds,
the number of shares to be purchased, the price
to be paid for such securities, the method of
purchase and such additional information as the
Commission deems necessary or appropriate in
the public interest or for the protection of
investors, or which the Commission deems to be
material to a determination by holders whether
such security should be sold.
72.3. For the purpose of Subsection 72.2, a
purchase by or for the issuer or any person
controlling, controlled by, or under common
control with the issuer, or a purchase subject to
the control of the issuer or any such person, shall
be deemed to be a purchased by the issuer. The
commission shall have the power to make rules
and regulations implementing this subsection,
including exemptive rules and regulations
covering situations in which the Commission
deems it unnecessary or inappropriate that a
purchase of the type described in this subsection
shall be deemed to be a purchase by the issuer
for the purpose of some or all of the provisions of
Subsection 72.2.
72.4. The rules and regulations promulgated by
the Commission shall be published in two (20
newspapers or general circulation in the
Philippines, and unless otherwise prescribed by
the Commission, the same shall be effective
fifteen (15) days after the date of the last
publication.
Section 73. Penalties. – Any person who violates
any of the provisions of this Code, or the rules
and regulations promulgated by the Commission
under authority thereof, or any person who, in a
registration statement filed under this Code,
makes any untrue statement of a material fact or
omits to state any material fact required to be
stated therein or necessary to make the
statements therein not misleading, shall, upon
conviction, suffer a fine of not less than Fifty
thousand pesos (P50,000.00) nor more than Five
million pesos (P5,000,000.00) or imprisonment of
not less than seven (7) years nor more than
twenty-one (21) years, or both in the discretion of
the court. If the offender is a corporation,
partnership or association or other juridical
entity, the penalty may in the discretion of the
court be imposed upon such juridical entity and
upon the officer or officers of the corporation,
partnership, association or entity responsible for
the violation, and if such officer is an alien, he
shall in addition to the penalties prescribed, be
deported without further proceedings after
service of sentence.
Section 74. Transitory Provisions. – The
Commission, as organized under existing laws,
shall continue to exist and exercise its powers,
functions and duties under such laws and this
Code: Provided, That until otherwise mandated
by a subsequent law, the Commission shall
continue to regulate and supervise commodity
futures contracts as provided in Section 11 and
pre-need plans and the pre-need industry as
provided in Section 16 of this Code.
All further requirements herein shall be complied
with upon approval of this Code: Provided,
however, That compliance may be deferred for
such reasonable time as the Commission may
determine but not to exceed one (1) year from
approval of this Code: Provided, further, That
securities which are being offered at the time of
effectivity of this Code pursuant to an effective
registration and permit, may continue to be
offered and sold in accordance with the
provisions of the Revised Securities Act in effect
immediately prior to approval of this Code.
All unexpended funds for the calendar year,
properties, equipment and records of the
Securities and Exchange Commission are hereby
retained by the Commission as reorganized under
this Code and the amount of Two hundred million
pesos (P200,000,000.00) or such amount
necessary to carry out the reorganization
provided in this Code is hereby appropriated.
All employees of the Commission who voluntarily
retire or are separated from the service with the
Commission and whose retirement or separation
has been approved by the Commission, shall be
paid retirement or separation benefits and other
entitlement granted under existing laws.
Section 75. Partial Use of Income. – To carry out
the purposes of this Code, the Commission is
hereby authorized, in addition to its annual
budget, to retain and utilize an amount equal to
One hundred million pesos (P100,000,000.00)
from its income.
The use of such additional amount shall be
subject to the auditing requirements, standards
and procedures under existing laws.
Section 76. Repealing Clause. – The Revised
Securities Act (Batas Pambansa Blg. 178), as
amended, are hereby repealed. All other laws,
orders, rules and regulations, or parts thereof,
inconsistent with any provision of this Code are
hereby repealed or modified accordingly.
Section 77. Separability Clause. – if any portion
or provision of this Code is declared
unconstitutional or invalid, the other portions or
provisions hereof, which are not affected thereby
shall continue in full force and effect.
Section 78. Effectivity. – This Code shall take
effect fifteen (15) days after its publication in the
Official Gazette or in two (2) newspapers of
general circulation.
Approved: July 19, 2000
REPUBLIC ACT No. 7653
THE NEW CENTRAL BANK ACT
CHAPTER I — ESTABLISHMENT AND
ORGANIZATION OF THE BANGKO SENTRAL
NG PILIPINAS
ARTICLE I sued; and otherwise to do and perform any and
CREATION, RESPONSIBILITIES AND
CORPORATE POWERS OF THE BANGKO
SENTRAL
Section 1. Declaration of Policy. - The
State shall maintain a central monetary authority
that shall function and operate as an independent
and accountable body corporate in the discharge
of its mandated responsibilities concerning
money, banking and credit. In line with this
policy, and considering its unique functions and
responsibilities, the central monetary authority
established under this Act, while being a
government-owned corporation, shall enjoy fiscal
and administrative autonomy.
Section 2. Creation of the Bangko
Sentral. - There is hereby established an
independent central monetary authority, which
shall be a body corporate known as the Bangko
Sentral ng Pilipinas, hereafter referred to as the
Bangko Sentral.
The capital of the Bangko Sentral shall be
Fifty billion pesos (P50,000,000,000), to be fully
subscribed by the Government of the Republic,
hereafter referred to as the Government, Ten
billion pesos (P10,000,000,000) of which shall be
fully paid for by the Government upon the
effectivity of this Act and the balance to be paid
for within a period of two (2) years from the
effectivity of this Act in such manner and form as
the Government, through the Secretary of
Finance and the Secretary of Budget and
Management, may thereafter determine.
Section 3. Responsibility and Primary
Objective. - The Bangko Sentral shall provide
policy directions in the areas of money, banking,
and credit. It shall have supervision over the
operations of banks and exercise such regulatory
powers as provided in this Act and other pertinent
laws over the operations of finance companies
and non-bank financial institutions performing
quasi-banking functions, hereafter referred to as
quasi-banks, and institutions performing similar
functions.
The primary objective of the Bangko
Sentral is to maintain price stability conducive to
a balanced and sustainable growth of the
economy. It shall also promote and maintain
monetary stability and the convertibility of the
peso.
Section 4. Place of Business. - The
Bangko Sentral shall have its principal place of
business in Metro Manila, but may maintain
branches, agencies and correspondents in such
other places as the proper conduct of its business
may require.
Section 5. Corporate Powers. - The
Bangko Sentral is hereby authorized to adopt,
alter, and use a corporate seal which shall be
judicially noticed; to enter into contracts; to lease
or own real and personal property, and to sell or
otherwise dispose of the same; to sue and be
all things that may be necessary or proper to
carry out the purposes of this Act.
The Bangko Sentral may acquire and hold
such assets and incur such liabilities in
connection with its operations authorized by the
provisions of this Act, or as are essential to the
proper conduct of such operations.
The Bangko Sentral may compromise,
condone or release, in whole or in part, any claim
of or settled liability to the Bangko Sentral,
regardless of the amount involved, under such
terms and conditions as may be prescribed by
the Monetary Board to protect the interests of the
Bangko Sentral.
ARTICLE II
THE MONETARY BOARD
Section 6. Composition of the Monetary
Board. - The powers and functions of the Bangko
Sentral shall be exercised by the Bangko Sentral
Monetary Board, hereafter referred to as the
Monetary Board, composed of seven (7) members
appointed by the President of the Philippines for a
term of six (6) years.
The seven (7) members are:
(a) the Governor of the Bangko Sentral,
who shall be the Chairman of the
Monetary Board. The Governor of the
Bangko Sentral shall be head of a
department and his appointment shall be
subject to confirmation by the
Commission on Appointments. Whenever
the Governor is unable to attend a
meeting of the Board, he shall designate
a Deputy Governor to act as his alternate:
Provided, That in such event, the
Monetary Board shall designate one of its
members as acting Chairman;
(b) a member of the Cabinet to be
designated by the President of the
Philippines. Whenever the designated
Cabinet Member is unable to attend a
meeting of the Board, he shall designate
an Undersecretary in his Department to
attend as his alternate; and
(c) five (5) members who shall come from
the private sector, all of whom shall serve
full-time: Provided, however, That of the
members first appointed under the
provisions of this subsection, three (3)
shall have a term of six (6) years, and the
other two (2), three (3) years.
No member of the Monetary Board may
be reappointed more than once.
Section 7. Vacancies. - Any vacancy in
the Monetary Board created by the death,
resignation, or removal of any member shall be
filled by the appointment of a new member to
complete the unexpired period of the term of the
member concerned.
Section 8. Qualifications. - The members
of the Monetary Board must be natural-born
citizens of the Philippines, at least thirty-five (35)
years of age, with the exception of the Governor
who should at least be forty (40) years of age, of
good moral character, of unquestionable
integrity, of known probity and patriotism, and
with recognized competence in social and
economic disciplines.
Section 9. Disqualifications. - In addition
to the disqualifications imposed by Republic Act
No. 6713, a member of the Monetary Board is
disqualified from being a director, officer,
employee, consultant, lawyer, agent or
stockholder of any bank, quasi-bank or any other
institution which is subject to supervision or
examination by the Bangko Sentral, in which case
such member shall resign from, and divest
himself of any and all interests in such institution
before assumption of office as member of the
Monetary Board.
The members of the Monetary Board
coming from the private sector shall not hold any
other public office or public employment during
their tenure.
No person shall be a member of the
Monetary Board if he has been connected directly
with any multilateral banking or financial
institution or has a substantial interest in any
private bank in the Philippines, within one (1)
year prior to his appointment; likewise, no
member of the Monetary Board shall be
employed in any such institution within two (2)
years after the expiration of his term except when
he serves as an official representative of the
Philippine Government to such institution.
Section 10. Removal. - The President
may remove any member of the Monetary Board
for any of the following reasons:
(a) If the member is subsequently
disqualified under the provisions of
Section 8 of this Act; or
(b) If he is physically or mentally
incapacitated that he cannot properly
discharge his duties and responsibilities
and such incapacity has lasted for more
than six (6) months; or
(c) If the member is guilty of acts or
operations which are of fraudulent or
illegal character or which are manifestly
opposed to the aims and interests of the
Bangko Sentral; or
(d) If the member no longer possesses
the qualifications specified in Section 8 of
this Act.
Section 11. Meetings. - The Monetary
Board shall meet at least once a week. The Board
may be called to a meeting by the Governor of
the Bangko Sentral or by two (2) other members
of the Board.
 The presence of four (4) members shall
constitute a quorum: Provided, That in all cases
the Governor or his duly designated alternate
shall be among the four (4).
Unless otherwise provided in this Act, all
decisions of the Monetary Board shall require the
concurrence of at least four (4) members.
The Bangko Sentral shall maintain and
preserve a complete record of the proceedings
and deliberations of the Monetary Board,
including the tapes and transcripts of the
stenographic notes, either in their original form or
in microfilm.
Section 12. Attendance of the Deputy
Governors. - The Deputy Governors may attend
the meetings of the Monetary Board with the
right to be heard.
Section 13. Salary. - The salary of the
Governor and the members of the Monetary
Board from the private sector shall be fixed by
the President of the Philippines at a sum
commensurate to the importance and
responsibility attached to the position.
Section 14. Withdrawal of Persons
Having a Personal Interest. - In addition to the
requirements of Republic Act No. 6713, any
member of the Monetary Board with personal or
pecuniary interest in any matter in the agenda of
the Monetary Board shall disclose his interest to
the Board and shall retire from the meeting when
the matter is taken up. The decision taken on the
matter shall be made public. The minutes shall
reflect the disclosure made and the retirement of
the member concerned from the meeting.
Section 15. Exercise of Authority. - In the
exercise of its authority, the Monetary Board
shall:
(a) issue rules and regulations it
considers necessary for the effective
discharge of the responsibilities and
exercise of the powers vested upon the
Monetary Board and the Bangko Sentral.
The rules and regulations issued shall be
reported to the President and the
Congress within fifteen (15) days from the
date of their issuance;
(b) direct the management, operations,
and administration of the Bangko Sentral,
reorganize its personnel, and issue such
rules and regulations as it may deem
necessary or convenient for this purpose.
The legal units of the Bangko Sentral shall
be under the exclusive supervision and
control of the Monetary Board;
(c) establish a human resource
management system which shall govern
the selection, hiring, appointment,
transfer, promotion, or dismissal of all
personnel. Such system shall aim to
establish professionalism and excellence
at all levels of the Bangko Sentral in
accordance with sound principles of
management.
A compensation structure, based on job
evaluation studies and wage surveys and subject
to the Board's approval, shall be instituted as an
integral component of the Bangko Sentral's
human resource development program: Provided,
That the Monetary Board shall make its own
system conform as closely as possible with the
principles provided for under Republic Act No.
6758: Provided, however, That compensation and
wage structure of employees whose positions fall
under salary grade 19 and below shall be in
accordance with the rates prescribed under
Republic Act No. 6758.
On the recommendation of the Governor,
appoint, fix the remunerations and other
emoluments, and remove personnel of the
Bangko Sentral, subject to pertinent civil service
laws: Provided, That the Monetary Board shall
have exclusive and final authority to promote,
transfer, assign, or reassign personnel of the
Bangko Sentral and these personnel actions are
deemed made in the interest of the service and
not disciplinary: Provided, further, That the
Monetary Board may delegate such authority to
the Governor under such guidelines as it may
determine.
(d) adopt an annual budget for and
authorize such expenditures by the
Bangko Sentral as are in the interest of
the effective administration and
operations of the Bangko Sentral in
accordance with applicable laws and
regulations; and
(e) indemnify its members and other
officials of the Bangko Sentral, including
personnel of the departments performing
supervision and examination functions
against all costs and expenses reasonably
incurred by such persons in connection
with any civil or criminal action, suit or
proceedings to which he may be, or is,
made a party by reason of the
performance of his functions or duties,
unless he is finally adjudged in such
action or proceeding to be liable for
negligence or misconduct.
In the event of a settlement or
compromise, indemnification shall be provided
only in connection with such matters covered by
the settlement as to which the Bangko Sentral is
advised by external counsel that the person to be
indemnified did not commit any negligence or
misconduct.
The costs and expenses incurred in
defending the aforementioned action, suit or
proceeding may be paid by the Bangko Sentral in
advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking
by or on behalf of the member, officer, or
employee to repay the amount advanced should (d) appoint and fix the remunerations and
it ultimately be determined by the Monetary other emoluments of personnel below the
Board that he is not entitled to be indemnified as rank of a department head in accordance
provided in this subsection. with the position and compensation plans
approved by the Monetary Board, as well
Section 16. Responsibility. - Members of as to impose disciplinary measures upon
the Monetary Board, officials, examiners, and personnel of the Bangko Sentral, subject
employees of the Bangko Sentral who willfully to the provisions of Section 15(c) of this
violate this Act or who are guilty of negligence, Act: Provided, That removal of personnel
abuses or acts of malfeasance or misfeasance or shall be with the approval of the
fail to exercise extraordinary diligence in the Monetary Board;
performance of his duties shall be held liable for
any loss or injury suffered by the Bangko Sentral (e) render opinions, decisions, or rulings,
or other banking institutions as a result of such which shall be final and executory until
violation, negligence, abuse, malfeasance, reversed or modified by the Monetary
misfeasance or failure to exercise extraordinary Board, on matters regarding application
diligence. or enforcement of laws pertaining to
institutions supervised by the Bangko
Similar responsibility shall apply to Sentral and laws pertaining to quasi-
members, officers, and employees of the Bangko banks, as well as regulations, policies or
Sentral for: (1) the disclosure of any information instructions issued by the Monetary
of a confidential nature, or any information on the Board, and the implementation thereof;
discussions or resolutions of the Monetary Board, and
or about the confidential operations of the
Bangko Sentral, unless the disclosure is in (f) exercise such other powers as may be
connection with the performance of official vested in him by the Monetary Board.
functions with the Bangko Sentral, or is with prior
Section 18. Representation of the
authorization of the Monetary Board or the
Monetary Board and the Bangko Sentral. - The
Governor; or (2) the use of such information for
Governor of the Bangko Sentral shall be the
personal gain or to the detriment of the
principal representative of the Monetary Board
Government, the Bangko Sentral or third parties:
and of the Bangko Sentral and, in such capacity
Provided, however, That any data or information
and in accordance with the instructions of the
required to be submitted to the President and/or
Monetary Board, he shall be empowered to:
the Congress, or to be published under the
provisions of this Act shall not be considered (a) represent the Monetary Board and the
confidential. Bangko Sentral in all dealings with other
offices, agencies and instrumentalities of
ARTICLE III
the Government and all other persons or
THE GOVERNOR AND DEPUTY GOVERNORS
entities, public or private, whether
OF THE BANGKO SENTRAL
domestic, foreign or international;
Section 17. Powers and Duties of the
(b) sign contracts entered into by the
Governor. - The Governor shall be the chief
Bangko Sentral, notes and securities
executive officer of the Bangko Sentral. His
issued by the Bangko Sentral, all reports,
powers and duties shall be to:
balance sheets, profit and loss
(a) prepare the agenda for the meetings statements, correspondence and other
of the Monetary Board and to submit for documents of the Bangko Sentral.
the consideration of the Board the
The signature of the Governor
policies and measures which he believes
may be in facsimile whenever
to be necessary to carry out the purposes
appropriate;
and provisions of this Act;
(c) represent the Bangko Sentral, either
(b) execute and administer the policies
personally or through counsel, including
and measures approved by the Monetary
private counsel, as may be authorized by
Board;
the Monetary Board, in any legal
(c) direct and supervise the operations proceedings, action or specialized legal
and internal administration of the Bangko studies; and
Sentral. The Governor may delegate
(d) delegate his power to represent the
certain of his administrative
Bangko Sentral, as provided in
responsibilities to other officers or may
subsections (a), (b) and (c) of this section,
assign specific tasks or responsibilities to
to other officers upon his own
any full-time member of the Monetary
responsibility: Provided, however, That in
Board without additional remuneration or
order to preserve the integrity and the
allowance whenever he may deem fit or
prestige of his office, the Governor of the
subject to such rules and regulations as
Bangko Sentral may choose not to
the Monetary Board may prescribe;
participate in preliminary discussions with
 any multilateral banking or financial
institution on any negotiations for the
Government within or outside the
Philippines. During the negotiations, he
may instead be represented by a
permanent negotiator.
Section 19. Authority of the Governor in
Emergencies. - In case of emergencies where
time is sufficient to call a meeting of the
Monetary Board, the Governor of the Bangko
Sentral, with the concurrence of two (2) other
members of the Monetary Board, may decide any
matter or take any action within the authority of
the Board.
The Governor shall submit a report to the
President and Congress within seventy-two (72)
hours after the action has been taken.
At the soonest possible time, the
Governor shall call a meeting of the Monetary
Board to submit his action for ratification.
Section 20. Outside Interests of the
Governor and the Full-time Members of the
Board. - The Governor of the Bangko Sentral and
the full-time members of the Board shall limit
their professional activities to those pertaining
directly to their positions with the Bangko Sentral.
Accordingly, they may not accept any other
employment, whether public or private,
remunerated or ad honorem, with the exception
of positions in eleemosynary, civic, cultural or
religious organizations or whenever, by
designation of the President, the Governor or the
full-time member is tasked to represent the
interest of the Government or other government
agencies in matters connected with or affecting
the economy or the financial system of the
country.
Section 21. Deputy Governors. - The
Governor of the Bangko Sentral, with the
approval of the Monetary Board, shall appoint not
more than three (3) Deputy Governors who shall
perform duties as may be assigned to them by
the Governor and the Board.
In the absence of the Governor, a Deputy
Governor designated by the Governor shall act as
chief executive of the Bangko Sentral and shall
exercise the powers and perform the duties of the
Governor. Whenever the Government is unable to
attend meetings of government boards or
councils in which he is an ex officio member
pursuant to provisions of special laws, a Deputy
Governor as may be designated by the Governor
shall be vested with authority to participate and
exercise the right to vote in such meetings.
ARTICLE IV
OPERATIONS OF THE BANGKO SENTRAL
Section 22. Research and Statistics. -
The Bangko Sentral shall prepare data and
conduct economic research for the guidance of
the Monetary Board in the formulation and
implementation of its policies. Such data shall
include, among others, forecasts of the balance
of payments of the Philippines, statistics on the
monthly movement of the monetary aggregates
and of prices and other statistical series and
economic studies useful for the formulation and
analysis of monetary, banking, credit and
exchange policies.
Section 23. Authority to Obtain Data and
Information. - The Bangko Sentral shall have the
authority to request from government offices and
instrumentalities, or government-owned or
controlled corporations, any data which it may
require for the proper discharge of its functions
and responsibilities. The Bangko Sentral through
the Governor or in his absence, a duly authorized
representative shall have the power to issue a
subpoena for the production of the books and
records for the aforesaid purpose. Those who
refuse the subpoena without justifiable cause, or
who refuse to supply the bank with data
requested or required, shall be subject to
punishment for contempt in accordance with the
provisions of the Rules of Court.
Data on individual firms, other than
banks, gathered by the Department of Economic
Research and other departments or units of the
Bangko Sentral shall not be made available to
any person or entity outside of the Bangko
Sentral whether public or private except under
order of the court or under such conditions as
may be prescribed by the Monetary Board:
Provided, however, That the collective data on
firms may be released to interested persons or
entities: Provided, finally, That in the case of data
on banks, the provisions of Section 27 of this Act
shall apply.
Section 24. Training of Technical
Personnel. - The Bangko Sentral shall promote
and sponsor the training of technical personnel in
the field of money and banking. Toward this end,
the Bangko Sentral is hereby authorized to defray
the costs of study, at home or abroad, of qualified
employees of the Bangko Sentral, of promising
university graduates or of any other qualified
persons who shall be determined by proper
competitive examinations. The Monetary Board
shall prescribe rules and regulations to govern
the training program of the Bangko Sentral.
Section 25. Supervision and
Examination. - The Bangko Sentral shall have
supervision over, and conduct periodic or special
examinations of, banking institutions and quasi-
banks, including their subsidiaries and affiliates
engaged in allied activities.
For purposes of this section, a subsidiary
means a corporation more than fifty percent
(50%) of the voting stock of which is owned by a
bank or quasi-bank and an affiliate means a
corporation the voting stock of which, to the
extent of fifty percent (50%) or less, is owned by
a bank or quasi-bank or which is related or linked
to such institution or intermediary through
common stockholders or such other factors as
may be determined by the Monetary Board.
The department heads and the examiners
of the supervising and/or examining departments
are hereby authorized to administer oaths to any
director, officer, or employee of any institution
under their respective supervision or subject to
their examination and to compel the presentation
of all books, documents, papers or records
necessary in their judgment to ascertain the facts
relative to the true condition of any institution as
well as the books and records of persons and
entities relative to or in connection with the
operations, activities or transactions of the
institution under examination, subject to the
provision of existing laws protecting or
safeguarding the secrecy or confidentiality of
bank deposits as well as investments of private
persons, natural or juridical, in debt instruments
issued by the Government.
No restraining order or injunction shall be
issued by the court enjoining the Bangko Sentral
from examining any institution subject to
supervision or examination by the Bangko
Sentral, unless there is convincing proof that the
action of the Bangko Sentral is plainly arbitrary
and made in bad faith and the petitioner or
plaintiff files with the clerk or judge of the court in
which the action is pending a bond executed in
favor of the Bangko Sentral, in an amount to be
fixed by the court. The provisions of Rule 58 of
the New Rules of Court insofar as they are
applicable and not inconsistent with the
provisions of this section shall govern the
issuance and dissolution of the restraining order
or injunction contemplated in this section.
Section 26. Bank Deposits and
Investments. - Any director, officer or stockholder
who, together with his related interest, contracts
a loan or any form of financial accommodation
from: (1) his bank; or (2) from a bank (a) which is
a subsidiary of a bank holding company of which
both his bank and the lending bank are
subsidiaries or (b) in which a controlling
proportion of the shares is owned by the same
interest that owns a controlling proportion of the
shares of his bank, in excess of five percent (5%)
of the capital and surplus of the bank, or in the
maximum amount permitted by law, whichever is
lower, shall be required by the lending bank to
waive the secrecy of his deposits of whatever
nature in all banks in the Philippines. Any
information obtained from an examination of his
deposits shall be held strictly confidential and
may be used by the examiners only in connection
with their supervisory and examination
responsibility or by the Bangko Sentral in an
appropriate legal action it has initiated involving
the deposit account.
Section 27. Prohibitions. - In addition to
the prohibitions found in Republic Act Nos. 3019
and 6713, personnel of the Bangko Sentral are
hereby prohibited from:
(a) being an officer, director, lawyer or
agent, employee, consultant or
stockholder, directly or indirectly, of any
institution subject to supervision or
examination by the Bangko Sentral,
except non-stock savings and loan
associations and provident funds
organized exclusively for employees of
the Bangko Sentral, and except as
otherwise provided in this Act;
(b) directly or indirectly requesting or
receiving any gift, present or pecuniary or
material benefit for himself or another,
from any institution subject to supervision
or examination by the Bangko Sentral;
(c) revealing in any manner, except under
orders of the court, the Congress or any
government office or agency authorized
by law, or under such conditions as may
be prescribed by the Monetary Board,
information relating to the condition or
business of any institution. This
prohibition shall not be held to apply to
the giving of information to the Monetary
Board or the Governor of the Bangko
Sentral, or to any person authorized by
either of them, in writing, to receive such
information; and
(d) borrowing from any institution subject
to supervision or examination by the
Bangko Sentral shall be prohibited unless
said borrowings are adequately secured,
fully disclosed to the Monetary Board, and
shall be subject to such further rules and
regulations as the Monetary Board may
prescribe: Provided, however, That
personnel of the supervising and
examining departments are prohibited
from borrowing from a bank under their
supervision or examination.
Section 28. Examination and Fees. - The
supervising and examining department head,
personally or by deputy, shall examine the books
of every banking institution once in every twelve
(12) months, and at such other times as the
Monetary Board by an affirmative vote of five (5)
members, may deem expedient and to make a
report on the same to the Monetary Board:
Provided, That there shall be an interval of at
least twelve (12) months between annual
examinations.
The bank concerned shall afford to the
head of the appropriate supervising and
examining departments and to his authorized
deputies full opportunity to examine its books,
cash and available assets and general condition
at any time during banking hours when requested
to do so by the Bangko Sentral: Provided,
however, That none of the reports and other
papers relative to such examinations shall be
open to inspection by the public except insofar as
such publicity is incidental to the proceedings
hereinafter authorized or is necessary for the
prosecution of violations in connection with the
business of such institutions.
Banking and quasi-banking institutions
which are subject to examination by the Bangko
Sentral shall pay to the Bangko Sentral, within
the first thirty (30) days of each year, an annual
fee in an amount equal to a percentage as may
be prescribed by the Monetary Board of its
average total assets during the preceding year as
shown on its end-of-month balance sheets, after
deducting cash on hand and amounts due from
banks, including the Bangko Sentral and banks
abroad.
Section 29. Appointment of
Conservator. - Whenever, on the basis of a report
submitted by the appropriate supervising or
examining department, the Monetary Board finds
that a bank or a quasi-bank is in a state of
continuing inability or unwillingness to maintain a
condition of liquidity deemed adequate to protect
the interest of depositors and creditors, the
Monetary Board may appoint a conservator with
such powers as the Monetary Board shall deem
necessary to take charge of the assets, liabilities,
and the management thereof, reorganize the
management, collect all monies and debts due
said institution, and exercise all powers necessary
to restore its viability. The conservator shall
report and be responsible to the Monetary Board
and shall have the power to overrule or revoke
the actions of the previous management and
board of directors of the bank or quasi-bank.
