GRACIE |

THE CORPORATION CODE OF THE PHILIPPINES [Batas Pambansa Blg. 68]

TITLE I GENERAL PROVISIONS Definitions and Classifications Section 1. Title of the Code. - This Code shall be known as "The Corporation Code of the Philippines". Sec. 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. Sec. 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. Sec. 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. Sec. 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. Sec. 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;

GRACIE |

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. Sec. 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. Sec. 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. Sec. 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.

TITLE II INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS Sec. 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. Sec. 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. Sec. 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. Sec. 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. Sec. 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

GRACIE |

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 he 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. Sec. 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 such corporation is incorporated are: (If there is more than one purpose, indicate primary and secondary purposes); THIRD: That the principal office of the corporation is located in the City/Municipality of ............................................., Province of .................................................., Philippines; FOURTH: That the term for which said corporation is to exist is ................ years from and after the date of issuance of the certificate of incorporation;

GRACIE |

FIFTH: That the names, nationalities and residences of the incorporators of the corporation are as follows: NAME NATIONALITY RESIDENCE

shares of which ....................... shares are of the par value of .............................. (P.....................) PESOS each, and of which ................................ shares are without par value. EIGHTH: That at least twenty five (25%) per cent of the authorized capital stock above stated has been subscribed as follows: Name of Subscriber Nationality No of Shares Amount Subscribed Subscribed .................................. .................... ........................ ....................... .................................. .................... ........................ ....................... .................................. .................... ........................ ....................... .................................. .................... ........................ ....................... .................................. .................... ........................ ....................... 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

..................................... ..................................... ..................................... ..................................... ..................................... ..................................... ..................................... ..................................... .....................................

................................... ...................................... ............................... ..................................... ..................................... ..................................... ................................... ...................................... ............................... ..................................... ..................................... ..................................... ................................... ...................................... ............................... SEVENTH: That the authorized capital stock of the corporation is ................................................. (P......................) PESOS in lawful money of the Philippines, divided into ............... shares with the par value of ................................... (P.......................) Pesos per share. (In case all the share are without par value): That the capital stock of the corporation is ........................... shares without par value. (In case some shares have par value and some are without par value): That the capital stock of said corporation consists of ........................ ................................... ...................................... ............................... ................................... ...................................... ............................... (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

GRACIE |

names, nationalities and residences of the contributors or donors and the respective amount given by each.) TENTH: That ....................................... has been elected by the subscribers as Treasurer of the Corporation to act as such until his successor is duly elected and qualified in accordance with the by-laws, and that as such Treasurer, he has been authorized to receive for and in the name and for the benefit of the corporation, all subscription (or fees) or contributions or donations paid or given by the subscribers or members. ELEVENTH: (Corporations which will engage in any business or activity reserved for Filipino citizens shall provide the following): "No transfer of stock or interest which shall reduce the ownership of Filipino citizens to less than the required percentage of the capital stock as provided by existing laws shall be allowed or permitted to recorded in the proper books of the corporation and this restriction shall be indicated in all stock certificates issued by the corporation." IN WITNESS WHEREOF, we have hereunto signed these Articles of Incorporation, this ................... day of .............................., 19 ........... in the City/Municipality of ........................................, Province of ................................................., Republic of the Philippines. ............................................ ............................................. ............................................ ............................................. ................................................ (Names and signatures of the incorporators) SIGNED IN THE PRESENCE OF: ............................................ ............................................. (Notarial Acknowledgment)

TREASURER'S AFFIDAVIT REPUBLIC OF THE PHILIPPINES ) CITY/MUNICIPALITY OF ) S.S. PROVINCE OF ) I, ...................................., being duly sworn, depose and say: That I have been elected by the subscribers of the corporation as Treasurer thereof, to act as such until my successor has been duly elected and qualified in accordance with the by-laws of the corporation, and that as such Treasurer, I hereby certify under oath that at least 25% of the authorized capital stock of the corporation has been subscribed and at least 25% of the total subscription has been paid, and received by me, in cash or property, in the amount of not less than P5,000.00, in accordance with the Corporation Code. ....................................... (Signature of Treasurer) SUBSCRIBED AND SWORN to before me, a Notary Public, for and in the City/Municipality of .................................. Province of .........................................., this ............. day of ........................., 19 ........; by ............................................ with Res. Cert. No. ..................... issued at ................. on ......................, 19 ..........

NOTARY PUBLIC My commission expires on ..........................., 19 ........ Doc. No. ...............; Page No. ...............; Book No. ..............; Series of 19..... (7a) Sec. 16. Amendment of Articles of Incorporation. - Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, any

GRACIE |

provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code, or the vote or written assent of at least two-thirds (2/3) of the members if it be a non-stock corporation. The original and amended articles together shall contain all provisions required by law to be set out in the articles of incorporation. Such articles, as amended shall be indicated by underscoring the change or changes made, and a copy thereof duly certified under oath by the corporate secretary and a majority of the directors or trustees stating the fact that said amendment or amendments have been duly approved by the required vote of the stockholders or members, shall be submitted to the Securities and Exchange Commission. The amendments shall take effect upon their approval by the Securities and Exchange Commission or from the date of filing with the said Commission if not acted upon within six (6) months from the date of filing for a cause not attributable to the corporation. Sec. 17. Grounds when articles of incorporation or amendment may be rejected or disapproved. - The Securities and Exchange Commission may reject the articles of incorporation or disapprove any amendment thereto if the same is not in compliance with the requirements of this Code: Provided, That the Commission shall give the incorporators a reasonable time within which to correct or modify the objectionable portions of the articles or amendment. The following are grounds for such rejection or disapproval: 1. That the articles of incorporation or any amendment thereto is not substantially in accordance with the form prescribed herein; 2. That the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral, or contrary to government rules and regulations; 3. That the Treasurer's Affidavit concerning the amount of capital stock subscribed and/or paid if false;

4. That the percentage of ownership of the capital stock to be owned by citizens of the Philippines has not been complied with as required by existing laws or the Constitution. No articles of incorporation or amendment to articles of incorporation of banks, banking and quasi-banking institutions, building and loan associations, trust companies and other financial intermediaries, insurance companies, public utilities, educational institutions, and other corporations governed by special laws shall be accepted or approved by the Commission unless accompanied by a favorable recommendation of the appropriate government agency to the effect that such articles or amendment is in accordance with law. Sec. 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. Sec. 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. Sec. 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. Sec. 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

GRACIE |

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. Sec. 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. 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.

trustees of all corporations organized under this Code must be residents of the Philippines. Sec. 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 bylaws, 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 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. Sec. 25. Corporate officers, quorum. - Immediately after their election, the directors of a corporation must formally organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a secretary who shall be a resident and citizen of the Philippines, and such other officers as may be provided for in the by-laws. Any two (2) or more positions may be held concurrently by the same person, except that no one shall act as president and secretary or as president and treasurer at the same time.

TITLE III BOARD OF DIRECTORS/TRUSTEES/OFFICERS Sec. 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. 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

GRACIE |

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. Sec. 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. Sec. 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. Sec. 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. Sec. 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. A 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. Sec. 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 pre 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. Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in

GRACIE |

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. Sec. 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 nor 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 twothirds (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. Sec. 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. Sec. 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. Sec. 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 bylaws; (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 Sec. 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;

GRACIE |

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. Sec. 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) Sec. 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 stockholder 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

GRACIE |

(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) Sec. 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. Sec. 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

GRACIE |

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. (28 1/2a) Sec. 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. (n) Sec. 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)

Sec. 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) Sec. 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

GRACIE |

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) Sec. 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)

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 bylaws 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) Sec. 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;

TITLE V BY LAWS Sec. 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.

8. The penalties for violation of the by-laws; 9. In the case of stock corporations, the manner of issuing stock certificates; and

GRACIE |

10. Such other matters as may be necessary for the proper or convenient transaction of its corporate business and affairs. (21a) Sec. 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 nonstock 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)

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 Secretaries 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 been chosen one of their number as presiding officer. (24, 26) Sec. 51. Place and time of meetings of stockholders or members. Stockholders' or members' 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) Sec. 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) Sec. 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.

TITLE VI MEETINGS Sec. 49. Kinds of meetings. - Meetings of directors, trustees, stockholders, or members may be regular or special. (n) Sec. 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.

GRACIE |

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) Sec. 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) Sec. 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) Sec. 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) Sec. 57. Voting right for treasury shares. - Treasury shares shall have no voting right as long as such shares remain in the Treasury. (n) Sec. 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) Sec. 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 canceled 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.

GRACIE |

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 canceled 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)

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) Sec. 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 endorsed 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) Sec. 64. Issuance of stock certificates. - No certificate of stock shall be issued to a subscriber until the full amount of his subscription together

TITLE VII STOCKS AND STOCKHOLDERS Sec. 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) Sec. 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 preincorporation subscription may be revoked after the submission of the articles of incorporation to the Securities and Exchange Commission. (n) Sec. 62. Considering 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;

GRACIE |

with interest and expenses (in case of delinquent shares), if any is due, has been paid. (37) Sec. 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) Sec. 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 bylaws. If no rate of interest is fixed in the by-laws, such rate shall be deemed to be the legal rate. (37) Sec. 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 bylaws, 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) Sec. 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. Sec. 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)

GRACIE |

Sec. 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) Sec. 71. Effect of delinquency. - No delinquent stock shall be voted for 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) Sec. 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) Sec. 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 Sec. 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, writing, for a copy of excerpts from said records or minutes, at his expense.

GRACIE |

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; B. P. No. 268.) Sec. 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 Sec. 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) Sec. 77. Stockholder's or member's approval. - Upon approval by majority vote of each of the board of directors or trustees of the constituent

GRACIE |

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 twothirds (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) Sec. 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) Sec. 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) Sec. 80. Effects or 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

GRACIE |

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)

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) Sec. 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) Sec. 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) Sec. 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)

TITLE X APPRAISAL RIGHT Sec. 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) Sec. 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

GRACIE |

Sec. 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 canceled, 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)

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. Sec. 90. Non-transferability of membership. - Membership in a non-stock corporation and all rights arising therefrom are personal and nontransferable, unless the articles of incorporation or the by-laws otherwise provide. (n) Sec. 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 OFFICERS Sec. 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)

TITLE XI NON-STOCK CORPORATIONS Sec. 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) Sec. 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 MEMBERS Sec. 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.

GRACIE |

Sec. 93. Place of meetings. - The by-laws may provide that the members of a non-stock corporation may hold their regular or special meetings at any place even outside the place where the principal office of the corporation is located: Provided, That proper notice is sent to all members indicating the date, time and place of the meeting: and Provided, further, That the place of meeting shall be within the Philippines. (n)

Chapter III - DISTRIBUTION OF ASSETS IN NON-STOCK CORPORATIONS Sec. 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)

Sec. 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 Sec. 96. Definition and applicability of Title. - A close corporation, within the meaning of this Code, is one whose articles of incorporation provide that: (1) All the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding twenty (20); (2) all the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title; and (3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class. Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation within the meaning of this Code. Any corporation may be incorporated as a close corporation, except mining or oil companies, stock exchanges, banks, insurance companies, public utilities, educational 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.

GRACIE |

Sec. 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. Sec. 98. Validity of restrictions on transfer of shares. - Restrictions on the right to transfer shares must appear in the articles of incorporation and in the by-laws as well as in the certificate of stock; otherwise, the same shall not be binding on any purchaser thereof in good faith. Said restrictions shall not be more onerous than granting the existing stockholders or the corporation the option to purchase the shares of the transferring stockholder with such reasonable terms, conditions or period stated therein. If upon the expiration of said period, the existing stockholders or the corporation fails to exercise the option to purchase, the transferring stockholder may sell his shares to any third person. Sec. 99. Effects of issuance or transfer of stock in breach of qualifying conditions. -

1. If stock of a close corporation is issued or transferred to any person who is not entitled under any provision of the articles of incorporation to be a holder of record of its stock, and if the certificate for such stock conspicuously shows the qualifications of the persons entitled to be holders of record thereof, such person is conclusively presumed to have notice of the fact of his ineligibility to be a stockholder. 2. If the articles of incorporation of a close corporation states the number of persons, not exceeding twenty (20), who are entitled to be holders of record of its stock, and if the certificate for such stock conspicuously states such number, and if the issuance or transfer of stock to any person would cause the stock to be held by more than such number of persons, the person to whom such stock is issued or transferred is conclusively presumed to have notice of this fact. 3. If a stock certificate of any close corporation conspicuously shows a restriction on transfer of stock of the corporation, the transferee of the stock is conclusively presumed to have notice of the fact that he has acquired stock in violation of the restriction, if such acquisition violates the restriction. 4. Whenever any person to whom stock of a close corporation has been issued or transferred has, or is conclusively presumed under this section to have, notice either (a) that he is a person not eligible to be a holder of stock of the corporation, or (b) that transfer of stock to him would cause the stock of the corporation to be held by more than the number of persons permitted by its articles of incorporation to hold stock of the corporation, or (c) that the transfer of stock is in violation of a restriction on transfer of stock, the corporation may, at its option, refuse to register the transfer of stock in the name of the transferee. 5. The provisions of subsection (4) shall not applicable if the transfer of stock, though contrary to subsections (1), (2) of (3), has been consented to by all the stockholders of the close corporation, or if the close corporation has amended its articles of incorporation in accordance with this Title. 6. The term "transfer", as used in this section, is not limited to a transfer for value. 7. The provisions of this section shall not impair any right which the transferee may have to rescind the transfer or to recover under any applicable warranty, express or implied.

GRACIE |

Sec. 100. Agreements by stockholders. 1. Agreements by and among stockholders executed before the formation and organization of a close corporation, signed by all stockholders, shall survive the incorporation of such corporation and shall continue to be valid and binding between and among such stockholders, if such be their intent, to the extent that such agreements are not inconsistent with the articles of incorporation, irrespective of where the provisions of such agreements are contained, except those required by this Title to be embodied in said articles of incorporation. 2. An agreement between two or more stockholders, if in writing and signed by the parties thereto, may provide that in exercising any voting rights, the shares held by them shall be voted as therein provided, or as they may agree, or as determined in accordance with a procedure agreed upon by them. 3. No provision in any written agreement signed by the stockholders, relating to any phase of the corporate affairs, shall be invalidated as between the parties on the ground that its effect is to make them partners among themselves. 4. A written agreement among some or all of the stockholders in a close corporation shall not be invalidated on the ground that it so relates to the conduct of the business and affairs of the corporation as to restrict or interfere with the discretion or powers of the board of directors: Provided, That such agreement shall impose on the stockholders who are parties thereto the liabilities for managerial acts imposed by this Code on directors. 5. To the extent that the stockholders are actively engaged in the management or operation of the business and affairs of a close corporation, the stockholders shall be held to strict fiduciary duties to each other and among themselves. Said stockholders shall be personally liable for corporate torts unless the corporation has obtained reasonably adequate liability insurance. Sec. 101. When board meeting is unnecessary or improperly held. - Unless the by-laws provide otherwise, any action by the directors of a close corporation without a meeting shall nevertheless be deemed valid if: 1. Before or after such action is taken, written consent thereto is signed by all the directors; or

2. All the stockholders have actual or implied knowledge of the action and make no prompt objection thereto in writing; or 3. The directors are accustomed to take informal action with the express or implied acquiescence of all the stockholders; or 4. All the directors have express or implied knowledge of the action in question and none of them makes prompt objection thereto in writing. If a director's meeting is held without proper call or notice, an action taken therein within the corporate powers is deemed ratified by a director who failed to attend, unless he promptly files his written objection with the secretary of the corporation after having knowledge thereof. Sec. 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. Sec. 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. Sec. 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) canceling or altering any provision

GRACIE |

contained in the articles of incorporation, by-laws, or any stockholder's agreement; (2) canceling, 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. Sec. 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 Sec. 106. Incorporation. - Educational corporations shall be governed by special laws and by the general provisions of this Code. (n) Sec. 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) Sec. 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 Sec. 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)

GRACIE |

Sec. 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) Sec. 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) Sec. 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) Sec. 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) Sec. 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.

GRACIE |

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) Sec. 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) Sec. 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 6. The names, nationalities, and residences of the trustees elected by the religious society or religious order, or the diocese, synod, or district organization to serve for the first year or such other period as may be prescribed by the laws of the religious society or religious order, or of the diocese, synod, or district organization, the board of trustees to be not less than five (5) nor more than fifteen (15). (160a)

TITLE XIV DISSOLUTION Sec. 117. Methods of dissolution. - A corporation formed or organized under the provisions of this Code may be dissolved voluntarily or involuntarily. (n) Sec. 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

GRACIE |

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) Sec. 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 twothirds (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) Sec. 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) Sec. 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) Sec. 122. Corporate liquidation. - Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose of continuing the business for which it was established. At any time during said three (3) years, 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.