The conservator should be competent and
knowledgeable in bank operations and
management. The conservatorship shall not
exceed one (1) year.
The conservator shall receive
remuneration to be fixed by the Monetary Board
in an amount not to exceed two-thirds (2/3) of the
salary of the president of the institution in one (1)
year, payable in twelve (12) equal monthly
payments: Provided, That, if at any time within
one-year period, the conservatorship is
terminated on the ground that the institution can
operate on its own, the conservator shall receive
the balance of the remuneration which he would
have received up to the end of the year; but if the
conservatorship is terminated on other grounds,
the conservator shall not be entitled to such
remaining balance. The Monetary Board may
appoint a conservator connected with the Bangko
Sentral, in which case he shall not be entitled to
receive any remuneration or emolument from the
Bangko Sentral during the conservatorship. The
expenses attendant to the conservatorship shall
be borne by the bank or quasi-bank concerned.
The Monetary Board shall terminate the
conservatorship when it is satisfied that the
institution can continue to operate on its own and
the conservatorship is no longer necessary. The
conservatorship shall likewise be terminated
should the Monetary Board, on the basis of the
report of the conservator or of its own findings,
determine that the continuance in business of the
institution would involve probable loss to its
depositors or creditors, in which case the
provisions of Section 30 shall apply.
Section 30. Proceedings in Receivership
and Liquidation. - Whenever, upon report of the
head of the supervising or examining
department, the Monetary Board finds that a
bank or quasi-bank:
(a) is unable to pay its liabilities as they
become due in the ordinary course of
business: Provided, That this shall not
include inability to pay caused by
extraordinary demands induced by
financial panic in the banking community;
(b) has insufficient realizable assets, as
determined by the Bangko Sentral, to
meet its liabilities; or
(c) cannot continue in business without
involving probable losses to its depositors
or creditors; or
(d) has willfully violated a cease and
desist order under Section 37 that has
become final, involving acts or
transactions which amount to fraud or a
dissipation of the assets of the institution;
in which cases, the Monetary Board may
summarily and without need for prior
hearing forbid the institution from doing
business in the Philippines and designate
the Philippine Deposit Insurance
Corporation as receiver of the banking
institution.
For a quasi-bank, any person of
recognized competence in banking or finance
may be designed as receiver.
The receiver shall immediately gather and
take charge of all the assets and liabilities of the
institution, administer the same for the benefit of
its creditors, and exercise the general powers of a
receiver under the Revised Rules of Court but
shall not, with the exception of administrative
expenditures, pay or commit any act that will
involve the transfer or disposition of any asset of
the institution: Provided, That the receiver may
deposit or place the funds of the institution in
non-speculative investments. The receiver shall
determine as soon as possible, but not later than
ninety (90) days from take over, whether the
institution may be rehabilitated or otherwise
placed in such a condition so that it may be
permitted to resume business with safety to its
depositors and creditors and the general public:
Provided, That any determination for the
resumption of business of the institution shall be
subject to prior approval of the Monetary Board.
If the receiver determines that the
institution cannot be rehabilitated or permitted to
resume business in accordance with the next
preceding paragraph, the Monetary Board shall
notify in writing the board of directors of its
findings and direct the receiver to proceed with
the liquidation of the institution. The receiver
shall:
(1) file ex parte with the proper regional
trial court, and without requirement of
prior notice or any other action, a petition
for assistance in the liquidation of the
institution pursuant to a liquidation plan
adopted by the Philippine Deposit
Insurance Corporation for general
application to all closed banks. In case of
quasi-banks, the liquidation plan shall be
adopted by the Monetary Board. Upon
acquiring jurisdiction, the court shall,
upon motion by the receiver after due
notice, adjudicate disputed claims against
the institution, assist the enforcement of
individual liabilities of the stockholders,
directors and officers, and decide on
other issues as may be material to
implement the liquidation plan adopted.
The receiver shall pay the cost of the
proceedings from the assets of the
institution.
(2) convert the assets of the institutions
to money, dispose of the same to
creditors and other parties, for the
purpose of paying the debts of such
institution in accordance with the rules on
concurrence and preference of credit
under the Civil Code of the Philippines
and he may, in the name of the
institution, and with the assistance of
counsel as he may retain, institute such
actions as may be necessary to collect
and recover accounts and assets of, or
defend any action against, the institution.
The assets of an institution under
receivership or liquidation shall be
deemed in custodia legis in the hands of
the receiver and shall, from the moment
the institution was placed under such
receivership or liquidation, be exempt
from any order of garnishment, levy,
attachment, or execution.
The actions of the Monetary Board taken
under this section or under Section 29 of this Act
shall be final and executory, and may not be
restrained or set aside by the court except on
petition for certiorari on the ground that the
action taken was in excess of jurisdiction or with
such grave abuse of discretion as to amount to
lack or excess of jurisdiction. The petition for
certiorari may only be filed by the stockholders of
record representing the majority of the capital
stock within ten (10) days from receipt by the
board of directors of the institution of the order
directing receivership, liquidation or
conservatorship.
The designation of a conservator under
Section 29 of this Act or the appointment of a
receiver under this section shall be vested
exclusively with the Monetary Board.
Furthermore, the designation of a conservator is
not a precondition to the designation of a
receiver.
Section 31. Distribution of Assets. - In
case of liquidation of a bank or quasi-bank, after
payment of the cost of proceedings, including
reasonable expenses and fees of the receiver to
be allowed by the court, the receiver shall pay
the debts of such institution, under order of the
court, in accordance with the rules on
concurrence and preference of credit as provided
in the Civil Code.
Section 32. Disposition of Revenues and
Earnings. - All revenues and earnings realized by
the receiver in winding up the affairs and
administering the assets of any bank or quasi-
bank within the purview of this Act shall be used
to pay the costs, fees and expenses mentioned in
the preceding section, salaries of such personnel
whose employment is rendered necessary in the
discharge of the liquidation together with other
additional expenses caused thereby. The balance
of revenues and earnings, after the payment of
all said expenses, shall form part of the assets
available for payment to creditors.
Section 33. Disposition of Banking
Franchise. - The Bangko Sentral may, if public
interest so requires, award to an institution, upon
such terms and conditions as the Monetary Board
may approve, the banking franchise of a bank
under liquidation to operate in the area where
said bank or its branches were previously
operating: Provided, That whatever proceeds may
be realized from such award shall be subject to
the appropriate exclusive disposition of the
Monetary Board.
Section 34. Refusal to Make Reports or
Permit Examination. - Any officer, owner, agent,
manager, director or officer-in-charge of any
institution subject to the supervision or
examination by the Bangko Sentral within the
purview of this Act who, being required in writing
by the Monetary Board or by the head of the
supervising and examining department willfully
refuses to file the required report or permit any
lawful examination into the affairs of such
institution shall be punished by a fine of not less
than Fifty thousand pesos (P50,000) nor more
than One hundred thousand pesos (P100,000) or
by imprisonment of not less than one (1) year nor
more than five (5) years, or both, in the discretion
of the court.
Section 35. False Statement. - The willful
making of a false or misleading statement on a
material fact to the Monetary Board or to the
examiners of the Bangko Sentral shall be
punished by a fine of not less than One hundred
thousand pesos (P100,000) nor more than Two
hundred thousand pesos (P200,000), or by
imprisonment of not more than (5) years, or both,
at the discretion of the court.
Section 36. Proceedings Upon Violation
of This Act and Other Banking Laws, Rules,
Regulations, Orders or Instructions. - Whenever a
bank or quasi-bank, or whenever any person or
entity willfully violates this Act or other pertinent
banking laws being enforced or implemented by
the Bangko Sentral or any order, instruction, rule
or regulation issued by the Monetary Board, the
person or persons responsible for such violation
shall unless otherwise provided in this Act be
punished by a fine of not less than Fifty thousand
pesos (P50,000) nor more than Two hundred
thousand pesos (P200,000) or by imprisonment of
not less than two (2) years nor more than ten
(10) years, or both, at the discretion of the court.
Whenever a bank or quasi-bank persists
in carrying on its business in an unlawful or
unsafe manner, the Board may, without prejudice
to the penalties provided in the preceding
paragraph of this section and the administrative
sanctions provided in Section 37 of this Act, take
action under Section 30 of this Act.
Section 37. Administrative Sanctions on
Banks and Quasi-banks. - Without prejudice to the
criminal sanctions against the culpable persons
provided in Sections 34, 35, and 36 of this Act,
the Monetary Board may, at its discretion, impose
upon any bank or quasi-bank, their directors
and/or officers, for any willful violation of its
charter or by-laws, willful delay in the submission
of reports or publications thereof as required by
law, rules and regulations; any refusal to permit
examination into the affairs of the institution; any
willful making of a false or misleading statement
to the Board or the appropriate supervising and
examining department or its examiners; any
willful failure or refusal to comply with, or
violation of, any banking law or any order,
instruction or regulation issued by the Monetary
Board, or any order, instruction or ruling by the
Governor; or any commission of irregularities,
and/or conducting business in an unsafe or
unsound manner as may be determined by the
Monetary Board, the following administrative
sanctions, whenever applicable:
(a) fines in amounts as may be
determined by the Monetary Board to be
appropriate, but in no case to exceed
Thirty thousand pesos (P30,000) a day for
each violation, taking into consideration
the attendant circumstances, such as the
nature and gravity of the violation or
irregularity and the size of the bank or
quasi-bank;
(b) suspension of rediscounting privileges
or access to Bangko Sentral credit
facilities;
(c) suspension of lending or foreign
exchange operations or authority to
accept new deposits or make new
investments;
(d) suspension of interbank clearing
privileges; and/or
(e) revocation of quasi-banking license.
Resignation or termination from office
shall not exempt such director or officer from
administrative or criminal sanctions.
The Monetary Board may, whenever
warranted by circumstances, preventively
suspend any director or officer of a bank or quasi-
bank pending an investigation: Provided, That
should the case be not finally decided by the
Bangko Sentral within a period of one hundred
twenty (120) days after the date of suspension,
said director or officer shall be reinstated in his
position: Provided, further, That when the delay in
the disposition of the case is due to the fault,
negligence or petition of the director or officer,
the period of delay shall not be counted in
computing the period of suspension herein
provided.
The above administrative sanctions need
not be applied in the order of their severity.
Whether or not there is an administrative
proceeding, if the institution and/or the directors
and/or officers concerned continue with or
otherwise persist in the commission of the
indicated practice or violation, the Monetary
Board may issue an order requiring the institution
and/or the directors and/or officers concerned to
cease and desist from the indicated practice or
violation, and may further order that immediate
action be taken to correct the conditions resulting
from such practice or violation. The cease and
desist order shall be immediately effective upon
service on the respondents.
The respondents shall be afforded an
opportunity to defend their action in a hearing
before the Monetary Board or any committee
chaired by any Monetary Board member created
for the purpose, upon request made by the
respondents within five (5) days from their
receipt of the order. If no such hearing is
requested within said period, the order shall be
final. If a hearing is conducted, all issues shall be
determined on the basis of records, after which
the Monetary Board may either reconsider or
make final its order.
The Governor is hereby authorized, at his
discretion, to impose upon banking institutions,
for any failure to comply with the requirements of
law, Monetary Board regulations and policies,
and/or instructions issued by the Monetary Board
or by the Governor, fines not in excess of Ten
thousand pesos (P10,000) a day for each
violation, the imposition of which shall be final
and executory until reversed, modified or lifted by
the Monetary Board on appeal.
 Section 38. Operating Departments of
the Bangko Sentral. - The Monetary Board shall,
in accordance with its authority under this Act,
determine and provide for such operating
departments and other offices, including a public
information office, of the Bangko Sentral as it
deems convenient for the proper and efficient
conduct of the operations and the
accomplishment of the objectives of the Bangko
Sentral. The functions and duties of such
operating departments and other offices shall be
determined by the Monetary Board.
ARTICLE V (e) the monthly movement, in summary
REPORTS AND PUBLICATIONS
Section 39. Reports and Publications. -
The Bangko Sentral shall publish a general
balance sheet showing the volume and
composition of its assets and liabilities as of the
last working day of the month within sixty (60)
days after the end of each month except for the
month of December, which shall be submitted
within ninety (90) days after the end hereof.
The Monetary Board shall publish and
submit the following reports to the President and
to the Congress:
(a) not later than ninety (90) days after
the end of each quarter, an analysis of
economic and financial developments,
including the condition of net
international reserves and monetary
aggregates;
(b) within ninety (90) days after the end
of the year, the preceding year's budget
and profit and loss statement of the
Bangko Sentral showing in reasonable
detail the result of its operations;
(c) one hundred twenty (120) days after
the end of each semester, a review of the
state of the financial system; and
(d) as soon as practicable, abnormal
movements in monetary aggregates and
the general price level, and, not later
than seventy-two (72) hours after they
are taken, remedial measures in response
to such abnormal movements.
Section 40. Annual Report. - Before the
end of March of each year, the Bangko Sentral
shall publish and submit to the President and the
Congress an annual report on the condition of the
Bangko Sentral including a review of the policies
and measures adopted by the Monetary Board
during the past year and an analysis of the
economic and financial circumstances which gave
rise to said policies and measures.
The annual report shall also include a
statement of the financial condition of the Bangko
Sentral and a statistical appendix which shall
present, as a minimum, the following data:
(a) the monthly movement of monetary
aggregates and their components;
(b) the monthly movement of purchases
and sales of foreign exchange and of the
international reserves of the Bangko
Sentral;
(c) the balance of payments of the
Philippines;
(d) monthly indices of consumer prices
and of import and export prices;
form, of exports and imports, by volume
and value;
(f) the monthly movement of the
accounts of the Bangko Sentral and of
other banks;
(g) the principal data on government
receipts and expenditures and on the
status of the public debt, both domestic
and foreign; and
(h) the texts of the major legal and
administrative measures adopted by the
Government and the Monetary Board
during the year which relate to the
functions or operations of the Bangko
Sentral or of the financial system.
The Bangko Sentral shall publish another
version of the annual report in terms
understandable to the layman.
Failure to comply with the reportorial
requirements pursuant to this article without
justifiable reason as may be determined by the
Monetary Board shall cause the withholding of
the salary of the personnel concerned until the
requirements are complied with.
Section 41. Signatures on Statements. -
The balance sheets and other financial
statements of the Bangko Sentral shall be signed
by the officers responsible for their preparation,
by the Governor, and by the auditor of the
Bangko Sentral.
ARTICLE VI
PROFITS, LOSSES, AND SPECIAL ACCOUNTS
Section 42. Fiscal Year. - The fiscal year
of the Bangko Sentral shall begin on January first
and end on December thirty-first of each year.
Section 43. Computation of Profits and
Losses. - Within the first thirty (30) days following
the end of each year, the Bangko Sentral shall
determine its net profits or losses. In the
calculation of net profits, the Bangko Sentral shall
make adequate allowance or establish adequate
reserves for bad and doubtful accounts.
Section 44. Distribution of Net Profits. -
Within the first sixty (60) days following the end
of each fiscal year, the Monetary Board shall
determine and carry out the distribution of the
net profits, in accordance with the following rule:
Fifty percent (50%) of the net profits shall
be carried to surplus and the remaining fifty
percent (50%) shall revert back to the National
Treasury, except as otherwise provided in the
transitory provisions of this Act.
Section 45. Revaluation Profits and
Losses. - Profits or losses arising from any
revaluation of the Bangko Sentral's net assets or
liabilities in gold or foreign currencies with
respect to the Philippine peso shall not be
included in the computation of the annual profits
and losses of the Bangko Sentral. Any profits or
losses arising in this manner shall be offset by
any amounts which, as a consequence of such
revaluations, are owed by the Philippines to any
international or regional intergovernmental
financial institution of which the Philippines is a
member or are owed by these institutions to the
Philippines. Any remaining profit or loss shall be
carried in a special frozen account which shall be
named "Revaluation of International Reserve" and
the net balance of which shall appear either
among the liabilities or among the assets of the
Bangko Sentral, depending on whether the
revaluations have produced net profits or net
losses.
The Revaluation of International Reserve
account shall be neither credited nor debited for
any purposes other than those specifically
authorized in this section.
Section 46. Suspense Accounts. -
Sections 43 and 43-A of Republic Act No. 265, as
amended, creating the Monetary Adjustment
Account (MAA) and the Exchange Stabilization
Adjustment Account (ESAA), respectively, are
hereby repealed. Amounts outstanding as of the
effective date of this Act based on these accounts
shall continue to be for the account of the Central
Bank and shall be governed by the transitory
provisions of this Act.
The Revaluation of International Reserve
(RIR) account as of the effective date of this Act
of the Central Bank shall continue to be for the
account of the same entity and shall be governed
by the provisions of Section 44 of Republic Act
No. 265, as amended, until otherwise provided for
in accordance with the transitory provisions of
this Act.
ARTICLE VII
THE AUDITOR
Section 47. Appointment and
Personnel. - The Chairman of the Commission on
Audit shall act as the ex officio auditor of the
Bangko Sentral and, as such, he is empowered
and authorized to appoint a representative who
shall be the auditor of the Bangko Sentral and, in
accordance with law, fix his salary, and to appoint
and fix salaries and number of personnel to assist
said representative in his work. The salaries and
other emoluments shall be paid by the
Commission. The auditor of the Bangko Sentral
and personnel under him may be removed only
by the Chairman of the Commission.
The representative of the Chairman of the
Commission must be a certified public accountant
with at least ten (10) years experience as such.
No relative of any member of the Monetary Board
or the Chairman of the Commission within the
sixth degree of consanguinity or affinity shall be
appointed such representative.
CHAPTER II — THE BANGKO SENTRAL AND
THE MEANS OF PAYMENT
ARTICLE I
THE UNIT OF MONETARY VALUE
Section 48. The Peso. - The unit of
monetary value in the Philippines is the "peso,"
which is represented by the sign "P."
The peso is divided into one hundred
(100) equal parts called "centavos," which are
represented by the sign "c."
ARTICLE II
ISSUE OF MEANS OF PAYMENT
A. CURRENCY
Section 49. Definition of Currency. - The
word "currency" is hereby defined, for purposes
of this Act, as meaning all Philippine notes and
coins issued or circulating in accordance with the
provisions of this Act.
Section 50. Exclusive Issue Power. - The
Bangko Sentral shall have the sole power and
authority to issue currency, within the territory of
the Philippines. No other person or entity, public
or private, may put into circulation notes, coins or
any other object or document which, in the
opinion of the Monetary Board, might circulate as
currency, nor reproduce or imitate the facsimiles
of Bangko Sentral notes without prior authority
from the Bangko Sentral.
The Monetary Board may issue such
regulations as it may deem advisable in order to
prevent the circulation of foreign currency or of
currency substitutes as well as to prevent the
reproduction of facsimiles of Bangko Sentral
notes.
The Bangko Sentral shall have the
authority to investigate, make arrests, conduct
searches and seizures in accordance with law, for
the purpose of maintaining the integrity of the
currency.
Violation of this provision or any
regulation issued by the Bangko Sentral pursuant
thereto shall constitute an offense punishable by
imprisonment of not less than five (5) years but
not more than ten (10) years. In case the Revised
Penal Code provides for a greater penalty, then
that penalty shall be imposed.
 Section 51. Liability for Notes and
Coins. - Notes and coins issued by the Bangko
Sentral shall be liabilities of the Bangko Sentral
and may be issued only against, and in amounts
not exceeding, the assets of the Bangko Sentral.
Said notes and coins shall be a first and
paramount lien on all assets of the Bangko
Sentral.
The Bangko Sentral's holdings of its own
notes and coins shall not be considered as part of
its currency issue and, accordingly, shall not form
part of the assets or liabilities of the Bangko
Sentral.
Section 52. Legal Tender Power. - All
notes and coins issued by the Bangko Sentral
shall be fully guaranteed by the Government of
the Republic of the Philippines and shall be legal
tender in the Philippines for all debts, both public
and private: Provided, however, That, unless
otherwise fixed by the Monetary Board, coins
shall be legal tender in amounts not exceeding
Fifty pesos (P50.00) for denominations of Twenty-
five centavos and above, and in amounts not
exceeding Twenty pesos (P20.00) for
denominations of Ten centavos or less.
Section 53. Characteristics of the
Currency. - The Monetary Board, with the
approval of the President of the Philippines, shall
prescribe the denominations, dimensions,
designs, inscriptions and other characteristics of
notes issued by the Bangko Sentral: Provided,
however, That said notes shall state that they are
liabilities of the Bangko Sentral and are fully
guaranteed by the Government of the Republic of
the Philippines. Said notes shall bear the
signatures, in facsimile, of the President of the
Philippines and of the Governor of the Bangko
Sentral.
Similarly, the Monetary Board, with the
approval of the President of the Philippines, shall
prescribe the weight, fineness, designs,
denominations and other characteristics of the
coins issued by the Bangko Sentral. In the
minting of coins, the Monetary Board shall give
full consideration to the availability of suitable
metals and to their relative prices and cost of
minting.
Section 54. Printing of Notes and Mining
of Coins. - The Monetary Board shall prescribe the
amounts of notes and coins to be printed and
minted, respectively, and the conditions to which
the printing of notes and the minting of coins
shall be subject. The Monetary Board shall have
the authority to contract institutions, mints or
firms for such operations.
All expenses incurred in the printing of
notes and the minting of coins shall be for the
account of the Bangko Sentral.
Section 55. Interconvertibility of
Currency. - The Bangko Sentral shall exchange,
on demand and without charge, Philippine
currency of any denomination for Philippine notes
and coins of any other denomination requested. If
for any reason the Bangko Sentral is temporarily
unable to provide notes or coins of the
denominations requested, it shall meet its
obligations by delivering notes and coins of the
denominations which most nearly approximate
those requested.
Section 56. Replacement of Currency
Unfit for Circulation. - The Bangko Sentral shall
withdraw from circulation and shall demonetize
all notes and coins which for any reason
whatsoever are unfit for circulation and shall
replace them by adequate notes and coins:
Provided, however, That the Bangko Sentral shall
not replace notes and coins the identification of
which is impossible, coins which show signs of
filing, clipping or perforation, and notes which
have lost more than two-fifths (2/5) of their
surface or all of the signatures inscribed thereon.
Notes and coins in such mutilated conditions shall
be withdrawn from circulation and demonetized
without compensation to the bearer.
Section 57. Retirement of Old Notes and
Coins. - The Bangko Sentral may call in for
replacement notes of any series or denomination
which are more than five (5) years old and coins
which are more than (10) years old.
Notes and coins called in for replacement
in accordance with this provision shall remain
legal tender for a period of one (1) year from the
date of call. After this period, they shall cease to
be legal tender but during the following year, or
for such longer period as the Monetary Board
may determine, they may be exchanged at par
and without charge in the Bangko Sentral and by
agents duly authorized by the Bangko Sentral for
this purpose. After the expiration of this latter
period, the notes and coins which have not been
exchanged shall cease to be a liability of the
Bangko Sentral and shall be demonetized. The
Bangko Sentral shall also demonetize all notes
and coins which have been called in and
replaced.
B. DEMAND DEPOSITS
Section 58. Definition. - For purposes of
this Act, the term "demand deposits" means all
those liabilities of the Bangko Sentral and of other
banks which are denominated in Philippine
currency and are subject to payment in legal
tender upon demand by the presentation of
checks.
Section 59. Issue of Demand Deposits. -
Only banks duly authorized to do so may accept
funds or create liabilities payable in pesos upon
demand by the presentation of checks, and such
operations shall be subject to the control of the
Monetary Board in accordance with the powers
granted it with respect thereto under this Act.
Section 60. Legal Character. - Checks
representing demand deposits do not have legal
tender power and their acceptance in the
payment of debts, both public and private, is at
the option of the creditor: Provided, however,
That a check which has been cleared and
credited to the account of the creditor shall be
equivalent to a delivery to the creditor of cash in
an amount equal to the amount credited to his
account.
CHAPTER III — GUIDING PRINCIPLES OF
MONETARY ADMINISTRATION BY THE
BANGKO SENTRAL
ARTICLE I changes in the monetary aggregates, credit or
DOMESTIC MONETARY STABILIZATION
Section 61. Guiding Principle. - The
Monetary Board shall endeavor to control any
expansion or contraction in monetary aggregates
which is prejudicial to the attainment or
maintenance of price stability.
Section 62. Power to Define Terms. - For
purposes of this article and of this Act, the
Monetary Board shall formulate definitions of
monetary aggregates, credit and prices and shall
make public such definitions and any changes
thereof.
Section 63. Action When Abnormal
Movements Occur in the Monetary Aggregates,
Credit, or Price Level.- Whenever abnormal
movements in the monetary aggregates, in
credit, or in prices endanger the stability of the
Philippine economy or important sectors thereof,
the Monetary Board shall:
(a) take such remedial measures as are
appropriate and within the powers
granted to the Monetary Board and the
Bangko Sentral under the provisions of
this Act; and
(b) submit to the President of the
Philippines and the Congress, and make
public, a detailed report which shall
include, as a minimum, a description and
analysis of:
(1) the causes of the rise or fall of
the monetary aggregates, of
credit or of prices;
(2) the extent to which the
changes in the monetary
aggregates, in credit, or in prices
have been reflected in changes in
the level of domestic output,
employment, wages and
economic activity in general, and
the nature and significance of any
such changes; and
(3) the measures which the
Monetary Board has taken and
the other monetary, fiscal or
administrative measures which it
recommends to be adopted.
Whenever the monetary aggregates, or
the level of credit, increases or decreases by
more than fifteen percent (15%), or the cost of
living index increases by more than ten percent
(10%), in relation to the level existing at the end
of the corresponding month of the preceding
year, or even though any of these quantitative
guidelines have not been reached when in its
judgment the circumstances so warrant, the
Monetary Board shall submit the reports
mentioned in this section, and shall state therein
whether, in the opinion of the Board, said
cost of living represent a threat to the stability of
the Philippine economy or of important sectors
thereof.
The Monetary Board shall continue to
submit periodic reports to the President of the
Philippines and to Congress until it considers that
the monetary, credit or price disturbances have
disappeared or have been adequately controlled.
ARTICLE II
INTERNATIONAL MONETARY STABILIZATION
Section 64. International Monetary
Stabilization. - The Bangko Sentral shall exercise
its powers under this Act to preserve the
international value of the peso and to maintain its
convertibility into other freely convertible
currencies primarily for, although not necessarily
limited to, current payments for foreign trade and
invisibles.
Section 65. International Reserves. - In
order to maintain the international stability and
convertibility of the Philippine peso, the Bangko
Sentral shall maintain international reserves
adequate to meet any foreseeable net demands
on the Bangko Sentral for foreign currencies.
In judging the adequacy of the
international reserves, the Monetary Board shall
be guided by the prospective receipts and
payments of foreign exchange by the Philippines.
The Board shall give special attention to the
volume and maturity of the Bangko Sentral's own
liabilities in foreign currencies, to the volume and
maturity of the foreign exchange assets and
liabilities of other banks operating in the
Philippines and, insofar as they are known or can
be estimated, the volume and maturity of the
foreign exchange assets and liabilities of all other
persons and entities in the Philippines.
Section 66. Composition of the
International Reserves. - The international
reserves of the Bangko Sentral may include but
shall not be limited to the following assets:
(a) gold; and
(b) assets in foreign currencies in the
form of: documents and instruments
customarily employed for the
international transfer of funds; demand
and time deposits in central banks,
treasuries and commercial banks abroad;
 foreign government securities; and
foreign notes and coins.