GRACIE |

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)

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.

TITLE XV FOREIGN CORPORATIONS Sec. 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) Sec. 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) Sec. 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 bylaws, 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. 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;

GRACIE |

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) Sec. 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) Sec. 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) Sec. 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

GRACIE |

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) Sec. 129. Law applicable. - Any foreign corporation lawfully doing business in the Philippines shall be bound by all laws, rules and regulations applicable to domestic corporations of the same class, except such only as provide for the creation, formation, organization or dissolution of corporations or those which fix the relations, liabilities, responsibilities, or duties of stockholders, members, or officers of corporations to each other or to the corporation. (73a) Sec. 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 bylaws, 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) Sec. 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) Sec. 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 it license in accordance with this Title. (n) Sec. 133. Doing business without a license. - No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. (69a) Sec. 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;

GRACIE |

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 bylaws 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) Sec. 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) Sec. 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 Sec. 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) Sec. 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) Sec. 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) Sec. 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.

GRACIE |

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, business 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. Sec. 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) Sec. 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) Sec. 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) Sec. 144. Violations of the Code. - Violations of any of the provisions of this Code or its amendments not otherwise specifically penalized therein shall be punished by a fine of not less than one thousand (P1,000.00) pesos but not more than ten thousand (P10,000.00) pesos or by imprisonment for not less than thirty (30) days but not more than five (5) years, or both, in the discretion of the court. If the violation is committed by a corporation, the same may, after notice and hearing, be dissolved in appropriate proceedings before the Securities and Exchange Commission: Provided, That such dissolution shall not preclude the institution of appropriate action against the director, trustee or officer of the corporation responsible for said violation: Provided, further, That nothing in this section shall be construed to repeal the other causes for dissolution of a corporation provided in this Code. (190 1/2 a) Sec. 145. Amendment or repeal. - No right or remedy in favor of or against any corporation, its stockholders, members, directors, trustees, or officers, nor any liability incurred by any such corporation, stockholders, members, directors, trustees, or officers, shall be removed or impaired either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal of this Code or of any part thereof. (n) Sec. 146. Repealing clause. - Except as expressly provided by this Code, all laws or parts thereof inconsistent with any provision of this Code shall be deemed repealed. (n) Sec. 147. Separability of provisions. - Should any provision of this Code or any part thereof be declared invalid or unconstitutional, the other provisions, so far as they are separable, shall remain in force. (n) Sec. 148. Applicability to existing corporations. - All corporations lawfully existing and doing business in the Philippines on the date of the effectivity of this Code and heretofore authorized, licensed or registered by the Securities and Exchange Commission, shall be deemed to have been authorized, licensed or registered under the provisions of this Code, subject to the terms and conditions of its license, and shall be governed by the provisions hereof: Provided, That if any such corporation is affected by the

GRACIE |

new requirements of this Code, said corporation shall, unless otherwise herein provided, be given a period of not more than two (2) years from the effectivity of this Code within which to comply with the same. (n) Sec. 149. Effectivity. - This Code shall take effect immediately upon its approval.

Approved: May 1, 1980

GRACIE |

GRACIE |

REPUBLIC ACT NO. 8799 SECURITIES REGULATION CODE 3.3 Broker is a person engaged in the business of buying and selling securities for the account of others. CHAPTER I Title and Definitions 3.4 Dealer means any person who buys and 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 thereof who, 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 to effect settlement in securities transactions. 3.7. Exchange is an organized marketplace or facility that brings together buyers and sellers and executes trades of securities and/or commodities. 3.8. Insider means: (a) the issuer; (b) a director or officer (or person performing similar functions) of, or a person controlling the issuer; (c) a person whose relationship or former relationship to 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, or 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 of the foregoing insiders. 3.9. Pre-Need Plans are contracts which provide for the performance of future services or the payment of future monetary considerations at the time of actual need, for which planholders 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.

SECTION 1. Title. This shall be known as The Securities Regulation Code. SEC. 2. Declaration of State Policy. The State shall establish a socially conscious, free market that regulates itself, encourage the widest participation of ownership in enterprises, enhance the democratization of wealth, promote the development of the capital market, protect investors, ensure full and fair disclosure about securities, minimize if not totally eliminate insider trading and other fraudulent or manipulative devices and practices which create distortions in the free market. To achieve these ends, this Securities Regulation Code is hereby enacted. SEC. 3. Definition of Terms. 3.1. Securities are shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate, contract, instrument, whether written or electronic in character. It includes: (a) Shares of stock, bonds, debentures, notes, evidences of indebtedness, asset-backed securities; (b) Investment contracts, certificates of interest or participation in a profit sharing agreement, certificates of deposit for a future subscription; (c) Fractional undivided interests in oil, gas or other mineral rights; (d) Derivatives like option and warrants; (e) Certificates of assignments, certificates of participation, trust certificates, voting trust certificates or similar instruments; (f) Proprietary or non proprietary membership certificates incorporations; and (g) Other instruments as may in the future be determined by the Commission. 3.2 Issuer is the originator, maker, obligor, or creator of the security.

GRACIE |

3.11. Prospectus is the document made by or on behalf of an issuer, underwriter or dealer to sell or offer securities for sale to the public through a 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 or 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 SEC. 4. Administrative Agency. 4.1. This Code shall be administered by the Securities and Exchange Commission (hereafter the Commission) as a collegial body, composed of a Chairperson and four (4) Commissioners, appointed by the President for a term of seven (7) years each and who shall serve 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 such term. The incumbent Chairperson and Commissioners at the effectivity of this Code, shall serve 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, of 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 the 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 of its 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 an objective classification system, at a sum comparable to the members of the Monetary Board and commensurate to the 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 call of the Chairperson or upon the request of three (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 or office of the Commission, an individual Commissioner or staff member of the Commission except its review or appellate authority and its power to adopt, alter and supplement any rule or regulation. 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. SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission shall act with transparency and shall have the powers and functions provided by this Code, Presidential Decree No. 902-A, the Corporation Code, 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, partnerships or associations who are the grantees of primary franchises and/or a license or permit issued by the Government;

GRACIE |

(b) Formulate policies and recommendations on issues concerning the securities market, advise Congress and other government agencies on all aspects of the securities market and propose legislation and amendments thereto; (c) Approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing applications; (d) Regulate, investigate or supervise the activities of persons to ensure compliance; (e) Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and other SROs; (f) Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto; (g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulations and orders; (h) Enlist the aid and support of and/or deputize any and all enforcement agencies of the Government, civil or military as well as any private institution, corporation, firm, association or person in the implementation of its powers and functions under this Code; (i) Issue cease and desist orders to prevent fraud or injury to the investing public; (j) Punish for contempt of the Commission, both direct and indirect, in accordance with the pertinent provisions of and penalties prescribed by the Rules of Court; (k) Compel the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision; (l) Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission and in appropriate cases, order the examination, search and seizure of all documents, papers, files and records, tax returns, and books of accounts of any entity or person under

investigation as may be necessary for the proper disposition of the cases before it, subject to the provisions of existing laws; (m) Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law; and (n) Exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives and purposes of these laws. 5.2. The Commissions jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, that the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. SEC. 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 costs and expenses reasonably incurred by such persons in connection with any civil or criminal actions, suits or proceedings to which they may be or made a party by reason of the performance of their functions or duties, unless they are finally adjudged in such actions 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

GRACIE |

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 as a result of such violation, negligence, abuse, 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 with 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. SEC. 7. Reorganization.- 7.1. To achieve the goals of this Code, consistent with 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 powers under this Code. 7.2. All positions of the Commission shall be governed by a compensation and position classification systems and qualification standards approved by the Commission based on a comprehensive job analysis and audit of actual duties and 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 reviews or increases based on productivity and efficiency. The Commission shall, therefore, be exempt from laws, rules, and regulations on compensation, position classification and qualification 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 No. 6758, as amended).

CHAPTER III

Registration of Securities

SEC. 8. Requirement of Registration of Securities. 8.1. Securities shall not be sold or offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved by the Commission. Prior to such sale, information on the securities, in such form and with such substance as the Commission may prescribe, shall be made available to each prospective purchaser. 8.2. The Commission may conditionally approve the registration statement under such terms as it may deem necessary. 8.3. The Commission may specify the terms and conditions under which any written communication, including any summary prospectus, shall be deemed not to constitute an offer for sale under this Section. 8.4. A record of the registration of securities shall be kept in a Register of Securities in which shall be recorded orders entered by the Commission with respect to such securities. Such register and all documents or information with respect to the securities registered therein shall be open to public inspection at reasonable hours on business days. 8.5. The Commission may audit the financial statements, assets and other information of a firm applying for registration of its securities whenever it deems the same necessary to insure full disclosure or to protect the interest of the investors and the public in general. SEC. 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 of disclosures the Commission may prescribe.

GRACIE |

(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 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. SEC. 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 other similar lien holder selling or offering for sale or delivery in the ordinary course of business and not for the purpose of avoiding the provisions of this Code, to liquidate a bona fide 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 thereof, or by his representative for the owners account, such sale or offer for sale, subscription or delivery not being made in the course of repeated and successive transactions 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, where 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 provisions 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) Brokers transactions, executed upon customers orders, on any registered Exchange or other trading market. (i) Subscriptions for shares of the capital stock of a corporation prior to the incorporation thereof or in pursuance of an increase in its authorized capital stock 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 subscriptions 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 increased. (j) The exchange of securities by the issuer with its 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.

GRACIE |

(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 managed 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 by rule 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 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 rule may prescribe and with such notice shall pay to the Commission a fee equivalent to one-tenth (1/10) of one percent (1%) of the maximum aggregate price or issued value of the securities. SEC. 11. Commodity Futures Contracts.- No person shall offer, sell or enter into commodity futures contracts except in accordance with 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. SEC. 12. Procedure for Registration of Securities. 12.1. All securities required to be registered under Subsection 8.1 shall be registered through the filing by the issuer in the main office of the

Commission, of a sworn registration statement with respect to such securities, in such form and containing such information and documents as the Commission shall prescribe. The registration statement shall include any prospectus required or permitted to be delivered under Subsections 8.2, 8.3 and 8.4. 12.2. In promulgating rules governing the content of any registration statement (including any prospectus made a part thereof or annexed thereto), the Commission may require the registration statement to contain such information or documents as it may, by rule, prescribe. It may dispense with any such requirement, or may require additional information or documents, including written information from an expert, depending on the necessity thereof or their applicability to the class of securities sought to be registered. 12.3. The information required for the registration of any kind, and all securities, shall include, among others, the effect of the securities issue on ownership, on the mix of ownership, especially foreign and local ownership. 12.4. The registration statement shall be signed by the issuers executive officer, its principal operating officer, its principal financial officer, its comptroller, principal accounting officer, its corporate secretary or persons performing similar functions accompanied by a duly verified resolution of the board of directors of the issuer corporation. The written consent of the expert named as having certified any part of the registration statement or any document used in connection therewith shall also be filed. Where the registration statement includes shares to be sold by selling shareholders, a written certification by such selling shareholders as to the accuracy of any part of the registration statement contributed to by such selling shareholders shall also be filed. 12.5. (a) Upon filing of the registration statement, the issuer shall pay to the Commission a fee of not more than one-tenth (1/10) of one per centum (1%) of the maximum aggregate price at which such securities are proposed to be offered. The Commission shall prescribe by rule diminishing fees in inverse proportion to the value of the aggregate price of the offering. (b) Notice of the filing of the registration statement shall be immediately published by the issuer, at its own expense, in two (2) newspapers of

GRACIE |

general circulation in the Philippines, once a week for two (2) consecutive weeks, or in such other manner as the Commission by rule shall prescribe, reciting that a registration statement for the sale of such security has been filed, and that the aforesaid registration statement, as well as the papers attached thereto are open to inspection at the Commission during business hours, and copies thereof, photostatic or otherwise, shall be furnished to interested parties at such reasonable charge as the Commission may prescribe. 12.6. Within forty-five (45) days after the date of filing of the registration statement, or by such later date to which the issuer has consented, the Commission shall declare the registration statement effective or rejected, unless the applicant is allowed to amend the registration statement as provided in Section 14 hereof. The Commission shall enter an order declaring the registration statement to be effective if it finds that the registration statement together with all the other papers and documents attached thereto, is on its face complete and that the requirements have been complied with. The Commission may impose such terms and conditions as may be necessary or appropriate for the protection of the investors. 12.7. Upon effectivity of the registration statement, the issuer shall state under oath in every prospectus that all registration requirements have been met and that all information are true and correct as represented by the issuer or the one making the statement. Any untrue statement of fact or omission to state a material fact required to be stated therein or necessary to make the statement therein not misleading shall constitute fraud. SEC. 13. Rejection and Revocation of Registration of Securities. - 13.1. The Commission may reject a registration statement and refuse registration of the security thereunder, or revoke the effectivity of a registration statement and the registration of the security thereunder after due notice and hearing by issuing an order to such effect, setting forth its findings in respect thereto, if it finds that: (a) The issuer: (i) Has been judicially declared insolvent; (ii) Has violated any of the provisions of this Code, the rules promulgated 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 requirement 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 statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading; or (c) The issuer, any officer, director or controlling person of the issuer, or person performing similar functions, or any underwriter 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 judicial or administrative body for violations of securities, commodities, and other related laws. For purposes of this subsection, the term competent judicial or administrative body shall include a foreign court of competent jurisdiction as provided for under the 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 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 it 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

GRACIE |

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. SEC. 14. Amendments 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 a 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 effectivity of the 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. SEC. 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 judgment 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 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 broker known 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, it shall issue an order prohibiting sale of such security. Until the issuance of a final order, the suspension of the right to sell, 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. 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.

GRACIE |

CHAPTER IV Regulation of Pre-Need Plans (b) An issuer with a class of securities listed for trading on an Exchange; and SEC.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 preneed 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 record 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. (c) An issuer with assets of at least Fifty million pesos (P50,000,000.00) or such other amount as the Commission shall prescribe, and having Two hundred (200) or more holders each holding at least One hundred (100) shares of a class of its equity securities: Provided, however, That the obligation of such issuer to file reports shall be terminated ninety (90) days after notification to the Commission by the issuer that the number of its holders holding at least one hundred (100) shares is reduced to less than One hundred (100). 17.3. Every issuer of a security listed for trading on an Exchange shall file with the 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 Corporation Code. 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. SEC. 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 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 security, to the Exchange where the security is traded, and to the Commission a sworn

CHAPTER V Reportorial Requirements SEC. 17. Periodic and Other Reports of Issuers. -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 issuers 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 by an independent certified public accountant, and a management discussion and analysis of results of operations; 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) holders of such class of securities or such other number as the Commission shall prescribe and it notifies the Commission of such;

GRACIE |

statement containing the following information and such other 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 persons by whom or on whose behalf the purchases are effected; in the event the beneficial owner is a juridical person, the lines 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 calls, 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 Shareholder Interests SEC. 19. Tender Offers. 19.1. (a) Any person or group of persons acting in concert who intends to acquire at least fifteen per cent (15%) of any class of any equity security of a listed corporation or of any class of any equity security of a corporation with assets of at least Fifty Million Pesos (P50,000,000.00) and having two hundred (200) or more stockholders with at least one hundred (100) shares each or who intends to acquire at least thirty per cent (30%) of such equity over a period of twelve (12) months shall make a tender offer to stockholders by filing 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 requests or invitations for tender, or materials making a tender offer or requesting or inviting letters of such a security. Copies of any additional material soliciting 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 later than the time copies of such materials are first published or sent or given to security holders. (b) 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 the Commission may prescribe. (c) 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 the 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 or request or invitation, except as the Commission may otherwise prescribe. (d) Where the securities offered exceed that which a person or group of persons is bound or willing to take up and pay for, the securities that are subject of the tender offer shall be taken up as nearly as may be pro rata, disregarding fractions, according to the number of securities deposited by each depositor. The provisions of this subsection shall also apply to securities deposited within ten (10) days after notice of an increase in the