The Monetary Board shall endeavor to
hold the foreign exchange resources of the
Bangko Sentral in freely convertible currencies;
moreover, the Board shall give particular
consideration to the prospects of continued
strength and convertibility of the currencies in
which the reserve is maintained, as well as to the
anticipated demands for such currencies. The
Monetary Board shall issue regulations
determining the other qualifications which foreign
exchange assets must meet in order to be
included in the international reserves of the
Bangko Sentral.
The Bangko Sentral shall be free to
convert any of the assets in its international
reserves into other assets as described in
subsections (a) and (b) of this section.
Section 67. Action When the
International Stability of the Peso Is Threatened. -
Whenever the international reserve of the Bangko
Sentral falls to a level which the Monetary Board
considers inadequate to meet prospective net
demands on the Bangko Sentral for foreign
currencies, or whenever the international reserve
appears to be in imminent danger of falling to
such a level, or whenever the international
reserve is falling as a result of payments or
remittances abroad which, in the opinion of the
Monetary Board, are contrary to the national
welfare, the Monetary Board shall:
(a) take such remedial measures as are
appropriate and within the powers
granted to the Monetary Board and the
Bangko Sentral under the provisions of
this Act; and
(b) submit to the President of the
Philippines and to Congress a detailed
report which shall include, as a minimum,
a description and analysis of:
(1) the nature and causes of the
existing or imminent decline;
(2) the remedial measures
already taken or to be taken by
the Monetary Board;
(3) the monetary, fiscal or
administrative measures further
proposed; and
(4) the character and extent of
the cooperation required from
other government agencies for
the successful execution of the
policies of the Monetary Board.
If the resultant actions fail to check the
deterioration of the reserve position of the
Bangko Sentral, or if the deterioration cannot be
checked except by chronic restrictions on
exchange and trade transactions or by sacrifice of
the domestic objectives of a balanced and
sustainable growth of the economy, the Monetary
Board shall propose to the President, with
appropriate notice of the Congress, such
additional action as it deems necessary to restore
equilibrium in the international balance of
payments of the Philippines.
The Monetary Board shall submit periodic
reports to the President and to Congress until the
threat to the international monetary stability of
the Philippines has disappeared.
CHAPTER IV — INSTRUMENTS OF BANGKO
SENTRAL ACTION
ARTICLE I
GENERAL CRITERION
Section 68. Means of Action. - In order to
achieve the primary objective of price stability,
the Monetary Board shall rely on its moral
influence and the powers granted to it under this
Act for the management of monetary aggregates.
ARTICLE II
OPERATIONS IN GOLD AND FOREIGN
EXCHANGE
Section 69. Purchases and Sales of
Gold. - The Bangko Sentral may buy and sell gold
in any form, subject to such regulations as the
Monetary Board may issue.
The purchases and sales of gold
authorized by this section shall be made in the
national currency at the prevailing international
market price as determined by the Monetary
Board.
Section 70. Purchases and Sales of
Foreign Exchange. - The Bangko Sentral may buy
and sell foreign notes and coins, and documents
and instruments of types customarily employed
for the international transfer of funds. The
Bangko Sentral may engage in future exchange
operations.
The Bangko Sentral may engage in
foreign exchange transactions with the following
entities or persons only:
(a) banking institutions operating in the
Philippines;
(b) the Government, its political
subdivisions and instrumentalities;
(c) foreign or international financial
institutions;
(d) foreign governments and their
instrumentalities; and
(e) other entities or persons which the
Monetary Board is hereby empowered to
authorize as foreign exchange dealers,
subject to such rules and regulations as
the Monetary Board shall prescribe.
In order to maintain the convertibility of
the peso, the Bangko Sentral may, at the request
of any banking institution operating in the
Philippines, buy any quantity of foreign exchange
offered, and sell any quantity of foreign exchange
demanded, by such institution, provided that the
foreign currencies so offered or demanded are
freely convertible into gold or United States
dollars. This requirement shall not apply to
demands for foreign notes and coins.
The Bangko Sentral shall effect its
exchange transactions between foreign
currencies and the Philippine peso at the rates
determined in accordance with the provisions of
Section 74 of this Act.
Section 71. Foreign Asset Position of the
Bangko Sentral. - The Bangko Sentral shall
endeavor to maintain at all times a net positive
foreign asset position so that its gross foreign
exchange assets will always exceed its gross
foreign liabilities. In the event that the equivalent
amount in pesos of the foreign exchange
liabilities of the Bangko Sentral exceed twice the
equivalent amount in pesos of the foreign
exchange assets of the bank, the Bangko Sentral
shall, within sixty (60) days from the date the
limit is exceeded, submit a report to the Congress
stating the origin of these liabilities, and the
manner in which they will be paid.
Section 72. Emergency Restrictions on
Exchange Operations. - In order to achieve the
primary objective of the Bangko Sentral as set
forth in Section 3 of this Act, or protect the
international reserves of the Bangko Sentral in
the imminence of, or during an exchange crisis,
or in time of national emergency and to give the
Monetary Board and the Government time in
which to take constructive measures to forestall,
combat, or overcome such a crisis or emergency,
the Monetary Board, with the concurrence of at
least five (5) of its members and with the
approval of the President of the Philippines, may
temporarily suspend or restrict sales of exchange
by the Bangko Sentral, and may subject all
transactions in gold and foreign exchange to
license by the Bangko Sentral, and may require
that any foreign exchange thereafter obtained by
any person residing or entity operating in the
Philippines be delivered to the Bangko Sentral or
to any bank or agent designated by the Bangko
Sentral for the purpose, at the effective exchange
rate or rates: Provided, however, That foreign
currency deposits made under Republic Act No.
6426 shall be exempt from these requirements.
Section 73. Acquisition of Inconvertible
Currencies. - The Bangko Sentral shall avoid the
acquisition and holding of currencies which are
not freely convertible, and may acquire such
currencies in an amount exceeding the minimum
balance necessary to cover current demands for
said currencies only when, and to the extent that,
such acquisition is considered by the Monetary
Board to be in the national interest. The Monetary
Board shall determine the procedures which shall
apply to the acquisition and disposition by the
Bangko Sentral of foreign exchange which is not
freely utilizable in the international market.
Section 74. Exchange Rates. - The
Monetary Board shall determine the exchange
rate policy of the country.
The Monetary Board shall determine the
rates at which the Bangko Sentral shall buy and
sell spot exchange, and shall establish deviation
limits from the effective exchange rate or rates as
it may deem proper. The Bangko Sentral shall not
collect any additional commissions or charges of
any sort, other than actual telegraphic or cable
costs incurred by it.
The Monetary Board shall similarly
determine the rates for other types of foreign
exchange transactions by the Bangko Sentral,
including purchases and sales of foreign notes
and coins, but the margins between the effective
exchange rates and the rates thus established
may not exceed the corresponding margins for
spot exchange transactions by more than the
additional costs or expenses involved in each
type of transactions.
Section 75. Operations with Foreign
Entities. - The Monetary Board may authorize the
Bangko Sentral to grant loans to and receive
loans from foreign banks and other foreign or
international entities, both public and private,
and may engage in such other operations with
these entities as are in the national interest and
are appropriate to its character as a central bank.
The Bangko Sentral may also act as agent or
correspondent for such entities.
Upon authority of the Monetary Board, the
Bangko Sentral may pledge any gold or other
assets which it possesses as security against
loans which it receives from foreign or
international entities.
ARTICLE III
REGULATION OF FOREIGN EXCHANGE
OPERATIONS OF THE BANKS
Section 76. Foreign Exchange Holdings
of the Banks. - In order that the Bangko Sentral
may at all times have foreign exchange resources
sufficient to enable it to maintain the
international stability and convertibility of the
peso, or in order to promote the domestic
investment of bank resources, the Monetary
Board may require the banks to sell to the
Bangko Sentral or to other banks all or part of
their surplus holdings of foreign exchange. Such
transfers may be required for all foreign
currencies or for only certain of such currencies,
according to the decision of the Monetary Board.
The transfers shall be made at the rates
established under the provisions of Section 74 of
this Act.
The Monetary Board may, whenever
warranted, determine the net assets and net
liabilities of banks and shall, in making such a
determination, take into account the bank's
networth, outstanding liabilities, actual and
contingent, or such other financial or
performance ratios as may be appropriate under
the circumstances. Any such determination of net
assets and net liabilities shall be applied in all
banks uniformly and without discrimination.
Section 77. Requirement of Balanced
Currency Position. - The Monetary Board may
require the banks to maintain a balanced position
between their assets and liabilities in Philippine
pesos or in any other currency or currencies in
which they operate. The banks shall be granted a
reasonable period of time in which to adjust their
currency positions to any such requirement.
The powers granted under this section
shall be exercised only when special
circumstances make such action necessary, in
the opinion of the Monetary Board, and shall be
applied to all banks alike and without
discrimination.
Section 78. Regulation of Non-spot
Exchange Transactions. - In order to restrain the
banks from taking speculative positions with
respect to future fluctuations in foreign exchange
rates, the Monetary Board may issue such
regulations governing bank purchases and sales
of non-spot exchange as it may consider
necessary for said purpose.
Section 79. Other Exchange Profits and
Losses. - The banks shall bear the risks of non-
compliance with the terms of the foreign
exchange documents and instruments which they
buy and sell, and shall also bear any other
typically commercial or banking risks, including
exchange risks not assumed by the Bangko
Sentral under the provisions of the preceding
section.
Section 80. Information on Exchange
Operations. - The banks shall report to the
Bangko Sentral the volume and composition of
their purchases and sales of gold and foreign
exchange each day, and must furnish such
additional information as the Bangko Sentral may
request with reference to the movements in their
accounts in foreign currencies.
The Monetary Board may also require
other persons and entities to report to it currently
all transactions or operations in gold, in any
shape or form, and in foreign exchange whether
entered into or undertaken by them directly or
through agents, or to submit such data as may be
required on operations or activities giving rise to
or in connection with or relating to a gold or
foreign exchange transaction. The Monetary
Board shall prescribe the forms on which such
declarations must be made. The accuracy of the
declarations may be verified by the Bangko
Sentral by whatever inspection it may deem
necessary.
ARTICLE IV
LOANS TO BANKING AND OTHER FINANCIAL
INSTITUTIONS
A. CREDIT POLICY
Section 81. Guiding Principles. - The
rediscounts, discounts, loans and advances which
the Bangko Sentral is authorized to extend to
banking institutions under the provisions of the
present article of this Act shall be used to
influence the volume of credit consistent with the
objective of price stability.
B. NORMAL CREDIT OPERATIONS
Section 82. Authorized Types of
Operations. - Subject to the principle stated in the
preceding section of this Act, the Bangko Sentral
may normally and regularly carry on the following
credit operations with banking institutions
operating in the Philippines:
(a) Commercial credits. - The Bangko
Sentral may rediscount, discount, buy and
sell bills, acceptances, promissory notes
and other credit instruments with
maturities of not more than one hundred
eighty (180) days from the date of their
rediscount, discount or acquisition by the
Bangko Sentral and resulting from
transactions related to:
(1) the importation, exportation,
purchase or sale of readily
saleable goods and products, or
their transportation within the
Philippines; or
(2) the storing of non-perishable
goods and products which are
duly insured and deposited, under
conditions assuring their
preservation, in authorized
bonded warehouses or in other
places approved by the Monetary
Board.
(b) Production credits. - The Bangko
Sentral may rediscount, discount, buy and
sell bills, acceptances, promissory notes
and other credit instruments having
maturities of not more than three
hundred sixty (360) days from the date of
their rediscount, discount or acquisition
by the Bangko Sentral and resulting from
transactions related to the production or
processing of agricultural, animal,
mineral, or industrial products.
Documents or instruments acquired in
accordance with this subsection shall be
secured by a pledge of the respective
crops or products: Provided, however,
That the crops or products need not be
pledged to secure the documents if the
original loan granted by the Bangko
Sentral is secured by a lien or mortgage
on real estate property seventy percent
(70%) of the appraised value of which
 equals or exceeds the amount of the loan
granted.
(c) Other credits. - Special credit
instruments not otherwise rediscountable
under the immediately preceding
subsections (a) and (b) may be eligible for
rediscounting in accordance with rules
and regulations which the Bangko Sentral
shall prescribe. Whenever necessary, the
Bangko Sentral shall provide funds from
non-inflationary sources: Provided,
however, That the Monetary Board shall
prescribe additional safeguards for
disbursing these funds.
(d) Advances. - The Bangko Sentral may
grant advances against the following
kinds of collaterals for fixed periods
which, with the exception of advances
against collateral named in clause (4) of
the present subsection, shall not exceed
one hundred eighty (180) days:
(1) gold coins or bullion;
(2) securities representing
obligations of the Bangko Sentral
or of other domestic institutions
of recognized solvency;
(3) the credit instruments to
which reference is made in
subsection (a) of this section;
(4) the credit instruments to
which reference is made in
subsection (b) of this section, for
periods which shall not exceed
three hundred sixty (360) days;
(5) utilized portions of advances
in current amount covered by
regular overdraft agreements
related to operations included
under subsections (a) and (b) of
this section, and certified as to
amount and liquidity by the
institution soliciting the advance;
(6) negotiable treasury bills,
certificates of indebtedness, notes
and other negotiable obligations
of the Government maturing
within three (3) years from the
date of the advance; and
(7) negotiable bonds issued by
the Government of the
Philippines, by Philippine
provincial, city or municipal
governments, or by any Philippine
Government instrumentality, and
having maturities of not more
than ten (10) years from the date
of advance.
The rediscounts, discounts, loans and advances
made in accordance with the provisions of this
section may not be renewed or extended unless
extraordinary circumstances fully justify such
renewal or extension.
Advances made against the collateral
named in clauses (6) and (7) of subsection (d) of
this section may not exceed eighty percent (80%)
of the current market value of the collateral.
C. SPECIAL CREDIT OPERATION
Section 83. Loans for Liquidity
Purposes. - The Bangko Sentral may extend loans
and advances to banking institutions for a period
of not more than seven (7) days without any
collateral for the purpose of providing liquidity to
the banking system in times of need.
D. EMERGENCY CREDIT OPERATION
Section 84. Emergency Loans and
Advances. - In periods of national and/or local
emergency or of imminent financial panic which
directly threaten monetary and banking stability,
the Monetary Board may, by a vote of at least
five (5) of its members, authorize the Bangko
Sentral to grant extraordinary loans or advances
to banking institutions secured by assets as
defined hereunder: Provided, That while such
loans or advances are outstanding, the debtor
institution shall not, except upon prior
authorization by the Monetary Board, expand the
total volume of its loans or investments.
The Monetary Board may, at its discretion,
likewise authorize the Bangko Sentral to grant
emergency loans or advances to banking
institutions, even during normal periods, for the
purpose of assisting a bank in a precarious
financial condition or under serious financial
pressures brought by unforeseen events, or
events which, though foreseeable, could not be
prevented by the bank concerned: Provided,
however, That the Monetary Board has
ascertained that the bank is not insolvent and
has the assets defined hereunder to secure the
advances: Provided, further, That a concurrent
vote of at least five (5) members of the Monetary
Board is obtained.
The amount of any emergency loan or
advance shall not exceed the sum of fifty percent
(50%) of total deposits and deposit substitutes of
the banking institution and shall be disbursed in
two (2) or more tranches. The amount of the first
tranche shall be limited to twenty-five percent
(25%) of the total deposit and deposit substitutes
of the institution and shall be secured by
government securities to the extent of their
applicable loan values and other unencumbered
first class collaterals which the Monetary Board
may approve: Provided, That if as determined by
the Monetary Board, the circumstances
surrounding the emergency warrant a loan or
advance greater than the amount provided
hereinabove, the amount of the first tranche may
exceed twenty-five percent (25%) of the bank's
total deposit and deposit substitutes if the same
is adequately secured by applicable loan values
of government securities and unencumbered first
class collaterals approved by the Monetary Board,
and the principal stockholders of the institution
furnish an acceptable undertaking to indemnify
and hold harmless from suit a conservator whose
appointment the Monetary Board may find
necessary at any time.
Prior to the release of the first tranche,
the banking institution shall submit to the Bangko
Sentral a resolution of its board of directors
authorizing the Bangko Sentral to evaluate other
assets of the banking institution certified by its
external auditor to be good and available for
collateral purposes should the release of the
subsequent tranche be thereafter applied for.
The Monetary Board may, by a vote of at
least five (5) of its members, authorize the
release of a subsequent tranche on condition that
the principal stockholders of the institution:
(a) furnish an acceptable undertaking to
indemnify and hold harmless from suit a
conservator whose appointment the
Monetary Board may find necessary at
any time; and
(b) provide acceptable security which, in
the judgment of the Monetary Board,
would be adequate to supplement, where
necessary, the assets tendered by the
banking institution to collateralize the
subsequent tranche.
In connection with the exercise of these
powers, the prohibitions in Section 128 of this Act
shall not apply insofar as it refers to acceptance
as collateral of shares and their acquisition as a
result of foreclosure proceedings, including the
exercise of voting rights pertaining to said shares:
Provided, however, That should the Bangko
Sentral acquire any of the shares it has accepted
as collateral as a result of foreclosure
proceedings, the Bangko Sentral shall dispose of
said shares by public bidding within one (1) year
from the date of consolidation of title by the
Bangko Sentral.
Whenever a financial institution incurs an
overdraft in its account with the Bangko Sentral,
the same shall be eliminated within the period
prescribed in Section 102 of this Act.
E. CREDIT TERMS
Section 85. Interest and Rediscount. -
The Bangko Sentral shall collect interest and
other appropriate charges on all loans and
advances it extends, the closure, receivership or
liquidations of the debtor-institution
notwithstanding. This provision shall apply
prospectively.
The Monetary Board shall fix the interest
and rediscount rates to be charged by the Bangko
Sentral on its credit operations in accordance
with the character and term of the operation, but
after due consideration has been given to the
credit needs of the market, the composition of
the Bangko Sentral's portfolio, and the general
requirements of the national monetary policy.
Interest and rediscount rates shall be applied to
all banks of the same category uniformly and
without discrimination.
Section 86. Endorsement. - The
documents rediscounted, discounted, bought or
accepted as collateral by the Bangko Sentral in
the course of the credit operations authorized in
this article shall bear the endorsement of the
institution from which they are received.
Section 87. Repayment of Credits. -
Documents rediscounted, discounted or accepted
as collateral by the Bangko Sentral must be
withdrawn by the borrowing institution on the
dates of their maturities, or upon liquidation of
the obligations which they represent or to which
they relate whenever said obligations have been
liquidated prior to their dates of maturity.
Banks shall have the right at any time to
withdraw any documents which they have
presented to the Bangko Sentral as collateral,
upon payment in full of the corresponding debt to
the Bangko Sentral, including interest charges.
Section 88. Other requirements. - The
Monetary Board may prescribe, within the
general powers granted to it under this Act,
additional conditions which borrowing institutions
must satisfy in order to have access to the credit
of the Bangko Sentral. These conditions may refer
to the rates of interest charged by the banks, to
the purposes for which their loans in general are
destined, and to any other clearly definable
aspect of the credit policy of the bank.
Section 89. Provisional Advances to the
National Government. - The Bangko Sentral may
make direct provisional advances with or without
interest to the National Government to finance
expenditures authorized in its annual
appropriation: Provided, That said advances shall
be repaid before the end of three (3) months
extendible by another three (3) months as the
Monetary Board may allow following the date the
National Government received such provisional
advances and shall not, in their aggregate,
exceed twenty percent (20%) of the average
annual income of the borrower for the last three
(3) preceding fiscal years.
ARTICLE V
OPEN MARKET OPERATIONS FOR THE
ACCOUNT OF THE BANGKO SENTRAL
Section 90. Principles of Open Market
Operations. - The open market purchases and
sales of securities by the Bangko Sentral shall be
made exclusively in accordance with its primary
objective of achieving price stability.
Section 91. Purchases and Sales of
Government Securities. - In order to achieve the
objectives of the national monetary policy, the
Bangko Sentral may, in accordance with the
principle stated in Section 90 of this Act and with
such rules and regulations as may be prescribed
by the Monetary Board, buy and sell in the open
market for its own account:
(a) evidences of indebtedness issued
directly by the Government of the
Philippines or by its political subdivisions;
and
(b) evidences of indebtedness issued by
government instrumentalities and fully
guaranteed by the Government.
The evidences of indebtedness acquired
under the provisions of this section must be
freely negotiable and regularly serviced and must
be available to the general public through
banking institutions and local government
treasuries in denominations of a thousand pesos
or more.
Section 92. Issue and Negotiation of
Bangko Sentral Obligations. - In order to provide
the Bangko Sentral with effective instruments for
open market operations, the Bangko Sentral may,
subject to such rules and regulations as the
Monetary Board may prescribe and in accordance
with the principles stated in Section 90 of this
Act, issue, place, buy and sell freely negotiable
evidences of indebtedness of the Bangko Sentral:
Provided, That issuance of such certificates of
indebtedness shall be made only in cases of
extraordinary movement in price levels. Said
evidences of indebtedness may be issued directly
against the international reserve of the Bangko
Sentral or against the securities which it has
acquired under the provisions of Section 91 of
this Act, or may be issued without relation to
specific types of assets of the Bangko Sentral.
The Monetary Board shall determine the
interest rates, maturities and other
characteristics of said obligations of the Bangko
Sentral, and may, if it deems it advisable,
denominate the obligations in gold or foreign
currencies.
Subject to the principles stated in Section
90 of this Act, the evidences of indebtedness of
the Bangko Sentral to which this section refers
may be acquired by the Bangko Sentral before
their maturity, either through purchases in the
open market or through redemptions at par and
by lot if the Bangko Sentral has reserved the right
to make such redemptions. The evidences of
indebtedness acquired or redeemed by the
Bangko Sentral shall not be included among its
assets, and shall be immediately retired and
cancelled.
ARTICLE VI
COMPOSITION OF BANGKO SENTRAL'S
PORTFOLIO
Section 93. Review of the Bangko
Sentral's Portfolio. - At least once every month
the Monetary Board shall review the portfolio of
the Bangko Sentral in relation to its future credit
policy.
In reviewing the Bangko Sentral's
portfolio, the Monetary Board shall especially
consider whether a sufficiently large part of the
portfolio consists of assets with early maturities,
in order that a contraction in Bangko Sentral
credit may be effected promptly whenever the
national monetary policy so requires.
ARTICLE VII
BANK RESERVES
Section 94. Reserve Requirements. - In
order to control the volume of money created by
the credit operations of the banking system, all
banks operating in the Philippines shall be
required to maintain reserves against their
deposit liabilities: Provided, That the Monetary
Board may, at its discretion, also require all banks
and/or quasi-banks to maintain reserves against
funds held in trust and liabilities for deposit
substitutes as defined in this Act. The required
reserves of each bank shall be proportional to the
volume of its deposit liabilities and shall ordinarily
take the form of a deposit in the Bangko Sentral.
Reserve requirements shall be applied to all
banks of the same category uniformly and
without discrimination.
Reserves against deposit substitutes, if
imposed, shall be determined in the same
manner as provided for reserve requirements
against regular bank deposits, with respect to the
imposition, increase, and computation of
reserves.
The Monetary Board may exempt from
reserve requirements deposits and deposit
substitutes with remaining maturities of two (2)
years or more, as well as interbank borrowings.
Since the requirement to maintain bank
reserves is imposed primarily to control the
volume of money, the Bangko Sentral shall not
pay interest on the reserves maintained with it
unless the Monetary Board decides otherwise as
warranted by circumstances.
Section 95. Definition of Deposit
Substitutes. - The term "deposit substitutes" is
defined as an alternative form of obtaining funds
from the public, other than deposits, through the
issuance, endorsement, or acceptance of debt
instruments for the borrower's own account, for
the purpose of relending or purchasing of
receivables and other obligations. These
instruments may include, but need not be limited
to, bankers acceptances, promissory notes,
participations, certificates of assignment and
similar instruments with recourse, and
repurchase agreements. The Monetary Board
shall determine what specific instruments shall
be considered as deposit substitutes for the
purposes of Section 94 of this Act: Provided,
however, That deposit substitutes of commercial,
industrial and other non-financial companies for
the limited purpose of financing their own needs
or the needs of their agents or dealers shall not
be covered by the provisions of Section 94 of this
Act.
Section 96. Required Reserves Against
Peso Deposits. - The Monetary Board may fix and,
when it deems necessary, alter the minimum
reserve ratios to peso deposits, as well as to
deposit substitutes, which each bank and/or
quasi-bank may maintain, and such ratio shall be
applied uniformly to all banks of the same
category as well as to quasi-banks.
Section 97. Required Reserves Against
Foreign Currency Deposits. - The Monetary Board
is similarly authorized to prescribe and modify
the minimum reserve ratios applicable to
deposits denominated in foreign currencies.
Section 98. Reserves Against Unused
Balances of Overdraft Lines. - In order to facilitate
Bangko Sentral control over the volume of bank
credit, the Monetary Board may establish
minimum reserve requirements for unused
balances of overdraft lines.
The powers of the Monetary Board to
prescribe and modify reserve requirements
against unused balances of overdraft lines shall
be the same as its powers with respect to reserve
requirements against demand deposits.
Section 99. Increase in Reserve
Requirements. - Whenever in the opinion of the
Monetary Board it becomes necessary to increase
reserve requirements against existing liabilities,
the increase shall be made in a gradual manner
and shall not exceed four percentage points in
any thirty-day period. Banks and other affected
financial institutions shall be notified reasonably
in advance of the date on which such increase is
to become effective.
Section 100. Computation on Reserves. -
The reserve position of each bank or quasi-bank
shall be calculated daily on the basis of the
amount, at the close of business for the day, of
the institution's reserves and the amount of its
liability accounts against which reserves are
required to be maintained: Provided, That with
reference to holidays or non-banking days, the
reserve position as calculated at the close of the
business day immediately preceding such
holidays and non-banking days shall apply on
such days.
For the purpose of computing the reserve
position of each bank or quasi-bank, its principal
office in the Philippines and all its branches and
agencies located therein shall be considered as a
single unit.
Section 101. Reserve Deficiencies. -
Whenever the reserve position of any bank or
quasi-bank, computed in the manner specified in
the preceding section of this Act, is below the
required minimum, the bank or quasi-bank shall
pay the Bangko Sentral one-tenth of one percent
(1/10 of 1%) per day on the amount of the
deficiency or the prevailing ninety-one-day
treasury bill rate plus three percentage points,
whichever is higher: Provided, however, That
banks and quasi-banks shall ordinarily be
permitted to offset any reserve deficiency
occurring on one or more days of the week with
any excess reserves which they may hold on
other days of the same week and shall be
required to pay the penalty only on the average
daily deficiency during the week. In cases of
abuse, the Monetary Board may deny any bank or
quasi-bank the privilege of offsetting reserve
deficiencies in the aforesaid manner.
If a bank or quasi-bank chronically has a
reserve deficiency, the Monetary Board may limit
or prohibit the making of new loans or
investments by the institution and may require
that part or all of the net profits of the institution
be assigned to surplus.
The Monetary Board may modify or set
aside the reserve deficiency penalties provided in
this section, for part or the entire period of a
strike or lockout affecting a bank or a quasi-bank
as defined in the Labor Code, or of a national
emergency affecting operations of banks or
quasi-banks. The Monetary Board may also
modify or set aside reserved deficiency penalties
for rehabilitation program of a bank.
Section 102. Interbank Settlement. - The
Bangko Sentral shall establish facilities for
interbank clearing under such rules and
regulations as the Monetary Board may prescribe:
Provided, That the Bangko Sentral may charge
administrative and other fees for the
maintenance of such facilities.
The deposit reserves maintained by the
banks in the Bangko Sentral in accordance with
the provisions of Section 94 of this Act shall serve
as basis for the clearing of checks and the
settlement of interbank balances, subject to such
rules and regulations as the Monetary Board may
issue with respect to such operations: Provided,
That any bank which incurs on overdrawing in its
deposit account with the Bangko Sentral shall
fully cover said overdraft, including interest
thereon at a rate equivalent to one-tenth of one
percent (1/10 of 1%) per day or the prevailing
ninety-one-day treasury bill rate plus three
percentage points, whichever is higher, not later
than the next clearing day: Provided, further, That
settlement of clearing balances shall not be
effected for any account which continues to be
overdrawn for five (5) consecutive banking days
until such time as the overdrawing is fully
covered or otherwise converted into an
emergency loan or advance pursuant to the
provisions of Section 84 of this Act: Provided,
finally, That the appropriate clearing office shall
be officially notified of banks with overdrawn
balances. Banks with existing overdrafts with the
Bangko Sentral as of the effectivity of this Act
shall, within such period as may be prescribed by
the Monetary Board, either convert the overdraft
into an emergency loan or advance with a plan of
payment, or settle such overdrafts, and that,
upon failure to so comply herewith, the Bangko
Sentral shall take such action against the bank as
may be warranted under this Act.
Section 103. Exemption from
Attachment and Other Purposes. - Deposits
maintained by banks with the Bangko Sentral as
part of their reserve requirements shall be
exempt from attachment, garnishments, or any
other order or process of any court, government
agency or any other administrative body issued
to satisfy the claim of a party other than the
Government, or its political subdivisions or
instrumentalities.
ARTICLE VIII
SELECTIVE REGULATION OF BANK
OPERATIONS
Section 104. Guiding Principle. - The
Monetary Board shall use the powers granted to it
under this Act to ensure that the supply,
availability and cost of money are in accord with
the needs of the Philippine economy and that
bank credit is not granted for speculative
purposes prejudicial to the national interests.
Regulations on bank operations shall be applied
to all banks of the same category uniformly and
without discrimination.
Section 105. Margin Requirements
Against Letters of Credit. - The Monetary Board
may at any time prescribe minimum cash
margins for the opening of letters of credit, and
may relate the size of the required margin to the
nature of the transaction to be financed.
Section 106. Required Security Against
Bank Loans. - In order to promote liquidity and
solvency of the banking system, the Monetary
Board may issue such regulations as it may deem
necessary with respect to the maximum
permissible maturities of the loans and
investments which the banks may make, and the
kind and amount of security to be required
against the various types of credit operations of
the banks.
Section 107. Portfolio Ceilings. -
Whenever the Monetary Board considers it
advisable to prevent or check an expansion of
bank credit, the Board may place an upper limit
on the amount of loans and investments which
the banks may hold, or may place a limit on the
rate of increase of such assets within specified
periods of time. The Monetary Board may apply
such limits to the loans and investments of each
bank or to specific categories thereof.
In no case shall the Monetary Board
establish limits which are below the value of the
loans or investments of the banks on the date on
which they are notified of such restrictions. The
restrictions shall be applied to all banks uniformly
and without discrimination.
Section 108. Minimum Capital Ratios. -
The Monetary Board may prescribe minimum
ratios which the capital and surplus of the banks
must bear to the volume of their assets, or to
specific categories thereof, and may alter said
ratios whenever it deems necessary.
ARTICLE IX
COORDINATION OF CREDIT POLICIES BY
GOVERNMENT INSTITUTIONS
Section 109. Coordination of Credit
Policies. - Government-owned corporations which
perform banking or credit functions shall
coordinate their general credit policies with those
of the Monetary Board.
Toward this end, the Monetary Board may,
whenever it deems it expedient, make
suggestions or recommendations to such
corporations for the more effective coordination
of their policies with those of the Bangko Sentral.
CHAPTER V — FUNCTIONS AS BANKER AND
FINANCIAL ADVISOR OF THE GOVERNMENT
ARTICLE I
FUNCTIONS AS BANKER OF THE
GOVERNMENT
Section 110. Designation of Bangko
Sentral as Banker of the Government. - The
Bangko Sentral shall act as a banker of the
Government, its political subdivisions and
instrumentalities.
Section 111. Representation with the
International Monetary Fund. - The Bangko
Sentral shall represent the Government in all
dealings, negotiations and transactions with the
International Monetary Fund and shall carry such
accounts as may result from Philippine
membership in, or operations with, said Fund.
Section 112. Representation with Other
Financial Institutions. - The Bangko Sentral may
be authorized by the Government to represent it
in dealings, negotiations or transactions with the
International Bank for Reconstruction and
Development and with other foreign or
international financial institutions or agencies.
The President may, however, designate any of his
other financial advisors to jointly represent the
Government in such dealings, negotiations or
transactions.
Section 113. Official Deposits. - The
Bangko Sentral shall be the official depository of
the Government, its political subdivisions and
instrumentalities as well as of government-owned
or controlled corporations and, as a general
policy, their cash balances should be deposited
with the Bangko Sentral, with only minimum
working balances to be held by government-
owned banks and such other banks incorporated
in the Philippines as the Monetary Board may
designate, subject to such rules and regulations
as the Board may prescribe: Provided, That such
banks may hold deposits of the political
subdivisions and instrumentalities of the
Government beyond their minimum working
balances whenever such subdivisions or
instrumentalities have outstanding loans with
said banks.
The Bangko Sentral may pay interest on
deposits of the Government or of its political
subdivisions and instrumentalities, as well as on
deposits of banks with the Bangko Sentral.
Section 114. Fiscal Operations. - The
Bangko Sentral shall open a general cash account
for the Treasurer of the Philippines, in which the
liquid funds of the Government shall be
deposited.
Transfers of funds from this account to
other accounts shall be made only upon order of
the Treasurer of the Philippines.
Section 115. Other Banks as Agents of
the Bangko Sentral. - In the performance of its
functions as fiscal agent, the Bangko Sentral may
engage the services of other government-owned
and controlled banks and of other domestic banks
for operations in localities at home or abroad in
which the Bangko Sentral does not have offices or
agencies adequately equipped to perform said
operations: Provided, however, That for fiscal
operations in foreign countries, the Bangko
Sentral may engage the services of foreign
banking and financial institutions.
Section 116. Remuneration for
Services. - The Bangko Sentral may charge
equitable rates, commissions or fees for services
which it renders to the Government, its political
subdivisions and instrumentalities.
ARTICLE II
THE MARKETING AND STABILIZATION OF
SECURITIES FOR THE ACCOUNT OF THE
GOVERNMENT
A. THE ISSUE AND PLACING OF
GOVERNMENT SECURITIES
Section 117. Issue of Government
Obligations. - The issue of securities representing
obligations of the Government, its political
subdivisions or instrumentalities, may be made
through the Bangko Sentral, which may act as
agent of, and for the account of, the Government
or its respective subdivisions or instrumentality,
as the case may be: Provided, however, That the
Bangko Sentral shall not guarantee the
placement of said securities, and shall not
subscribe to their issue except to replace its
maturing holdings of securities with the same
type as the maturing securities.
Section 118. Methods of Placing
Government Securities. - The Bangko Sentral may
place the securities to which the preceding
section refers through direct sale to financial
institutions and the public.
The Bangko Sentral shall not be a
member of any stock exchange or syndicate, but
may intervene therein for the sole purpose of
regulating their operations in the placing of
government securities.
The Government, or its political
subdivisions or instrumentalities, shall reimburse
the Bangko Sentral for the expenses incurred in
the placing of the aforesaid securities.
Section 119. Servicing and Redemption
of the Public Debt. - The servicing and
redemption of the public debt shall also be
effected through the Bangko Sentral.
B. BANGKO SENTRAL SUPPORT OF
THE GOVERNMENT SECURITIES MARKET
Section 120. The Securities Stabilization
Fund. - There shall be established a "Securities
Stabilization Fund" which shall be administered
by the Bangko Sentral for the account of the
Government.
The operations of the Securities
Stabilization Fund shall consist of purchases and
sales, in the open market, of bonds and other
evidences of indebtedness issued or fully
guaranteed by the Government. The purpose of
these operations shall be to increase the liquidity
and stabilize the value of said securities in order
thereby to promote investment in government
obligations.
The Monetary Board shall use the
resources of the Fund to prevent, or moderate,
sharp fluctuations in the quotations of said
government obligations, but shall not endeavor to
alter movements of the market resulting from
basic changes in the pattern or level of interest
rates.
The Monetary Board shall issue such
regulations as may be necessary to implement
the provisions of this section.
Section 121. Resources of the Securities
Stabilization Fund. - Subject to Section 132 of this
Act, the resources of the Securities Stabilization
Fund shall come from the balance of the fund as
held by the Central Bank under Republic Act No.
265 as of the effective date of this Act.
Section 122. Profits and Losses of the
Fund. - The Securities Stabilization Fund shall
retain net profits which it may make on its
operations, regardless of whether said profits
arise from capital gains or from interest earnings.
The Fund shall correspondingly bear any net
losses which it may incur.
ARTICLE III
FUNCTIONS AS FINANCIAL ADVISOR OF THE
GOVERNMENT
Section 123. Financial Advice on Official
Credit Operations. - Before undertaking any credit
operation abroad, the Government, through the
Secretary of Finance, shall request the opinion, in
writing, of the Monetary Board on the monetary
implications of the contemplated action. Such
opinions must similarly be requested by all
political subdivisions and instrumentalities of the
Government before any credit operation abroad is
undertaken by them.
The opinion of the Monetary Board shall
be based on the gold and foreign exchange
resources and obligations of the nation and on
the effects of the proposed operation on the
balance of payments and on monetary
aggregates.
Whenever the Government, or any of its
political subdivisions or instrumentalities,
contemplates borrowing within the Philippines,
the prior opinion of the Monetary Board shall
likewise be requested in order that the Board may
render an opinion on the probable effects of the
proposed operation on monetary aggregates, the
price level, and the balance of payments.
Section 124. Representation on the
National Economic and Development Authority. -
In order to assure effective coordination between
the economic, financial and fiscal policies of the
Government and the monetary, credit and
exchange policies of the Bangko Sentral, the
Deputy Governor designated by the Governor of
the Bangko Sentral shall be an ex officio member
of the National Economic and Development
Authority Board.
CHAPTER VI — PRIVILEGES AND
PROHIBITIONS
ARTICLE I PROHIBITIONS
PRIVILEGES
Section 125. Tax Exemptions. - The
Bangko Sentral shall be exempt for a period of
five (5) years from the approval of this Act from
all national, provincial, municipal and city taxes,
fees, charges and assessments.
The exemption authorized in the
preceding paragraph of this section shall apply to
all property of the Bangko Sentral, to the
resources, receipts, expenditures, profits and
income of the Bangko Sentral, as well as to all
contracts, deeds, documents and transactions
related to the conduct of the business of the
Bangko Sentral: Provided, however, That said
exemptions shall apply only to such taxes, fees,
charges and assessments for which the Bangko
Sentral itself would otherwise be liable, and shall
not apply to taxes, fees, charges, or assessments
payable by persons or other entities doing
business with the Bangko Sentral: Provided,
further, That foreign loans and other obligations
of the Bangko Sentral shall be exempt, both as to
principal and interest, from any and all taxes if
the payment of such taxes has been assumed by
the Bangko Sentral.
Section 126. Exemption from Customs
Duties. - The provision of any general or special
law to the contrary notwithstanding, the
importation and exportation by the Bangko
Sentral of notes and coins, and of gold and other
metals to be used for purposes authorized under
this Act, and the importation of all equipment
needed for bank note production, minting of
coins, metal refining and other security printing
operations shall be fully exempt from all customs
duties and consular fees and from all other taxes,
assessments and charges related to such
importation or exportation.
Section 127. Applicability of the Civil
Service Law. - Appointments in the Bangko
Sentral, except as to those which are policy-
determining, primarily confidential or highly
technical in nature, shall be made only according
to the Civil Service Law and regulations: Provided,
That no qualification requirements for positions in
the Bangko Sentral shall be imposed other than
those set by the Monetary Board: Provided,
further, That, the Monetary Board or Governor, in
accordance with Sections 15(c) and 17(d) of this
Act, respectively, may without need of obtaining
prior approval from any other government
agency, appoint personnel in the Bangko Sentral
whose services are deemed necessary in order
not to unduly disrupt the operations of the
Bangko Sentral.
Officers and employees of the Bangko
Sentral, including all members of the Monetary
Board, shall not engage directly or indirectly in
partisan activities or take part in any election
except to vote.
ARTICLE II
Section 128. Prohibitions. - The Bangko
Sentral shall not acquire shares of any kind or
accept them as collateral, and shall not
participate in the ownership or management of
any enterprise, either directly or indirectly.
The Bangko Sentral shall not engage in
development banking or financing: Provided,
however, That outstanding loans obtained or
extended for development financing shall not be
affected by the prohibition of this section.
CHAPTER VII — TRANSITORY PROVISIONS
Section 129. Phase-out of Fiscal Agency
Functions. - Unless circumstances warrant
otherwise and approved by the Congress
Oversight Committee, the Bangko Sentral shall,
within a period of three (3) years but in no case
longer than five (5) years from the approval of
this Act, phase out all fiscal agency functions
provided for in Sections 117, 118, 119, and 120
as well as in other pertinent provisions of this Act
and transfer the same to the Department of
Finance.
Section 130. Phase-out of Regulatory
Powers Over the Operations of Finance
Corporations and Other Institutions Performing
Similar Functions. - The Bangko Sentral shall,
within a period of five (5) years from the
effectivity of this Act, phase out its regulatory
powers over finance companies without quasi-
banking functions and other institutions
performing similar functions as provided in
existing laws, the same to be assumed by the
Securities and Exchange Commission.
Section 131. Implementing Details. - The
Bangko Sentral shall be made operational by the
performance of the following acts:
(a) the President shall constitute the
Monetary Board by appointing the
members thereof within sixty (60) days
from the effectivity of this Act; and
(b) the transfer of such assets and
liabilities from the Central Bank to the
Bangko Sentral as provided in Section
132 shall be completed within ninety (90)
days from the constitution of the
Monetary Board.
All incumbent personnel in the Central
Bank as of the date of the approval of this Act
shall continue to exercise their duties and
functions as personnel of the Bangko Sentral
subject to the provisions of Section 133: Provided,
That such personnel in the Central Bank as may
be necessary for the purpose of implementing
Section 132 may be assigned by the Bangko
Sentral Monetary Board to the Central Bank.
Section 132. Transfer of Assets and
Liabilities. - Upon the effectivity of this Act, three
(3) members of the Monetary Board, which may
include the Governor, in representation of the
Bangko Sentral, the Secretary of Finance and the
Secretary of Budget and Management in
representation of the National Government, and
the Chairmen of the Committees on Banks of the
Senate and the House of Representatives shall
determine the assets and liabilities of the Central
Bank which may be transferred to or assumed by
the Bangko Sentral. The Committee shall
complete its work within ninety (90) days from
the constitution of the Monetary Board submitting
a comprehensive report with all its findings and
justification.
The following guidelines shall be strictly
observed in the determination of which assets
and liabilities shall be transferred to the Bangko
Sentral:
(a) the Monetary Board and the Secretary
of Finance shall have primary
responsibility for working out creative
monetary and financial solutions to retire
the Central Bank liabilities and losses at
the least cost to the Government;
(b) the Bangko Sentral shall remit
seventy-five percent (75%) of its net
profits to a special deposit account
(sinking fund) until such time as the net
liabilities of the Central Bank shall have
been liquidated through generally
accepted finance mechanisms such as,
but not limited to, write-offs, set-offs,
condonation, collections, reappraisal,
revaluation and bond issuance by the
National Government, or to the National
Government as dividends;
(c) the assets and liabilities to be
transferred shall be limited to an amount
that will enable the Bangko Sentral to
perform its responsibilities adequately
and operate on a viable basis: Provided,
That the assets shall exceed the liabilities
as certified by the Commission on Audit
(COA), by an initial amount of Ten billion
pesos (P10,000,000,000);
(d) liabilities to be assumed by the
Bangko Sentral shall include liability for
notes and coins in circulation as of the
effective date of this Act; and
(e) any asset or liability of the Central
Bank not transferred to the Bangko
Sentral shall be retained and
administered, disposed of and liquidated
by the Central Bank itself which shall
continue to exist as the CB Board of
Liquidators only for the purposes
provided in this paragraph but not later
than twenty-five (25) years or until such
time that liabilities have been liquidated:
Provided, That the Bangko Sentral may
financially assist the Central Bank of
Liquidators in the liquidation of CB
liabilities: Provided, finally, That upon
disposition of said retained assets and
liquidation of said retained liabilities, the
Central Bank shall be deemed abolished.
All actions taken by the Bangko Sentral
Monetary Board under this section shall be
reported to Congress and the President within
thirty (30) days.
Section 133. Mandate to Organize. - The
Bangko Sentral shall be organized by the
Monetary Board without being subject to the
provisions of Republic Act No. 7430, by adopting
if it so desires, an entirely new staffing pattern on
organizational structure to suit the operations of
the Bangko Sentral under this Act. No preferential
or priority right shall be given to or enjoyed by
any personnel for appointment to any position in
the new staffing pattern, nor shall any personnel
be considered as having prior or vested rights
with respect to retention in the Bangko Sentral or
in any position which may be created in the new
staffing pattern, even if he should be the
incumbent of a similar position prior to
organization. The formulation of the program of
organization shall be completed within six (6)
months after the effectivity of this Act, and shall
be fully implemented within a period of six (6)
months thereafter. Personnel who may not be
retained are deemed separated from the service.
Section 134. Separation Benefits. -
Pursuant to Section 15 of this Act, the Monetary
Board is authorized to provide separation
incentives, and all those who shall retire or be
separated from the service on account of
reorganization under the preceding section shall
be entitled to such incentives, which shall be in
addition to all gratuities and benefits to which
they may be entitled under existing laws.
Section 135. Repealing Clause. - Except
as may be provided for in Section 46 and 132 of
this Act, Republic Act No. 265, as amended, the
provisions of any other law, special charters, rule
or regulation issued pursuant to said Republic Act
No. 265, as amended, or parts thereof, which
may be inconsistent with the provisions of this
Act are hereby repealed. Presidential Decree No.
1792 is likewise repealed.
Section 136. Transfer of Powers. - All
powers, duties and functions vested by law in the
Central Bank of the Philippines not inconsistent
with the provisions of this Act shall be deemed
transferred to the Bangko Sentral ng Pilipinas. All
references to the Central Bank of the Philippines
in any law or special charters shall be deemed to
refer to the Bangko Sentral.
Section 137. Separability Clause. - If any
provision or section of this Act or the application
thereof to any person or circumstance is held
invalid, the other provisions or sections of this
Act, and the application of such provision or
section to other persons or circumstances, shall
not be affected thereby.
Section 138. Effectivity Clause. - This Act
shall take effect fifteen (15) days following its
publication in the Official Gazette or in two (2)
national newspapers of general circulation.
Approved: June 14, 1993
REPUBLIC ACT No. 1405
AN ACT PROHIBITING DISCLOSURE OF OR
INQUIRY INTO, DEPOSITS WITH ANY
BANKING INSTITUTION AND PROVIDING
PENALTY THEREFOR.
Section 1. It is hereby declared to be the policy
of the Government to give encouragement to the
people to deposit their money in banking
institutions and to discourage private hoarding so
that the same may be properly utilized by banks
in authorized loans to assist in the economic
development of the country.
Section 2. 1 All deposits of whatever nature with
banks or banking institutions in the Philippines
including investments in bonds issued by the
Government of the Philippines, its political
subdivisions and its instrumentalities, are hereby
considered as of an absolutely confidential nature
and may not be examined, inquired or looked into
by any person, government official, bureau or
office, except upon written permission of the
depositor, or in cases of impeachment, or upon
order of a competent court in cases of bribery or
dereliction of duty of public officials, or in cases
where the money deposited or invested is the
subject matter of the litigation.
Section 3. It shall be unlawful for any official or
employee of a banking institution to disclose to
any person other than those mentioned in
Section two hereof any information concerning
said deposits.
Section 4. All Acts or parts of Acts, Special
Charters, Executive Orders, Rules and
Regulations which are inconsistent with the
provisions of this Act are hereby repealed.
Section 5. Any violation of this law will subject
offender upon conviction, to an imprisonment of
not more than five years or a fine of not more
than twenty thousand pesos or both, in the
discretion of the court.
Section 6. This Act shall take effect upon its
approval.
Approved: September 9, 1955
Footnote
1 This Section and Section 3 were both
amended by PD No. 1792 issued January
16, 1981, PD 1792 was expressly
repealed by Sec 135 of R.A. No.
7653, approved June 14, 1993. The
original sections 2 and 3 of R.A. No.1405
are hereby reproduced for reference, as
follows; "Sec 2 All deposits of whatever
nature with banks or banking institutions
in the Philippines including investments in
bonds issued by the Government of the
Philippines, its political subdivisions and
its instrumentalities, are hereby
considered as of an absolutely
confidential nature and may not be
examined, inquired or looked into by any
person, government official, bureau or
office, except upon written per-mission of
the depositor, or in cases of
impeachment, or upon order of a
competent court in cases of bribery or
dereliction of duty of public officials. or in
cases where the money deposited or
invested is the subject matter of the
litigation," "Sec. 3. It shall be unlawful for
any official or employee of a banking
institution to disclose to any person other
 than those mentioned in Section two
hereof any information concerning said
deposits."
REPUBLIC ACT NO. 8791 May 23,
2000
AN ACT PROVIDING FOR THE REGULATION
OF THE ORGANIZATION AND OPERATIONS
OF BANKS, QUASI-BANKS, TRUST ENTITIES
AND FOR OTHER PURPOSES
CHAPTER I 4.2 The conduct of examination to determine
TITLE AND CLASSIFICATION OF BANKS
Section 1. Title. The short title of this Act shall
be "The General Banking Law of 2000." (1a)
Section 2. Declaration Of Policy. - The State
recognizes the vital role of banks providing an
environment conducive to the sustained
development of the national economy and the
fiduciary nature of banking that requires high
standards of integrity and performance. In
furtherance thereof, the State shall promote and
maintain a stable and efficient banking and
financial system that is globally competitive,
dynamic and responsive to the demands of a
developing economy. (n)
Section 3. Definition and Classification of
Banks. -
3.1. "Banks" shall refer to entities engaged in the
lending of funds obtained in the form of deposits.
(2a)
3.2. Banks shall be classified into:
(a) Universal banks;
(b) Commercial banks;
(c) Thrift banks, composed of: (i) Savings
and mortgage banks, (ii) Stock savings
and loan associations, and (iii) Private
development banks, as defined in the
Republic Act No. 7906 (hereafter the
"Thrift Banks Act");
(d) Rural banks, as defined in Republic Act
No. 73S3 (hereafter the "Rural Banks
Act");
(e) Cooperative banks, as defined in
Republic Act No 6938 (hereafter the
"Cooperative Code");
(f) Islamic banks as defined in Republic
Act No. 6848, otherwise known as the
"Charter of Al Amanah Islamic Investment
Bank of the Philippines"; and
(g) Other classifications of banks as
determined by the Monetary Board of the
Bangko Sentral ng Pilipinas. (6-Aa)
CHAPTER II
AUTHORITY OF THE BANGKO SENTRAL
Section 4. Supervisory Powers. The operations
and activities of banks shall be subject to
supervision of the Bangko Sentral. "Supervision"
shall include the following:
4.1. The issuance of rules of, conduct or the
establishment standards of operation for uniform
application to all institutions or functions covered,
taking into consideration the distinctive character
of the operations of institutions and the
substantive similarities of specific functions to
which such rules, modes or standards are to be
applied;
compliance with laws and regulations if the
circumstances so warrant as determined by the
Monetary Board;
4.3 Overseeing to ascertain that laws and
regulations are complied with;
4.4 Regular investigation which shall not be
oftener than once a year from the last date of
examination to determine whether an institution
is conducting its business on a safe or sound
basis: Provided, That the
deficiencies/irregularities found by or discovered
by an audit shall be immediately addressed;
4.5 Inquiring into the solvency and liquidity of the
institution (2-D); or
4.6 Enforcing prompt corrective action. (n)
The Bangko Sentral shall also have supervision
over the operations of and exercise regulatory
powers over quasi-banks, trust entities and other
financial institutions which under special laws are
subject to Bangko Sentral supervision. (2-Ca)
For the purposes of this Act, "quasi-banks" shall
refer to entities engaged in the borrowing of
funds through the issuance, endorsement or
assignment with recourse or acceptance of
deposit substitutes as defined in Section 95 of
Republic Act No. 7653 (hereafter the "New
Central Bank Act") for purposes of re-lending or
purchasing of receivables and other obligations.
(2-Da)
Section 5. Policy Direction; Ratios, Ceilings and
Limitations. - The Bangko Sentral shall provide
policy direction in the areas of money, banking
and credit. (n)
For this purpose, the Monetary Board may
prescribe ratios, ceilings, limitations, or other
forms of regulation on the different types of
accounts and practices of banks and quasi-banks
which shall, to the extent feasible, conform to
internationally accepted standards, including of
the Bank for International Settlements (BIS). The
Monetary Board may exempt particular
categories of transactions from such ratios,
ceilings. and limitations, but not limited to
exceptional cases or to enable a bank or quasi-
bank under rehabilitation or during a merger or
consolidation to continue in business, with safety
to its creditors, depositors and the general public.
(2-Ca)
Section 6. Authority to Engage in Banking and
Quasi-Banking Functions. - No person or entity
shall engage in banking operations or quasi-
banking functions without authority from the
Bangko Sentral: .Provided, however, That an
entity authorized by the Bangko Sentral to
perform universal or commercial banking
functions shall likewise have the authority to
engage in quasi-banking functions.
The determination of whether a person or entity
is performing banking or quasi-banking functions
without Bangko Sentral authority shall be decided
by the Monetary Board. To resolve such issue, the
Monetary Board may; through the appropriate
supervising and examining department of the
Bangko Sentral, examine, inspect or investigate
the books and records of such person or entity.
Upon issuance of this authority, such person or
entity may commence to engage in banking
operations or quasi-banking function and shall
continue to do so unless such authority is sooner
surrendered, revoked, suspended or annulled by
the Bangko Sentral in accordance with this Act or
other special laws.
The department head and the examiners of the
appropriate supervising and examining
department are hereby authorized to administer
oaths to any such person, employee, officer, or
director of any such entity and to compel the
presentation or production of such books,
documents, papers or records that are reasonably
necessary to ascertain the facts relative to the
true functions and operations of such person or
entity. Failure or refusal to comply with the
required presentation or production of such
books, documents, papers or records within a
reasonable time shall subject the persons
responsible therefore to the penal sanctions
provided under the New Central Bank Act.
Persons or entities found to be performing
banking or quasi-banking functions without
authority from the Bangko Sentral shall be
subject to appropriate sanctions under the New
Central Bank Act and other applicable laws. (4a)
Section 7. Examination by the Bangko Sentral. -
The Bangko Sentral shall, when examining a
bank, have the authority to examine an
enterprise which is wholly or majority-owned or
controlled by the bank. (2-Ba)
CHAPTER III
ORGANIZATION, MANAGEMENT AND
ADMINISTRATION OF BANKS. QUASI-BANKS
AND TRUST ENTITIES
Section 8. Organization. - The Monetary Board
may authorize the organization of a bank or
quasi-bank subject to the following conditions:
8.1 That the entity is a stock corporation (7);
8.2 That its funds are obtained from the public,
which shall mean twenty (20) or more persons (2-
Da); and
8.3 That the minimum capital requirements
prescribed by the Monetary Board for each
category of banks are satisfied. (n)
No new commercial bank shall be established
within three (3) years from the effectivity of this
Act. In the exercise of the authority granted
herein, the Monetary Board shall take into
consideration their capability in terms of their
financial resources and technical expertise and
integrity. The bank licensing process shall
incorporate an assessment of the bank's
ownership structure, directors and senior
management, its operating plan and internal
controls as well as its projected financial
condition and capital base.