GRACIE |

consideration offered to security holders, as described in paragraph (e) of this subsection, is first published or sent or given to security holders. (e) 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 unlawful 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 misleading, or to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer or request or invitation for tenders, or any solicitation of security holders in opposition to or in 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, or manipulative. SEC. 20. Proxy Solicitations. 20.1. Proxies must be issued and proxy solicitation must be made in accordance with rules and regulations to be issued by the Commission; 20.2. Proxies must be in writing, signed by the stockholder or his duly authorized representative and filed 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 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 authorization, in respect of any security carried for the account of a customer, to a person other than the customer, without the express written authorization of such customer. 20.5. A broker or dealer who holds or acquires the proxy for at least ten per centum (10%) or such percentage as the Commission may prescribe of the

outstanding share of the issuer, shall submit a report identifying the beneficial owner within ten (10) days after such acquisition, for its own account or customer, to the issuer of the security, to the Exchange where the security is traded and to the Commission. SEC. 21. Fees for Tender Offers and Certain Proxy Solicitations. - At the time of filing with the Commission of any statement required under Section 19 for any tender offer or Section 72.2 for issuer repurchases, 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) of one percentum (1%) of: 21.1. The proposed aggregate purchase price in the case of a transaction under Sections 20 or 72.2; or 21.2. The proposed payment in cash, and the value of any securities or property to be transferred in the acquisition, merger or consolidation, or the cash and value of any securities proposed to be received upon the sale or 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. SEC. 22. Internal Record Keeping and Accounting Controls. - Every issuer which has a class of securities that satisfies the requirements of Subsection 17.2 shall: 22.1. Make and keep books, records, and accounts which, in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of the issuer; 22.2. Devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (a) Transactions and access to assets are pursuant to management authorization; (b) Financial statements are prepared in conformity with generally accepted accounting principles that are adopted by the Accounting Standards Council and the rules promulgated by the Commission with regard to the preparation of financial statements; and (c) Recorded assets are compared with existing assets at reasonable intervals and differences are reconciled. SEC. 23. Transactions of Directors, Officers and Principal Stockholders. 23.1. Every person who is directly or indirectly the beneficial owner of

GRACIE |

more than ten per centum (10%) of any class of any equity security which satisfies the requirements of Subsection 17.2, or who is a director or an officer of the issuer of such security, shall file, at the time either such requirement is first satisfied or within ten days after he becomes such a beneficial owner, director, or officer, a statement with the Commission and, if such security is listed for trading on an Exchange, also with the Exchange, of the amount of all equity securities of such issuer of which he is the beneficial owner, and within ten (10) days after the close of each calendar month thereafter, if there has been a change in such ownership during such month, shall file with the Commission, and if such security is listed for trading on an Exchange, shall also file with the Exchange, a statement indicating his ownership at the close of the calendar month and such changes in his ownership as have occurred during such calendar month. 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 and sale, or any sale and purchase, of any equity security of such issuer within any period of less than six (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 no such suit shall be brought more than two (2) years after the date such profit was realized. This subsection shall not be construed to cover any transaction where such beneficial owner was not such both at the time of the purchase and sale, or the sale and 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 security or his principal: (a) Does not own the security sold; or (b) If owning the security, does not deliver it against such sale within twenty (20) days thereafter, or does not within five (5) days after such sale deposit it in the mails or other usual channels of transportation; but no

person shall be deemed to have violated this subsection if he proves that notwithstanding the exercise of good faith he was unable to make such delivery or deposit within 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 in 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 on Fraud, Manipulation and Insider Trading SEC. 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 or 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 effect, alone or with others, a series of 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 a controlling, controlled, or commonly controlled company by others; (ii) Depresses their price to induce the sale of a security, whether of the same or a different class, of the same issuer or of a controlling, controlled, or commonly controlled company by others; or

GRACIE |

(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 purchase or 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 or 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. SEC. 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. SEC. 26. Fraudulent Transactions. - It shall be unlawful for any person, directly or indirectly, in connection with the purchase or sale of any securities to:

26.1. Employ any device, scheme, or artifice to defraud; 26.2. Obtain money or property by means of any untrue statement of a material fact of any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or 26.3. Engage in any act, transaction, practice or course of business which operates or would operate as a fraud or deceit upon any person. SEC. 27. Insiders 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 insiders spouse or relatives by affinity or consanguinity within the second degree, legitimate or common-law, shall be presumed to have been effected while in possession of material non-public information if transacted after such information came into existence but prior to dissemination of such information to the public and the lapse of a reasonable time for the market to absorb such information: Provided, however, That this presumption shall be rebutted upon a showing by the purchaser or seller that he was not aware of the material non-public information at the time of the purchase or sale. 27.2. For purposes of this Section, information is material non -public if: (a) It has not been generally disclosed to the public and would likely affect the market price of the security after being disseminated to the public and the lapse of a reasonable time for the market to absorb the information; or (b) would be considered by a reasonable person important under the circumstances in determining his course of action whether to buy, sell or hold a security. 27.3. It shall be unlawful for any insider to communicate material nonpublic information about the issuer or the security to any person who, by

GRACIE |

virtue of the communication, becomes an insider as defined in Subsection 3.8, where the insider communicating the information knows or has reason to believe that such person will likely buy or sell a security of the issuer while in possession of such information. 27.4. (a) It shall be unlawful where a tender offer has commenced or is about to commence for: (i) Any person (other than the tender offeror) who is in possession of material non-public information relating to such tender offer, to buy or sell the securities of the issuer that are sought or to be sought by such tender offer if such person knows or has reason to believe that the information is non-public and has been acquired directly or indirectly from the tender offeror, those acting on its behalf, the issuer of the securities sought or to be sought by such tender offer, or any insider of such issuer; and (ii) Any tender offeror, those acting on its behalf, the issuer of the securities sought or to be sought by such tender offer, and any insider of such issuer to communicate material non-public information relating to the tender offer to any other person where such communication is likely to result in a violation of Subsection 27.4 (a)(i). (b) For purposes of this subsection the term securities of the issuer sought or to be sought by such tender offer shall include any securities convertible or exchangeable into such securities or any options or rights in any of the foregoing securities.

foregoing, as it deems consistent with the public interest and the protection of investors. 28.4. The Commission shall promulgate rules and regulations 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 form 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 of 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 registration if it determines that the requirements of this Section and the qualifications for registration set forth in its rules and regulations have been satisfied; or (b) Deny said registration.

CHAPTER VIII Regulation of Securities Market Professionals SEC. 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 Philippines 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 Subsections 28.1 and 28.2 any broker, dealer, salesman, associated person of any broker or dealer, or any class of the

GRACIE |

28.9. The names and addresses of all persons approved for registration as brokers, dealers, associated persons or salesmen 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 Section 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, or issuer, as the case may be, shall file with the Commission a notice of separation of such salesman or associated person. SEC. 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 applicant 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 person 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 estate or insurance laws; (e) Is enjoined or restrained by a competent judicial or administrative body from engaging in securities, commodities, banking, real estate 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, license 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 participation 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 estate 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 cases 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 suspension of such brokers, dealers, associated persons or salesmans 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.

GRACIE |

29.3. 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 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 dealers registration, 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 29.1 hereof. SEC. 30. Transactions and Responsibility of Brokers and Dealers. - 30.1. No broker or dealer shall deal in or otherwise buy or sell, for its own account or for the account of customers, securities listed on an Exchange issued by any corporation where any stockholder, 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 time holding office in said issuer corporation as a director, president, vice-president, manager, treasurer, comptroller, secretary or any office of trust and responsibility, or is a controlling person 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 operation of brokers and dealers, including the establishment 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. SEC. 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 institutions shall undertake or facilitate/organize continuing training, conferences/ seminars, updating programs, research and development as well as technology transfer at the latest and advanced 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 SEC. 32. Prohibition on Use of Unregistered Exchange; Regulation of Overthe-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. SEC. 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 compliance by its members with the provisions of this Code, its implementing rules or 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

GRACIE |

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 firms liabilities to its customers. 33.2. Registration 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 this 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, exempting an applicant from this prohibition where it finds that such ownership or control will not negatively impact on the exchanges 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 access to services offered by the Exchange; (f) That the brokers in the board of the Exchange shall comprise of not more than forty-nine percent (49%) of such board and shall proportionately represent the Exchange membership in terms of volume/value of trade and paid up capital, and that any natural person associated with a juridical entity that is a member shall himself be deemed to be a member for this

purpose: Provided, That any registered Exchange existing prior to the effectivity of this Code shall immediately comply with this requirement; (g) For the board of the Exchange to include in its composition (i) 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 effectivity 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, its rules and regulations, and the rules of the Exchange, and that the rules of the 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.

GRACIE |

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 Commissions 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 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 deem necessary for the protection of investors, an Exchange may withdraw its registration or suspend its operations or resume the same. SEC. 34. Segregation and Limitation of Functions of Members, Brokers 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 respect to which it or an associated person thereof exercises 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 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. SEC. 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 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. SEC. 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 or, with the approval of the President of the Philippines, summarily to suspend all trading on any securities Exchange or other trading market for a period of more than thirty (30) 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 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,

GRACIE |

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. SEC. 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. SEC. 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 judgment in carrying out the responsibilities of a director.

CHAPTER X Registration, Responsibilities and Oversight of SelfRegulatory Organizations SEC. 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 processors which are engaged in the 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

GRACIE |

prescribe as necessary or appropriate in the public interest or for the protection of investors. 39.3. An association of brokers and dealers shall not be registered as a securities association unless the Commission determines that: (a) The association is so organized and has the capacity to be able to carry out the purposes of this Code and to comply with, and to enforce compliance by its members and persons associated with its members, with the provisions of this Code, the rules and regulations thereunder, and the rules of the association. (b) The rules of the association, notwithstanding anything in the Corporation Code to the contrary, provide that: (i) Any registered broker or dealer may become a member of the association; (ii) There exist a fair representation of its members to serve on the Board of Directors of the association and in the administration of its affairs, and that any natural person associated with a juridical entity that is a member shall himself be deemed to be a member for this purpose; (iii) The Board of Directors of the association includes in its composition: (a) The president of the association and (b) Persons who represent the interests of issuers and public investors and are not associated with any broker or dealer or member of the association; that the president and other management of the association not be a member or associated with any broker, dealer or member of the association; (iv) For the equitable allocation of reasonable dues, fees, and other charges among members and issuers and other persons using any facility or system which the association operates or controls; (v) For the prevention of fraudulent and manipulative acts and practices, the promotion of just and equitable principles of trade, and, in general, the protection of investors and the public interest; (vi) That its members and persons associated with its members shall be appropriately disciplined for violation of any provision of this Code, the rules or regulations thereunder, or the rules of the association;

(vii) That a fair procedure for the disciplining of members and persons associated with members, the denial of membership to any person seeking membership therein, the barring of any person from becoming associated with a member thereof, and the prohibition or limitation by the association of any person with respect to access to services offered by the association or a member thereof. 39.4. (a) A registered securities association shall deny membership to any person who is not a registered broker or dealer. (b) A registered securities association may deny membership to, or condition the membership of, a registered broker or dealer if such broker or dealer: (i) Does not meet the standards of financial responsibility, operational capability, training, experience, or competence that are prescribed by the rules of the association; or (ii) Has engaged, and there is a reasonable likelihood it will again engage, in acts or practices inconsistent with just and equitable principles of fair trade. (c) A registered securities association may deny membership to a registered broker or dealer not engaged in a type of business in which the rules of the association require members to be engaged: Provided, however, That no registered securities association may deny membership to a registered broker or dealer by reason of the amount of business done by the broker or dealer. A registered securities association may examine and verify the qualifications of an applicant to become a member in accordance with procedures established by the rules of the association. (d) A registered securities association may bar a salesman or person associated with a broker or dealer from being employed by a member or set conditions for the employment of a salesman or associated if such person: (i) Does not meet the standards of training, experience, or competence that are prescribed by the rules of the association; or (ii) Has engaged, and there is a reasonable likelihood he will again engage, in acts or practices inconsistent with just and equitable principles of fair trade.

GRACIE |

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 procedures established 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 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. SEC. 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 or institute a proceeding to determine whether 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 provisions of this Code, the rules and regulations thereunder, and its own rules, and enforce compliance therewith, notwithstanding any provision of the Corporation Code to the contrary, by its members, persons associated with its members or 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 a 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 notice and hearing it determines that such changes have not been effected, and that such changes are necessary, by rule or regulation or by order, may alter, abrogate or supplement the rules of such selfregulatory 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, method, 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;

GRACIE |

(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 selfregulatory organization, if the Commission finds that such a self-regulatory organization has willfully violated or is unable to comply with any provision of this Code or of the rules and regulations thereunder, or its own rules, or has failed to enforce compliance therewith by a member of, person associated with a member, or a participant in such self-regulatory organization; (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 the rules and regulations thereunder, or effected, directly or indirectly, any transaction for any person who, such member or participant had reason to believe, was violating in respect of such transaction any of such provisions; and (c) To remove from office or censure any officer or director of a selfregulatory 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, or 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 engaged 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 offense, 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 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

GRACIE |

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.

(c) Copies of the clearing agencys rules. 42.2. No registration of a clearing agency shall be granted unless the rules of the clearing agency include provision for: (a) The expulsion, 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 agencys 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; and (e) The transparent, prompt and accurate clearance and settlement of transactions in securities handled by the clearing agency. (f) The establishment and oversight of a fund to guarantee the prompt and accurate clearance and settlement of transactions executed on an exchange, including a requirement that members each contribute an amount based on their volume and a relevant percentage of the daily exposure of the four (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 a 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 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

CHAPTER XI Acquisition and Transfer of Securities and Settlement of Transactions in Securities SEC. 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 the Philippines to make deliveries in connection with transactions 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 transactions 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. SEC. 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 amendment thereto, and the implementing rules or regulations made or to be made thereunder, and the clearing agencys rules; (b) The organizational charts of the Exchange, its rules of procedure, and a list of its officers and participants;

GRACIE |

may deem necessary for the protection of investors, a clearing agency may withdraw its registration or suspend its operation or resume the same. 42.5. Section 32 of this Code shall apply to every registered clearing agency. SEC. 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 a 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 of its shares into the name of said shareholders, investors or, securities intermediary in the form of uncertificated securities. The use of uncertificated 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 accounts maintained by 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 preclude compliance by banking and other institutions under the supervision of the Bangko Sentral ng Pilipinas and their stockholders with the applicable ceilings on shareholdings prescribed under pertinent banking laws and regulations. SEC. 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 and its participants and members, without prejudice to the right of participants or members clients to prove their rights, title and entitlement with respect to the bookentry 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. SEC. 45. Pledging a Security or Interest Therein. - In addition to other methods recognized by law, a pledge of, or release of a pledge of, a security, 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 agencys 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. SEC. 46. Issuers 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 nominee shall be final and conclusive unless the clearing agency had notice of an adverse claim before the registration was made. The above provision shall be without prejudice to any rights which the claimant may have against the issuer for wrongful registration in such circumstances.

GRACIE |

SEC. 47. Power of the Commission With Respect to Securities Ownership. The Commission is authorized, 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;

An amount not greater than 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 bases and 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 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; (b) Without collateral or on any collateral other than securities, except (i) to maintain a credit initially extended in conformity with the 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

47.3.Establish which records constitute the best evidence of a persons 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 agencys rules in respect of the clearing and settlement of transactions in securities, in a dissolution of the participant, and any such rules and regulations 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 SEC. 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 prescribe 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:

GRACIE |

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 or for stated period. SEC. 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 two thousand per centum (2,000%), as the Commission may by 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. SEC. 50. Enforcement of Margin Requirements and Restrictions on Borrowing. - To prevent indirect violations of the margin requirements under Section 48, the broker or dealer shall require the customer in nonmargin 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 borrowings 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 SEC. 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.