Section 9. Issuance of Stocks. - The Monetary
Board may prescribe rules and regulations on the
types of stock a bank may issue, including the
terms thereof and rights appurtenant thereto to
determine compliance with laws and regulations
governing capital and equity structure of banks;
Provided, That banks shall issue par value stocks
only.
Section 10. Treasury Stocks. - No bank shall
purchase or acquire shares of its own capital
stock or accept its own shares as a security for a
loan, except when authorized by the Monetary
Board: Provided, That in every case the stock so
purchased or acquired shall, within six (6) months
from the time of its purchase or acquisition, be
sold or disposed of at a public or private sale.
(24a)
Section 11. Foreign Stockholdings. - Foreign
individuals and non-bank corporations may own
or control up to forty percent (40%) of the voting
stock of a domestic bank. This rule shall apply to
Filipinos and domestic non-bank corporations.
(12a; 12-Aa) The percentage of foreign-owned
voting stocks in a bank shall be determined by
the citizenship of the individual stockholders in
that bank. The citizenship of the corporation
which is a stockholder in a bank shall follow the
citizenship of the controlling stockholders of the
corporation, irrespective of the place of
incorporation. (n)
Section 12. Stockholdings of Family Groups of
Related Interests. - Stockholdings of individuals
related to each other within the fourth degree of
consanguinity or affinity, legitimate or common-
law, shall be considered family groups or related
interests and must be fully disclosed in all
transactions by such corporations or related
groups of persons with the bank. (12-Ba)
Section 13. Corporate Stockholdings. - Two or
more corporations owned or controlled by the
same family group or same group of persons shall
be considered related interests and must be fully
disclosed in all transactions by such corporations
or related group of persons with the bank. (12-Ba)
Section 14. Certificate of Authority to Register. -
The Securities and Exchange Commission shall no
register the articles of incorporation of any bank,
or any amendment thereto, unless accompanied
by a certificate of authority issued by the
Monetary Board, under it seal. Such certificate
shall not be issued unless the Monetary Board is
satisfied from the evidence submitted to it:
14.1 That all requirements of existing laws and
regulations to engage in the business for which
the applicant is proposed to be incorporated have
been complied with;
14.2 That the public interest and economic
conditions, both general and local, justify the
authorization; and
14.3 That the amount of capital, the financing,
organization, direction and administration, as well
as the integrity and responsibility of the
organizers and administrators reasonably assure
the safety of deposits and the public interest. (9)
The Securities and Exchange Commission shall
not register the by-laws of any bank, or any
amendment thereto, unless accompanied by a
certificate of authority from the Bangko Sentral.
(10)
Section 15. Board of Directors. - The provisions
of the Corporation Code to the contrary
notwithstanding, there shall be at least five (5),
and a maximum of fifteen (15) members of the
board or directors of a bank, two (2) of whom
shall be independent directors. An "independent
director" shall mean a person other than an
officer or employee of the bank, its subsidiaries
or affiliates or related interests. (n) Non-Filipino
citizens may become members of the board of
directors of a bank to the extent of the foreign
participation in the equity of said bank. (Sec. 7,
RA 7721) The meetings of the board of directors
may be conducted through modern technologies
such as, but not limited to, teleconferencing and
video-conferencing. (n)
Section 16. Fit and Proper Rule. - To maintain
the quality of bank management and afford
better protection to depositors and the public in
general the Monetary Board shall prescribe, pass
upon and review the qualifications and
disqualifications of individuals elected or
appointed bank directors or officers and
disqualify those found unfit. After due notice to
the board of directors of the bank, the Monetary
Board may disqualify, suspend or remove any
bank director or officer who commits or omits an
act which render him unfit for the position. In
determining whether an individual is fit and
proper to hold the position of a director or officer
of a bank, regard shall be given to his integrity,
experience, education, training, and competence.
(9-Aa)
Section 17. Directors of Merged or Consolidated
Banks. - In the case of a bank merger or
consolidation, the number of directors shall not
exceed twenty-one (21). (l3a)
Section 18. Compensation and Other Benefits of
Directors and Officers. To protect the finds of
depositors and creditors the Monetary Board may
regulate the payment by the bark to its directors
and officers of compensation, allowance, fees,
bonuses, stock options, profit sharing and fringe
benefits only in exceptional cases and when the
circumstances warrant, such as but not limited to
the following:
18.1. When a bank is under comptrollership or
conservatorship; or
18.2. When a bank is found by the Monetary
Board to be conducting business in an unsafe or
unsound manner; or
18.3. When a bank is found by the Monetary
Board to be in an unsatisfactory financial
condition. (n)
Section 19. Prohibition on Public Officials. -
Except as otherwise provided in the Rural Banks
Act, no appointive or elective public official
whether full-time or part-time shall at the same
time serve as officer of any private bank, save in
cases where such service is incident to financial
assistance provided by the government or a
government owned or controlled corporation to
the bank or unless otherwise provided under
existing laws. (13)
Section 20. Bank Branches. - Universal or
commercial banks may open branches or other
offices within or outside the Philippines upon prior
approval of the Bangko Sentral. Branching by all
other banks shall be governed by pertinent laws.
A bank may, subject to prior approval of the
Monetary Board, use any or all of its branches as
outlets for the presentation and/or sale of the
financial products of its allied undertaking or of
its investment house units. A bank authorized to
establish branches or other offices shall be
responsible for all business conducted in such
branches and offices to the same extent and in
the same manner as though such business had
all been conducted in the head office. A bank and
its branches and offices shall be treated as one
unit. (6-B; 27)
Section 21. Banking Days and Hours. - Unless
otherwise authorized by the Bangko Sentral in
the interest of the banking public, all banks
including their branches and offices shall transact
business on all working days for at least six (6)
hours a day. In addition, banks or any of their
branches or offices may open for business on
Saturdays, Sundays or holidays for at least three
(3) hours a day: Provided, That banks which opt
to open on days other than working days shall
report to the Bangko Sentral the additional days
during which they or their branches or offices
shall transact business. For purposes of this
Section, working days shall mean Mondays to
Fridays, except if such days are holidays. (6-Ca)
Section 22. Strikes and Lockouts. - The banking
industry is hereby declared as indispensable to
the national interest and, notwithstanding the
provisions of any law to the contrary, any strike
or lockout involving banks, if unsettled after
seven (7) calendar days shall be reported by the
Bangko Sentral to the secretary of Labor who
may assume jurisdiction over the dispute or
decide it or certify the sane to the National Labor
Relations Commission for compulsory arbitration.
However, the President of the Philippines may at
any time intervene and assume jurisdiction over
such labor dispute in order to settle or terminate
the same. (6-E)
CHAPTER IV
DEPOSITS. LOANS AND OTHER OPERATIONS
Article I markets, the Monetary Board may further limit to
Operations Of Universal Banks
Section 23. Powers of a Universal Bank - A
universal bank shall have the authority to
exercise, in addition to the powers authorized for
a commercial bank in Section 29, the powers of
an investment house as provided in existing laws
and the power to invest in non-allied enterprises
as provided in this Act. (21-B)
Section 24. Equity Investments of a Universal
Bank. - A universal bank may, subject to the
conditions stated in the succeeding paragraph,
invest in the equities of allied and non-allied
enterprises as may be determined by the
Monetary Board. Allied enterprises may either be
financial or non-financial. Except as the Monetary
Board may otherwise prescribe:
24.1. The total investment in equities of allied
and non-allied enterprises shall not exceed fifty
percent (50%) of the net worth of the bank; and
24.2. The equity investment in any one
enterprise, whether allied or non-allied, shall not
exceed twenty-five percent (25%) of the net
worth of the bank.
As used in this Act, "net worth" shall mean the
total of the unimpaired paid-in capital including
paid-in surplus, retained earnings and undivided
profit, net of valuation reserves and other
adjustments as may be required by the Bangko
Sentral.
The acquisition of such equity or equities is
subject to the prior approval of the Monetary
Board which shall promulgate appropriate
guidelines to govern such investments. (21-Ba)
Section 25. Equity Investments of a Universal
Bank in Financial Allied Enterprises. - A universal
bank can own up to one hundred percent (100%)
of the equity in a thrift bank, a rural bank or a
financial allied enterprise. A publicly-listed
universal or commercial bank may own up to one
hundred percent (100%) of the voting stock of
only one other universal or commercial bank. (21-
B; 21-Ca)
Section 26. Equity Investments of a Universal
Bank in Non-Financial Allied Enterprises. - A
universal bank may own up to one hundred
percent (100%) of the equity in a non-financial
allied enterprise. (21-Ba)
Section 27. Equity Investments of a Universal
Bank in Non-Allied Enterprises. - The equity
investment of a universal bank, or of its wholly or
majority-owned subsidiaries, in a single non-allied
enterprise shall not exceed thirty-five percent
(35%) of the total equity in that enterprise nor
shall it exceed thirty-five percent (35%) of the
voting stock in that enterprise. (21-B)
Section 28. Equity Investments in Quasi-Banks. -
To promote competitive conditions in financial
forty percent (40%) equity investments of
universal banks in quasi-banks. This rule shall
also apply in the case of commercial banks. (12-
E) Article II. Operations Of Commercial Banks
Section 29. Powers of a Commercial Bank. - A
commercial bank shall have, in addition to the
general powers incident to corporations, all such
powers as may be necessary to carry on the
business of commercial banking such as
accepting drafts and issuing letters of credit;
discounting and negotiating promissory notes,
drafts, bills of exchange, and other evidences of
debt; accepting or creating demand deposits;
receiving other types of deposits and deposit
substitutes; buying and selling foreign exchange
and gold or silver bullion; acquiring marketable
bonds and other debt securities; and extending
credit, subject to such rules as the Monetary
Board may promulgate. These rules may include
the determination of bonds and other debt
securities eligible for investment, the maturities
and aggregate amount of such investment.
Section 30. Equity Investments of a Commercial
Bank. - A commercial bank may, subject to the
conditions stated in the succeeding paragraphs,
invest only in the equities of allied enterprises as
may be determined by the Monetary Board. Allied
enterprises may either be financial or non-
financial. Except as the Monetary Board may
otherwise prescribe:
30.1. The total investment in equities of allied
enterprises shall not exceed thirty-five percent
(35%) of the net worth of the bark; and
30.2. The equity investment in any one enterprise
shall not exceed twenty-five percent (25%) of tile
net worth of the bank. The acquisition of such
equity or equities is subject to the prior approval
of the Monetary Board which shall promulgate
appropriate guidelines to govern such
investment.(2lA-a; 21-Ca)
Section 31. Equity Investments of a Commercial
Bank in Financial Allied Enterprises. - A
commercial bank may own up to one hundred
percent (100%) of the equity of a thrift bank or a
rural bank. Where the equity investment of a
commercial bank is in other financial allied
enterprises, including another commercial bank,
such investment shall remain a minority holding
in that enterprise. (21-Aa; 21-Ca)
Section 32. Equity Investments of a Commercial
Bank in Non-Financial Allied Enterprises. A
commercial bank may own up to one hundred
percent (100%) of the equity in a non-financial
allied enterprise. (21-Aa) Article III. Provisions
Applicable To All Banks, Quasi-Banks, And Trust
Entities
Section 33. Acceptance of Demand Deposits. - A
bank other than a universal or commercial bank
cannot accept or create demand deposits except
upon prior approval of, and subject to such
conditions and rules as may be prescribed by the
Monetary Board. (72-Aa)
Section 34. Risk-Based Capital. - The Monetary
Board shall prescribe the minimum ratio which
the net worth of a bank must bear to its total risk
assets which may include contingent accounts.
For purposes of this Section, the Monetary Board
may require such ratio be determined on the
basis of the net worth and risk assets of a bank
and its subsidiaries, financial or otherwise, as well
as prescribe the composition and the manner of
determining the net worth and total risk assets of
banks and their subsidiaries: Provided, That in the
exercise of this authority, the Monetary Board
shall, to the extent feasible conform to
internationally accepted standards, including
those of the Bank for International
Settlements(BIS), relating to risk-based capital
requirements: Provided further, That it may alter
or suspend compliance with such ratio whenever
necessary for a maximum period of one (1) year:
Provided, finally, That such ratio shall be applied
uniformly to banks of the same category. In case
a bank does not comply with the prescribed
minimum ratio, the Monetary Board may limit or
prohibit the distribution of net profits by such
bank and may require that part or all of the net
profits be used to increase the capital accounts of
the bank until the minimum requirement has
been met The Monetary Board may, furthermore,
restrict or prohibit the acquisition of major assets
and the making of new investments by the bank,
with the exception of purchases of readily
marketable evidences of indebtedness of the
Republic of the Philippines and of the Bangko
Sentral and any other evidences of indebtedness
or obligations the servicing and repayment of
which are fully guaranteed by the Republic of the
Philippines, until the minimum required capital
ratio has been restored. In case of a bank merger
or consolidation, or when a bank is under
rehabilitation under a program approved by the
Bangko Sentral, Monetary Board may temporarily
relieve the surviving bank, consolidated bank, or
constituent bank or corporations under
rehabilitation from full compliance with the
required capital ratio under such conditions as it
may prescribe. Before the effectivity of rules
which the Monetary Board is authorized to
prescribe under this provision, Section 22 of the
General Banking Act, as amended, Section 9 of
the Thrift Banks Act, and all pertinent rules issued
pursuant thereto, shall continue to be in force.
(22a)
Section 35. Limit on Loans, Credit
Accommodations and Guarantees
35.1 Except as the Monetary Board may
otherwise prescribe for reasons of national
interest, the total amount of loans, credit
accommodations and guarantees as may be
defined by the Monetary Board that may be
extended by a bank to any person, partnership,
association, corporation or other entity shall at no
time exceed twenty percent (20%) of the net
worth of such bank. The basis for determining
compliance with single borrower limit is the total
credit commitment of the bank to the borrower.
35.2. Unless the Monetary Board prescribes
otherwise, the total amount of loans, credit
accommodations and guarantees prescribed in
the preceding paragraph may be increased by an
additional ten percent (10%) of the net worth of
such bank provided the additional liabilities of
any borrower are adequately secured by trust
receipts, shipping documents, warehouse receipts
or other similar documents transferring or
securing title covering readily marketable, non-
perishable goods which must be fully covered by
insurance.
35.3 The above prescribed ceilings shall include
(a) the direct liability of the maker or acceptor of
paper discounted with or sold to such bank and
the liability of a general endorser, drawer or
guarantor who obtains a loan or other credit
accommodation from or discounts paper with or
sells papers to such bank; (b) in the case of an
individual who owns or controls a majority
interest in a corporation, partnership, association
or any other entity, the liabilities of said entities
to such bank; (c) in the case of a corporation, all
liabilities to such bank of all subsidiaries in which
such corporation owns or controls a majority
interest; and (d) in the case of a partnership,
association or other entity, the liabilities of the
members thereof to such bank.
35.4. Even if a parent corporation, partnership,
association, entity or an individual who owns or
controls a majority interest in such entities has no
liability to the bank, the Monetary Board may
prescribe the combination of the liabilities of
subsidiary corporations or members of the
partnership, association, entity or such individual
under certain circumstances, including but not
limited to any of the following situations: (a) the
parent corporation, partnership, association,
entity or individual guarantees the repayment of
the liabilities; (b) the liabilities were incurred for
the accommodation of the parent corporation or
another subsidiary or of the partnership or
association or entity or such individual; or (c) the
subsidiaries though separate entities operate
merely as departments or divisions of a single
entity.
35.5. For purposes of this Section, loans, other
credit accommodations and guarantees shall
exclude: (a) loans and other credit
accommodations secured by obligations of the
Bangko Sentral or of the Philippine Government:
(b) loans and other credit accommodations fully
guaranteed by the government as to the
payment of principal and interest; (c) loans and
other credit accommodations covered by
assignment of deposits maintained in the lending
bank and held in the Philippines; (d) loans, credit
accommodations and acceptances under letters
of credit to the extent covered by margin
deposits; and (e) other loans or credit
accommodations which the Monetary Board may
from time to time, specify as non-risk items.
35.6. Loans and other credit accommodations,
deposits maintained with, and usual guarantees
by a bank to any other bank or non-bank entity,
whether locally or abroad, shall be subject to the
limits as herein prescribed.
35.7. Certain types of contingent accounts of
borrowers may be included among those subject
to these prescribed limits as may be determined
by the Monetary Board.(23a)
Section 36. Restriction on Bank Exposure to
Directors, Officers, Stockholders and Their
Related Interests. - No director or officer of any
bank shall, directly or indirectly, for himself or as
the representative or agent of others, borrow
from such bank nor shall he become a guarantor,
endorser or surety for loans from such bank to
others, or in any manner be an obligor or incur
any contractual liability to the bank except with
the written approval of the majority of all the
directors of the bank, excluding the director
concerned: Provided, That such written approval
shall not be required for loans, other credit
accommodations and advances granted to
officers under a fringe benefit plan approved by
the Bangko Sentral. The required approval shall
be entered upon the records of the bank and a
copy of such entry shall be transmitted forthwith
to the appropriate supervising and examining
department of the Bangko Sentral. Dealings of a
bank with any of its directors, officers or
stockholders and their related interests shall be
upon terms not less favorable to the bank than
those offered to others. After due notice to the
board of directors of the bank, the office of any
bank director or officer who violates the
provisions of this Section may be declared vacant
and the director or officer shall be subject to the
penal provisions of the New Central Bank Act. The
Monetary Board may regulate the amount of
loans, credit accommodations and guarantees
that may be extended, directly or indirectly, by a
bank to its directors, officers, stockholders and
their related interests, as well as investments of
such bank in enterprises owned or controlled by
said directors, officers, stockholders and their
related interests. However, the outstanding loans,
credit accommodations and guarantees which a
bank may extend to each of its stockholders,
directors, or officers and their related interests,
shall be limited to an amount equivalent to their
respective unencumbered deposits and book
value of their paid-in capital contribution in the
bank: Provided, however, That loans, credit
accommodations and guarantees secured by
assets considered as non-risk by the Monetary
Board shall be excluded from such limit: Provided,
further, That loans, credit accommodations and
advances to officers in the form of fringe benefits
granted in accordance with rules as may be
prescribed by the Monetary Board shall not be
subject to the individual limit. The Monetary
Board shall define the term "related interests."
The limit on loans, credit accommodations and
guarantees prescribed herein shall not apply to
loans, credit accommodations and guarantees
extended by a cooperative bank to its
cooperative shareholders. (83a)
Section 37. Loans and Other Credit
Accommodations Against Real Estate. - Except as
the Monetary Board may otherwise prescribe,
loans and other credit accommodations against
real estate shall not exceed seventy-five percent
(75%) of the appraised value of the respective
real estate security, plus sixty percent (60%) of
the appraised value of the insured improvements,
and such loans may be made to the owner of the
real estate or to his assignees. (78a)
Section 38. Loans And Other Credit
Accommodations on Security of Chattels and
Intangible Properties. - Except as the Monetary
Board may otherwise prescribe, loans and other
credit accommodations on security of chattels
and intangible properties such as, but not limited
to, patents, trademarks, trade names, and
copyrights shall not exceed seventy-five percent
(75%) of the appraised value of the security, an
such loans and other credit accommodation may
be made to the title-holder of the chattels and
intangible properties or his assignees. (78a)
Section 39. Grant and Purpose of Loans and
Other Credit Accommodations. - A bank shall
grant loans and other credit accommodations
only in amounts and for the periods of time
essential for the effective completion of the
operations to be financed. Such grant of loans
and other credit accommodations shall be
consistent with safe and sound banking practices.
(75a) The purpose of all loans and other credit
accommodations shall be stated in the
application and in the contract between the bank
and the borrower. If the bank finds that the
proceeds of the loan or other credit
accommodation have been employed, without its
approval, for purposes other than those agreed
upon with the bank, it shall have the right to
terminate the loan or other credit
accommodation and demand immediate
repayment of the obligation. (77)
Section 40. Requirement for Grant Of Loans or
0ther Credit Accommodations. - Before granting a
loan or other credit accommodation, a bank must
ascertain that the debtor is capable of fulfilling
his commitments to the bank. Toward this end, a
bank may demand from its credit applicants a
statement of their assets and liabilities and of
their income and expenditures and such
information as may be prescribed by law or by
rules and regulations of the Monetary Board to
enable the bank to properly evaluate the credit
application which includes the corresponding
financial statements submitted for taxation
purposes to the Bureau of Internal Revenue.
Should such statements prove to be false or
incorrect in any material detail, the bank may
terminate any loan or other credit
accommodation granted on the basis of said
statements and shall have the right to demand
immediate repayment or liquidation of the
obligation. In formulating rules and regulations
under this Section, the Monetary Board shall
recognize the peculiar characteristics of micro
financing, such as cash flow-based lending to the
basic sectors that are not covered by traditional
collateral. (76a)
Section 41. Unsecured Loans or Other Credit
Accommodations. - The Monetary Board is hereby
authorized to issue such regulations as it may
deem necessary with respect to unsecured loans
or other credit accommodations that may be
granted by banks. (n)
Section 42. Other Security Requirements for
Bank Credits. - The Monetary Board may, by
regulation, prescribe further security
requirements to which the various types of bank
credits shall be subject, and, in accordance with
the authority granted to it in Section 106 of the
New Central Bank Act, the Board may by
regulation, reduce the maximum ratios
established in Sections 36 and 37 of this Act, or,
in special cases, increase the maximum ratios
established therein. (78)
Section 43. Authority to Prescribe Terms and
Conditions of Loans and Other Credit
Accommodations. - The Monetary Board, may,
similarly in accordance with the authority granted
to it in Section 106 of the New Central Bank Act,
and taking into account the requirements of the
economy for the effective utilization of long-term
funds, prescribe the maturities, as well as related
terms and conditions for various types of bank
loans and other credit accommodations. Any
change by the Board in the maximum maturities,
as well as related terms and conditions for
various types of bank loans and other credit
accommodations. Any change by the Board in the
maximum maturities shall apply only to loans and
other credit accommodations made after the date
of such action. The Monetary Board shall regulate
the interest imposed on micro finance borrowers
by lending investors and similar lenders such as,
but not limited to, the unconscionable rates of
interest collected on salary loans and similar
credit accommodations. (78a)
Section 44. Amortization on Loans and Other
Credit Accommodations. - The amortization
schedule of bank loans and other credit
accommodations shall be adapted to the nature
of the operations to be financed. In case of loans
and other credit accommodations with maturities
of more than five (5) years, provisions must be
made for periodic amortization payments, but
such payments must be made at least annually:
Provided, however, That when the borrowed
funds are to be used for purposes which do not
initially produce revenues adequate for regular
amortization payments therefrom, the bank may
permit the initial amortization payment to be
deferred until such time as said revenues are
sufficient for such purpose, but in no case shall
the initial amortization date be later than five (5)
years from the date on which the loan or other
credit accommodation is granted. (79a) In case of
loans and other credit accommodations to micro
finance sectors, the schedule of loan amortization
shall take into consideration the projected cash
flow of the borrower and adopt this into the terms
and conditions formulated by banks. (n)
Section 45. Prepayment of Loans and Other
Credit Accommodations. - A borrower may at any
time prior to the agreed maturity date prepay, in
whole or in part, the unpaid balance of any bank
loan and other credit accommodation, subject to
such reasonable terms and conditions as may be
agreed upon between the bank and its borrower.
(80a)
Section 46. Development Assistance
Incentives. - The Bangko Sentral shall provide
incentives to banks which, without government
guarantee, extend loans to finance educational
institutions cooperatives, hospitals and other
medical services, socialized or low-cost housing,
local government units and other activities with
social content. (n)
Section 47. Foreclosure of Real Estate
Mortgage. - In the event of foreclosure, whether
judicially or extra-judicially, of any mortgage on
real estate which is security for any loan or other
credit accommodation granted, the mortgagor or
debtor whose real property has been sold for the
full or partial payment of his obligation shall have
the right within one year after the sale of the real
estate, to redeem the property by paying the
amount due under the mortgage deed, with
interest thereon at rate specified in the
mortgage, and all the costs and expenses
incurred by the bank or institution from the sale
and custody of said property less the income
derived therefrom. However, the purchaser at the
auction sale concerned whether in a judicial or
extra-judicial foreclosure shall have the right to
enter upon and take possession of such property
immediately after the date of the confirmation of
the auction sale and administer the same in
accordance with law. Any petition in court to
enjoin or restrain the conduct of foreclosure
proceedings instituted pursuant to this provision
shall be given due course only upon the filing by
the petitioner of a bond in an amount fixed by the
court conditioned that he will pay all the
damages which the bank may suffer by the
enjoining or the restraint of the foreclosure
proceeding. Notwithstanding Act 3135, juridical
persons whose property is being sold pursuant to
an extrajudicial foreclosure, shall have the right
to redeem the property in accordance with this
provision until, but not after, the registration of
the certificate of foreclosure sale with the
applicable Register of Deeds which in no case
shall be more than three (3) months after
foreclosure, whichever is earlier. Owners of
property that has been sold in a foreclosure sale
prior to the effectivity of this Act shall retain their
redemption rights until their expiration. (78a)
Section 48. Renewal or Extension of Loans and
Other Credit Accommodations. - The Monetary
Board may, by regulation, prescribe the
conditions and limitations under which a bank
may grant extensions or renewals of its loans and
other credit accommodations. (81)
Section 49. Provisions for Losses and Write-
Offs. - All debts due to any bank on which interest
is past due and unpaid for such period as may be
determined by the Monetary Board, unless the
same are welt-secured and in the process of
collection shall be considered bad debts within
the meaning of this Section. The Monetary Board
may fix, by regulation or by order in a specific
case, the amount of reserves for bad debts or
doubtful accounts or other contingencies. Writing
off of loans, other credit accommodations,
advances and other assets shall be subject to
regulations issued by the Monetary Board. (84a)
Section 50. Major Investments. - For the purpose
or enhancing bank supervision, the Monetary
Board shall establish criteria for reviewing major
acquisitions of investments by a bank including
corporate affiliations or structures that may
expose the bank to undue risks or in any way
hinder effective supervision.
Section 51. Ceiling on Investments in Certain
Assets. - Any bank may acquire real estate as
shall be necessary for its own use in the conduct
of its business: Provided, however, That the total
investment in such real estate and improvements
thereof including bank equipment, shall not
exceed fifty percent (50%) of combined capital
accounts: Provided, further, That the equity
investment of a bank in another corporation
engaged primarily in real estate shall be
considered as part of the bank's total investment
in real estate, unless otherwise provided by the
Monetary Board. (25a)
Section 52. Acquisition of Real Estate by Way of
Satisfaction of Claims. - Notwithstanding the
limitations of the preceding Section, a bank may
acquire, hold or convey real property under the
following circumstances:
52.1. Such as shall be mortgaged to it in good
faith by way of security for debts;
52.2. Such as shall be conveyed to it in
satisfaction of debts previously contracted in the
course of its dealings, or
52.3. Such as it shall purchase at sales under
judgments, decrees, mortgages, or trust deeds
held by it and such as it shall purchase to secure
debts due it.