GRACIE |

51.3. 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. 51.4. 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. 51.5. 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. SEC. 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 selfregulatory 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 or for the protection of investors. 52.2. Any broker, 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. SEC. 53. Investigations, Injunctions and Prosecution of Offenses . - 53.1. The Commission may, in its discretion, make such investigations as it deems necessary to determine whether any person has violated or is about to violate any provision of this Code, any rule, regulation or order thereunder, or any rule of an Exchange, registered securities association, clearing agency, other self-regulatory organization, and may require or permit any person to file with it a statement in writing, under oath or otherwise, as the Commission shall determine, as to all facts and circumstances concerning the matter to be investigated. The Commission may publish information concerning any such violations, and to investigate any fact, condition, practice or matter which it may deem necessary or proper to aid in the enforcement of the provisions of this Code, in the prescribing of rules and regulations thereunder, or in securing information to serve as a basis for recommending further legislation concerning the matters to which this Code relates: Provided, however, That any person requested or subpoenaed to produce documents or testify in any investigation shall simultaneously be notified in writing of the purpose of such investigation: Provided, further, That all criminal complaints for violations of this Code, and the implementing rules and regulations enforced or administered by the Commission shall be referred to the Department of Justice for preliminary investigation and prosecution before the proper court: Provided, furthermore, That in instances where the law allows independent civil or criminal proceedings of violations arising from the same act, the Commission shall take appropriate action to implement the same: Provided, finally, That the investigation, prosecution, and trial of such cases shall be given priority. 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

GRACIE |

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 Commissions order, decision or subpoena, shall be detained under an arrest order issued by the Commission, until such order, decision or subpoena is complied with. SEC. 54. Administrative Sanctions. - 54.1. If, after due notice and hearing, the Commission finds that: (a) There is a violation of this Code, its rules, or its orders; (b) Any registered broker or dealer, associated person thereof has failed reasonably to supervise, with a view to preventing violations, another person subject to supervision who commits any such violation; (c) Any registrant or other person has, in a registration statement or in other reports, applications, accounts, records or documents required by law or rules to be filed with the Commission, made any untrue statement of a material fact, or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading; or, in the case of an underwriter, has failed to conduct an inquiry with reasonable diligence to insure that a registration statement is accurate and complete in all material respects; or (d) Any person has refused to permit any lawful examinations into its affairs, it shall, in its discretion, and subject

only to the limitations hereinafter prescribed, impose any or all of the following sanctions as may be appropriate in light of the facts and circumstances: (i) Suspension, or revocation of any registration for the offering of securities; (ii) A fine of no less than Ten thousand pesos (P10,000.00) nor more than One million pesos (P1,000,000.00) plus not more than Two thousand pesos (P2,000.00) for each day of continuing violation; (iii) In the case of a violation of Sections 19.2, 20, 24, 26 and 27, disqualification from being an officer, member of the Board of Directors, or person performing similar functions, of an issuer required to file reports under Section 17 of this Code or any other act, rule or regulation administered by the Commission; (iv) In the case of a violation of Section 34, a fine of no more than three (3) times the profit gained or loss avoided as a result of the purchase, sale or communication proscribed by such Section; and (v) Other penalties within the power of the Commission to impose. 54.2. The imposition of the foregoing administrative sanctions shall be without prejudice to the filing of criminal charges against the individuals responsible for the violation. 54.3. The Commission shall have the power to issue writs of execution to enforce the provisions of this Section and to enforce payment of the fees and other dues collectible under this Code. SEC. 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

GRACIE |

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. SEC. 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 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. SEC. 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 was 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 statements 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.

GRACIE |

SEC. 58. Civil Liability For 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. SEC. 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.

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 non-public 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. SEC. 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) years after the violation upon which it is based. In no event shall any 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 (b) 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 (2) years after the discovery of the facts constituting the cause of action and within five (5) years after such cause of action accrued. SEC. 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 attorneys fees not exceeding thirty percentum (30%) of the award. 63.2. The persons specified in Sections 56, 57, 58, 59, 60 and 61 hereof shall be jointly and severally liable for the payment of damages. However, any person who becomes liable for the payment of such damages may recover contribution from any other person who, if sued separately, would

SEC. 60. Civil Liability With Respect to Commodity Futures Contracts and Pre-need Plans. - 60.1. Any person who engages in any act or transaction 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 damage 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. SEC. 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.

GRACIE |

have been liable to make the same payment, unless the former was guilty of fraudulent representation and the latter was not. 63.3. Notwithstanding any provision of law to the contrary, all persons, including the issuer, held liable under the provisions of Sections 56, 57, 58, 59, 60 and 61 shall contribute equally to the total liability adjudged herein. In no case shall the principal stockholders, directors and other officers of the issuer or persons occupying similar positions therein, recover their contribution to the liability from the issuer. However, the right of the issuer to recover from the guilty parties the amount it has contributed under this Section shall not be prejudiced. SEC. 64. Cease and Desist Order. 64.1. The Commission, after proper investigation or verification, motu proprio, or upon verified complaint by any aggrieved party, may issue a cease and desist order without the necessity of a prior hearing if in its judgment the act or practice, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public. 64.2. Until the Commission issues a cease and desist order, the fact that an investigation has been initiated or that a complaint has been filed, including the contents of the complaint, shall be confidential. Upon issuance of a cease and desist order, the Commission shall make public such order and a copy thereof shall be immediately furnished to each person subject to the order. 64.3. Any person against whom a cease and desist order was issued may, within five (5) days from receipt of the order, file a formal request for a lifting thereof. Said request shall be set for hearing by the Commission not later than fifteen (15) days from its filing and the resolution thereof shall be made not later than ten (10) days from the termination of the hearing. If the Commission fails to resolve the request within the time herein prescribed, the cease and desist order shall automatically be lifted. SEC. 65. Substituted Service Upon the Commission. - Service of summons or other process shall be made upon the Commission in actions or legal proceedings against an issuer or any person liable under this Code who is not domiciled in the Philippines. Upon receipt by the Commission of such summons, the Commission shall within ten (10) days thereafter, transmit by registered mail a copy of such summons and the complaint or other legal process to such issuer or person at his last known address or principal

office. The sending thereof by the Commission, the expenses for which shall be advanced by the party at whose instance it is made, shall complete such service. SEC. 66. Revelation of Information Filed with the Commission. 66.1. All information filed with the Commission in compliance with the requirements of this Code shall be made available to any member of the general public, upon request, in the premises and during regular office hours of the Commission, except as set forth in this Section. 66.2. Nothing in this Code shall be construed to require, or to authorize the Commission to require, the revealing of trade secrets or processes in any application, report, or document filed with the Commission. 66.3. Any person filing any such application, report or document may make written objection to the public disclosure of information contained therein, stating the grounds for such objection, and the Commission may hear objections as it deems necessary. The Commission may, in such cases, make available to the public the information contained in any such application, report, or document only when a disclosure of such information is required in the public interest or for the protection of investors; and copies of information so made available may be furnished to any person having a legitimate interest therein at such reasonable charge and under such reasonable limitations as the Commission may prescribe. 66.4. It shall be unlawful for any member, officer, or employee of the Commission to disclose to any person other than a member, officer or employee of the Commission or to use for personal benefit, any information contained in any application, report, or document filed with the Commission which is not made available to the public pursuant to Subsection 66.3. 66.5. Notwithstanding anything in Subsection 66.4 to the contrary, on request from a foreign enforcement authority of any country whose laws grant reciprocal assistance as herein provided, the Commission may provide assistance in accordance with this subsection, including the disclosure of any information filed with or transmitted to the Commission, if the requesting authority states that it is conducting an investigation which it deems necessary to determine whether any person has violated, is violating, or is about to violate any laws relating to securities or commodities matters that the requesting authority administers or

GRACIE |

enforces. Such assistance may be provided without regard to whether the facts stated in the request would also constitute a violation of law of the Philippines. SEC. 67. Effect of Action of Commission and Unlawful Representations with Respect Thereto. - 67.1. No action or failure to act by the Commission in the administration of this Code shall be construed to mean that the Commission has in any way passed upon the merits of or given approval to any security or any transaction 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 of 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. SEC. 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 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. SEC. 69. Effect on Existing Law. - The rights and remedies provided by this Code shall be in addition to any and all other rights and remedies that may

now exist. However, except as provided in Sections 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.

SEC. 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. SEC. 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 on 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

GRACIE |

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. SEC. 72. Rules and Regulations; Effectivity. - 72.1. This Code shall be selfexecutory. 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 (2) newspapers of 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. SEC. 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. SEC. 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

GRACIE |

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 (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 entitlements granted under existing laws. SEC. 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. SEC. 76. Repealing Clause. - TheRevised Securities Act (Batas Pambansa Blg. 178), as amended, in its entirety, and Sections 2, 4 and 8 of Presidential Decree 902-A as amended, are hereby repealed. All other laws, orders, rules and regulations, or parts thereof, inconsistent with any provision of this Code are hereby repealed or modified accordingly. SEC. 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. SEC. 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

JOSEPH E. ESTRADA President of the Philippines

GRACIE |

ACT NO. 2137 - THE WAREHOUSE RECEIPTS LAW

I THE ISSUE OF WAREHOUSE RECEIPTS Section 1. Persons who may issue receipts. Warehouse receipts may be issued by any warehouseman. Sec. 2. Form of receipts; essential terms. Warehouse receipts need not be in any particular form but every such receipt must embody within its written or printed terms: (a) The location of the warehouse where the goods are stored, (b) The date of the issue of the receipt, (c) The consecutive number of the receipt, (d) A statement whether the goods received will be delivered to the bearer, to a specified person or to a specified person or his order, (e) The rate of storage charges, (f) A description of the goods or of the packages containing them, (g) The signature of the warehouseman which may be made by his authorized agent, (h) If the receipt is issued for goods of which the warehouseman is owner, either solely or jointly or in common with others, the fact of such ownership, and (i) A statement of the amount of advances made and of liabilities incurred for which the warehouseman claims a lien. If the precise amount of such

GRACIE |

advances made or of such liabilities incurred is, at the time of the issue of, unknown to the warehouseman or to his agent who issues it, a statement of the fact that advances have been made or liabilities incurred and the purpose thereof is sufficient. A warehouseman shall be liable to any person injured thereby for all damages caused by the omission from a negotiable receipt of any of the terms herein required. Sec. 3. Form of receipts. What terms may be inserted. A warehouseman may insert in a receipt issued by him any other terms and conditions provided that such terms and conditions shall not: (a) Be contrary to the provisions of this Act. (b) In any wise impair his obligation to exercise that degree of care in the safe-keeping of the goods entrusted to him which is reasonably careful man would exercise in regard to similar goods of his own. Sec. 4. Definition of non-negotiable receipt. A receipt in which it is stated that the goods received will be delivered to the depositor or to any other specified person, is a non-negotiable receipt. Sec. 5. Definition of negotiable receipt. A receipt in which it is stated that the goods received will be delivered to the bearer or to the order of any person named in such receipt is a negotiable receipt. No provision shall be inserted in a negotiable receipt that it is nonnegotiable. Such provision, if inserted shall be void. Sec. 6. Duplicate receipts must be so marked. When more than one negotiable receipt is issued for the same goods, the word "duplicate" shall be plainly placed upon the face of every such receipt, except the first one issued. A warehouseman shall be liable for all damages caused by his failure so to do to any one who purchased the subsequent receipt for value supposing it to be an original, even though the purchase be after the delivery of the goods by the warehouseman to the holder of the original receipt. Sec. 7. Failure to mark "non-negotiable." A non-negotiable receipt shall have plainly placed upon its face by the warehouseman issuing it "nonnegotiable," or "not negotiable." In case of the warehouseman's failure so

to do, a holder of the receipt who purchased it for value supposing it to be negotiable, may, at his option, treat such receipt as imposing upon the warehouseman the same liabilities he would have incurred had the receipt been negotiable. This section shall not apply, however, to letters, memoranda, or written acknowledgment of an informal character. II OBLIGATIONS AND RIGHTS OF WAREHOUSEMEN UPON THEIR RECEIPTS Sec. 8. Obligation of warehousemen to deliver. A warehouseman, in the absence of some lawful excuse provided by this Act, is bound to deliver the goods upon a demand made either by the holder of a receipt for the goods or by the depositor; if such demand is accompanied with: (a) An offer to satisfy the warehouseman's lien; (b) An offer to surrender the receipt, if negotiable, with such indorsements as would be necessary for the negotiation of the receipt; and (c) A readiness and willingness to sign, when the goods are delivered, an acknowledgment that they have been delivered, if such signature is requested by the warehouseman. In case the warehouseman refuses or fails to deliver the goods in compliance with a demand by the holder or depositor so accompanied, the burden shall be upon the warehouseman to establish the existence of a lawful excuse for such refusal. Sec. 9. Justification of warehouseman in delivering. A warehouseman is justified in delivering the goods, subject to the provisions of the three following sections, to one who is: (a) The person lawfully entitled to the possession of the goods, or his agent; (b) A person who is either himself entitled to delivery by the terms of a non-negotiable receipt issued for the goods, or who has written authority from the person so entitled either indorsed upon the receipt or written upon another paper; or

GRACIE |

(c) A person in possession of a negotiable receipt by the terms of which the goods are deliverable to him or order, or to bearer, or which has been indorsed to him or in blank by the person to whom delivery was promised by the terms of the receipt or by his mediate or immediate indorser. Sec. 10. Warehouseman's liability for misdelivery. Where a warehouseman delivers the goods to one who is not in fact lawfully entitled to the possession of them, the warehouseman shall be liable as for conversion to all having a right of property or possession in the goods if he delivered the goods otherwise than as authorized by subdivisions (b) and (c) of the preceding section, and though he delivered the goods as authorized by said subdivisions, he shall be so liable, if prior to such delivery he had either: (a) Been requested, by or on behalf of the person lawfully entitled to a right of property or possession in the goods, not to make such deliver; or (b) Had information that the delivery about to be made was to one not lawfully entitled to the possession of the goods. Sec. 11. Negotiable receipt must be cancelled when goods delivered. Except as provided in section thirty-six, where a warehouseman delivers goods for which he had issued a negotiable receipt, the negotiation of which would transfer the right to the possession of the goods, and fails to take up and cancel the receipt, he shall be liable to any one who purchases for value in good faith such receipt, for failure to deliver the goods to him, whether such purchaser acquired title to the receipt before or after the delivery of the goods by the warehouseman. Sec. 12. Negotiable receipts must be cancelled or marked when part of goods delivered. Except as provided in section thirty-six, where a warehouseman delivers part of the goods for which he had issued a negotiable receipt and fails either to take up and cancel such receipt or to place plainly upon it a statement of what goods or packages have been delivered, he shall be liable to any one who purchases for value in good faith such receipt, for failure to deliver all the goods specified in the receipt, whether such purchaser acquired title to the receipt before or after the delivery of any portion of the goods by the warehouseman. Sec. 13. Altered receipts. The alteration of a receipt shall not excuse the warehouseman who issued it from any liability if such alteration was: (a) Immaterial,

(b) Authorized, or (c) Made without fraudulent intent. If the alteration was authorized, the warehouseman shall be liable according to the terms of the receipt as altered. If the alteration was unauthorized but made without fraudulent intent, the warehouseman shall be liable according to the terms of the receipt as they were before alteration. Material and fraudulent alteration of a receipt shall not excuse the warehouseman who issued it from liability to deliver according to the terms of the receipt as originally issued, the goods for which it was issued but shall excuse him from any other liability to the person who made the alteration and to any person who took with notice of the alteration. Any purchaser of the receipt for value without notice of the alteration shall acquire the same rights against the warehouseman which such purchaser would have acquired if the receipt had not been altered at the time of purchase. Sec. 14. Lost or destroyed receipts. Where a negotiable receipt has been lost or destroyed, a court of competent jurisdiction may order the delivery of the goods upon satisfactory proof of such loss or destruction and upon the giving of a bond with sufficient sureties to be approved by the court to protect the warehouseman from any liability or expense, which he or any person injured by such delivery may incur by reason of the original receipt remaining outstanding. The court may also in its discretion order the payment of the warehouseman's reasonable costs and counsel fees. The delivery of the goods under an order of the court as provided in this section, shall not relieve the warehouseman from liability to a person to whom the negotiable receipt has been or shall be negotiated for value without notice of the proceedings or of the delivery of the goods. Sec. 15. Effect of duplicate receipts. A receipt upon the face of which the word "duplicate" is plainly placed is a representation and warranty by the warehouseman that such receipt is an accurate copy of an original receipt properly issued and uncanceled at the date of the issue of the duplicate, but shall impose upon him no other liability.

GRACIE |

Sec. 16. Warehouseman cannot set up title in himself . No title or right to the possession of the goods, on the part of the warehouseman, unless such title or right is derived directly or indirectly from a transfer made by the depositor at the time of or subsequent to the deposit for storage, or from the warehouseman's lien, shall excuse the warehouseman from liability for refusing to deliver the goods according to the terms of the receipt. Sec. 17. Interpleader of adverse claimants. If more than one person claims the title or possession of the goods, the warehouseman may, either as a defense to an action brought against him for non-delivery of the goods or as an original suit, whichever is appropriate, require all known claimants to interplead. Sec. 18. Warehouseman has reasonable time to determine validity of claims. If someone other than the depositor or person claiming under him has a claim to the title or possession of goods, and the warehouseman has information of such claim, the warehouseman shall be excused from liability for refusing to deliver the goods, either to the depositor or person claiming under him or to the adverse claimant until the warehouseman has had a reasonable time to ascertain the validity of the adverse claim or to bring legal proceedings to compel claimants to interplead. Sec. 19. Adverse title is no defense except as above provided. Except as provided in the two preceding sections and in sections nine and thirty-six, no right or title of a third person shall be a defense to an action brought by the depositor or person claiming under him against the warehouseman for failure to deliver the goods according to the terms of the receipt. Sec. 20. Liability for non-existence or misdescription of goods. A warehouseman shall be liable to the holder of a receipt for damages caused by the non-existence of the goods or by the failure of the goods to correspond with the description thereof in the receipt at the time of its issue. If, however, the goods are described in a receipt merely by a statement of marks or labels upon them or upon packages containing them or by a statement that the goods are said to be goods of a certain kind or that the packages containing the goods are said to contain goods of a certain kind or by words of like purport, such statements, if true, shall not make liable the warehouseman issuing the receipt, although the goods are not of the kind which the marks or labels upon them indicate or of the kind they were said to be by the depositor.