Any real property acquired or held under the
circumstances enumerated in the above
paragraph shall be disposed of by the bank within
a period of five (5) years or as may be prescribed
by the Monetary Board: Provided, however, That
the bank may, after said period, continue to hold
the property for its own use, subject to the
limitations of the preceding Section. (25a)
Section 53. Other Banking Services. - In addition
to the operations specifically authorized in this
Act, a bank may perform the following services:
53.1. Receive in custody funds, documents and
valuable objects;
53.2. Act as financial agent and buy and sell, by
order of and for the account of their customers,
shares, evidences of indebtedness and all types
of securities;
53.3. Make collections and payments for the
account of others and perform such other
services for their customers as are not
incompatible with banking business;
53.4 Upon prior approval of the Monetary Board,
act as managing agent, adviser, consultant or
administrator of investment
management/advisory/consultancy accounts; and
53.5. Rent out safety deposit boxes.
The bank shall perform the services permitted
under Subsections 53.1, 53.2,53.3 and 53.4 as
depositary or as an agent. Accordingly, it shall
keep the funds, securities and other effects which
it receives duly separate from the bank's own
assets and liabilities: The Monetary Board may
regulate the operations authorized by this Section
in order to ensure that such operations do not
endanger the interests of the depositors and
other creditors of the bank. In case a bank or
quasi-bark notifies the Bangko Sentral or publicly
announces a bank holiday, or in any manner
suspends the payment of its deposit liabilities
continuously for more than thirty (30) days, the
Monetary Board may summarily and without need
for prior hearing close such banking institution
and place it under receivership of the Philippine
Deposit Insurance Corporation. (72a)
Section 54. Prohibition to Act as Insurer. - A
bank shall not directly engage in insurance
business as the insurer. (73)
Section 55. Prohibited Transactions.
55.1. No director, officer, employee, or agent of
any bank shall -
(a) Make false entries in any bank report
or statement or participate in any
fraudulent transaction, thereby affecting
the financial interest of, or causing
damage to, the bank or any person;
(b) Without order of a court of competent
jurisdiction, disclose to any unauthorized
person any information relative to the
funds or properties in the custody of the
bank belonging to private individuals,
corporations, or any other entity:
Provided, That with respect to bank
deposits, the provisions of existing laws
shall prevail;
(c) Accept gifts, fees, or commissions or
any other form of remuneration in
connection with the approval of a loan or
other credit accommodation from said
bank;
(d) Overvalue or aid in overvaluing any
security for the purpose of influencing in
any way the actions of the bank or any
bank; or
(e) Outsource inherent banking functions.
55.2. No borrower of a bank shall -
(a) Fraudulently overvalue property
offered as security for a loan or other
credit accommodation from the bank;
(b) Furnish false or make
misrepresentation or suppression of
material facts for the purpose of
obtaining, renewing, or increasing a loan
or other credit accommodation or
extending the period thereof;
(c) Attempt to defraud the said bank in
the event of a court action to recover a
loan or other credit accommodation; or
(d) Offer any director, officer, employee
or agent of a bank any gift, fee,
commission, or any other form of
compensation in order to influence such
persons into approving a loan or other
credit accommodation application.
55.3 No examiner, officer or employee of the
Bangko Sentral or of any department, bureau,
office, branch or agency of the Government that
is assigned to supervise, examine, assist or
render technical assistance to any bank shall
commit any of the acts enumerated in this
Section or aid in the commission of the same.
(87-Aa)
The making of false reports or misrepresentation
or suppression of material facts by personnel of
the Bangko Sental ng Pilipinas shall be subject to
the administrative and criminal sanctions
provided under the New Central Bank Act.
55.4. Consistent with the provisions of Republic
Act No. 1405, otherwise known as the Banks
Secrecy Law, no bank shall employ casual or non
regular personnel or too lengthy probationary
personnel in the conduct of its business involving
bank deposits.
Section 56. Conducting Business in an Unsafe or
Unsound Manner - In determining whether a
particular act or omission, which is not otherwise
prohibited by any law, rule or regulation affecting
banks, quasi-banks or trust entities, may be
deemed as conducting business in an unsafe or
unsound manner for purposes of this Section, the
Monetary Board shall consider any of the
following circumstances:
56.1 The act or omission has resulted or may
result in material loss or damage, or abnormal
risk or danger to the safety, stability, liquidity or
solvency of the institution;
56.2 The act or omission has resulted or may
result in material loss or damage or abnormal risk
to the institution's depositors, creditors,
investors, stockholders or to the Bangko Sentral
or to the public in general;
56.3 The act or omission has caused any undue
injury, or has given any unwarranted benefits,
advantage or preference to the bank or any party
in the discharge by the director or officer of his
duties and responsibilities through manifest
partiality, evident bad faith or gross inexcusable
negligence; or
56.4 The act or omission involves entering into
any contract or transaction manifestly and
grossly disadvantageous to the bank, quasi-bank
or trust entity, whether or not the director or
officer profited or will profit thereby.
Whenever a bank, quasi-bank or trust entity
persists in conducting its business in an unsafe or
unsound manner, the Monetary Board may,
without prejudice to the administrative sanctions
provided in Section 37 of the New Central Bank
Act, take action under Section 30 of the same Act
and/or immediately exclude the erring bank from
clearing, the provisions of law to the contrary
notwithstanding. (n)
Section 57. Prohibition on Dividend
Declaration. - No bank or quasi-bank shall declare
dividends, if at the time of declaration:
57.1 Its clearing account with the Bangko Sentral
is overdrawn; or
57.2 It is deficient in the required liquidity floor
for government deposits for five (5) or more
consecutive days, or
57.3 It does not comply with the liquidity
standards/ratios prescribed by the Bangko Sentral
for purposes of determining funds available for
dividend declaration; or
57.4 It has committed a major violation as may
be determined by the Bangko Sentral (84a)
Section 58. Independent Auditor. - The Monetary
Board may require a bank, quasi-bank or trust
entity to engage the services of an independent
auditor to be chosen by the bank, quasi-bank or
trust entity concerned from a list of certified
public accountants acceptable to the Monetary
Board. The term of the engagement shall be as
prescribed by the Monetary Board which may
either be on a continuing basis where the auditor
shall act as resident examiner, or on the basis of
special engagements; but in any case, the
independent auditor shall be responsible to the
bank's, quasi-bank's or trust entity's board of
directors. A copy of the report shall be furnished
to the Monetary Board. The Monetary Board may
also direct the board of directors of a bank, quasi-
bank, trusty entity and/or the individual members
thereof; to conduct, either personally or by a
committee created by the board, an annual
balance sheet audit of the bank, quasi-bank or
trust entity to review the internal audit and
control system of the bank, quasi-bank or trust
entity and to submit a report of such audit. (6-Da)
Section 59. Authority to Regulate Electronic
Transactions. - The Bangko Sentral shall have full
authority to regulate the use of electronic
devices, such as computers, and processes for
recording, storing and transmitting information or
data in connection with the operations of a bank;
quasi-bank or trust entity, including the delivery
of services and products to customers by such
entity. (n)
Section 60. Financial Statements. - Every bank,
quasi-bank or trust entity shall submit to the
appropriate supervising and examining
department of the Bangko Sentral financial
statements in such form and frequency as may
be prescribed by the Bangko Sentral. Such
statements, which shall be as of a specific date
designated by the Bangko Sentral, shall show
thee actual financial condition of the institution
submitting the statement, and of its branches,
offices, subsidiaries and affiliates, including the
results of its operations, and shall contain such
information as may be required in Bangko Sentral
regulations. (n)
Section 61. Publication of Financial
Statements. - Every bank, quasi-bank or trust
entity, shall publish a statement of its financial
condition, including those of its subsidiaries and
affiliates, in such terms understandable to the
layman and in such frequency as may be
prescribed Bangko Sentral, in English or Filipino,
at least once every quarter in a newspaper of
general circulation in the city or province where
the principal office, in the case of a domestic
institution or the principal branch or office in the
case of a foreign bank, is located, but if no
newspaper is published in the same province,
then in a newspaper published in Metro Manila or
in the nearest city or province. The Bangko
Sentral may by regulation prescribe the
newspaper where the statements prescribed
herein shall be published. The Monetary Board
may allow the posting of the financial statements
of a bank, quasi-bank or trust entity in public
places it may determine, lieu of the publication
required in the preceding paragraph, when
warranted by the circumstances. Additionally,
banks shall make available to the public in such
form and manner as the Bangko Sentral may
prescribe the complete set of its audited financial
statements as well as such other relevant
information including those on enterprises
majority-owned or controlled by the bank, that
will inform the public of the true financial
condition of a bank as of any given time. In
periods of national and/or local emergency or of
imminent panic which directly threaten monetary
and banking stability, the Monetary Board, by a
vote of at least five (5) of its members, in special
cases and upon application of the bank, quasi-
bank or trust entity, may allow such bank, quasi-
bank or trust entity to defer for a stated period of
time the publication of the statement of financial
condition required herein. (n)
Section 62. Publication of Capital Stock. - A
bank, quasi-bank or trust entity incorporated
under the laws of the Philippines shall not publish
the amount of its authorized or subscribed capital
stock without indicating at the same time and
with equal prominence, the amount of its capital
actually paid up. No branch of any foreign bank
doing business in the Philippines shall in any way
announce the amount of the capital and surplus
of its head office, or of the bank in its entirety
without indicating at the same time and with
equal prominence the amount of the capital, if
any, definitely assigned to such branch, such fact
shall be stated in, and shall form part of the
publication. (82)
Section 63. Settlement of Disputes. - The
provisions of any law to the contrary
notwithstanding, the Bangko Sentral shall be
consulted by other government agencies or
instrumentalities in actions or proceedings
initiated by or brought before them involving
controversies in banks, quasi-banks or trust
entities arising out of and involving relations
between and among their directors, officers or
stockholders, as well as disputes between any or
all of them and the bank, quasi-bank or trust
entity of which they are directors, officers or
stockholders. (n)
Section 64. Unauthorized Advertisement or
Business Representation. - No person,
association, or corporation unless duly authorized
to engage in the business of a bank, quasi-bank,
trust entity, or savings and loan association as
defined in this Act, or other banking laws, shall
advertise or hold itself out as being engaged in
the business of such bank, quasi-bank, trust
entity, or association, or use in connection with
its business title, the word or words "bank",
"banking", "banker", "quasi-bank", "quasi-
banking", "quasi-banker", "savings and loan
association", "trust corporation", "trust company"
or words of similar import or transact in any
manner the business of any such bank,
corporation or association. (6)
Section 65. Service Fees. - The Bangko Sentral
may charge equitable rates, commissions or fees,
as may be prescribed by the Monetary Board for
supervision, examination and other services
which it renders under this Act. (n)
Section 66. Penalty for Violation of this Act. -
Unless otherwise herein provided, the violation of
any of the provisions of this Act shall be subject
to Sections 34, 35, 36 and 37 of the New Central
Bank Act. If the offender is a director or officer of
a bank, quasi-bank or trust entity, the Monetary
Board may also suspend or remove such director
or officer. If the violation is committed by a
corporation, such corporation may be dissolved
by quo warranto proceedings instituted by the
Solicitor General. (87)
CHAPTER V
PLACEMENT UNDER CONSERVATORSHIP
Section 67. Conservatorship. - The grounds and
procedures for placing a bank under
conservatorship, as well as, the powers and
duties of the conservator appointed for the bank
shall be governed by the provisions of Section 29
and the last two paragraphs of Section 30 of the
New Central Bank Act: Provided, That this Section
shall also apply to conservatorship proceedings of
quasi-banks. (n)
CHAPTER VI
CESSATION OF BANKING BUSINESS
Section 68. Voluntary Liquidation. - In case of
voluntary liquidation of any bank organized under
the laws of the Philippines, or of any branch or
office in the Philippines of a foreign bank, written
notice of such liquidation shall be sent to the
Monetary Board before such liquidation shall be
sent to the Monetary Board before such
liquidation is undertaken, and the Monetary
Board shall have the right to intervene and take
such steps as may be necessary to protect the
interests of creditors. (86)
Section 69. Receivership and Involuntary
Liquidation. - The grounds and procedures for
placing a bank under receivership or liquidation,
as well as the powers and duties of the receiver
or liquidator appointed for the bank shall be
governed by the provisions of Sections 30, 31, 32,
and 33 of the New Central Bank Act: Provided,
That the petitioner or plaintiff files with the clerk
or judge of the court in which the action is
pending a bond, executed in favor of the Bangko
Sentral, in an amount to be fixed by the court.
This Section shall also apply to the extent
possible to the receivership and liquidation
proceedings of quasi-banks. (n)
Section 70. Penalty for Transactions After a
Bank Becomes Insolvent. - Any director or officer
of any bank declared insolvent or placed under
receivership by the Monetary Board who refuses
to turn over the bank's records and assets to the
designated receivers, or who tampers with banks
records, or who appropriates for himself for
another party or destroys or causes the
misappropriation and destruction of the bank's
assets, or who receives or permits or causes to be
received in said bank any deposit, collection of
loans and/or receivables, or who pays out or
permits or causes to be transferred any securities
or property of said bank shall be subject to the
penal provisions of the New Central Bank Act.
(85a)
CHAPTER VII
LAWS GOVERNING OTHER TYPES OF BANKS
Section 71. Other Banking Laws. - The
organization, the ownership and capital
requirements, powers, supervision and general
conduct of business of thrift banks, rural banks
and cooperative banks shall be governed by the
provisions of the Thrift Banks Act, the Rural Banks
Act, and the Cooperative Code, respectively. The
organization, ownership and capital
requirements, powers, supervision and general
conduct of business of Islamic banks shall be
governed by special laws. The provisions of this
Act, however, insofar as they are not in conflict
with the provisions of the Thrift Banks Act, the
Rural Banks Act, and the Cooperative Code shall
likewise apply to thrift banks, rural banks, and
cooperative banks, respectively. However, for
purposes of prescribing the minimum ratio which
the net worth of a thrift bank must bear to its
total risk assets, the provisions of Section 33 of
this Act shall govern. (n)
CHAPTER VIII
FOREIGN BANKS
Section 72. Transacting Business in the
Philippines. - The entry of foreign banks in the
Philippines through the establishment of
branches shall be governed by the provisions of
the Foreign Banks Liberalization Act. The conduct
of offshore banking business in the Philippines
shall be governed by the provisions of the
Presidential Decree No. 1034, otherwise known as
the "Offshore Banking System Decree." (14a)
Section 73. Acquisition of Voting Stock in a
Domestic Bank. - Within seven (7) years from the
effectivity of this act and subject to guidelines
issued pursuant to the Foreign Banks
Liberalization Act, the Monetary Board may
authorize a foreign bank to acquire up to one
hundred percent (100%) of the voting stock of
only one (1) bank organized under the laws of the
Republic of the Philippines. Within the same
period, the Monetary Board may authorize any
foreign bank, which prior to the effectivity of this
Act availed itself of the privilege to acquire up to
sixty percent (60%) of the voting stock of a bank
under the Foreign Banks Liberalization Act and
the Thrift Banks Act, to further acquire voting
shares such bank to the extent necessary for it to
own one hundred percent (100%) of the voting
stock thereof. In the exercise of the authority, the
Monetary Board shall adopt measures as may be
necessary to ensure that at all times the control
of seventy percent (70%) of the resources or
assets of the entire banking system is held by
banks which are at least majority-owned by
Filipinos. Any right, privilege or incentive granted
to a foreign bank under this Section shall be
equally enjoyed by and extended under the same
conditions to banks organized under the laws of
the Republic of the Philippines. (Secs. 2 and 3, RA
7721
Section 74. Local Branches of Foreign Banks. -
In the case of a foreign bank which has more than
one (1) branch in the Philippines, all such
branches shall be treated as one (1) unit for the
purpose of this Act, and all references to the
Philippine branches of foreign banks shall be held
to refer to such units. (68)
Section 75. Head Office Guarantee. - In order to
provide effective protection of the interests of the
depositors and other creditors of Philippine
branches of a foreign bank, the head office of
such branches shall fully guarantee the prompt
payment of all liabilities of its Philippine branch.
(69) Residents and citizens of the Philippines who
are creditors of a branch in the Philippines of a
foreign bank shall have preferential rights to the
assets of such branch in accordance with the
existing laws. (19)
Section 76. Summons and Legal Process. -
Summons and legal process served upon the
Philippine agent or head of any foreign bank
designated to accept service thereof shall give
jurisdiction to the courts over such bank, and
service of notices on such agent or head shall be
as binding upon the bank which he represents as
if made upon the bank itself. Should the authority
of such agent or head to accept service of
summons and legal processes for the bank or
notice to it be revoked, or should such agent or
head become mentally incompetent or otherwise
unable to accept service while exercising such
authority, it shall be the duty of the bank to name
and designate promptly another agent or head
upon whom service of summons and processes in
legal proceedings against the bank and of notices
affecting the bank may be made, and to file with
the Securities and Exchange Commission a duly
authenticated nomination of such agent. In the
absence of the agent or head or should there be
no person authorized by the bank upon whom
service of summons, processes and all legal
notices may be made, service of summons,
processes and legal notices may be made upon
the Bangko Sentral Deputy Governor In-Charge of
the supervising and examining departments and
such service shall be as effective as if made upon
the bank or its duly authorized agent or head. In
case of service for the bank upon the Bangko
Sentral Deputy Governor In-charge of the
supervising and examining departments, the said
deputy Governor shill register and transmit by
mail to the president or the secretary of the bank
at its head or principal office a copy, duly
certified by him, of the summons, process, or
notice. The sending of such copy of the
summons, process, or notice shall be a necessary
part of the services and shall complete the
service. The registry receipt of mailing shall be
prima facie evidence of the transmission of the
summons, process or notice. All costs necessarily
incurred by the said Deputy Governor for the
making and mailing and sending of a copy of the
summons, process, or notice to the president or
the secretary of the bank at its head or principal
office shall be paid in advance by the party at
whose instance the service is made. (17)
Section 77. Laws Applicable. - In all matters not
specifically covered by special provisions
applicable only to a foreign bank or its branches
and other offices in the Philippines any foreign
bank licensed to do business in the Philippines
shall be bound by the provisions of this Act, all
other laws, rules and regulations applicable to
banks organized under the laws of the Philippines
of the same class, except those that provide for
the creation, formation, organization or
dissolution of corporations or for the fixing of the
relations, liabilities, responsibilities, or duties of
stockholders, members, directors or officers of
corporations to each other or to the corporation.
(18)
Section 78. Revocation of License of a Foreign
Bank - The Monetary Board may revoke the
license to transact business in the Philippines of,
any foreign bank, if it finds that the foreign bank
is insolvent or in imminent danger thereof or that
its continuance in business will involve probable
loss to those transacting business with it. After
the revocation of its license, it shall be unlawful
for any such foreign banks to transact business in
the Philippines unless its license is renewed or
reissued. After the revocation of such license, the
Bangko Sentral shall take the necessary action to
protect the creditors of such foreign bank and the
public. The provisions of the New Central Bank
Act on sanctions and penalties shall likewise be
applicable. (16)
CHAPTER IX
TRUST OPERATIONS
Section 79. Authority to Engage in Trust
Business. - Only a stock corporation or a person
duly authorized by the Monetary Board to engage
in trust business shall act as a trustee or
administer any trust or hold property in trust or
on deposit for the use, benefit, or behoof of
others. For purposes of this Act, such a
corporation shall be referred to as a trust entity.
(56a; 57a)
Section 80. Conduct of Trust Business. - A trust
entity shall administer the funds or property
under its custody with the diligence that a
prudent man would exercise in the conduct of an
enterprise of a like character and with similar
aims. No trust entity shall, for the account of the
trustor or the beneficiary of the trust, purchase or
acquire property from, or sell, transfer, assign, or
lend money or property to, or purchase debt
instruments of, any of the departments, directors,
officers, stockholders, or employees of the trust
entity, relatives within the first degree of
consanguinity or affinity, or the related interests,
of such directors, officers and stockholders,
unless the transaction is specifically authorized
by the trustor and the relationship of the trustee
and the other party involved in the transaction is
fully disclosed to the trustor of beneficiary of the
trust prior to the transaction. The Monetary Board
shall promulgate such rules and regulations as
may be necessary to prevent circumvention of
this prohibition or the evasion of the
responsibility herein imposed on a trust entity.
(56)
Section 81. Registration of Articles of
Incorporation and By-Laws of a Trust Entity. - The
Securities and Exchange Commission shall not
register the articles of incorporation and by-laws
or any amendment thereto, of any trust entity,
unless accompanied by a certificate of authority
issued by the Bangko Sentral. (n)
Section 82. Minimum Capitalization. - A trust
entity, before it can engage in trust or other
fiduciary business, shall comply with the
minimum paid-in capital requirement which will
be determined by the Monetary Board. (n)
Section 83. Powers of a Trust Entity. - A trust
entity, in addition to the general powers incident
to corporations, shall have the power to:
83.1 Act as trustee on any mortgage or bond
issued by any municipality, corporation, or any
body politic and to accept and execute any trust
consistent with law;
83.2 Act under the order or appointment of any
court as guardian, receiver, trustee, or depositary
of the estate of any minor or other incompetent
person, and as receiver and depositary of any
moneys paid into court by parties to any legal
proceedings and of property of any kind which
may be brought under the jurisdiction of the
court;
83.3. Act as the executor of any will when it is
named the executor thereof;
83.4 Act as administrator of the estate of any
deceased person, with the will annexed, or as
administrator of the estate of any deceased
person when there is no will;
83.5. Accept and execute any trust for the
holding, management, and administration of any
estate, real or personal, and the rents, issues and
profits thereof; and
83.6. Establish and manage common trust funds,
subject to such rules and regulations as may be
prescribed by the Monetary Board.
Section 84. Deposit for the Faithful Performance
of Trust Duties. - Before transacting trust
business, every trust entity shall deposit with the
Bangko Sentral, as security for the faithful
performance of its trust duties, cash or securities
approved by the Monetary Board in an amount
equal to or not less than Five hundred thousand
pesos (P500,000.00) or such higher amount as
may fixed by the Monetary Board: Provided,
however, That the Monetary Board shall require
every trust entity to increase the amount of its
cash or securities on deposit with the Bangko
Sentral in accordance with the provisions of this
paragraph. Should the capital and surplus fall
below said amount, the Monetary Board shall
have the same authority as that granted to it
under the provisions of the fifth paragraph of
Section 34 of this Act. A trust entity so long as it
shall continue to be solvent and comply with laws
or regulations shall have the right to collect the
interest earned on such securities deposited with
the Bangko Sentral and, from time to time, with
the approval of the Bangko Sentral, to exchange
the securities for others. If the trust entity fails to
comply with any law or regulation, the Bangko
Sentral shall retain such interest on the securities
deposited with it for the benefit of rightful
claimants. Al claims rising out of the trust
business of a trust entity shall have priority over
all other claims as regards the cash or securities
deposited as above provided. The Monetary
Board may not permit the cash or securities
deposited in accordance with the provisions of
this Section to be reduced below the prescribed
minimum amount until the depositing entity shall
discontinue its trust business and shall satisfy the
Monetary Board that it has complied with all its
obligations in connection with such business.
(65a)
Section 85. Bond of Certain Persons for the
Faithful Performance of Duties. - Before an
executor, administrator, guardian, trustee,
receiver or depositary appointed by the court
enters upon the execution of his duties, he shall,
upon order of the court, file a bond in such sum
as the court may direct. Upon the application of
any executor, administrator, guardian, trustee,
receiver, depositary or any other person in
interest, the court may, after notice and hearing,
order that the subject matter of the trust or any
part, thereof be deposited with a trust entity.
Upon presentation of proof to the court that the
subject matter of the trust has been deposited
with a trust entity. Upon presentation of proof to
the court that the subject matter of the trust has
been deposited with a trust entity, the court may
order that the bond given by such persons for the
faithful performance of their duties be reduced to
such sums as it may deem proper: Provided,
however, That the reduced bond shall be
sufficient to secure adequately the proper
administration and care of any property
remaining under the control of such persons and
the proper accounting for such property. Property
deposited with any trust entity in conformity with
this Section shall be held by such entity under the
orders and direction of the court. (59)
Section 86. Exemption of Trust Entity from Bond
Requirement. - No bond or other security shall be
required by the court from a trust entry for the
faithful performance of its duties as court-
appointed trustee, executor, administrator,
guardian, receiver, or depositary. However, the
court may, upon proper application with it
showing special cause therefore, require the trust
entity to post a bond or other security for the
protection of funds or property confided to such
entity. (59)
Section 87. Separation of Trust Business from
General Business. - The trust business and all
funds, properties or securities received by any
trust entity as executor, administrator, guardian,
trustee, receiver, or depositary shall be kept
separate and distinct from the general business
including all other funds, properties, and assets of
such trust entity. The accounts of all such funds,
properties, or securities shall likewise be kept
separate and distinct from the accounts of the
general business of the trust entity. (61)
Section 88. Investment Limitations of a Trust
Entity. - Unless otherwise directed by the
instrument creating the trust, the lending and
investment of funds and other assets acquired by
a trust entity as executor, administrator,
guardian, trustee, receiver or depositary of the
estate of any minor or other incompetent person
shall be limited to loans or investments as may
be prescribed by law, the Monetary Board or any
court of competent jurisdiction. (63a)
Section 89. Real Estate Acquired by a Trust
Entity. - Unless otherwise specifically directed by
the trustor or the nature of the trust, real estate
acquired by a trust entity in whatever manner
and for whatever purposes, shall likewise be
governed by the relevant provisions of Section 52
of this Act. (64a)
Section 90. Investment of Non-Trust Funds. - The
investment of funds other than trust funds of a
trust entity which is a bank, financing company or
an investment house shall be governed by the
relevant provisions of this Act and other
applicable laws. (64)
Section 91. Sanctions and Penalties. - A trust
entity or any of its officers and directors found to
have willfully violated any pertinent provisions of
this Act, shall be subject to the sanctions and
penalties provided tinder Section 66 of this Act as
well as Sections 36 and 37 of the New Central
Bank Act.
Section 92. Exemption of Trust Assets from
Claims. - No assets held by a trust entity in its
capacity as trustee shall be subject to any claims
other than those of the parties interested in the
specific trusts. (65)
Section 93. Establishment of Branches of a Trust
Entity. - The ordinary business of a trust entity
shall be transacted at the place of business
specified in its articles of incorporation. Such
trust entity may, with prior approval of the
Monetary Board, establish branches in the
Philippines and the said entity shall be
responsible for all business conducted in such
branches to the same extent and in the same
manner as though such business had all been
conducted in the head office. For the purpose of
this Act, the trust entity and its branches shall be
treated as one unit. (67)
CHAPTER
FINAL PROVISIONS
Section 94. Phase Out of Bangko Sentral Powers
Over Building and Loan Associations. - Within a
period of three (3) years from the effectivity of
this Act, the Bangko Sentral shall phase out and
transfer its supervising and regulatory powers
over building and loan associations to the Home
Insurance and Guaranty Corporation which shall
assume the same. Until otherwise provided
bylaw1 building and loan associations shall
continue to be governed by Sections 39 to 55,
Chapter VI of the General Banking Act, as
amended, including such rules and regulations
issued pursuant thereto. Upon assumption by the
Home Insurance and Guaranty Corporation of
supervising and regulatory powers over building
and loan associations, a references in Sections 39
to 55 of the General Banking Act, as amended, to
the Bangko Sentral and the Monetary Board shall
be deemed to refer to the Home Insurance and
Guaranty Corporation and its board of directors,
respectively. (n)
Section 95. Repealing Clause. - Except as may
be provided for in Sections 34 and 94 of this Act,
the General Banking Act, as amended, and the
provisions of any other law, special charters, rule
or regulation issued pursuant to said General
Banking Act, as amended, or parts thereof, which
may be inconsistent with the provisions of this
Act are hereby repealed. The provisions of
paragraph 8, Section 8, Republic Act No. 3591, as
amended by republic Act No. 7400, are likewise
repealed. (90a)
Section 96. Separability Clause. - If any provision or
section of this Act or the application thereof to any
person or circumstance is held invalid, the other
provisions or sections of this Act, and the application
of such provision or section to other persons or
circumstances shall not be affected thereby. (n)
Section 97. Effectivity Clause - This Act shall take
effect fifteen (15) days following its publication in
the Official Gazette or in two (2) national
newspapers of general circulation. (91)
REPUBLIC ACT NO. 9160 September 29,
2001
AN ACT DEFINING THE CRIME OF MONEY
LAUNDERING, PROVIDING PENALTIES
THEREFOR AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of
Representatives of the Philippines in Congress
assembled:
Section 1. Short Title. – This Act shall be known
as the "Anti-Money Laundering Act of 2001."