Sec. 21. Liability for care of goods. A warehouseman shall be liable for any loss or injury to the goods caused by his failure to exercise such care in regard to them as reasonably careful owner of similar goods would exercise, but he shall not be liable, in the absence of an agreement to the contrary, for any loss or injury to the goods which could not have been avoided by the exercise of such care. Sec. 22. Goods must be kept separate. Except as provided in the following section, a warehouseman shall keep the goods so far separate from goods of other depositors and from other goods of the same depositor for which a separate receipt has been issued, as to permit at all times the identification and redelivery of the goods deposited. Sec. 23. Fungible goods may be commingled if warehouseman authorized. If authorized by agreement or by custom, a warehouseman may mingle fungible goods with other goods of the same kind and grade. In such case, the various depositors of the mingled goods shall own the entire mass in common and each depositor shall be entitled to such portion thereof as the amount deposited by him bears to the whole. Sec. 24. Liability of warehouseman to depositors of commingled goods. The warehouseman shall be severally liable to each depositor for the care and redelivery of his share of such mass to the same extent and under the same circumstances as if the goods had been kept separate. Sec. 25. Attachment or levy upon goods for which a negotiable receipt has been issued. If goods are delivered to a warehouseman by the owner or by a person whose act in conveying the title to them to a purchaser in good faith for value would bind the owner, and a negotiable receipt is issued for them, they can not thereafter, while in the possession of the warehouseman, be attached by garnishment or otherwise, or be levied upon under an execution unless the receipt be first surrendered to the warehouseman or its negotiation enjoined. The warehouseman shall in no case be compelled to deliver up the actual possession of the goods until the receipt is surrendered to him or impounded by the court. Sec. 26. Creditor's remedies to reach negotiable receipts. A creditor whose debtor is the owner of a negotiable receipt shall be entitled to such aid from courts of appropriate jurisdiction, by injunction and otherwise, in attaching such receipt or in satisfying the claim by means thereof as is

GRACIE |

allowed at law or in equity in these islands in regard to property which can not readily be attached or levied upon by ordinary legal process. Sec. 27. What claims are included in the warehouseman's lien. Subject to the provisions of section thirty, a warehouseman shall have a lien on goods deposited or on the proceeds thereof in his hands, for all lawful charges for storage and preservation of the goods; also for all lawful claims for money advanced, interest, insurance, transportation, labor, weighing, coopering and other charges and expenses in relation to such goods, also for all reasonable charges and expenses for notice, and advertisements of sale, and for sale of the goods where default had been made in satisfying the warehouseman's lien. Sec. 28. Against what property the lien may be enforced. Subject to the provisions of section thirty, a warehouseman's lien may be enforced: (a) Against all goods, whenever deposited, belonging to the person who is liable as debtor for the claims in regard to which the lien is asserted, and (b) Against all goods belonging to others which have been deposited at any time by the person who is liable as debtor for the claims in regard to which the lien is asserted if such person had been so entrusted with the possession of goods that a pledge of the same by him at the time of the deposit to one who took the goods in good faith for value would have been valid. Sec. 29. How the lien may be lost. A warehouseman loses his lien upon goods: (a) By surrendering possession thereof, or (b) By refusing to deliver the goods when a demand is made with which he is bound to comply under the provisions of this Act. Sec. 30. Negotiable receipt must state charges for which the lien is claimed. If a negotiable receipt is issued for goods, the warehouseman shall have no lien thereon except for charges for storage of goods subsequent to the date of the receipt unless the receipt expressly enumerated other charges for which a lien is claimed. In such case, there shall be a lien for the charges enumerated so far as they are within the terms of section twentyseven although the amount of the charges so enumerated is not stated in the receipt.

Sec. 31. Warehouseman need not deliver until lien is satisfied. A warehouseman having a lien valid against the person demanding the goods may refuse to deliver the goods to him until the lien is satisfied. Sec. 32. Warehouseman's lien does not preclude other remedies. Whether a warehouseman has or has not a lien upon the goods, he is entitled to all remedies allowed by law to a creditor against a debtor for the collection from the depositor of all charges and advances which the depositor has expressly or impliedly contracted with the warehouseman to pay. Sec. 33. Satisfaction of lien by sale. A warehouseman's lien for a claim which has become due may be satisfied as follows: (a) An itemized statement of the warehouseman's claim, showing the sum due at the time of the notice and the date or dates when it becomes due, (b) A brief description of the goods against which the lien exists, (c) A demand that the amount of the claim as stated in the notice of such further claim as shall accrue, shall be paid on or before a day mentioned, not less than ten days from the delivery of the notice if it is personally delivered, or from the time when the notice shall reach its destination, according to the due course of post, if the notice is sent by mail, (d) A statement that unless the claim is paid within the time specified, the goods will be advertised for sale and sold by auction at a specified time and place. In accordance with the terms of a notice so given, a sale of the goods by auction may be had to satisfy any valid claim of the warehouseman for which he has a lien on the goods. The sale shall be had in the place where the lien was acquired, or, if such place is manifestly unsuitable for the purpose of the claim specified in the notice to the depositor has elapsed, and advertisement of the sale, describing the goods to be sold, and stating the name of the owner or person on whose account the goods are held, and the time and place of the sale, shall be published once a week for two consecutive weeks in a newspaper published in the place where such sale is to be held. The sale shall not be held less than fifteen days from the time of the first publication. If there is no newspaper published in such place, the advertisement shall be posted at least ten days before such sale in not less than six conspicuous places therein.

GRACIE |

From the proceeds of such sale, the warehouseman shall satisfy his lien including the reasonable charges of notice, advertisement and sale. The balance, if any, of such proceeds shall be held by the warehouseman and delivered on demand to the person to whom he would have been bound to deliver or justified in delivering goods. At any time before the goods are so sold, any person claiming a right of property or possession therein may pay the warehouseman the amount necessary to satisfy his lien and to pay the reasonable expenses and liabilities incurred in serving notices and advertising and preparing for the sale up to the time of such payment. The warehouseman shall deliver the goods to the person making payment if he is a person entitled, under the provision of this Act, to the possession of the goods on payment of charges thereon. Otherwise, the warehouseman shall retain the possession of the goods according to the terms of the original contract of deposit. Sec. 34. Perishable and hazardous goods. If goods are of a perishable nature, or by keeping will deteriorate greatly in value, or, by their order, leakage, inflammability, or explosive nature, will be liable to injure other property , the warehouseman may give such notice to the owner or to the person in whose names the goods are stored, as is reasonable and possible under the circumstances, to satisfy the lien upon such goods and to remove them from the warehouse and in the event of the failure of such person to satisfy the lien and to receive the goods within the time so specified, the warehouseman may sell the goods at public or private sale without advertising. If the warehouseman, after a reasonable effort, is unable to sell such goods, he may dispose of them in any lawful manner and shall incur no liability by reason thereof. The proceeds of any sale made under the terms of this section shall be disposed of in the same way as the proceeds of sales made under the terms of the preceding section. Sec. 35. Other methods of enforcing lien. The remedy for enforcing a lien herein provided does not preclude any other remedies allowed by law for the enforcement of a lien against personal property nor bar the right to recover so much of the warehouseman's claim as shall not be paid by the proceeds of the sale of the property.

Sec. 36. Effect of sale. After goods have been lawfully sold to satisfy a warehouseman's lien, or have been lawfully sold or disposed of because of their perishable or hazardous nature, the warehouseman shall not thereafter be liable for failure to deliver the goods to the depositor or owner of the goods or to a holder of the receipt given for the goods when they were deposited, even if such receipt be negotiable.

III NEGOTIATION AND TRANSFER OF RECEIPTS Sec. 37. Negotiation of negotiable receipt of delivery. A negotiable receipt may be negotiated by delivery: (a) Where, by terms of the receipt, the warehouseman undertakes to deliver the goods to the bearer, or (b) Where, by the terms of the receipt, the warehouseman undertakes to deliver the goods to the order of a specified person, and such person or a subsequent indorsee of the receipt has indorsed it in blank or to bearer. Where, by the terms of a negotiable receipt, the goods are deliverable to bearer or where a negotiable receipt has been indorsed in blank or to bearer, any holder may indorse the same to himself or to any other specified person, and, in such case, the receipt shall thereafter be negotiated only by the indorsement of such indorsee. Sec. 38. Negotiation of negotiable receipt by indorsement. A negotiable receipt may be negotiated by the indorsement of the person to whose order the goods are, by the terms of the receipt, deliverable. Such indorsement may be in blank, to bearer or to a specified person. If indorsed to a specified person, it may be again negotiated by the indorsement of such person in blank, to bearer or to another specified person. Subsequent negotiation may be made in like manner. Sec. 39. Transfer of receipt. A receipt which is not in such form that it can be negotiated by delivery may be transferred by the holder by delivery to a purchaser or donee. A non-negotiable receipt can not be negotiated, and the indorsement of such a receipt gives the transferee no additional right.

GRACIE |

Sec. 40. Who may negotiate a receipt. A negotiable receipt may be negotiated: (a) By the owner thereof, or (b) By any person to whom the possession or custody of the receipt has been entrusted by the owner, if, by the terms of the receipt, the warehouseman undertakes to deliver the goods to the order of the person to whom the possession or custody of the receipt has been entrusted, or if, at the time of such entrusting, the receipt is in such form that it may be negotiated by delivery. Sec. 41. Rights of person to whom a receipt has been negotiated. A person to whom a negotiable receipt has been duly negotiated acquires thereby: (a) Such title to the goods as the person negotiating the receipt to him had or had ability to convey to a purchaser in good faith for value, and also such title to the goods as the depositor or person to whose order the goods were to be delivered by the terms of the receipt had or had ability to convey to a purchaser in good faith for value, and (b) The direct obligation of the warehouseman to hold possession of the goods for him according to the terms of the receipt as fully as if the warehouseman and contracted directly with him. Sec. 42. Rights of person to whom receipt has been transferred. A person to whom a receipt has been transferred but not negotiated acquires thereby, as against the transferor, the title of the goods subject to the terms of any agreement with the transferor. If the receipt is non-negotiable, such person also acquires the right to notify the warehouseman of the transfer to him of such receipt and thereby to acquire the direct obligation of the warehouseman to hold possession of the goods for him according to the terms of the receipt. Prior to the notification of the warehouseman by the transferor or transferee of a non-negotiable receipt, the title of the transferee to the goods and the right to acquire the obligation of the warehouseman may be defeated by the levy of an attachment or execution upon the goods by a creditor of the transferor or by a notification to the warehouseman by the transferor or a subsequent purchaser from the transferor of a subsequent sale of the goods by the transferor.

Sec. 43. Transfer of negotiable receipt without indorsement. Where a negotiable receipt is transferred for value by delivery and the indorsement of the transferor is essential for negotiation, the transferee acquires a right against the transferor to compel him to indorse the receipt unless a contrary intention appears. The negotiation shall take effect as of the time when the indorsement is actually made. Sec. 44. Warranties of a sale of receipt. A person who, for value, negotiates or transfers a receipt by indorsement or delivery, including one who assigns for value a claim secured by a receipt, unless a contrary intention appears, warrants: (a) That the receipt is genuine, (b) That he has a legal right to negotiate or transfer it, (c) That he has knowledge of no fact which would impair the validity or worth of the receipt, and (d) That he has a right to transfer the title to the goods and that the goods are merchantable or fit for a particular purpose whenever such warranties would have been implied, if the contract of the parties had been to transfer without a receipt of the goods represented thereby. Sec. 45. Indorser not a guarantor. The indorsement of a receipt shall not make the indorser liable for any failure on the part of the warehouseman or previous indorsers of the receipt to fulfill their respective obligations. Sec. 46. No warranty implied from accepting payment of a debt. A mortgagee, pledgee, or holder for security of a receipt who, in good faith, demands or receives payment of the debt for which such receipt is security, whether from a party to a draft drawn for such debt or from any other person, shall not, by so doing, be deemed to represent or to warrant the genuineness of such receipt or the quantity or quality of the goods therein described. Sec. 47. When negotiation not impaired by fraud, mistake or duress. The validity of the negotiation of a receipt is not impaired by the fact that such negotiation was a breach of duty on the part of the person making the negotiation or by the fact that the owner of the receipt was induced by fraud, mistake or duress or to entrust the possession or custody of the

GRACIE |

receipt to such person, if the person to whom the receipt was negotiated or a person to whom the receipt was subsequently negotiated paid value therefor, without notice of the breach of duty, or fraud, mistake or duress. Sec. 48. Subsequent negotiation. Where a person having sold, mortgaged, or pledged goods which are in warehouse and for which a negotiable receipt has been issued, or having sold, mortgaged, or pledged the negotiable receipt representing such goods, continues in possession of the negotiable receipt, the subsequent negotiation thereof by the person under any sale or other disposition thereof to any person receiving the same in good faith, for value and without notice of the previous sale, mortgage or pledge, shall have the same effect as if the first purchaser of the goods or receipt had expressly authorized the subsequent negotiation. Sec. 49. Negotiation defeats vendor's lien. Where a negotiable receipt has been issued for goods, no seller's lien or right of stoppage in transitu shall defeat the rights of any purchaser for value in good faith to whom such receipt has been negotiated, whether such negotiation be prior or subsequent to the notification to the warehouseman who issued such receipt of the seller's claim to a lien or right of stoppage in transitu. Nor shall the warehouseman be obliged to deliver or justified in delivering the goods to an unpaid seller unless the receipt is first surrendered for cancellation.

punished for each offense by imprisonment not exceeding one year, or by a fine not exceeding two thousand pesos, or by both. Sec. 52. Issue of duplicate receipt not so marked. A warehouse, or any officer, agent, or servant of a warehouseman who issues or aids in issuing a duplicate or additional negotiable receipt for goods knowing that a former negotiable receipt for the same goods or any part of them is outstanding and uncanceled, without plainly placing upon the face thereof the word "duplicate" except in the case of a lost or destroyed receipt after proceedings are provided for in section fourteen, shall be guilty of a crime, and, upon conviction, shall be punished for each offense by imprisonment not exceeding five years, or by a fine not exceeding ten thousand pesos, or by both. Sec. 53. Issue for warehouseman's goods or receipts which do not state that fact. Where they are deposited with or held by a warehouseman goods of which he is owner, either solely or jointly or in common with others, such warehouseman, or any of his officers, agents, or servants who, knowing this ownership, issues or aids in issuing a negotiable receipt for such goods which does not state such ownership, shall be guilty of a crime, and, upon conviction, shall be punished for each offense by imprisonment not exceeding one year, or by a fine not exceeding two thousand pesos, or by both. Sec. 54. Delivery of goods without obtaining negotiable receipt. A warehouseman, or any officer, agent, or servant of a warehouseman, who delivers goods out of the possession of such warehouseman, knowing that a negotiable receipt the negotiation of which would transfer the right to the possession of such goods is outstanding and uncanceled, without obtaining the possession of such receipt at or before the time of such delivery, shall, except in the cases provided for in sections fourteen and thirty-six, be found guilty of a crime, and, upon conviction, shall be punished for each offense by imprisonment not exceeding one year, or by a fine not exceeding two thousand pesos, or by both. Sec. 55. Negotiation of receipt for mortgaged goods. Any person who deposits goods to which he has no title, or upon which there is a lien or mortgage, and who takes for such goods a negotiable receipt which he afterwards negotiates for value with intent to deceive and without disclosing his want of title or the existence of the lien or mortgage, shall be guilty of a crime, and, upon conviction, shall be punished for each offense

IV CRIMINAL OFFENSES Sec. 50. Issue of receipt for goods not received. A warehouseman, or an officer, agent, or servant of a warehouseman who issues or aids in issuing a receipt knowing that the goods for which such receipt is issued have not been actually received by such warehouseman, or are not under his actual control at the time of issuing such receipt, shall be guilty of a crime, and, upon conviction, shall be punished for each offense by imprisonment not exceeding five years, or by a fine not exceeding ten thousand pesos, or both. Sec. 51. Issue of receipt containing false statement. A warehouseman, or any officer, agent or servant of a warehouseman who fraudulently issues or aids in fraudulently issuing a receipt for goods knowing that it contains any false statement, shall be guilty of a crime, and upon conviction, shall be

GRACIE |

by imprisonment not exceeding one year, or by a fine not exceeding two thousand pesos, or by both.