Section 2. Declaration of Policy. – It is hereby
declared the policy of the State to protect and
preserve the integrity and confidentiality of bank
accounts and to ensure that the Philippines shall
not be used as a money laundering site for the
proceeds of any unlawful activity. Consistent with
its foreign policy, the State shall extend
X cooperation in transnational investigations and
prosecutions of persons involved in money
laundering activities whenever committed.
Section 3. Definitions. For purposes of this Act,
the following terms are hereby defined as follows:
(a) "Covered Institution" refers to:
(1) banks, non-banks, quasi-
banks, trust entities, and all other
institutions and their subsidiaries
and affiliates supervised or
regulated by the Bangko Sentral
ng Pilipinas (BSP);
(2) Insurance companies and all
other institutions supervised or
regulated by the Insurance
Commission; and
(3) (i) securities dealers, brokers,
salesmen, investment houses and
other similar entities managing
securities or rendering services as
investment agent, advisor, or
consultant, (ii) mutual funds,
close and investment companies,
common trust funds, pre-need
companies and other similar
entities, (iii) foreign exchange
corporations, money changers,
money payment, remittance, and
transfer companies and other
similar entities, and (iv) other
entities administering or
otherwise dealing in currency,
commodities or financial
derivatives based thereon,
valuable objects, cash substitutes
and other similar monetary
instruments or property
supervised or regulated by
Securities and Exchange
Commission.
(b) "Covered transaction" is a single,
series, or combination of transactions
involving a total amount in excess of Four
million Philippine pesos
(Php4,000,000.00) or an equivalent
amount in foreign currency based on the
prevailing exchange rate within five (5)
consecutive banking days except those
between a covered institution and a
person who, at the time of the transaction
was a properly identified client and the
amount is commensurate with the
business or financial capacity of the
client; or those with an underlying legal
or trade obligation, purpose, origin or
economic justification.
It likewise refers to a single, series or
combination or pattern of unusually large
and complex transactions in excess of
Four million Philippine pesos
(Php4,000,000.00) especially cash
deposits and investments having no
credible purpose or origin, underlying
trade obligation or contract.
(c) "Monetary Instrument" refers to:
(1) coins or currency of legal
tender of the Philippines, or of
any other country;
(2) drafts, checks and notes;
(3) securities or negotiable
instruments, bonds, commercial
papers, deposit certificates, trust
certificates, custodial receipts or
deposit substitute instruments,
trading orders, transaction tickets
and confirmations of sale or
investments and money marked
instruments; and
(4) other similar instruments
where title thereto passes to
another by endorsement,
assignment or delivery.
(d) "Offender" refers to any person who
commits a money laundering offense.
(e) "Person" refers to any natural or
juridical person.
(f) "Proceeds" refers to an amount
derived or realized from an unlawful
activity.
(g) "Supervising Authority" refers to
the appropriate supervisory or regulatory
agency, department or office supervising
or regulating the covered institutions
enumerated in Section 3(a).
(h) "Transaction" refers to any act
establishing any right or obligation or
giving rise to any contractual or legal
relationship between the parties thereto.
It also includes any movement of funds
by any means with a covered institution.
(l) "Unlawful activity" refers to any act
or omission or series or combination
thereof involving or having relation to the
following:
(1) Kidnapping for ransom under
Article 267 of Act No. 3815,
otherwise known as the Revised
Penal Code, as amended;
(2) Sections 3, 4, 5, 7, 8 and 9 of
Article Two of Republic Act No.
6425, as amended, otherwise
known as the Dangerous Drugs
Act of 1972;
(3) Section 3 paragraphs B, C, E,
G, H and I of Republic Act No.
3019, as amended; otherwise
known as the Anti-Graft and
Corrupt Practices Act;
(4) Plunder under Republic Act No.
7080, as amended;
(5) Robbery and extortion under
Articles 294, 295, 296, 299, 300,
301 and 302 of the Revised Penal
Code, as amended;
(6) Jueteng and Masiao punished
as illegal gambling under
Presidential Decree No. 1602;
(7) Piracy on the high seas under
the Revised Penal Code, as
amended and Presidential Decree
No. 532;
(8) Qualified theft under, Article
310 of the Revised Penal Code, as
amended;
(9) Swindling under Article 315 of
the Revised Penal Code, as
amended;
(10) Smuggling under Republic
Act Nos. 455 and 1937;
(11) Violations under Republic Act
No. 8792, otherwise known as the
Electronic Commerce Act of 2000;
(12) Hijacking and other violations
under Republic Act No. 6235;
destructive arson and murder, as
defined under the Revised Penal
Code, as amended, including
those perpetrated by terrorists
against non-combatant persons
and similar targets;
(13) Fraudulent practices and
other violations under Republic
Act No. 8799, otherwise known as
the Securities Regulation Code of
2000;
(14) Felonies or offenses of a
similar nature that are punishable
under the penal laws of other
countries.
Section 4. Money Laundering Offense. – Money
laundering is a crime whereby the proceeds of an
unlawful activity are transacted, thereby making
them appear to have originated from legitimate
sources. It is committed by the following:
(a) Any person knowing that any
monetary instrument or property
represents, involves, or relates to the
proceeds of any unlawful activity,
transacts or attempts to transact said
monetary instrument or property.
(b) Any person knowing that any
monetary instrument or property involves
the proceeds of any unlawful activity,
performs or fails to perform any act as a
result of which he facilitates the offense
 of money laundering referred to in
paragraph (a) above.
(c) Any person knowing that any
monetary instrument or property is
required under this Act to be disclosed
and filed with the Anti-Money Laundering
Council (AMLC), fails to do so.
Section 5. Jurisdiction of Money Laundering
Cases. – The regional trial courts shall have
jurisdiction to try all cases on money laundering.
Those committed by public officers and private
persons who are in conspiracy with such public
officers shall be under the jurisdiction of the
Sandiganbayan.
Section 6. Prosecution of Money Laundering. –
(a) Any person may be charged with and
convicted of both the offense of money
laundering and the unlawful activity as
herein defined.
(b) Any proceeding relating to the
unlawful activity shall be given
precedence over the prosecution of any
offense or violation under this Act without
prejudice to the freezing and other
remedies provided.
Section 7. Creation of Anti-Money Laundering
Council (AMLC). – The Anti-Money Laundering
Council is hereby created and shall be composed
of the Governor of the Bangko Sentral ng Pilipinas
as chairman, the Commissioner of the Insurance
Commission and the Chairman of the Securities
and Exchange Commission as members. The
AMLC shall act unanimously in the discharge of
its functions as defined hereunder:
(1) to require and receive covered
transaction reports from covered
institutions;
(2) to issue orders addressed to the
appropriate Supervising Authority or the
covered institution to determine the true
identity of the owner of any monetary
instrument or property subject of a
covered transaction report or request for
assistance from a foreign State, or
believed by the Council, on the basis of
substantial evidence to be in whole or in
part, whenever located, representing,
involving, or related to, directly or
indirectly, in any manner or by any
means, the proceeds of an unlawful
activity;
(3) to institute civil forfeiture proceedings
and all other remedial proceedings
through the Office of the Solicitor
General;
(4) to cause the filing of complaints with
the Department of Justice or the
Ombudsman for the prosecution of
money laundering offenses;
(5) to initiate investigations of covered
transactions, money laundering activities
and other violations of this Act;
(6) to freeze any monetary instrument or
property alleged to be proceed of any
unlawful activity;
(7) to implement such measures as may
be necessary and justified under this Act
to counteract money laundering;
(8) to receive and take action in respect
of, any request from foreign states for
assistance in their own anti-money
laundering operations provided in this
Act;
(9) to develop educational programs on
the pernicious effects of money
laundering, the methods and techniques
used in money laundering, the viable
means of preventing money laundering
and the effective ways of prosecuting and
punishing offenders; and
(10) to enlist the assistance of any
branch, department, bureau, office,
agency or instrumentality of the
government, including government-
owned and –controlled corporations, in
undertaking any and all anti-money
laundering operations, which may include
the use of its personnel, facilities and
resources for the more resolute
prevention, detection and investigation of
money laundering offenses and
prosecution of offenders.
Section 8. Creation of a Secretariat. – The AMLC
is hereby authorized to establish a secretariat to
be headed by an Executive Director who shall be
appointed by the Council for a term of five (5)
years. He must be a member of the Philippine
Bar, at least thirty-five (35) years of age and of
good moral character, unquestionable integrity
and known probity. All members of the Secretariat
must have served for at least five (5) years either
in the Insurance Commission, the Securities and
Exchange Commission or the Bangko Sentral ng
Pilipinas (BSP) and shall hold full-time permanent
positions within the BSP.
Section 9. Prevention of Money Laundering;
Customer Identification Requirements and
Record Keeping. –
(a) Customer Identification, - Covered
institutions shall establish and record the
true identity of its clients based on official
documents. They shall maintain a system
of verifying the true identity of their
clients and, in case of corporate clients,
require a system of verifying their legal
existence and organizational structure, as
well as the authority and identification of
all persons purporting to act on their
behalf.
 The provisions of existing laws to the
contrary notwithstanding, anonymous
accounts, accounts under fictitious
names, and all other similar accounts
shall be absolutely prohibited. Peso and
foreign currency non-checking numbered
accounts shall be allowed. The BSP may
conduct annual testing solely limited to
the determination of the existence and
true identity of the owners of such
accounts.
(b) Record Keeping – All records of all
transactions of covered institutions shall
be maintained and safely stored for five
(5) years from the date of transactions.
With respect to closed accounts, the
records on customer identification,
account files and business
correspondence, shall be preserved and
safety stored for at least five (5) years
from the dates when they were closed.
(c) Reporting of Covered
Transactions. – Covered institutions
shall report to the AMLC all covered
transactions within five (5) working days
from occurrence thereof, unless the
Supervising Authority concerned
prescribes a longer period not exceeding
ten (10) working days.
When reporting covered transactions to the
AMLC, covered institutions and their officers,
employees, representatives, agents, advisors,
consultants or associates shall not be deemed to
have violated Republic Act No. 1405, as
amended; Republic Act No. 6426, as amended;
Republic Act No. 8791 and other similar laws, but
are prohibited from communicating, directly or
indirectly, in any manner or by any means, to any
person the fact that a covered transaction report
was made, the contents thereof, or any other
information in relation thereto. In case of violation
thereof, the concerned officer, employee,
representative, agent, advisor, consultant or
associate of the covered institution, shall be
criminally liable. However, no administrative,
criminal or civil proceedings, shall lie against any
person for having made a covered transaction
report in the regular performance of his duties
and in good faith, whether or not such reporting
results in any criminal prosecution under this Act
or any other Philippine law.
When reporting covered transactions to the
AMLC, covered institutions and their officers,
employees, representatives, agents, advisors,
consultants or associates are prohibited from
communicating, directly or indirectly, in any
manner or by any means, to any person, entity,
the media, the fact that a covered transaction
report was made, the contents thereof, or any
other information in relation thereto. Neither may
such reporting be published or aired in any
manner or form by the mass media, electronic
mail, or other similar devices. In case of violation
thereof, the concerned officer, employee,
representative, agent, advisor, consultant or
associate of the covered institution, or media
shall be held criminally liable.
Section 10. Authority to Freeze. – Upon
determination that probable cause exists that any
deposit or similar account is in any way related to
an unlawful activity, the AMLC may issue a freeze
order, which shall be effective immediately, on
the account for a period not exceeding fifteen
(15) days. Notice to the depositor that his
account has been frozen shall be issued
simultaneously with the issuance of the freeze
order. The depositor shall have seventy-two (72)
hours upon receipt of the notice to explain why
the freeze order should be lifted. The AMLC has
seventy-two (72) hours to dispose of the
depositor's explanation. If it falls to act within
seventy-two (72) hours from receipt of the
depositor's explanation, the freeze order shall
automatically be dissolved. The fifteen (15)-day
freeze order of the AMLC may be extended upon
order of the court, provided that the fifteen (15)-
day period shall be tolled pending the court's
decision to extend the period.
No court shall issue a temporary restraining order
or writ of injunction against any freeze order
issued by the AMLC except the Court of Appeals
or the Supreme Court.
Section 11. Authority to inquire into Bank
Deposits. – Notwithstanding the provisions of
Republic Act No. 1405, as amended; Republic Act
No. 6426, as amended; Republic Act No. 8791,
and other laws, the AMLC may inquire into or
examine any particular deposit or investment
with any banking institution or non-bank financial
institution upon order of any competent court in
cases of violation of this Act when it has been
established that there is probable cause that the
deposits or investments involved are in any way
related to a money laundering offense: Provided,
That this provision shall not apply to deposits and
investments made prior to the effectivity of this
Act.
Section 12. Forfeiture Provisions. –
(a) Civil Forfeiture. – When there is a
covered transaction report made, and the
court has, in a petition filed for the
purpose ordered seizure of any monetary
instrument or property, in whole or in
part, directly or indirectly, related to said
report, the Revised Rules of Court on civil
forfeiture shall apply.
(b) Claim on Forfeited Assets. – Where
the court has issued an order of forfeiture
of the monetary instrument or property in
a criminal prosecution for any money
laundering offense defined under Section
4 of this Act, the offender or any other
person claiming an interest therein may
apply, by verified petition, for a
declaration that the same legitimately
 belongs to him and for segregation or
exclusion of the monetary instrument or
property corresponding thereto. The
verified petition shall be filed with the
court which rendered the judgment of
conviction and order of forfeiture, within
fifteen (15) days from the date of the
order or forfeiture, in default of which the
said order shall become final and
executory. This provision shall apply in
both civil and criminal forfeiture.
(c) Payment in Lieu of Forfeiture. –
Where the court has issued an order of
forfeiture of the monetary instrument or
property subject of a money laundering
offense defined under Section 4, and said
order cannot be enforced because any
particular monetary instrument or
property cannot, with due diligence, be
located, or it has been substantially
altered, destroyed, diminished in value or
otherwise rendered worthless by any act
or omission, directly or indirectly,
attributable to the offender, or it has been
concealed, removed, converted or
otherwise transferred to prevent the
same from being found or to avoid
forfeiture thereof, or it is located outside
the Philippines or has been placed or
brought outside the jurisdiction of the
court, or it has been commingled with
other monetary instruments or property
belonging to either the offender himself
or a third person or entity, thereby
rendering the same difficult to identify or
be segregated for purposes of forfeiture,
the court may, instead of enforcing the
order of forfeiture of the monetary
instrument or property or part thereof or
interest therein, accordingly order the
convicted offender to pay an amount
equal to the value of said monetary
instrument or property. This provision
shall apply in both civil and criminal
forfeiture.
Section 13. Mutual Assistance among States. –
(a) Request for Assistance from a
Foreign State. – Where a foreign State
makes a request for assistance in the
investigation or prosecution of a money
laundering offense, the AMLC may
execute the request or refuse to execute
the same and inform the foreign State of
any valid reason for not executing the
request or for delaying the execution
thereof. The principles of mutuality and
reciprocity shall, for this purpose, be at all
times recognized.
(b) Power of the AMLC to Act on a
Request for Assistance from a
Foreign State. – The AMLC may execute
a request for assistance from a foreign
State by: (1) tracking down, freezing,
restraining and seizing assets alleged to
be proceeds of any unlawful activity
under the procedures laid down in this
Act; (2) giving information needed by the
foreign State within the procedures laid
down in this Act; and (3) applying for an
order of forfeiture of any monetary
instrument or property in the court:
Provided, That the court shall not issue
such an order unless the application is
accompanied by an authenticated copy of
the order of a court in the requesting
State ordering the forfeiture of said
monetary instrument or properly of a
person who has been convicted of a
money laundering offense in the
requesting State, and a certification of an
affidavit of a competent officer of the
requesting State stating that the
conviction and the order of forfeiture are
final and then no further appeal lies in
respect or either.
(c) Obtaining Assistance from Foreign
States. – The AMLC may make a request
to any foreign State for assistance in (1)
tracking down, freezing, restraining and
seizing assets alleged to be proceeds of
any unlawful activity; (2) obtaining
information that it needs relating to any
covered transaction, money laundering
offense or any other matter directly or
indirectly, related thereto; (3) to the
extent allowed by the law of the Foreign
State, applying with the proper court
therein for an order to enter any premises
belonging to or in the possession or
control of, any or all of the persons
named in said request, and/or search any
or all such persons named therein and/or
remove any document, material or object
named in said request: Provided, That the
documents accompanying the request in
support of the application have been duly
authenticated in accordance with the
applicable law or regulation of the foreign
State; and (4) applying for an order of
forfeiture of any monetary instrument or
property in the proper court in the foreign
State: Provided, That the request is
accompanied by an authenticated copy of
the order of the regional trial court
ordering the forfeiture of said monetary
instrument or property of a convicted
offender and an affidavit of the clerk of
court stating that the conviction and the
order of forfeiture are final and that no
further appeal lies in respect of either.
(d) Limitations on Request for Mutual
Assistance. – The AMLC may refuse to
comply with any request for assistance
where the action sought by the request
contravenes any provision of the
Constitution or the execution of a request
is likely to prejudice the national interest
of the Philippines unless there is a treaty
between the Philippines and the
requesting State relating to the provision
Section 14. Penal Provisions. –
of assistance in relation to money
laundering offenses.
(e) Requirements for Requests for
Mutual Assistance from Foreign
State. – A request for mutual assistance
from a foreign State must (1) confirm that
an investigation or prosecution is being
conducted in respect of a money
launderer named therein or that he has
been convicted of any money laundering
offense; (2) state the grounds on which
any person is being investigated or
prosecuted for money laundering or the
details of his conviction; (3) gives
sufficient particulars as to the identity of
said person; (4) give particulars sufficient
to identity any covered institution
believed to have any information,
document, material or object which may
be of assistance to the investigation or
prosecution; (5) ask from the covered
institution concerned any information,
document, material or object which may
be of assistance to the investigation or
prosecution; (6) specify the manner in
which and to whom said information,
document, material or object detained
pursuant to said request, is to be
produced; (7) give all the particulars
necessary for the issuance by the court in
the requested State of the writs, orders or
processes needed by the requesting
State; and (8) contain such other
information as may assist in the
execution of the request.
(f) Authentication of Documents. – For
purposes of this Section, a document is
authenticated if the same is signed or
certified by a judge, magistrate or
equivalent officer in or of, the requesting
State, and authenticated by the oath or
affirmation of a witness or sealed with an
official or public seal of a minister,
secretary of State, or officer in or of, the
government of the requesting State, or of
the person administering the government
or a department of the requesting
territory, protectorate or colony. The
certificate of authentication may also be
made by a secretary of the embassy or
legation, consul general, consul, vice
consul, consular agent or any officer in
the foreign service of the Philippines
stationed in the foreign State in which the
record is kept, and authenticated by the
seal of his office.
(g) Extradition. – The Philippines shall
negotiate for the inclusion of money
laundering offenses as herein defined
among extraditable offenses in all future
treaties.
(a) Penalties for the Crime of Money
Laundering. The penalty of
imprisonment ranging from seven (7) to
fourteen (14) years and a fine of not less
than Three million Philippine pesos (Php
3,000,000.00) but not more than twice
the value of the monetary instrument or
property involved in the offense, shall be
imposed upon a person convicted under
Section 4(a) of this Act.
The penalty of imprisonment from four (4)
to seven (7) years and a fine of not less
than One million five hundred thousand
Philippine pesos (Php 1,500,000.00) but
not more than Three million Philippine
pesos (Php 3,000,000.00), shall be
imposed upon a person convicted under
Section 4(b) of this Act.
The penalty of imprisonment from six (6)
months to four (4) years or a fine of not
less than One hundred thousand
Philippine pesos (Php 100,000.00) but not
more than Five hundred thousand
Philippine pesos (Php 500,000.00), or
both, shall be imposed on a person
convicted under Section 4(c) of this Act.
(b) Penalties for Failure to Keep
Records. The penalty of imprisonment
from six (6) months to one (1) year or a
fine of not less than One hundred
thousand Philippine pesos (Php
100,000.00) but not more than Five
hundred thousand Philippine pesos (Php
500,000.00), or both, shall be imposed on
a person convicted under Section 9(b) of
this Act.
(c) Malicious Reporting. Any person
who, with malice, or in bad faith, report or
files a completely unwarranted or false
information relative to money laundering
transaction against any person shall be
subject to a penalty of six (6) months to
four (4) years imprisonment and a fine of
not less than One hundred thousand
Philippine pesos (Php 100,000.00) but not
more than Five hundred thousand
Philippine pesos (Php 500,000.00), at the
discretion of the court: Provided, That the
offender is not entitled to avail the
benefits of the Probation Law.
If the offender is a corporation,
association, partnership or any juridical
person, the penalty shall be imposed
upon the responsible officers, as the case
may be, who participated in the
commission of the crime or who shall
have knowingly permitted or failed to
prevent its commission. If the offender is
 a juridical person, the court may suspend
or revoke its license. If the offender is an
alien, he shall, in addition to the penalties
herein prescribed, be deported without
further proceedings after serving the
penalties herein prescribed. If the
offender is a public official or employee,
he shall, in addition to the penalties
prescribed herein, suffer perpetual or
temporary absolute disqualification from
office, as the case may be;
Any public official or employee who is
called upon to testify and refuses to do
the same or purposely fails to testify shall
suffer the same penalties prescribed
herein.
(d) Breach of Confidentiality. The
punishment of imprisonment ranging
from three (3) to eight (8) years and a
fine of not less than Five hundred
thousand Philippine pesos (Php
500,000.00) but not more than One
million Philippine pesos (Php
1,000,000.00), shall be imposed on a
person convicted for a violation under
Section 9(c).
Section 15. System of Incentives and Rewards. –
A system of special incentives and rewards is
hereby established to be given to the appropriate
government agency and its personnel that led
and initiated an investigation, prosecution and
conviction of persons involved in the offense
penalized in Section 4 of this Act.
Section 16. Prohibitions Against Political
Harassment. – This Act shall not be used for
political prosecution or harassment or as an
instrument to hamper competition in trade and
commerce.
No case for money laundering may be filed
against and no assets shall be frozen, attached or
forfeited to the prejudice of a candidate for an
electoral office during an election period.
Section 17. Restitution. – Restitution for any
aggrieved party shall be governed by the
provisions of the New Civil Code.
Section 18. Implementing Rules and
Regulations. – Within thirty (30) days from the
effectivity of this Act, the Bangko Sentral ng
Pilipinas, the Insurance Commission and the
Securities and Exchange Commission shall
promulgate the rules and regulations to
implement effectivity the provisions of this Act.
Said rules and regulations shall be submitted to
the Congressional Oversight Committee for
approval.
Covered institutions shall formulate their
respective money laundering prevention
programs in accordance with this Act including,
but not limited to, information dissemination on
money laundering activities and its prevention,
detection and reporting, and the training of
responsible officers and personnel of covered
institutions.
Section 19. Congressional Oversight Committee.
– There is hereby created a Congressional
Oversight Committee composed of seven (7)
members from the Senate and seven (7)
members from the House of Representatives. The
members from the Senate shall be appointed by
the Senate President based on the proportional
representation of the parties or coalitions therein
with at least two (2) Senators representing the
minority. The members from the House of
Representatives shall be appointed by the
Speaker also based on proportional
representation of the parties or coalitions therein
with at least two (2) members representing the
minority.
The Oversight Committee shall have the power to
promulgate its own rules, to oversee the
implementation of this Act, and to review or
revise the implementing rules issued by the Anti-
Money Laundering Council within thirty (30) days
from the promulgation of the said rules.
Section 20. Appropriations Clause. – The AMLC
shall be provided with an initial appropriation of
Twenty-five million Philippine pesos (Php
25,000,000.00) to be drawn from the national
government. Appropriations for the succeeding
years shall be included in the General
Appropriations Act.
Section 21. Separability Clause. – If any
provision or section of this Act or the application
thereof to any person or circumstance is held to
be invalid, the other provisions or sections of this
Act, and the application of such provision or
section to other persons or circumstances, shall
not be affected thereby.
Section 22. Repealing Clause. – All laws,
decrees, executive orders, rules and regulations
or parts thereof, including the relevant provisions
of Republic Act No. 1405, as amended; Republic
Act No. 6426, as amended; Republic Act No.
8791, as amended and other similar laws, as are
inconsistent with this Act, are hereby repealed,
amended or modified accordingly.
Section 23. Effectivity. – This Act shall take
effect fifteen (15) days after its complete
publication in the Official Gazette or in at least
two (2) national newspapers of general
circulation.
The provisions of this Act shall not apply to
deposits and investments made prior to its
effectivity.
Republic Act No. 9194 March 7, 2003
AN ACT AMENDING REPUBLIC ACT NO. 9160,
OTHERWISE KNOWN AS THE "ANTI-MONEY
LAUNDERING ACT OF 2001"
Be it enacted by the Senate and House of
Representative of the Philippines in Congress
assembled:
SECTION 1. Section 3, paragraph (b) of Republic
Act No. 9160 is hereby amended as follows:
"(b) 'Covered transaction' is a transaction
in cash or other equivalent monetary
instrument involving a total amount in
excess of Five hundred thousand pesos
(PhP 500,000.00) within one (1) banking
day.
SECTION 2. Section 3 of the same Act is further
amended by inserting between paragraphs (b)
and (c) a new paragraph designated as (b-1) to
read as follows:
"(b-1) 'Suspicious transaction' are
transactions with covered institutions,
regardless of the amounts involved,
where any of the following circumstances
exist:
1. there is no underlying legal or trade
obligation, purpose or economic
justification;
2. the client is not properly identified;
3. the amount involved is not
commensurate with the business or
financial capacity of the client;
4. taking into account all known
circumstances, it may be perceived that
the client's transaction is structured in
order to avoid being the subject of
reporting requirements under the Act;
5. any circumstances relating to the
transaction which is observed to deviate
from the profile of the client and/or the
client's past transactions with the covered
institution;
6. the transactions is in a way related to
an unlawful activity or offense under this
Act that is about to be, is being or has
been committed; or
7. any transactions that is similar or
analogous to any of the foregoing."