"Value" is any consideration sufficient to support a simple contract. An antecedent or pre-existing obligation, whether for money or not, constitutes value where a receipt is taken either in satisfaction thereof or as security therefor. "Warehouseman" means a person lawfully engaged in the business of storing goods for profit. (b) A thing is done "in good faith" within the meaning of this Act when it is in fact done honestly, whether it be done negligently or not. Sec. 59. Application of Act. The provisions of this Act do not apply to receipts made and delivered prior to the taking effect hereof. Sec. 60. Repeals. All acts and laws and parts thereof inconsistent with this Act are hereby repealed. Sec. 61. Time when Act takes effect. This Act shall take effect ninety days after its publication in the Official Gazette of the Philippines shall have been completed. Enacted: February 5, 1912

V INTERPRETATION Sec. 56. Case not provided for in Act. Any case not provided for in this Act shall be governed by the provisions of existing legislation, or in default thereof, by the rule of the law merchant. Sec. 57. Name of Act. This Act may be cited as the Warehouse Receipts Act. Sec. 58. Definitions. (a) In this Act, unless the content or subject matter otherwise requires: "Action" includes counterclaim, set-off, and suits in equity as provided by law in these islands. "Delivery" means voluntary transfer of possession from one person to another. "Fungible goods" means goods of which any unit is, from its nature by mercantile custom, treated as the equivalent of any other unit. "Goods" means chattels or merchandise in storage or which has been or is about to be stored. "Holder" of a receipt means a person who has both actual possession of such receipt and a right of property therein. "Order" means an order by indorsement on the receipt. "Owner" does not include mortgagee. "Person" includes a corporation or partnership or two or more persons having a joint or common interest. To "purchase" includes to take as mortgagee or as pledgee. "Receipt" means a warehouse receipt.

GRACIE |

TRUST RECEIPTS LAW PD No. 115 PROVIDING FOR THE REGULATION OF TRUST RECEIPTS TRANSACTIONS January 29, 1973 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 Commanderin-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.

GRACIE |

Section 2. Declaration of Policy. It is hereby declared to be the policy of the state (a) to encourage and promote the use of trust receipts as an additional and convenient aid to commerce and trade; (b) to provide for the regulation of trust receipts transactions in order to assure the protection of the rights and enforcement of obligations of the parties involved therein; and (c) to declare the misuse and/or misappropriation of goods or proceeds realized from the sale of goods, documents or instruments released under trust receipts as a criminal offense punishable under Article Three hundred and fifteen of the Revised Penal Code. Section 3. Definition of terms. As used in this Decree, unless the context otherwise requires, the term (a) "Document" shall mean written or printed evidence of title to goods. (b) "Entrustee" shall refer to the person having or taking possession of goods, documents or instruments under a trust receipt transaction, and any successor in interest of such person for the purpose or purposes specified in the trust receipt agreement. (c) "Entruster" shall refer to the person holding title over the goods, documents, or instruments subject of a trust receipt transaction, and any successor in interest of such person. (d) "Goods" shall include chattels and personal property other than: money, things in action, or things so affixed to land as to become a part thereof. (e) "Instrument" means any negotiable instrument as defined in the Negotiable Instrument Law; any certificate of stock, or bond or debenture for the payment of money issued by a public or private corporation, or any 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

GRACIE |

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 nonsale 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

GRACIE |

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. Done in the City of Manila, this 29th day of January, in the year of Our Lord, nineteen hundred and seventy-three.

GRACIE |

ACT NO. 2031 February 03, 1911

THE NEGOTIABLE INSTRUMENTS LAW

I. FORM AND INTERPRETATION

Section 1. Form of negotiable instruments. - An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

GRACIE |

(b) A statement of the transaction which gives rise to the instrument. (d) Must be payable to order or to bearer; and But an order or promise to pay out of a particular fund is not unconditional.

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. Sec. 2. What constitutes certainty as to sum. - The sum payable is a sum certain within the meaning of this Act, although it is to be paid: (a) with interest; or

Sec. 4. Determinable future time; what constitutes. - An instrument is payable at a determinable future time, within the meaning of this Act, which is expressed to be payable: (a) At a fixed period after date or sight; or

(b) On or before a fixed or determinable future time specified therein; or (b) by stated installments; or (c) On or at a fixed period after the occurrence of a specified event which is certain to happen, though the time of happening be uncertain. (c) by stated installments, with a provision that, upon default in payment of any installment or of interest, the whole shall become due; or An instrument payable upon a contingency is not negotiable, and the happening of the event does not cure the defect.

(d) with exchange, whether at a fixed rate or at the current rate; or Sec. 5. Additional provisions not affecting negotiability. - An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable. But the negotiable character of an instrument otherwise negotiable is not affected by a provision which: (a) authorizes the sale of collateral securities in case the instrument be not paid at maturity; or

(e) with costs of collection or an attorney's fee, in case payment shall not be made at maturity. Sec. 3. When promise is unconditional. - An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with: (a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or

(b) authorizes a confession of judgment if the instrument be not paid at maturity; or

GRACIE |

(c) waives the benefit of any law intended for the advantage or protection of the obligor; or

But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of the consideration to be stated in the instrument.

Sec. 7. When payable on demand. - An instrument is payable on (d) gives the holder an election to require something to be done in lieu of payment of money. But nothing in this section shall validate any provision or stipulation otherwise illegal. demand: (a) When it is so expressed to be payable on demand, or at sight, or on presentation; or

Sec. 6. Omissions; seal; particular money. - The validity and negotiable character of an instrument are not affected by the fact that: (a) it is not dated; or

(b) In which no time for payment is expressed. Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so issuing, accepting, or indorsing it, payable on demand.

(b) does not specify the value given, or that any value had been given therefor; or

Sec. 8. When payable to order. - The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. It may be drawn payable to the order of: (a) A payee who is not maker, drawer, or drawee; or

(c) does not specify the place where it is drawn or the place where it is payable; or

(b) The drawer or maker; or (d) bears a seal; or

(c) The drawee; or (e) designates a particular kind of current money in which payment is to be made.

GRACIE |

(d) Two or more payees jointly; or

(e) When the only or last indorsement is an indorsement in blank. Sec. 10. Terms, when sufficient. - The instrument need not follow the language of this Act, but any terms are sufficient which clearly indicate an intention to conform to the requirements hereof.

(e) One or some of several payees; or

(f) The holder of an office for the time being. Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable certainty.

Sec. 11. Date, presumption as to. - Where the instrument or an acceptance or any indorsement thereon is dated, such date is deemed prima facie to be the true date of the making, drawing, acceptance, or indorsement, as the case may be.

Sec. 9. When payable to bearer. - The instrument is payable to bearer: (a) When it is expressed to be so payable; or

Sec. 12. Ante-dated and post-dated. - The instrument is not invalid for the reason only that it is ante-dated or post-dated, provided this is not done for an illegal or fraudulent purpose. The person to whom an instrument so dated is delivered acquires the title thereto as of the date of delivery.

(b) When it is payable to a person named therein or bearer; or

(c) When it is payable to the order of a fictitious or non-existing person, and such fact was known to the person making it so payable; or

Sec. 13. When date may be inserted. - Where an instrument expressed to be payable at a fixed period after date is issued undated, or where the acceptance of an instrument payable at a fixed period after sight is undated, any holder may insert therein the true date of issue or acceptance, and the instrument shall be payable accordingly. The insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in due course; but as to him, the date so inserted is to be regarded as the true date.

(d) When the name of the payee does not purport to be the name of any person; or

Sec. 14. Blanks; when may be filled. - Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. In order, however, that any such instrument when completed may be enforced against any

GRACIE |

person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time.

the sum payable; but if the words are ambiguous or uncertain, reference may be had to the figures to fix the amount;

(b) Where the instrument provides for the payment of interest, without specifying the date from which interest is to run, the interest runs from the date of the instrument, and if the instrument is undated, from the issue thereof;

Sec. 15. Incomplete instrument not delivered. - Where an incomplete instrument has not been delivered, it will not, if completed and negotiated without authority, be a valid contract in the hands of any holder, as against any person whose signature was placed thereon before delivery.

(c) Where the instrument is not dated, it will be considered to be dated as of the time it was issued;

Sec. 16. Delivery; when effectual; when presumed. - Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery may be shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the property in the instrument. But where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved.

(d) Where there is a conflict between the written and printed provisions of the instrument, the written provisions prevail;

(e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder may treat it as either at his election;

(f) Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign, he is to be deemed an indorser;

Sec. 17. Construction where instrument is ambiguous. - Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply: (a) Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two, the sum denoted by the words is

(g) Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon.

GRACIE |

Sec. 18. Liability of person signing in trade or assumed name. - No person is liable on the instrument whose signature does not appear thereon, except as herein otherwise expressly provided. But one who signs in a trade or assumed name will be liable to the same extent as if he had signed in his own name.

Sec. 23. Forged signature; effect of. - When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.

Sec. 19. Signature by agent; authority; how shown. - The signature of any party may be made by a duly authorized agent. No particular form of appointment is necessary for this purpose; and the authority of the agent may be established as in other cases of agency.

II. CONSIDERATION

Sec. 20. Liability of person signing as agent, and so forth. - Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability.

Sec. 24. Presumption of consideration. - Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value.

Sec. 25. Value, what constitutes. Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value; and is deemed such whether the instrument is payable on demand or at a future time.

Sec. 21. Signature by procuration; effect of. - A signature by "procuration" operates as notice that the agent has but a limited authority to sign, and the principal is bound only in case the agent in so signing acted within the actual limits of his authority.

Sec. 26. What constitutes holder for value. - Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who become such prior to that time. Sec. 27. When lien on instrument constitutes holder for value. Where the holder has a lien on the instrument arising either from contract or by implication of law, he is deemed a holder for value to the extent of his lien.

Sec. 22. Effect of indorsement by infant or corporation.- The indorsement or assignment of the instrument by a corporation or by an infant passes the property therein, notwithstanding that from want of capacity, the corporation or infant may incur no liability thereon.

GRACIE |

Sec. 28. Effect of want of consideration. - Absence or failure of consideration is a matter of defense as against any person not a holder in due course; and partial failure of consideration is a defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise.

Sec. 33. Kinds of indorsement. - An indorsement may be either special or in blank; and it may also be either restrictive or qualified or conditional.

Sec. 29. Liability of accommodation party. - An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party.

Sec. 34. Special indorsement; indorsement in blank. - A special indorsement specifies the person to whom, or to whose order, the instrument is to be payable, and the indorsement of such indorsee is necessary to the further negotiation of the instrument. An indorsement in blank specifies no indorsee, and an instrument so indorsed is payable to bearer, and may be negotiated by delivery.

III. NEGOTIATION

Sec. 35. Blank indorsement; how changed to special indorsement. - The holder may convert a blank indorsement into a special indorsement by writing over the signature of the indorser in blank any contract consistent with the character of the indorsement.

Sec. 30. What constitutes negotiation. - An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder and completed by delivery.

Sec. 36. When indorsement restrictive. - An indorsement is restrictive which either: (a) Prohibits the further negotiation of the instrument; or

Sec. 31. Indorsement; how made. - The indorsement must be written on the instrument itself or upon a paper attached thereto. The signature of the indorser, without additional words, is a sufficient indorsement.

(b) Constitutes the indorsee the agent of the indorser; or

Sec. 32. Indorsement must be of entire instrument. - The indorsement must be an indorsement of the entire instrument. An indorsement which purports to transfer to the indorsee a part only of the amount payable, or which purports to transfer the instrument to two or more indorsees severally, does not operate as a negotiation of the instrument. But where the instrument has been paid in part, it may be indorsed as to the residue.

(c) Vests the title in the indorsee in trust for or to the use of some other persons. But the mere absence of words implying power to negotiate does not make an indorsement restrictive.

GRACIE |

Sec. 37. Effect of restrictive indorsement; rights of indorsee. - A restrictive indorsement confers upon the indorsee the right: (a) to receive payment of the instrument;

Sec. 40. Indorsement of instrument payable to bearer. - Where an instrument, payable to bearer, is indorsed specially, it may nevertheless be further negotiated by delivery; but the person indorsing specially is liable as indorser to only such holders as make title through his indorsement.

(b) to bring any action thereon that the indorser could bring;

Sec. 41. Indorsement where payable to two or more persons. - Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse unless the one indorsing has authority to indorse for the others.

(c) to transfer his rights as such indorsee, where the form of the indorsement authorizes him to do so. But all subsequent indorsees acquire only the title of the first indorsee under the restrictive indorsement.

Sec. 42. Effect of instrument drawn or indorsed to a person as cashier. - Where an instrument is drawn or indorsed to a person as "cashier" or other fiscal officer of a bank or corporation, it is deemed prima facie to be payable to the bank or corporation of which he is such officer, and may be negotiated by either the indorsement of the bank or corporation or the indorsement of the officer.

Sec. 38. Qualified indorsement. - A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser's signature the words "without recourse" or any words of similar import. Such an indorsement does not impair the negotiable character of the instrument.

Sec. 43. Indorsement where name is misspelled, and so forth. - Where the name of a payee or indorsee is wrongly designated or misspelled, he may indorse the instrument as therein described adding, if he thinks fit, his proper signature.

Sec. 39. Conditional indorsement. - Where an indorsement is conditional, the party required to pay the instrument may disregard the condition and make payment to the indorsee or his transferee whether the condition has been fulfilled or not. But any person to whom an instrument so indorsed is negotiated will hold the same, or the proceeds thereof, subject to the rights of the person indorsing conditionally.

Sec. 44. Indorsement in representative capacity. - Where any person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability.

Sec. 45. Time of indorsement; presumption. - Except where an indorsement bears date after the maturity of the instrument, every negotiation is

GRACIE |

deemed prima facie to have been effected before the instrument was overdue. IV. RIGHTS OF THE HOLDER

Sec. 46. Place of indorsement; presumption. - Except where the contrary appears, every indorsement is presumed prima facie to have been made at the place where the instrument is dated.

Sec. 51. Right of holder to sue; payment. - The holder of a negotiable instrument may to sue thereon in his own name; and payment to him in due course discharges the instrument.

Sec. 47. Continuation of negotiable character. - An instrument negotiable in its origin continues to be negotiable until it has been restrictively indorsed or discharged by payment or otherwise.

Sec. 52. What constitutes a holder in due course. - A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face;

Sec. 48. Striking out indorsement. - The holder may at any time strike out any indorsement which is not necessary to his title. The indorser whose indorsement is struck out, and all indorsers subsequent to him, are thereby relieved from liability on the instrument.

(b) That he became the holder of it before it was overdue, and without notice that it has been previously dishonored, if such was the fact;

Sec. 49. Transfer without indorsement; effect of. - Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the transferee acquires in addition, the right to have the indorsement of the transferor. But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually made.

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. Sec. 53. When person not deemed holder in due course. - Where an instrument payable on demand is negotiated on an unreasonable length of time after its issue, the holder is not deemed a holder in due course.

Sec. 50. When prior party may negotiate instrument. - Where an instrument is negotiated back to a prior party, such party may, subject to the provisions of this Act, reissue and further negotiable the same. But he is not entitled to enforce payment thereof against any intervening party to whom he was personally liable.

Sec. 54. Notice before full amount is paid. - Where the transferee receives notice of any infirmity in the instrument or defect in the title of the person

GRACIE |

negotiating the same before he has paid the full amount agreed to be paid therefor, he will be deemed a holder in due course only to the extent of the amount therefore paid by him.

Sec. 55. When title defective. - The title of a person who negotiates an instrument is defective within the meaning of this Act when he obtained the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud.

Sec. 59. Who is deemed holder in due course. - Every holder is deemed prima facie to be a holder in due course; but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as holder in due course. But the last-mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title.

V. LIABILITIES OF PARTIES

Sec. 56. What constitutes notice of defect. - To constitutes notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith.

Sec. 60. Liability of maker. - The maker of a negotiable instrument, by making it, engages that he will pay it according to its tenor, and admits the existence of the payee and his then capacity to indorse.

Sec. 57. Rights of holder in due course. - A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon.