SECTION 3. Section 3(i) of the same Act is
further amended to read as follows:
"(i) 'Unlawful activity' refers to any act or
omission or series or combination thereof
involving or having direct relation to
following:
"(1) Kidnapping for ransom under Article
267 of Act No. 3815, otherwise known as
the Revised Penal Code, as amended;
"(2) Sections 4, 5, 6, 8, 9, 10, 12, 13, 14,
15, and 16 of Republic Act No. 9165,
otherwise known as the Comprehensive
Dangerous Act of 2002;
"(3) Section 3 paragraphs B, C, E, G, H
and I of republic Act No. 3019, as
amended, otherwise known as the Anti-
Graft and Corrupt Practices Act;
"(4) Plunder under Republic Act No. 7080,
as amended;
"(5) Robbery and extortion under Articles
294, 295, 296, 299, 300, 301 and 302 of
the Revised Penal Code, as amended;
"(6) Jueteng and Masiao punished as
illegal gambling under Presidential Decree
No. 1602;
"(7) Piracy on the high seas under the
Revised Penal Code, as amended and
Presidential under the Revised Penal
Code, as amended and Presidential
Decree No. 532;
"(8) Qualified theft under Article 310 of
the Revised penal Code, as amended;
"(9) Swindling under Article 315 of the
Revised Penal Code, as amended;
"(10) Smuggling under Republic Act Nos.
455 and 1937;
"(11) Violations under Republic Act No.
8792, otherwise known as the Electrinic
Commerce Act of 2000;
"(12) Hijacking and other violations under
Republic Act No. 6235; destructive arson
and murder, as defined under the Revised
Penal Code, as amended, including those
perpetrated by terrorists against non-
combatant persons and similar targets;
"(13) Fraudulent practices and other
violations under Republic Act No. 8799,
otherwise known as the Securities
Regulation Code of 2000;
"(14) Felonies or offenses of a similar
nature that are punishable under the
penal laws of other countries."
SECTION 4. Section 4 of the same Act is hereby
amended to read as follows:
"SEC. 4. Money Laundering Offense. --
Money laundering is a crime whereby the
proceeds of an unlawful activity as herein
defined are transacted, theeby making
them appear to have originated from
legitimate sources. It is committed by the
following:
(a) Any person knowing that any
monetary instrument or property
represents, involves, or relates to, the
proceeds of any unlawful activity,
transacts or attempts to transacts said
monetary instrument or property.
(b) Any person knowing that any
monetary instrument or property involves
the proceeds of any unlawful activity,
 performs or fails to perform any act as a
result of which he falicitates the offense
of money laundering referred to in
paragraph (a) above.
(c) Any person knowing that any
monetary instrument or property is
required under this Act to be disclosed
and filed with the Anti-Money Laundering
Council (AMLC), fails to do so."
SECTION 5. Section 7 of the same Act is hereby
amended as follows:
"SEC.7. Creation of Anti-Money
Laundering Council (AMLC). -- The Anti-
Money Laundering Council is hereby
created and shall be composed of the
Governor of the Bangko Sentral ng
Pilipinas as chairman, the Commissioner
of the Insurance Commission and the
Chairman of the Securities and Exchange
Commission as member. The AMLC shall
shall act unanimously in the discharge of
its functions as defined hereunder:
"(1) to require and receive covered or
suspicious transaction reports from
covered institutions;
"(2) to issue orders addressed to the
appropriate Supervising Authority or the
covered institutions to determine the true
identity of the owner of any monetary
instrument or preperty subject of a
covered transaction or suspicious
transaction report or request for
assistance from a foreign State, or
believed by the Council, on the basis fo
substantial evidence, to be, in whole or in
part, wherever located, representing,
involving, or related to directly or
indirectly, in any manner or by any
means, the proceeds of an unlawful
activitity.
"(3) to institute civil forfeiture
proceedings and all other remedial
proceedings through the Office of th
Solicitor General;
"(4) to cause the filing of complaints with
the Department of Justice or the
Ombudsman for the prosecution of
money laundering offenses;
"(5) to investigate suspicious transactions
and covered transactions deemed
suspicious after an investigation by AMLC,
money laundering activities and other
violations of this Act;
"(6) to apply before the Court of Appeals,
ex parte, for the freezing of any monetary
instrument or property alleged to be the
proceeds of any unlawful activity as
defined in Section 3(i) hereof;
"(7) to implement such measures as may
be necessary and justified under this Act
to counteract money laundering;
"(8) to receive and take action in respect
of, any request from foreign states for
assistance in their own anti-money
laundering operations provided in this
Act;
"(9) to develop educational programs on
the pernicious effects of money
laundering, the methods and techniques
used in the money laundering, the viable
means of preventing money laundering
and the effective ways of prosecuting and
punishing offenders;
"(10) to enlist the assistance of any
branch, department, bureau, office,
agency, or instrumentality of the
government, including government-
owned and -controlled corporations, in
undertaking any and all anti-money
laundering operations, which may include
the use of its personnel, facilities and
resources for the more resolute
prevention, detection, and investigation
of money laundering offenses and
prosecution of offenders; and
"(11) to impose administrative sanctions
for the violation of laws, rules,
regulations, and orders and resolutions
issued pursuant thereto."
SECTION 6. Section 9(c) of the same Act is
hereby amended to read as follows:
"(c) Reporting of Covered and Suspicious
Transactions. -- Covered institutions shall
report to the AMLC all covered
transactions and suspicious transactions
within five(5) working days from
occurrences thereof, unless the
Supervising Authority prescribes a longer
period not exceeding ten (10) working
days.
"Should a transaction be determined to
be both a covered transaction and a
suspicious transaction, the covered
institution shall be required to report the
same as a suspicious transaction.
"When reporting covered or suspicious
transactions to the AMLC, covered
institutions and their officers and
employees shall not be deemed to have
violated Republic Act No. 1405, as
amended, Republic Act No. 6426, as
amended, Republic Act No. 8791 and
other similar laws, but are prohibited from
communicating, directly or indirectly, in
any manner or by an means, to any
person, the fact that a covered or
suspicious transaction report was made,
the contents thereof, or any other
information in relation thereto. In case of
 violation thereof, the concerned officer
and employee of the covered institution
shall be criminally liable. However, no
administrative, criminal or civil
proceedings, shall lie against any person
for having made a covered or suspicious
transaction report in the regular
performance of his duties in good faith,
whether or not such reporting results in
any criminal prosecution under this Act of
any other law.
"When reporting covered or suspicious
SECTION 9. Section 14, paragraphs (c) and (d) of
transactions to the AMLC, covered
the same Act is hereby amended to read as
instituting and their officers and
follows:
employees are prohibited from
communicating directly or indirectly, in
any manner or by any means, to any
person or entity, the media, the fact that
a covered or suspicious transaction report
was made, the contents thereof, or any
other information in relation thereto.
Neither may such reporting be published
or aired in any manner or form by the
mass media, electronic mail, or other
similar devices. In case of violation
thereof, the concerned officer and
employee of the covered institution and
media shall be held criminally liable.
SECTION 7. Section 10 of the same Act is hereby
amended to read as follows:
"Sec 10. Freezing of Monetary Instrument
or Property. -- The Court of Appeals, upon
application ex parte by the AMLC and
after determination that probable cause
exists that any monetary instrument or
property is in any way related to an
unlawful activity as defined in Section 3(i)
hereof, may issue a freeze order which
shall be effective immediately. The freeze
order shall be for a period of twenty (20)
days unless extended by the court.
SECTION 8. Section 11 of the same Act is hereby
amended to read as follows:
"Sec. 11. Authority to Inquire into Bank
Deposits. -- Notwithstanding the
provisions of Republic Act No. 1405, as
amended, Republic Act No. 6426, as
amended, Republic Act No. 8791, and
other laws, the AMLC may inquire into or
examine any particular deposit or
investment with any banking institution
or non-bank financial institution upon
order of any competent court in cases of
violation of this Act, when it has been
established that there is probable cause
that the deposits or investments are
related to an unlawful activities as
defined in Section 3(I) hereof or a money
laundering offense under Section 4
hereof, except that no court order shall be
required in cases involving unlawful
activities defined in Sections 3(I)1, (2)
and (12).
"To ensure compliance with this Act, the
Bangko Sentral ng Pilipinas (BSP) may
inquire into or examine any deposit of
investment with any banking institution
or non-bank financial institution when the
examination is made in the course of a
periodic or special examination, in
accordance with the rules of examination
of the BSP.
"(c) Malicious Reporting. Any person who,
with malice, or in bad faith, reports or
files a completely unwarranted or false
information relative to money laundering
transaction against any person shall be
subject to a penalty to six (6) months to
four (4) years imprisonment and a fine of
not less than One hundred thousand
Philippine pesos (Php100,000.00) but not
more than Five hundred thousand
Philippine pesos (Php500,000.00), at the
discretion of the court: Provided, That the
offender is not entitled to avail the
benefits of the Probation Law.
"If the offender is a corporation,
association, partnership or any juridical
person, the penalty shall be imposed
upon the responsible officers, as the case
may be, who participated in, or allowed
by their gross negligence, the commission
of the crime. If the offender is a juridical
person, the court may suspend or revoke
its license. If the offer is an alien, he shall,
in addition to the penalties herein
prescribed, be deported without further
proceedings after serving the penalties
herein prescribed. If the offender is a
public official or employee, he shall, in
addition to the penalties prescribed
herein, suffer perpetual or temporary
absolute disqualification from office, as
the case may be.
"Any public official or employee who is
called upon to testify and refuses to do
the same or purposely fails to testify shall
suffer the same penalties prescribed
herein.
"(d) Breach of Confidentiality. The
punishment of imprisonment ranging
from three (3) to eight (8) years and a
fine of not less than Five hundred
thousand Philippine pesos
(Php500,000.00) but not more than One
million Philippine pesos
(Php1,000,000.00) shall be imposed on a
person convicted for a violation under
Section 9(c). In the case of a breach of
confidentiality that is published or
 reported by media, the responsible
reporter, writer, president, publisher,
manager and editor-in-chief shall be liable
under this Act.
SECTION 10. Section 15 of Republic Act No.
9160 is hereby deleted.
SECTION 11. Section 23 of the same Act is
hereby amended to read as follows:
"SEC. 23. Effectivity. -- This Act shall take
effect fifteen (15) days after its complete
publication in the Official Gazette or in at
least two (2) national newspapers of
general circulation.
SECTION 12. Transitory Provision. -- Existing
freeze orders issued by the AMLC shall remain in
force for a period of thirty (30) days after the
effectivity of this Act, unless extended by the
Court of Appeals.
SECTION 13. Effectivity. -- This Act shall take
effect fifteen (15) days after its complete
publication in the Official Gazette or in at least
two (2) national newspapers of general
circulation.
Republic Act No. 7042 June 13, 1991
AN ACT TO PROMOTE FOREIGN
INVESTMENTS, PRESCRIBE THE
PROCEDURES FOR REGISTERING
ENTERPRISES DOING BUSINESS IN THE
PHILIPPINES, AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of
Representatives of the Philippines in Congress
assembled::
Section 1. Title. - This Act shall be known as
the, "Foreign Investments Act of 1991".
Section 2. Declaration of Policy. - It is the
policy of the State to attract, promote and
welcome productive investments from foreign
individuals, partnerships, corporations, and
governments, including their political
subdivisions, in activities which significantly
contribute to national industrialization and
socioeconomic development to the extent that
foreign investment is allowed in such activity by
the Constitution and relevant laws. Foreign
investments shall be encouraged in enterprises
that significantly expand livelihood and
employment opportunities for Filipinos; enhance
economic value of farm products; promote the
welfare of Filipino consumers; expand the scope,
quality and volume of exports and their access to
foreign markets; and/or transfer relevant
technologies in agriculture, industry and support
services. Foreign investments shall be welcome
as a supplement to Filipino capital and
technology in those enterprises serving mainly
the domestic market.
As a general rule, there are no restrictions on
extent of foreign ownership of export enterprises.
In domestic market enterprises, foreigners can
invest as much as one hundred percent (100%)
equity except in areas included in the negative
list. Foreign owned firms catering mainly to the
domestic market shall be encouraged to
undertake measures that will gradually increase
Filipino participation in their businesses by taking
in Filipino partners, electing Filipinos to the board
of directors, implementing transfer of technology
to Filipinos, generating more employment for the
economy and enhancing skills of Filipino workers.
Section 3. Definitions. - As used in this Act:
a) The term "Philippine national" shall
mean a citizen of the Philippines or a
domestic partnership or association
wholly owned by citizens of the
Philippines; or a corporation organized
under the laws of the Philippines of which
at least sixty percent (60%) of the capital
stock outstanding and entitled to vote is
owned and held by citizens of the
Philippines; or a trustee of funds for
pension or other employee retirement or
separation benefits, where the trustee is
a Philippine national and at least sixty
(60%) of the fund will accrue to the
benefit of the Philippine nationals:
Provided, That where a corporation and
its non-Filipino stockholders own stocks in
a Securities and Exchange Commission
(SEC) registered enterprise, at least sixty
percent (60%) of the capital stocks
outstanding and entitled to vote of both
corporations must be owned and held by
citizens of the Philippines and at least
sixty percent (60%) of the members of
the Board of Directors of both
corporations must be citizens of the
Philippines, in order that the corporations
shall be considered a Philippine national;
b) The term "investment" shall mean
equity participation in any enterprise
organized or existing under the laws of
the Philippines;
c) The term "foreign investment" shall
mean as equity investment made by a
non-Philippine national in the form of
 foreign exchange and/or other assets
actually transferred to the Philippines and
duly registered with the Central Bank
which shall assess and appraise the value
of such assets other than foreign
exchange;
d) The praise "doing business" shall
include soliciting orders, service
contracts, opening offices, whether called
"liaison" offices or branches; appointing
representatives or distributors domiciled
in the Philippines or who in any calendar
year stay in the country for a period or
periods totalling one hundred eighty
(180) days or more; participating in the
management, supervision or control of
any domestic business, firm, entity or
corporation in the Philippines; and any
other act or acts that imply a continuity of
commercial dealings or arrangements,
and contemplate to that extent the
performance of acts or works, or the
exercise of some of the functions
normally incident to, and in progressive
prosecution of, commercial gain or of the
purpose and object of the business
organization: Provided, however, That the
phrase "doing business: shall not be
deemed to include mere investment as a
shareholder by a foreign entity in
domestic corporations duly registered to
do business, and/or the exercise of rights
as such investor; nor having a nominee
director or officer to represent its
interests in such corporation; nor
appointing a representative or distributor
domiciled in the Philippines which
transacts business in its own name and
for its own account;
e) The term "export enterprise" shall
mean an enterprise which produces
goods for sale, or renders services to the
domestic market entirely or if exporting a
portion of its output fails to consistently
export at least sixty percent (60%)
thereof; and
g) The term "Foreign Investments
Negative List" or "Negative List" shall
mean a list of areas of economic activity
whose foreign ownership is limited to a
maximum of forty ownership is limited to
a maximum of forty percent (40%) of the
equity capital of the enterprise engaged
therein.
Section 4. Scope. - This Act shall not apply to
banking and other financial institutions which are
governed and regulated by the General Banking
Act and other laws under the supervision of the
Central Bank.
Section 5. Registration of Investments of
Non-Philippine Nationals. - Without need of
prior approval, a non-Philippine national, as that
term is defined in Section 3 a), and not otherwise
disqualified by law may upon registration with the
Securities and Exchange Commission (SEC), or
with the Bureau of Trade Regulation and
Consumer Protection (BTRCP) of the Department
of Trade and Industry in the case of single
proprietorships, do business as defined in Section
3 (d) of this Act or invest in a domestic enterprise
up to one hundred percent (100%) of its capital,
unless participation of non-Philippine nationals in
the enterprise is prohibited or limited to a smaller
percentage by existing law and/or limited to a
smaller percentage by existing law and/or under
the provisions of this Act. The SEC or BTRCP, as
the case may be, shall not impose any limitations
on the extent of foreign ownership in an
enterprise additional to those provided in this Act:
Provided, however, That any enterprise seeking
to avail of incentives under the Omnibus
Investment Code of 1987 must apply for
registration with the Board of Investments (BOI),
which shall process such application for
registration in accordance with the criteria for
evaluation prescribed in said Code: Provided,
finally, That a non-Philippine national intending to
engage in the same line of business as an
existing joint venture in his application for
registration with SEC. During the transitory period
as provided in Section 15 hereof, SEC shall
disallow registration of the applying non-
Philippine national if the existing joint venture
enterprise, particularly the Filipino partners
therein, can reasonably prove they are capable to
make the investment needed for they are
competing applicant. Upon effectivity of this Act,
SEC shall effect registration of any enterprise
applying under this Act within fifteen (15) days
upon submission of completed requirements.
Section 6. Foreign Investments in Export
Enterprises. - Foreign investment in export
enterprises whose products and services do not
fall within Lists A and B of the Foreign Investment
Negative List provided under Section 8 hereof is
allowed up to one hundred percent (100%)
ownership.
Export enterprises which are non-Philippine
nationals shall register with BOI and submit the
reports that may be required to ensure continuing
compliance of the export enterprise with its
export requirement. BOI shall advise SEC or
BTRCP, as the case may be, of any export
enterprise that fails to meet the export ratio
requirement. The SEC or BTRCP shall thereupon
order the non-complying export enterprise to
reduce its sales to the domestic market to not
more than forty percent (40%) of its total
production; failure to comply with such SEC or
BTRCP order, without justifiable reason, shall
subject the enterprise to cancellation of SEC or
BTRCP registration, and/or the penalties provided
in Section 14 hereof.
Section 7. Foreign Investments in Domestic
Market Enterprises. - Non-Philippine nationals
may own up to one hundred percent (100%) of
domestic market enterprises unless foreign
ownership therein is prohibited or limited by
existing law or the Foreign Investment Negative
List under Section 8 hereof.
A domestic market enterprise may change its
status to export enterprise if over a three (3) year
period it consistently exports in each year thereof
sixty per cent (60%) or more of its output.
Section 8. List of Investment Areas
Reserved to Philippine Nationals (Foreign
Investment Negative List). - The Foreign
Investment Negative List shall have three (3)
component lists: A, B, and C:
a) List A shall enumerate the areas of
activities reserved to Philippine nationals
by mandate of the Constitution and
specific laws.
b) List B shall contain the areas of
activities and enterprises pursuant to law:
1) Which are defense-related
activities, requiring prior
clearance and authorization from
Department of National Defense
(DND) to engage in such activity,
such as the manufacture, repair,
storage and/or distribution of
firearms, ammunition, lethal
weapons, military ordnance,
explosives, pyrotechnics and
similar materials; unless such
manufacturing or repair activity is
specifically authorized, with a
substantial export component, to
a non-Philippine national by the
Secretary of National Defense; or
2) Which have implications on
public health and morals, such as
the manufacture and distribution
of dangerous drugs; all forms of
gambling; nightclubs, bars,
beerhouses, dance halls; sauna
and steambath houses and
massage clinics.
Small and medium-sized domestic
market enterprises with paid-in
equity capital less than the
equivalent of five hundred
thousand US dollars (US$500,000)
are reserved to Philippine
nationals, unless they involve
advanced technology as
determined by the Department of
Science and Technology. Export
enterprises which utilize raw
materials from depleting natural
resources, with paid-in equity
capital of less than the equivalent
of five hundred thousand US
dollars (US$500,000) are likewise
reserved to Philippine nationals.
Amendments to List B may be made upon
recommendation of the Secretary of
National Defense, or the Secretary of
Health, or the Secretary of Education,
Culture and Sports, indorsed by the
NEDA, or upon recommendation motu
propio of NEDA, approved by the
President, and promulgated by
Presidential Proclamation.
c) List C shall contain the areas of
investment in which existing enterprises
already serve adequately the needs of
the economy and the consumer and do
not require further foreign investments,
as determined by NEDA applying the
criteria provided in Section 9 of this Act,
approved by the President and
promulgated in a Presidential
Proclamation.
The Transitory Foreign Investment
Negative List established in Sec. 15
hereof shall be replaced at the end of the
transitory period by the first Regular
Negative List to the formulated and
recommended by the NEDA, following the
process and criteria provided in Section 8
and 9 of this Act. The first Regular
Negative List shall be published not later
than sixty (60) days before the end of the
transitory period provided in said section,
and shall become immediately effective
at the end of the transitory period.
Subsequent Foreign Investment Negative
Lists shall become effective fifteen (15)
days after publication in two (2)
newspapers of general circulation in the
Philippines: Provided, however, That each
Foreign Investment Negative List shall be
prospective in operation and shall in no
way affect foreign investments existing
on the date of its publication.
Amendments to List B and C after
promulgation and publication of the first
Regular Foreign Investment Negative List
at the end of the transitory period shall
not be made more often than once every
two (2) years.
Section 9. Determination of Areas of
Investment for Inclusion in List C of the
Foreign Investment Negative List. - Upon
petition by a Philippine national engage therein,
an area of investment may be recommended by
NEDA for inclusion in List C of the Foreign
Investment Negative List upon determining that it
complies with all the following criteria:
a) The industry is controlled by firms
owned at least sixty percent (60%) by
Filipinos;
b) Industry capacity is ample to meet
domestic demand;
 c) Sufficient competition exists within the
industry;
d) Industry products comply with
Philippine standards of health and safety
or, in the absence of such, with
international standards, and are
reasonably competitive in quality with
similar products in the same price range
imported into the country;
e) Quantitative restrictions are not
applied on imports of directly competing
products;
f) The leading firms of the industry
substantially comply with environmental
standards; and
g) The prices of industry products are
reasonable.
The petition shall be subjected to a public hearing
at which affected parties will have the
opportunity to show whether the petitioner
industry adequately serves the economy and the
consumer, in general, and meets the above
stated criteria in particular. NEDA may delegate
evaluation of the petition and conduct of the
public hearing to any government agency having
cognizance of the petitioner industry. The
delegated agency shall make its evaluation report
and recommendations to NEDA which retains the
right and sole responsibility to determine whether
to recommend to the President to promulgate the
area of investment in List C of the Negative List.
An industry or area of investment included in List
C of the Negative List by Presidential
Proclamation shall remain in the said List C for
two (2) years, without prejudice to re-inclusion
upon new petition, and due process.
Section 10. Strategic Industries. - Within
eighteen (18) months after the effectivity of this
Act, the NEDA Board shall formulate and publish a
list of industries strategic to the development of
the economy. The list shall specify, as a matter of
policy and not as a legal requirement, the desired
equity participation by Government and/or
private Filipino investors in each strategic
industry. Said list of strategic industries, as well
as the corresponding desired equity participation
of government and/or private Filipino investors,
may be amended by NEDA to reflect changes in
economic needs and policy directions of
Government. The amended list of strategic
industries shall be published concurrently with
publication of the Foreign Investment Negative
List.
The term "strategic industries" shall mean
industries that are characterized by all of the
following:
a) Crucial to the accelerated
industrialization of the country,
b) Require massive capital investments to
achieve economies of scale for efficient
operations;
c) Require highly specialized or advanced
technology which necessitates technology
transfer and proven production
techniques in operations;
d) Characterized by strong backward and
forward linkages with most industries
existing in the country, and
e) Generate substantial foreign exchange
savings through import substitution and
collateral foreign exchange earnings
through export of part of the output that
will result with the establishment,
expansion or development of the industry.
Section 11. Compliance with Environmental
Standards. - All industrial enterprises regardless
of nationality of ownership shall comply with
existing rules and regulations to protect and
conserve the environment and meet applicable
environmental standards.
Section 12. Consistent Government Action. -
No agency, instrumentality or political subdivision
of the Government shall take any action on
conflict with or which will nullify the provisions of
this Act, or any certificate or authority granted
hereunder.
Section 13. Implementing Rules and
Regulations. - NEDA, in consultation with BOI,
SEC and other government agencies concerned,
shall issue the rules and regulations to implement
this Act within one hundred and twenty (120)
days after its effectivity. A copy of such rules and
regulations shall be furnished the Congress of the
Republic of the Philippines.
Section 14. Administrative Sanctions. - A
person who violates any provision of this Act or of
the terms and conditions of registration or of the
rules and regulations issued pursuant thereto, or
aids or abets in any manner any violation shall be
subject to a fine not exceeding One hundred
thousand pesos (P100,000).
If the offense is committed by a juridical entity, it
shall be subject to a fine in an amount not
exceeding ½ of 1% of total paid-in capital but not
more than Five million pesos (P5,000,000). The
president and/or officials responsible therefor
shall also be subject to a fine not exceeding Two
hundred thousand pesos (P200,000).
In addition to the foregoing, any person, firm or
juridical entity involved shall be subject to
forfeiture of all benefits granted under this Act.
SEC shall have the power to impose
administrative sanctions as provided herein for
any violation of this Act or its implementing rules
and regulations.
Section 15. Transitory Provisions. - Prior to
effectivity of the implementing rules and
regulations of this Act, the provisions of Book II of
Executive Order 226 and its implementing rules
and regulations shall remain in force.
During the initial transitory period of thirty-six
(36) months after issuance of the Rules and
Regulations to implement this Act, the Transitory
Foreign Investment Negative List shall consist of
the following:
A. List A:
1. All areas of investment in which
foreign ownership is limited by
mandate of Constitution and
specific laws.
B. List B:
1. Manufacture, repair, storage
and/or distribution of firearms,
ammunitions, lethal weapons,
military ordinance, explosives,
pyrotechnics and similar materials
required by law to be licensed by
and under the continuing
regulation of the Department of
National Defense; unless such
manufacturing or repair activity is
specifically authorized with a
substantial export component, to
a non-Philippine national by the
Secretary of National Defense;
2. Manufacture and distribution of
dangerous drugs; all forms of
gambling; nightclubs, bars,
beerhouses, dance halls; sauna
and steam bathhouses, massage
clinic and other like activities
regulated by law because of risks
they may pose to public health
and morals;
3. Small and medium-size
domestic market enterprises with
paid-in equity capital or less than
the equivalent of US$500,000,
unless they involve advanced
technology as determined by the
Department of Science and
Technology, and
4. Export enterprises which utilize
raw materials from depleting
natural resources, and with paid-
in equity capital of less than the
equivalent US$500,000.
C. List C:
1. Import and wholesale activities
not integrated with production or
manufacture of goods;
2. Services requiring a license or
specific authorization, and subject
to continuing regulations by
national government agencies
other than BOI and SEC which at
the time of effectivity of this Act
are restricted to Philippine
nationals by existing
administrative regulations and
practice of the regulatory
agencies concerned: Provided,
That after effectivity of this Act,
no other services shall be
additionally subjected to such
restrictions on nationality of
ownership by the corresponding
regulatory agencies, and such
restrictions once removed shall
not be reimposed; and
3. Enterprises owned in the
majority by a foreign licensor
and/or its affiliates for the
assembly, processing or
manufacture of goods for the
domestic market which are being
produced by a Philippine national
as of the date of effectivity of this
Act under a technology, know-
how and/or brand name license
from such licensor during the
term of the license agreement:
Provided, That, the license is duly
registered with the Central Bank
and/or the Technology Transfer
Board and is operatively in force
as of the date of effectivity of this
Act.
NEDA shall make the enumeration as appropriate
of the areas of the investment covered in this
Transitory Foreign Investment Negative List and
publish the Negative List in full at the same time
as, or prior to, the publication of the rules and
regulations to implement this Act.
The areas of investment contained in List C above
shall be reserved to Philippine nationals only
during the transitory period. The inclusion of any
of them in the regular Negative List will require
determination by NEDA after due public hearings
that such inclusion is warranted under the criteria
set forth in Section 8 and 9 hereof.
Section 16. Repealing Clause. - Articles forty-
four (44) to fifty-six (56) of Book II of Executive
Order No. 226 are hereby repealed.
All other laws or parts of laws inconsistent with
the provisions of this Act are hereby repealed or
modified accordingly.
Section 17. Separability. - If any part or
section of this Act is declared unconstitutional for
any reason whatsoever, such declaration shall
not in any way affect the other parts or sections
of this Act.
Section 18. Effectivity. - This Act shall take
effect fifteen (15) days after approval and
publication in two (2) newspaper of general
circulation in the Philippines.
Approved: June 13, 1991