Sec. 61. Liability of drawer. - The drawer by drawing the instrument admits the existence of the payee and his then capacity to indorse; and engages that, on due presentment, the instrument will be accepted or paid, or both, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled to pay it. But the drawer may insert in the instrument an express stipulation negativing or limiting his own liability to the holder.

Sec. 58. When subject to original defense. - In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter.

Sec. 62. Liability of acceptor. - The acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his acceptance and admits: (a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument; and

GRACIE |

(b) The existence of the payee and his then capacity to indorse. Sec. 63. When a person deemed indorser. - A person placing his signature upon an instrument otherwise than as maker, drawer, or acceptor, is deemed to be indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity.

(c) That all prior parties had capacity to contract;

(d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee.

Sec. 64. Liability of irregular indorser. - Where a person, not otherwise a party to an instrument, places thereon his signature in blank before delivery, he is liable as indorser, in accordance with the following rules: (a) If the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent parties. The provisions of subdivision (c) of this section do not apply to a person negotiating public or corporation securities other than bills and notes.

(b) If the instrument is payable to the order of the maker or drawer, or is payable to bearer, he is liable to all parties subsequent to the maker or drawer.

Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification, warrants to all subsequent holders in due course: (a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and

(c) If he signs for the accommodation of the payee, he is liable to all parties subsequent to the payee. Sec. 65. Warranty where negotiation by delivery and so forth. Every person negotiating an instrument by delivery or by a qualified indorsement warrants: (a) That the instrument is genuine and in all respects what it purports to be;

(b) That the instrument is, at the time of his indorsement, valid and subsisting; And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it.

(b) That he has a good title to it; Sec. 67. Liability of indorser where paper negotiable by delivery. Where a person places his indorsement on an instrument negotiable by delivery, he incurs all the liability of an indorser.

GRACIE |

Sec. 72. What constitutes a sufficient presentment. - Presentment for payment, to be sufficient, must be made: Sec. 68. Order in which indorsers are liable. - As respect one another, indorsers are liable prima facie in the order in which they indorse; but evidence is admissible to show that, as between or among themselves, they have agreed otherwise. Joint payees or joint indorsees who indorse are deemed to indorse jointly and severally. (a) By the holder, or by some person authorized to receive payment on his behalf;

(b) At a reasonable hour on a business day; Sec. 69. Liability of an agent or broker. - Where a broker or other agent negotiates an instrument without indorsement, he incurs all the liabilities prescribed by Section Sixty-five of this Act, unless he discloses the name of his principal and the fact that he is acting only as agent.

(c) At a proper place as herein defined;

VI. PRESENTATION FOR PAYMENT

(d) To the person primarily liable on the instrument, or if he is absent or inaccessible, to any person found at the place where the presentment is made. Sec. 73. Place of presentment. - Presentment for payment is made at the proper place: (a) Where a place of payment is specified in the instrument and it is there presented;

Sec. 70. Effect of want of demand on principal debtor. - Presentment for payment is not necessary in order to charge the person primarily liable on the instrument; but if the instrument is, by its terms, payable at a special place, and he is able and willing to pay it there at maturity, such ability and willingness are equivalent to a tender of payment upon his part. But except as herein otherwise provided, presentment for payment is necessary in order to charge the drawer and indorsers.

(b) Where no place of payment is specified but the address of the person to make payment is given in the instrument and it is there presented; Sec. 71. Presentment where instrument is not payable on demand and where payable on demand. - Where the instrument is not payable on demand, presentment must be made on the day it falls due. Where it is payable on demand, presentment must be made within a reasonable time after its issue, except that in the case of a bill of exchange, presentment for payment will be sufficient if made within a reasonable time after the last negotiation thereof.

(c) Where no place of payment is specified and no address is given and the instrument is presented at the usual place of business or residence of the person to make payment;

GRACIE |

(d) In any other case if presented to the person to make payment wherever he can be found, or if presented at his last known place of business or residence. Sec. 74. Instrument must be exhibited. - The instrument must be exhibited to the person from whom payment is demanded, and when it is paid, must be delivered up to the party paying it.

Sec. 79. When presentment not required to charge the drawer. Presentment for payment is not required in order to charge the drawer where he has no right to expect or require that the drawee or acceptor will pay the instrument.

Sec. 75. Presentment where instrument payable at bank. - Where the instrument is payable at a bank, presentment for payment must be made during banking hours, unless the person to make payment has no funds there to meet it at any time during the day, in which case presentment at any hour before the bank is closed on that day is sufficient.

Sec. 80. When presentment not required to charge the indorser. Presentment is not required in order to charge an indorser where the instrument was made or accepted for his accommodation and he has no reason to expect that the instrument will be paid if presented.

Sec. 76. Presentment where principal debtor is dead. - Where the person primarily liable on the instrument is dead and no place of payment is specified, presentment for payment must be made to his personal representative, if such there be, and if, with the exercise of reasonable diligence, he can be found.

Sec. 81. When delay in making presentment is excused. - Delay in making presentment for payment is excused when the delay is caused by circumstances beyond the control of the holder and not imputable to his default, misconduct, or negligence. When the cause of delay ceases to operate, presentment must be made with reasonable diligence.

Sec. 82. When presentment for payment is excused. - Presentment for payment is excused: (a) Where, after the exercise of reasonable diligence, presentment, as required by this Act, cannot be made;

Sec. 77. Presentment to persons liable as partners. - Where the persons primarily liable on the instrument are liable as partners and no place of payment is specified, presentment for payment may be made to any one of them, even though there has been a dissolution of the firm.

(b) Where the drawee is a fictitious person;

Sec. 78. Presentment to joint debtors. - Where there are several persons, not partners, primarily liable on the instrument and no place of payment is specified, presentment must be made to them all.

(c) By waiver of presentment, express or implied. Sec. 83. When instrument dishonored by non-payment. - The instrument is dishonored by non-payment when:

GRACIE |

(a) It is duly presented for payment and payment is refused or cannot be obtained; or

Sec. 88. What constitutes payment in due course. - Payment is made in due course when it is made at or after the maturity of the payment to the holder thereof in good faith and without notice that his title is defective.

(b) Presentment is excused and the instrument is overdue and unpaid. VII. NOTICE OF DISHONOR Sec. 84. Liability of person secondarily liable, when instrument dishonored. - Subject to the provisions of this Act, when the instrument is dishonored by non-payment, an immediate right of recourse to all parties secondarily liable thereon accrues to the holder.

Sec. 85. Time of maturity. - Every negotiable instrument is payable at the time fixed therein without grace. When the day of maturity falls upon Sunday or a holiday, the instruments falling due or becoming payable on Saturday are to be presented for payment on the next succeeding business day except that instruments payable on demand may, at the option of the holder, be presented for payment before twelve o'clock noon on Saturday when that entire day is not a holiday.

Sec. 89. To whom notice of dishonor must be given. - Except as herein otherwise provided, when a negotiable instrument has been dishonored by non-acceptance or non-payment, notice of dishonor must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice is not given is discharged.

Sec. 90. By whom given. - The notice may be given by or on behalf of the holder, or by or on behalf of any party to the instrument who might be compelled to pay it to the holder, and who, upon taking it up, would have a right to reimbursement from the party to whom the notice is given.

Sec. 86. Time; how computed. - When the instrument is payable at a fixed period after date, after sight, or after that happening of a specified event, the time of payment is determined by excluding the day from which the time is to begin to run, and by including the date of payment.

Sec. 91. Notice given by agent. - Notice of dishonor may be given by any agent either in his own name or in the name of any party entitled to given notice, whether that party be his principal or not.

Sec. 87. Rule where instrument payable at bank. - Where the instrument is made payable at a bank, it is equivalent to an order to the bank to pay the same for the account of the principal debtor thereon.

Sec. 92. Effect of notice on behalf of holder. - Where notice is given by or on behalf of the holder, it inures to the benefit of all subsequent holders and all prior parties who have a right of recourse against the party to whom it is given.

GRACIE |

Sec. 93. Effect where notice is given by party entitled thereto. - Where notice is given by or on behalf of a party entitled to give notice, it inures to the benefit of the holder and all parties subsequent to the party to whom notice is given.

found. If there be no personal representative, notice may be sent to the last residence or last place of business of the deceased.

Sec. 94. When agent may give notice. - Where the instrument has been dishonored in the hands of an agent, he may either himself give notice to the parties liable thereon, or he may give notice to his principal. If he gives notice to his principal, he must do so within the same time as if he were the holder, and the principal, upon the receipt of such notice, has himself the same time for giving notice as if the agent had been an independent holder.

Sec. 99. Notice to partners. - Where the parties to be notified are partners, notice to any one partner is notice to the firm, even though there has been a dissolution.

Sec. 100. Notice to persons jointly liable. - Notice to joint persons who are not partners must be given to each of them unless one of them has authority to receive such notice for the others.

Sec. 95. When notice sufficient. - A written notice need not be signed and an insufficient written notice may be supplemented and validated by verbal communication. A misdescription of the instrument does not vitiate the notice unless the party to whom the notice is given is in fact misled thereby.

Sec. 101. Notice to bankrupt. - Where a party has been adjudged a bankrupt or an insolvent, or has made an assignment for the benefit of creditors, notice may be given either to the party himself or to his trustee or assignee.

Sec. 96. Form of notice. - The notice may be in writing or merely oral and may be given in any terms which sufficiently identify the instrument, and indicate that it has been dishonored by non-acceptance or non-payment. It may in all cases be given by delivering it personally or through the mails.

Sec. 102. Time within which notice must be given. - Notice may be given as soon as the instrument is dishonored and, unless delay is excused as hereinafter provided, must be given within the time fixed by this Act.

Sec. 97. To whom notice may be given. - Notice of dishonor may be given either to the party himself or to his agent in that behalf.

Sec. 103. Where parties reside in same place. - Where the person giving and the person to receive notice reside in the same place, notice must be given within the following times: (a) If given at the place of business of the person to receive notice, it must be given before the close of business hours on the day following.

Sec. 98. Notice where party is dead. - When any party is dead and his death is known to the party giving notice, the notice must be given to a personal representative, if there be one, and if with reasonable diligence, he can be

GRACIE |

(b) If given at his residence, it must be given before the usual hours of rest on the day following. Sec. 108. Where notice must be sent. - Where a party has added an address to his signature, notice of dishonor must be sent to that address; but if he has not given such address, then the notice must be sent as follows: (c) If sent by mail, it must be deposited in the post office in time to reach him in usual course on the day following. Sec. 104. Where parties reside in different places. - Where the person giving and the person to receive notice reside in different places, the notice must be given within the following times: (a) If sent by mail, it must be deposited in the post office in time to go by mail the day following the day of dishonor, or if there be no mail at a convenient hour on last day, by the next mail thereafter. (b) If he lives in one place and has his place of business in another, notice may be sent to either place; or (a) Either to the post-office nearest to his place of residence or to the postoffice where he is accustomed to receive his letters; or

(c) If he is sojourning in another place, notice may be sent to the place where he is so sojourning. (b) If given otherwise than through the post office, then within the time that notice would have been received in due course of mail, if it had been deposited in the post office within the time specified in the last subdivision. Sec. 105. When sender deemed to have given due notice. - Where notice of dishonor is duly addressed and deposited in the post office, the sender is deemed to have given due notice, notwithstanding any miscarriage in the mails. But where the notice is actually received by the party within the time specified in this Act, it will be sufficient, though not sent in accordance with the requirement of this section.

Sec. 109. Waiver of notice. - Notice of dishonor may be waived either before the time of giving notice has arrived or after the omission to give due notice, and the waiver may be expressed or implied.

Sec. 106. Deposit in post office; what constitutes. - Notice is deemed to have been deposited in the post-office when deposited in any branch post office or in any letter box under the control of the post-office department.

Sec. 110. Whom affected by waiver. - Where the waiver is embodied in the instrument itself, it is binding upon all parties; but, where it is written above the signature of an indorser, it binds him only.

Sec. 107. Notice to subsequent party; time of. - Where a party receives notice of dishonor, he has, after the receipt of such notice, the same time for giving notice to antecedent parties that the holder has after the dishonor.

Sec. 111. Waiver of protest. - A waiver of protest, whether in the case of a foreign bill of exchange or other negotiable instrument, is deemed to be a

GRACIE |

waiver not only of a formal protest but also of presentment and notice of dishonor. (e) Where the drawer has countermanded payment. Sec. 115. When notice need not be given to indorser. Notice of dishonor is not required to be given to an indorser in either of the following cases: (a) When the drawee is a fictitious person or person not having capacity to contract, and the indorser was aware of that fact at the time he indorsed the instrument;

Sec. 112. When notice is dispensed with. - Notice of dishonor is dispensed with when, after the exercise of reasonable diligence, it cannot be given to or does not reach the parties sought to be charged.

Sec. 113. Delay in giving notice; how excused. - Delay in giving notice of dishonor is excused when the delay is caused by circumstances beyond the control of the holder and not imputable to his default, misconduct, or negligence. When the cause of delay ceases to operate, notice must be given with reasonable diligence.

(b) Where the indorser is the person to whom the instrument is presented for payment;

(c) Where the instrument was made or accepted for his accommodation. Sec. 114. When notice need not be given to drawer. - Notice of dishonor is not required to be given to the drawer in either of the following cases: (a) Where the drawer and drawee are the same person; Sec. 116. Notice of non-payment where acceptance refused. - Where due notice of dishonor by non-acceptance has been given, notice of a subsequent dishonor by non-payment is not necessary unless in the meantime the instrument has been accepted.

(b) When the drawee is fictitious person or a person not having capacity to contract;

Sec. 117. Effect of omission to give notice of non-acceptance. - An omission to give notice of dishonor by non-acceptance does not prejudice the rights of a holder in due course subsequent to the omission.

(c) When the drawer is the person to whom the instrument is presented for payment; Sec. 118. When protest need not be made; when must be made. - Where any negotiable instrument has been dishonored, it may be protested for non-acceptance or non-payment, as the case may be; but protest is not required except in the case of foreign bills of exchange.

(d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument;

GRACIE |

VIII. DISCHARGE OF NEGOTIABLE INSTRUMENTS

(c) By the discharge of a prior party;

Sec. 119. Instrument; how discharged. - A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the principal debtor;

(d) By a valid tender or payment made by a prior party;

(e) By a release of the principal debtor unless the holder's right of recourse against the party secondarily liable is expressly reserved; (b) By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation; (f) By any agreement binding upon the holder to extend the time of payment or to postpone the holder's right to enforce the instrument unless made with the assent of the party secondarily liable or unless the right of recourse against such party is expressly reserved. Sec. 121. Right of party who discharges instrument. - Where the instrument is paid by a party secondarily liable thereon, it is not discharged; but the party so paying it is remitted to his former rights as regard all prior parties, and he may strike out his own and all subsequent indorsements and against negotiate the instrument, except: (a) Where it is payable to the order of a third person and has been paid by the drawer; and

(c) By the intentional cancellation thereof by the holder;

(d) By any other act which will discharge a simple contract for the payment of money;

(e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right. Sec. 120. When persons secondarily liable on the instrument are discharged. - A person secondarily liable on the instrument is discharged: (a) By any act which discharges the instrument;

(b) Where it was made or accepted for accommodation and has been paid by the party accommodated. Sec. 122. Renunciation by holder. - The holder may expressly renounce his rights against any party to the instrument before, at, or after its maturity. An absolute and unconditional renunciation of his rights against the principal debtor made at or after the maturity of the instrument discharges the instrument. But a renunciation does not affect the rights of a holder in due course without notice. A renunciation must be in writing unless the instrument is delivered up to the person primarily liable thereon.

(b) By the intentional cancellation of his signature by the holder;

GRACIE |

Sec. 123. Cancellation; unintentional; burden of proof. - A cancellation made unintentionally or under a mistake or without the authority of the holder, is inoperative but where an instrument or any signature thereon appears to have been cancelled, the burden of proof lies on the party who alleges that the cancellation was made unintentionally or under a mistake or without authority.

(e) The medium or currency in which payment is to be made;

(f) Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect, is a material alteration. BILLS OF EXCHANGE

Sec. 124. Alteration of instrument; effect of. - Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration and subsequent indorsers. But when an instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration, he may enforce payment thereof according to its original tenor.

IX. FORM AND INTERPRETATION

Sec. 125. What constitutes a material alteration. - Any alteration which changes: (a) The date;

Sec. 126. Bill of exchange, defined. - A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer.

(b) The sum payable, either for principal or interest;

Sec. 127. Bill not an assignment of funds in hands of drawee. - A bill of itself does not operate as an assignment of the funds in the hands of the drawee available for the payment thereof, and the drawee is not liable on the bill unless and until he accepts the same.

(c) The time or place of payment:

Sec. 128. Bill addressed to more than one drawee. - A bill may be addressed to two or more drawees jointly, whether they are partners or not; but not to two or more drawees in the alternative or in succession.

(d) The number or the relations of the parties;

GRACIE |

Sec. 129. Inland and foreign bills of exchange. - An inland bill of exchange is a bill which is, or on its face purports to be, both drawn and payable within the Philippines. Any other bill is a foreign bill. Unless the contrary appears on the face of the bill, the holder may treat it as an inland bill.

Sec. 134. Acceptance by separate instrument. - Where an acceptance is written on a paper other than the bill itself, it does not bind the acceptor except in favor of a person to whom it is shown and who, on the faith thereof, receives the bill for value.

Sec. 130. When bill may be treated as promissory note. - Where in a bill the drawer and drawee are the same person or where the drawee is a fictitious person or a person not having capacity to contract, the holder may treat the instrument at his option either as a bill of exchange or as a promissory note.

Sec. 135. Promise to accept; when equivalent to acceptance. - An unconditional promise in writing to accept a bill before it is drawn is deemed an actual acceptance in favor of every person who, upon the faith thereof, receives the bill for value.

Sec. 131. Referee in case of need. - The drawer of a bill and any indorser may insert thereon the name of a person to whom the holder may resort in case of need; that is to say, in case the bill is dishonored by non-acceptance or non-payment. Such person is called a referee in case of need. It is in the option of the holder to resort to the referee in case of need or not as he may see fit.

Sec. 136. Time allowed drawee to accept. - The drawee is allowed twentyfour hours after presentment in which to decide whether or not he will accept the bill; the acceptance, if given, dates as of the day of presentation.

X. ACCEPTANCE

Sec. 137. Liability of drawee returning or destroying bill. - Where a drawee to whom a bill is delivered for acceptance destroys the same, or refuses within twenty-four hours after such delivery or within such other period as the holder may allow, to return the bill accepted or non-accepted to the holder, he will be deemed to have accepted the same.

Sec. 132. Acceptance; how made, by and so forth. - The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer. The acceptance must be in writing and signed by the drawee. It must not express that the drawee will perform his promise by any other means than the payment of money.

Sec. 133. Holder entitled to acceptance on face of bill. - The holder of a bill presenting the same for acceptance may require that the acceptance be written on the bill, and, if such request is refused, may treat the bill as dishonored.

Sec. 138. Acceptance of incomplete bill. - A bill may be accepted before it has been signed by the drawer, or while otherwise incomplete, or when it is overdue, or after it has been dishonored by a previous refusal to accept, or by non payment. But when a bill payable after sight is dishonored by non-acceptance and the drawee subsequently accepts it, the holder, in the absence of any different agreement, is entitled to have the bill accepted as of the date of the first presentment.

GRACIE |

Sec. 139. Kinds of acceptance. - An acceptance is either general or qualified. A general acceptance assents without qualification to the order of the drawer. A qualified acceptance in express terms varies the effect of the bill as drawn.

indorsers are discharged from liability on the bill unless they have expressly or impliedly authorized the holder to take a qualified acceptance, or subsequently assent thereto. When the drawer or an indorser receives notice of a qualified acceptance, he must, within a reasonable time, express his dissent to the holder or he will be deemed to have assented thereto.

Sec. 140. What constitutes a general acceptance. - An acceptance to pay at a particular place is a general acceptance unless it expressly states that the bill is to be paid there only and not elsewhere.

XI. PRESENTMENT FOR ACCEPTANCE

Sec. 141. Qualified acceptance. - An acceptance is qualified which is: (a) Conditional; that is to say, which makes payment by the acceptor dependent on the fulfillment of a condition therein stated;

Sec. 143. When presentment for acceptance must be made. - Presentment for acceptance must be made: (a) Where the bill is payable after sight, or in any other case, where presentment for acceptance is necessary in order to fix the maturity of the instrument; or

(b) Partial; that is to say, an acceptance to pay part only of the amount for which the bill is drawn; (b) Where the bill expressly stipulates that it shall be presented for acceptance; or (c) Local; that is to say, an acceptance to pay only at a particular place; (c) Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. (d) Qualified as to time; In no other case is presentment for acceptance necessary in order to render any party to the bill liable. (e) The acceptance of some, one or more of the drawees but not of all. Sec. 142. Rights of parties as to qualified acceptance. - The holder may refuse to take a qualified acceptance and if he does not obtain an unqualified acceptance, he may treat the bill as dishonored by nonacceptance. Where a qualified acceptance is taken, the drawer and Sec. 144. When failure to present releases drawer and indorser. - Except as herein otherwise provided, the holder of a bill which is required by the next preceding section to be presented for acceptance must either present it for

GRACIE |

acceptance or negotiate it within a reasonable time. If he fails to do so, the drawer and all indorsers are discharged.

before presenting it for payment is excused and does not discharge the drawers and indorsers.

Sec. 145. Presentment; how made. - Presentment for acceptance must be made by or on behalf of the holder at a reasonable hour, on a business day and before the bill is overdue, to the drawee or some person authorized to accept or refuse acceptance on his behalf; and (a) Where a bill is addressed to two or more drawees who are not partners, presentment must be made to them all unless one has authority to accept or refuse acceptance for all, in which case presentment may be made to him only;

Sec. 148. Where presentment is excused. - Presentment for acceptance is excused and a bill may be treated as dishonored by non-acceptance in either of the following cases: (a) Where the drawee is dead, or has absconded, or is a fictitious person or a person not having capacity to contract by bill.

(b) Where, after the exercise of reasonable diligence, presentment can not be made. (b) Where the drawee is dead, presentment may be made to his personal representative; (c) Where, although presentment has been irregular, acceptance has been refused on some other ground. (c) Where the drawee has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors, presentment may be made to him or to his trustee or assignee. Sec. 146. On what days presentment may be made. - A bill may be presented for acceptance on any day on which negotiable instruments may be presented for payment under the provisions of Sections seventy-two and eighty-five of this Act. When Saturday is not otherwise a holiday, presentment for acceptance may be made before twelve o'clock noon on that day. Sec. 149. When dishonored by nonacceptance. - A bill is dishonored by non-acceptance: (a) When it is duly presented for acceptance and such an acceptance as is prescribed by this Act is refused or can not be obtained; or

(b) When presentment for acceptance is excused and the bill is not accepted. Sec. 150. Duty of holder where bill not accepted. - Where a bill is duly presented for acceptance and is not accepted within the prescribed time, the person presenting it must treat the bill as dishonored by nonacceptance or he loses the right of recourse against the drawer and indorsers.

Sec. 147. Presentment where time is insufficient. - Where the holder of a bill drawn payable elsewhere than at the place of business or the residence of the drawee has no time, with the exercise of reasonable diligence, to present the bill for acceptance before presenting it for payment on the day that it falls due, the delay caused by presenting the bill for acceptance

GRACIE |

(d) The demand made and the answer given, if any, or the fact that the drawee or acceptor could not be found. Sec. 151. Rights of holder where bill not accepted. - When a bill is dishonored by nonacceptance, an immediate right of recourse against the drawer and indorsers accrues to the holder and no presentment for payment is necessary. Sec. 154. Protest, by whom made. - Protest may be made by: (a) A notary public; or

XII. PROTEST

(b) By any respectable resident of the place where the bill is dishonored, in the presence of two or more credible witnesses. Sec. 155. Protest; when to be made. - When a bill is protested, such protest must be made on the day of its dishonor unless delay is excused as herein provided. When a bill has been duly noted, the protest may be subsequently extended as of the date of the noting.

Sec. 152. In what cases protest necessary. - Where a foreign bill appearing on its face to be such is dishonored by nonacceptance, it must be duly protested for nonacceptance, by nonacceptance is dishonored and where such a bill which has not previously been dishonored by nonpayment, it must be duly protested for nonpayment. If it is not so protested, the drawer and indorsers are discharged. Where a bill does not appear on its face to be a foreign bill, protest thereof in case of dishonor is unnecessary.

Sec. 153. Protest; how made. - The protest must be annexed to the bill or must contain a copy thereof, and must be under the hand and seal of the notary making it and must specify: (a) The time and place of presentment;

Sec. 156. Protest; where made. - A bill must be protested at the place where it is dishonored, except that when a bill drawn payable at the place of business or residence of some person other than the drawee has been dishonored by nonacceptance, it must be protested for non-payment at the place where it is expressed to be payable, and no further presentment for payment to, or demand on, the drawee is necessary.

Sec. 157. Protest both for non-acceptance and non-payment. - A bill which has been protested for non-acceptance may be subsequently protested for non-payment. (b) The fact that presentment was made and the manner thereof;

(c) The cause or reason for protesting the bill;

Sec. 158. Protest before maturity where acceptor insolvent. - Where the acceptor has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors before the bill matures, the holder may cause the bill to be protested for better security against the drawer and indorsers.

GRACIE |

Sec. 159. When protest dispensed with. - Protest is dispensed with by any circumstances which would dispense with notice of dishonor. Delay in noting or protesting is excused when delay is caused by circumstances beyond the control of the holder and not imputable to his default, misconduct, or negligence. When the cause of delay ceases to operate, the bill must be noted or protested with reasonable diligence.

Sec. 163. When deemed to be an acceptance for honor of the drawer. Where an acceptance for honor does not expressly state for whose honor it is made, it is deemed to be an acceptance for the honor of the drawer.

Sec. 164. Liability of the acceptor for honor. - The acceptor for honor is liable to the holder and to all parties to the bill subsequent to the party for whose honor he has accepted.

Sec. 160. Protest where bill is lost and so forth. - When a bill is lost or destroyed or is wrongly detained from the person entitled to hold it, protest may be made on a copy or written particulars thereof.

XIII. ACCEPTANCE FOR HONOR

Sec. 165. Agreement of acceptor for honor. - The acceptor for honor, by such acceptance, engages that he will, on due presentment, pay the bill according to the terms of his acceptance provided it shall not have been paid by the drawee and provided also that is shall have been duly presented for payment and protested for non-payment and notice of dishonor given to him.

Sec. 161. When bill may be accepted for honor. - When a bill of exchange has been protested for dishonor by non-acceptance or protested for better security and is not overdue, any person not being a party already liable thereon may, with the consent of the holder, intervene and accept the bill supra protest for the honor of any party liable thereon or for the honor of the person for whose account the bill is drawn. The acceptance for honor may be for part only of the sum for which the bill is drawn; and where there has been an acceptance for honor for one party, there may be a further acceptance by a different person for the honor of another party.

Sec. 166. Maturity of bill payable after sight; accepted for honor. - Where a bill payable after sight is accepted for honor, its maturity is calculated from the date of the noting for non-acceptance and not from the date of the acceptance for honor.

Sec. 167. Protest of bill accepted for honor, and so forth. - Where a dishonored bill has been accepted for honor supra protest or contains a referee in case of need, it must be protested for non-payment before it is presented for payment to the acceptor for honor or referee in case of need.

Sec. 162. Acceptance for honor; how made. - An acceptance for honor supra protest must be in writing and indicate that it is an acceptance for honor and must be signed by the acceptor for honor. Sec. 168. Presentment for payment to acceptor for honor, how made. Presentment for payment to the acceptor for honor must be made as follows:

GRACIE |

(a) If it is to be presented in the place where the protest for non-payment was made, it must be presented not later than the day following its maturity.

Sec. 173. Declaration before payment for honor. - The notarial act of honor must be founded on a declaration made by the payer for honor or by his agent in that behalf declaring his intention to pay the bill for honor and for whose honor he pays.

(b) If it is to be presented in some other place than the place where it was protested, then it must be forwarded within the time specified in Section one hundred and four. Sec. 169. When delay in making presentment is excused. - The provisions of Section eighty-one apply where there is delay in making presentment to the acceptor for honor or referee in case of need.

Sec. 174. Preference of parties offering to pay for honor. - Where two or more persons offer to pay a bill for the honor of different parties, the person whose payment will discharge most parties to the bill is to be given the preference.

Sec. 170. Dishonor of bill by acceptor for honor. - When the bill is dishonored by the acceptor for honor, it must be protested for nonpayment by him.

Sec. 175. Effect on subsequent parties where bill is paid for honor. - Where a bill has been paid for honor, all parties subsequent to the party for whose honor it is paid are discharged but the payer for honor is subrogated for, and succeeds to, both the rights and duties of the holder as regards the party for whose honor he pays and all parties liable to the latter.

XIV. PAYMENT FOR HONOR

Sec. 176. Where holder refuses to receive payment supra protest. - Where the holder of a bill refuses to receive payment supra protest, he loses his right of recourse against any party who would have been discharged by such payment.

Sec. 171. Who may make payment for honor. - Where a bill has been protested for non-payment, any person may intervene and pay it supra protest for the honor of any person liable thereon or for the honor of the person for whose account it was drawn.

Sec. 177. Rights of payer for honor. - The payer for honor, on paying to the holder the amount of the bill and the notarial expenses incidental to its dishonor, is entitled to receive both the bill itself and the protest.

Sec. 172. Payment for honor; how made. - The payment for honor supra protest, in order to operate as such and not as a mere voluntary payment, must be attested by a notarial act of honor which may be appended to the protest or form an extension to it.

XV. BILLS IN SET

GRACIE |

Sec. 178. Bills in set constitute one bill. - Where a bill is drawn in a set, each part of the set being numbered and containing a reference to the other parts, the whole of the parts constitutes one bill.

Sec. 183. Effect of discharging one of a set. - Except as herein otherwise provided, where any one part of a bill drawn in a set is discharged by payment or otherwise, the whole bill is discharged.

Sec. 179. Right of holders where different parts are negotiated. - Where two or more parts of a set are negotiated to different holders in due course, the holder whose title first accrues is, as between such holders, the true owner of the bill. But nothing in this section affects the right of a person who, in due course, accepts or pays the parts first presented to him.

XVI. PROMISSORY NOTES AND CHECKS

Sec. 180. Liability of holder who indorses two or more parts of a set to different persons. - Where the holder of a set indorses two or more parts to different persons he is liable on every such part, and every indorser subsequent to him is liable on the part he has himself indorsed, as if such parts were separate bills.

Sec. 184. Promissory note, defined. - A negotiable promissory note within the meaning of this Act is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer. Where a note is drawn to the maker's own order, it is not complete until indorsed by him.

Sec. 181. Acceptance of bill drawn in sets. - The acceptance may be written on any part and it must be written on one part only. If the drawee accepts more than one part and such accepted parts negotiated to different holders in due course, he is liable on every such part as if it were a separate bill.

Sec. 185. Check, defined. - A check is a bill of exchange drawn on a bank payable on demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to a check.

Sec. 186. Within what time a check must be presented. - A check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay.

Sec. 182. Payment by acceptor of bills drawn in sets. - When the acceptor of a bill drawn in a set pays it without requiring the part bearing his acceptance to be delivered up to him, and the part at maturity is outstanding in the hands of a holder in due course, he is liable to the holder thereon.

Sec. 187. Certification of check; effect of. - Where a check is certified by the bank on which it is drawn, the certification is equivalent to an acceptance.

GRACIE |

Sec. 188. Effect where the holder of check procures it to be certified. Where the holder of a check procures it to be accepted or certified, the drawer and all indorsers are discharged from liability thereon.

"Bearer" means the person in possession of a bill or note which is payable to bearer;

Sec. 189. When check operates as an assignment. - A check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts or certifies the check.

"Bill" means bill of exchange, and "note" means negotiable promissory note;

"Delivery" means transfer of possession, actual or constructive, from one person to another; XVII. GENERAL PROVISIONS "Holder" means the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof; Sec. 190. Short title. - This Act shall be known as the Negotiable Instruments Law. "Indorsement" means an indorsement completed by delivery; Sec. 191. Definition and meaning of terms. - In this Act, unless the contract otherwise requires: "Instrument" means negotiable instrument; "Acceptance" means an acceptance completed by delivery or notification;

"Action" includes counterclaim and set-off;

"Issue" means the first delivery of the instrument, complete in form, to a person who takes it as a holder;

"Bank" includes any person or association of persons carrying on the business of banking, whether incorporated or not;

"Person" includes a body of persons, whether incorporated or not;

"Value" means valuable consideration;

GRACIE |

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

Sec. 198. Time when Act takes effect. - This Act shall take effect ninety days after its publication in the Official Gazette of the Philippine Islands shall have been completed.

Enacted: February 3, 1911

Sec. 193. Reasonable time, what constitutes. - In determining what is a "reasonable time" regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments, and the facts of the particular case.

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

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

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

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

GRACIE |